Adcock Ingram Integrated Report 2018

119 ADCOCK INGRAM  Integrated Report 2018 FAIR VALUE HIERARCHY The Group classifies all financial instruments and its fair value hierarchy as follows: Financial instruments Classification per IAS 39 Statement of financial position line item 2018 R’000 2017 R’000 Investment (1) Available for sale Other financial assets 1 937 1 906 Black Managers Share Trust (3) Loans and receivables Other financial assets 32 073 39 840 Trade and sundry receivables (3) Loans and receivables Trade and other receivables 1 535 369 1 485 705 Foreign exchange contracts – derivative asset (2) Cash flow hedge Trade and other receivables 21 838 8 957 Cash and cash equivalents (3) Loans and receivables Cash and cash equivalents 404 629 592 070 Long-term borrowings (3) Loans and borrowings Long-term borrowings – 251 492 Trade and other payables (3) Loans and borrowings Trade and other payables 1 830 652 1 622 899 Foreign exchange contracts – derivative liability (2) Cash flow hedge Trade and other payables – 752 Short-term borrowings (3) Loans and borrowings Short-term borrowings – 416 Bank overdraft (3) Loans and borrowings Bank overdraft 248 877 5 619 (1) Level 3. The value of the investment in Group Risk Holdings Proprietary Limited is based on Adcock Ingram’s proportionate share of the net asset value of the Company. (2) Level 2. Fair value based on the ruling market rate at year-end. The fair value of the forward exchange contract is calculated as the difference in the forward exchange rate as per the contract and the forward exchange rate of a similar contract with similar terms andmaturities concluded as at the valuation date multiplied by the foreign currency monetary units as per the FEC contract. (3) The carrying value approximates fair value. The Group’s principal financial liabilities comprise borrowings and trade payables. The main purpose of these financial liabilities is to raise finance for the Group’s operations. The Group has various financial assets such as trade and other receivables, loans receivable and cash which arise directly from its operations. The Group also enters into derivative transactions via forward currency contracts. The purpose is to manage the currency risks arising from the Group’s operations. It is, and has been throughout 2018, the Group’s policy that no trading in derivatives shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate, credit, liquidity and foreign currency. The Board of directors reviews and agrees policies for managing each of these risks which are summarised below: INTEREST RATE RISK The Group is exposed to interest rate risk as the following assets and liabilities carry interest at rates that vary in response to the lending rates in the operations in the specific country. * Cash balances which are subject to movements in the bank deposit rates. * Short-term debt obligations with floating interest rates linked to the Johannesburg Interbank Agreed Rate and the South African prime rate. The Group’s policy is to manage its interest rate risk through both fixed and variable, long-term and short-term instruments at various approved financial institutions. No financial instruments are entered into to mitigate the risk of interest rates. Annexure E – Financial instruments