Financial statements > Group financial statements > Notes to the Group Financial Statements

notes to the group financial statements
for the year ended 31 December 2015

 2015 
R'000 
2014 
R'000 

31.

RELATED PARTY TRANSACTIONS 

Balances and transactions between the company and its subsidiaries, which are related parties of the company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and the pension fund are disclosed below: 

Loan from pension fund (refer notes 17, 27) 72 019  71 306 

Transactions with key management personnel, which comprises directors (executive and non-executive), prescribed officer and members of the executive committee, are detailed in note 32.

32.

DIRECTORS' REMUNERATION AND INTEREST 

Directors' and prescribed officer's remuneration during the 2015 financial year 
  Director  Retainer 
fees 
Rand 
Attendance 
fees 
Rand 
Cash 
package 
Rand 
Bonus 
and per- 
formance 
related
payments^ 
Rand 
Medical 
aid 
contri- 
butions 
Rand 
Re- 
tirement 
fund 
contri- 
butions 
Rand 
Subtotal 
Rand 
Value of 
options 
granted# 
Rand 
Total 
Rand 
Gains on 
exercise 
of share 
options 
Rand 
Non-executive 
M E Mkwanazi  437 998  187 334  625 332  625 332 
L C Cele  255 565  99 952  355 517  355 517 
V N Khumalo*  169 838  83 041  252 879  252 879 
T P Leeuw  265 877  113 533  379 410  379 410 
J B Magwaza  206 232  61 910  268 142  268 142 
N N A Matyumza  255 565  109 139  364 704  364 704 
S P Ngwenya  169 837  55 658  225 495  225 495 
P H Staude  199 761  85 369  285 130  285 130 
S M G Jennings+ 332 907  114 733  447 640  447 640 
G H M Watson  460 143  201 690  661 833  661 833 
2 753 723  1 112 359  –  –  –  –  3 866 082  –  3 866 082  – 
Executive 
R G Jacob  4 004 004  669 677  103 992  499 676  5 277 349  2 920 235  8 197 584  3 723 765 
D A Austin  2 928 557  394 663  170 208  354 145  3 847 573  1 044 499  4 892 072  –  
M Z Mkhize  2 729 496  365 599  187 896  340 362  3 623 353  1 067 622  4 690 975  721 210 
–  –  9 662 057  1 429 939  462 096  1 194 183  12 748 275  5 032 356  17 780 631  4 444 975 
Prescribed officer 
H T Molale  2 318 172  231 734  112 836  288 947  2 951 689  906 349  3 858 038  1 124 888 
–  –  2 318 172  231 734  112 836  288 947  2 951 689  906 349  3 858 038  1 124 888 
2 753 723  1 112 359  11 980 229  1 661 673  574 932  1 483 129  19 566 046  5 938 705  25 504 751  1 124 888 
Executive Committee members' remuneration during the 2015 financial year* 
   Cash 
package 
Rand 
Bonus and 
performance 
related 
payments^ 
Rand 
Medical aid 
contri- 
butions 
Rand 
Retirement 
fund 
contri- 
butions 
Rand 
Subtotal 
Rand 
Value 
of options 
granted 
Rand 
Total 
Rand 
Gains on 
exercise 
of share 
options 
Rand 
Total  6 994 896  927 447  342 660  871 887  9 136 890  2 734 888  11 871 778  2 358 142 
 
