Integrated Reports Senwesbel Consolidated Financial Statements 2018 - Page 47

Sensitivity of interest rates The potential impact of interest rate changes on finance costs is illustrated below: GROUP 2018 INCREASE/ (DECREASE) % Commodity finance Short­-term rate Long-­term rate 2017 (INCREASE)/ DECREASE IN INTEREST EXPENSES BEFORE TAX R’m 2% (3,0) 1% (1%) INCREASE/ (DECREASE) % (INCREASE)/ DECREASE IN INTEREST EXPENSES BEFORE TAX R’m 2% - (1,5) 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. GROUP 2018 R’m 2017 R’m Gross exposure 1 028 938 Concentration decreased due to better credit spread and distribution (306) (258) 722 680 Value at risk of producer debtors (VaR) The value at risk of R722 million (2017: R680 million), with a maximum exposure of R1 028 million, was calculated before taking into account the statement of financial position of clients. The book increased by R214 million and the VaR increased by R42 million from 2017 and can be attributed to more first grade securities (covering bonds) vested. All credit was ap- proved according to the credit policy. This is an indication that the profiles of clients are better secured than in previous years. The provision was lowered by R5,4 million compared to R6,3 million in 2017. The above values at risk are measured in respect of concentration in the different areas, namely arrears, categorisation, stratification (individual extent of the balance of the debtor account) and geography and are discussed in detail below: Geography Low concentration risk is applicable due to an extensively spread geographic area, mainly the Free State, Northwest and Northern Cape. Senwesbel Limited Reg no: 1996/017629/06 SENWESBEL ANNUAL FINANCIAL STATEMENTS 2018 46