for the six months ended 30 September 2015
Financial Risk Management
Exposure to continuously changing market conditions has made management of financial risk critical for the Group. Treasury policies, risk limits and control procedures are continuously monitored by the Board of Directors through its Audit Committee and its Risk Committee.
17.1 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is exposed to liquidity risk as a result of uncertain cash flows as well as capital commitments of the Group.
Liquidity risk is managed by the Group's Treasury team in accordance with policies and guidelines formulated by the Group's executive committee. In terms of its borrowing requirements the Group ensures that sufficient facilities exist to meet its immediate obligations.
Compared to the 2015 financial year end, there was no material change in the contractual undiscounted cash out flows for financial liabilities.
17.2 Fair Value of financial instruments The carrying amount of financial instruments approximate fair value, with the exception of interest-bearing debt (at amortised cost) which has a fair value of R4 952 million (30 September 2014: R5 476 million, 31 March 2015: R5 312 million) and a carrying amount of R4 634 million (30 September 2014: R5 010 million, 31 March 2015: R4,856 million) (refer to note 20).
Valuation techniques and assumptions applied for the purposes of measuring fair value
| Type of financial instrument | Fair value at 30 Septermber 2015 |
Valuation technique | Significant inputs |
| Receivables, bank balances, repurchase agreements, and other liquid funds, payables and accruals, credit facilities utilised and shareholders for dividends |
R3 704 million | Undiscounted future estimated cash flows due to short-term maturities of these instruments |
Probability of default |
| Derivatives | R(76) million | Discounted cash flows | Yield curves, market interest rate and market foreign currency rate |
| Borrowings | R4 952 million | Discounted cash flows | Market interest rate and market foreign currency rate |
The estimated net fair values as at the reporting date, have been determined using available market information and appropriate valuation methodologies as outlined below. This value is not necessarily indicative of the amounts that the Group could realise in the normal course of business.
Derivatives are recognised at fair value. The fair values of derivatives are determined using quoted prices or, where such prices are not available, a discounted cash flow analysis is used. These amounts reflect the approximate values of the net derivative position at the reporting date. The fair values of listed investments are based on quoted market prices.
The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future payments discounted at market interest rates. As a result they differ from carrying values.
The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their carrying amount due to the short-term maturities of these instruments.
17.3 Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method.
The different levels have been defined as follows:
Quoted prices in active markets for identical assets or liabilities (level 1).
b) Inputs other than quoted prices, that are observable for the asset or liability (level 2).
c) Inputs for the asset or liability that are not based on observable market data (level 3).
The following table presents the fair value of the Group's assets and liabilities:
| Hierachy Levels | Six months ended 30 September 2015 Rm |
Six months ended 30 September 2014 Rm |
Year Ended 31 March 2015 Rm |
|
|---|---|---|---|---|
| Assets measured at fair value | ||||
| Investment in cell captive preference shares* | Level 2 | 2 167 | 2 887 | 2 227 |
| Forward exchange contracts | Level 2 | 150 | 77 | 70 |
| Firm commitments | Level 2 | 1 | 1 | 5 |
| Cross currency swaps | Level 2 | 82 | 112 | 99 |
| Liabilities measured at fair value | ||||
| Interest rate swaps | Level 2 | - | (1) | (1) |
| Firm commitments | Level 2 | (308) | (122) | (170) |
| Forward exchange contracts | Level 2 | (2) | (8) | (14) |
| Liabilities measured at amortised cost | ||||
| Interest-bearing debt consisting of: | (4 952) | (5 476) | (5 312) | |
| Quoted debt securities | Level 1 | (2,171) | (3 307) | (3 355) |
| Unquoted debt securities | Level 2 | (2 781) | (2 169) | (1 957) |
*Reclassification to level 2 due to the fact that the fair value of the investment in preference shares is not directly quoted in an active market.