* Excluding executive directors and prescribed officer.
^ The bonus payments reflected above are in relation to the 2015 year, paid in 2016. 
Directors' and prescribed officer's remuneration during the 2014 financial year 
  Director Retainer 
fees 
Rand 
Attendance 
fees 
Rand 
Cash 
package 
Rand 
Bonus and 
per- 
formance 
related 
payments^ 
Rand 
Medical 
aid 
contri- 
butions 
Rand 
Retirement 
fund 
contri- 
butions 
Rand 
Subtotal 
Rand 
Value of 
options 
granted# 
Rand 
Total 
Rand 
Gains on 
exercise 
of share 
options 
Rand 
Non-executive 
M E Mkwanazi  419 207  227 664  646 871  646 871 
L C Cele  244 256  114 410  358 666  358 666 
V N Khumalo*  164 171  106 380  270 551  270 551 
T P Leeuw  253 889  127 794  381 683  381 683 
J B Magwaza  192 657  82 668  275 325  275 325 
N N A Matyumza 238 744  128 679  367 423  367 423 
S P Ngwenya  158 659  74 225  232 884  232 884 
P H Staude  189 369  96 167  285 536  285 536 
S M G Jennings 467 656  243 906  711 562  711 562 
G H M Watson  467 579  248 279  715 858  715 858 
2 796 187  1 450 172  –  –  –  –  4 246 359  –  4 246 359  – 
Executive 
R G Jacob  3 742 488  1 453 320  94 581  466 986  5 757 375  1 903 095  7 660 470 
D A Austin  2 708 318  824 722  154 824  309 758  3 997 622  617 317  4 614 939 
M Z Mkhize  2 550 648  737 796  164 204  318 006  3 770 654  793 897  4 564 551 
–  –  9 001 454  3 015 838  413 609  1 094 750  13 525 651  3 314 309  16 839 960  – 
Prescribed officer 
H T Molale  1 899 780  735 793  101 224  236 648  2 973 445  532 801  3 506 246  168 153 
–  –  1 899 780  735 793  101 224  236 648  2 973 445  532 801  3 506 246  168 153 
2 796 187  1 450 172  10 901 234  3 751 631  514 833  1 331 398  20 745 455  3 847 110  24 592 565  168 153 
^ The bonus payments reflected above are in relation to the 2014 year, paid in 2015. 
* Directors' fees due to a shareholder nominee on the Hulamin board are paid to the employer organisation and not to the nominee.
# The value of the equity-settled options granted is the annual expense determined in accordance with IFRS 2 – Share-based payments.
  Executive Committee members' remuneration during the 2014 financial year* 
   Cash 
package 
Rand 
Bonus and 
performance 
related 
payments^ 
Rand 
Medical aid 
contri- 
butions 
Rand 
Retirement 
fund 
contri- 
butions 
Rand 
Subtotal 
Rand 
Value of 
options 
granted 
Rand 
Total 
Rand 
Gains on 
exercise of 
share 
options 
Rand 
Total  7 379 034  2 252 990  347 146  1 481 212  11 460 382  2 284 484  13 744 866  – 
 

Interest of directors and prescribed officer of the company in share-based instruments 

Hulamin Limited Share Appreciation Right Scheme 2007 
Number 
of rights 
granted in 
2011 
Number 
of rights 
granted in 
2013 
Number 
of rights 
granted in 
2014 
Number of 
rights at 
December 
2014 
Number 
of rights 
granted in 
2015 
Number 
of rights 
exercised in 
2015 
Number 
of rights 
lapsed in 
2015 
Number of 
rights at 
December 
2015 
Rights 
time 
constrained 
Executive director 
D A Austin  234 243  196 546  430 789  135 553  –  –  566 342  566 342 
R G Jacob  509 138  1 018 161  633 100  2 160 399  396 925  1 039 870  –  1 517 454  1 517 454 
M Z Mkhize  261 503  470 418  201 780  933 701  138 555  –  –  1 072 256  569 581 
770 641  1 722 822  1 031 426  3 524 889  671 033  1 039 870  –  3 156 052  2 653 377 
Prescribed officer 
H T Molale  167 931  301 714  150 157  619 802  117 625  322 612  –  414 815  414 815 
167 931  301 714  150 157  619 802  117 625  322 612  –  414 815  414 815 
Grant price  R6,91  R4,56  R6,80  R8,20 
Grant date  25.5.2011  25.2.2013  24.4.2014  23.4.2015 
Grant price  R4,01 
Grant date  27.5.2013 
Hulamin Limited Long Term Incentive Plan 2007 – With Performance Conditions 
Number 
of rights 
granted in 
2013 
Number of 
rights at 
December 
2014 
Number 
of rights 
granted in 
2015 
Number 
of rights 
exercised in 
2015 
Number 
of rights 
lapsed in 
2015 
Number of 
rights at 
December 
2015 
Rights 
time 
constrained 
Executive director 
D A Austin  102 232  188 012  59 708  –  –  247 720  247 720 
R G Jacob  381 132  618 130  146 625  97 169  101 603  565 983  565 983 
M Z Mkhize  205 430  293 494  61 030  51 515  53 864  249 145  249 145 
688 794  1 099 636  267 363  148 684  155 467  1 062 848  1 062 848 
Prescribed officer 
H T Molale  131 757  197 291  51 811  33 040  34 547  181 515  181 515 
131 757  197 291  51 811  33 040  34 547  181 515  181 515 
Grant price  R4,56  R6,80  R8,20 
Grant date  25.2.2013  24.4.2014  23.4.2015 
Grant price  R4,01 
Grant date  27.5.2013 
 
  Hulamin Limited Long Term Incentive Plan 2007 – Without Performance Conditions 
Number of 
conditional 
awards 
granted in 
2013 
Number of 
conditional 
awards 
granted in 
2014 
Number of 
conditional 
awards at 
December 
2014 
Number of 
conditional 
awards 
granted in 
2015 
Number of 
conditional 
awards 
exercised in 
2015 
Number of 
conditional 
awards at 
December 
2015 
Conditional 
awards time 
constrained 
Executive director 
D A Austin  179 073  28 583  207 656  19 903  –  227 559  227 559 
R G Jacob  127 186  78 999  206 185  48 875  66 257  188 803  188 803 
M Z Mkhize  68 476  29 355  97 831  20 343  35 126  83 048  83 048 
374 735  136 937  511 672  89 121  101 383  499 410  499 410 
Prescribed officer 
H T Molale  43 919  21 845  65 764  17 270  22 529  60 505  65 764 
43 919  21 845  65 764  17 270  22 529  60 505  65 764 
Grant price  R4,56  R6,80  R8,20 
Grant date  25.2.2013  24.4.2014  23.4.2015 
Grant price  R4,60 
Grant date  1.3.2013 
Grant price  R4,01 
Grant date  27.5.2013 
  
Hulamin Limited Deferred Bonus Plan 2007 
Number of 
conditional 
awards 
granted in 
2012 
Number of 
conditional 
awards 
granted in 
2013 
Number of 
conditional 
awards at 
December 
2014 
Number of 
conditional 
awards 
granted in 
2015 
Number of 
conditional 
awards 
exercised in 
2015 
Number of 
conditional 
awards at 
December 
2015 
Conditional 
awards 
time 
constrained 
Executive director 
R G Jacob  24 669  32 534  57 203  17 319  24 669  57 203  57 203 
24 669  32 534  57 203  17 319  24 669  57 203  57 203 
Prescribed officer 
H T Molale  –  –  –  –  – 
–  –  –  –  –  –  – 
Grant price  R7,60  R4,55  R8,20 
Grant date  16.4.2012  4.3.2013  23.4.2015 

 

Interest of directors and prescribed officer of the company in share capital

The aggregate holdings as at 31 December 2015 of those directors of the company holding issued ordinary shares of the company are detailed below: 

As at 31 December 2015  Direct 
beneficial 
shares 
Indirect 
beneficial 
shares 
Held by 
associates 
Shares 
total 
Executive 
R G Jacob  456 400  456 400 
M Z Mkhize  75 668  75 668 
532 068  –  –  532 068 
Non-executive 
L C Cele  10 000  10 000 
J B Magwaza  5 760  5 760 
P H Staude  91 610  91 610 
107 370  –  –  107 370 
Total  639 438  –  –  639 438 
There have been no changes in the above interests between year-end and 18 February 2016. 
As at 31 December 2014  Direct 
beneficial 
shares 
Indirect 
beneficial 
shares 
Held by 
associates 
Shares 
total 
Executive 
R G Jacob  128 803  128 803 
M Z Mkhize  75 668  75 668 
204 471  –  –  204 471 
Non-executive 
L C Cele  10 000  10 000 
J B Magwaza  5 760  5 760 
P H Staude  91 610  91 610 
107 370  –  –  107 370 
Total  311 841  –  –  311 841 
   

33.

SHARE-BASED PAYMENTS

Employee share incentive schemes

Details of awards in terms of the company's share incentive schemes are as follows: 

33.1 

Hulamin Limited Share Appreciation Right Scheme 2007 

Under the Share Appreciation Right Scheme, participating employees are awarded the right to receive shares equal to the difference between the exercise price and the grant price. 

The vesting of the right is conditional on the achievement by Hulamin of performance conditions over a three-year period.

Grant price  Estimated 
weighted 
average 
fair value 
per right 
Expiring 
seven years 
from 
Number of 
rights at 
31 December 
2014 
Rights 
granted in 
2015 
Rights 
exercised in 
2015 
Rights 
forfeited/ 
lapsed in 
2015 
Number of 
rights at 
31 December 
2015 
Rights 
time 
constrained 
R6,91  R1,91  25.5.2011  4 855 773  2 152 369  –  2 703 404  – 
R3,60  R0,81  22.10.2012  1 793 156  1 267 870  148 158  377 128  – 
R4,56  R1,35  25.2.2013*  1 651 948  1 118 951  –  532 997  – 
R4,01  R1,24  27.5.2013  3 953 853  121 638  341 424  3 490 791  3 490 791 
R6,82  R2,73  24.4.2014  3 293 251  –  222 604  3 070 647  3 070 647 
R8,20  R3,17  23.4.2015  2 547 357  –  196 006  2 351 351  2 351 351 
15 547 981  2 547 357  4 660 828  908 192  12 526 318  8 912 789 

The volume-weighted average share price during the year for Hulamin shares was R6,56. 

The estimated fair value of these share appreciation rights at grant date was determined using a binomial tree valuation model, based on the following significant inputs: 

Share price at grant date  2015 award: R8,20 
  (2014 award: R6,90; 2013 awards: R4,56 (February); R4,01 (May); 2012 award: R3,60; 2011 award: R6,91)
Grant price  The grant price as noted above 
Risk-free interest rate  2015 award: 7,67% 
  (2014 award: 8,17%; 2013 award: 6,44%; 2012 award: 6,38%; 2011 award: 7,98%)
Expected volatility:  2015 award: 40,81% 
  (2014 award: 42,22%; 2013 awards: 42,70% (February); 42,98% (May); 2012 award: 40,33%; 2011 award: 38,09%)
Expected dividends  2015 award: 0,5% 
  (2014 award: 0,5%; 2013 awards: 4,0% (February); 4,0% (May); 2012 award: 9,85%; 2011 award: 7,56%)
Expected remaining life  2015 award: 76 months
  (2014 award: 64 months; 2013 award: 53 months; 2012 award: 46 months; 2011 award: 29 months)
Contractual life  84 months 
Vesting conditions:   
– Time  Three years 
– Non-market  An increase in Hulamin Limited headline earnings per ordinary share as determined by the Remuneration Committee 
– Market  None 

33.2 

Hulamin Limited Long Term Incentive Scheme 2007 (with performance conditions)

Under the Long Term Incentive Plan, participating employees are granted conditional awards. These awards are converted into shares in Hulamin on the achievement of Return on Capital Employed (ROCE) and Total Shareholders' Return (TSR) performance conditions over a three-year period. 

Estimated
weighted average
fair value per right 
Expiring 
three years 
from 
Number of 
conditional 
awards at 
31 December 
2014 
Conditional awards granted in 2015  Conditional 
awards 
exercised in 
2015 
Conditional 
awards 
lapsed/ 
forfeited in 
2015 
Number of conditional 
awards at 
31 December 
2015 
Conditional 
awards 
time 
constrained 
R1,10  22.102012  1 524 220  733 332  790 888  –  – 
R1,97  25.2.2013*  609 746  298 076  311 670  –  – 
R3,28  27.5.2013  2 350 561  10 098  66 790  2 273 673  2 273 673 
R6,35  24.4.2014  2 904 192  21 544  123 412  2 759 236  2 759 236 
R7,60  23.4.2015  2 536 930  2 644  95 358  2 438 928  2 438 928 
7 388 719  2 536 930  1 065 694  1 388 118  7 471 837  7 471 837 

The volume-weighted average share price during the year for Hulamin shares was R6,56. 

The estimated fair value of these conditional share awards at the grant date was determined using a Monte Carlo Simulation model, based on the following significant inputs: 

Share price at grant date 2015 award: R8,20 
  (2014 award: R6,90; 2013 awards: R4,56 (February), R4,01 (May); 2012 award: R3,60)
Grant price  The grant price as noted above 
Risk-free interest rate  2015 award: 7,13% 
  (2014 award: 7,26%; 2013 award: 5,33%; 2012 award: 5,19%)
Expected volatility  2015 award: 43,22% 
  (2014 award: 46,74%; 2013 awards: 45,48% (February); 46,03% (May); 2012 award: 39,11%)
Expected dividends 2015 award: 0,5% 
  (2014 award: 0,5%; 2013 awards: 4,0% (February); 4,0% (May); 2012 award: 6,15%)
Expected remaining life 2015 award: 28 months
  (2014 award: 16 months; 2013 awards: 5 months (May); 2012 award: nil)
Contractual life  36 months 
Vesting conditions:   
– Time  Three years 
– Non-market  Return on capital employed (ROCE)
– Market  Total shareholders' return (TSR)
   

33.3

Hulamin Limited Long Term Incentive Scheme 2007 (without performance conditions)

Under the Long Term Incentive Plan, participating employees are granted conditional awards. The vesting of the award is conditional on the employee continuing employment with the company or any other employer company until the vesting date. 
Estimated
weighted average
fair value per right 
Expiring  
three years  
from  
Number of 
conditional 
awards at 
31 December 
2014 
Conditional 
awards 
granted in 
2015 
Conditional 
awards 
vested in 
2015 
Conditional 
awards 
exercised in 
2015 
Conditional 
awards 
lapsed/ 
forfeited 
exercised in 
2015 
Number of 
conditional 
awards at 
31 December 
2015 
R2,98  22.10.2012   508 070  499 849  8 221  –  – 
R4,11  25.2.2013* 301 932  301 932  –  –  – 
R4,11  1.3.2013   144 996  –  –  144 996  144 996 
R3,64  27.5.2013   781 783  –  18 754  763 029  763 029 
R6,82  24.4.2014   1 083 141  10 723  37 595  1 034 823  1 034 823 
R8,09  23.4.2015   845 641  1 763  30 905  812 973  812 973 
2 819 922  845 641  814 267  95 475  2 755 821  2 755 821 

The volume-weighted average share price during the year for Hulamin shares was R6,56. 

The estimated fair value costing of these conditional share awards at the grant date was based on the following significant inputs: 

Share price at grant date  2015 award: R8,20
  (2014 award: R6,90; 2013 awards: R4,56 (February); R4,60 (March); R4,01 (May); 2012 award: R3,60)
Grant price  The grant price as noted above
Risk-free interest rate  2015 award: 7,13% 
  (2014 award: 7,26%; 2013 award: 5,33%; 2012 award: 5,19%)
Expected volatility  2015 award: 43,22% 
  (2014 award: 46,74%; 2013 awards: 45,48% (February); 46,03% (May); 2012 award: 39,11%)
Expected dividends  2015 award: 0,5%
  (2014 award: 0,5%; 2013 awards: 4,0% (February); 4,0% (May); 2012 award: 6,15%)
Expected remaining life  2015 award: 28 months 
  (2014 award: 16 months; 2013 awards: 5 months (May); 2012 award: nil)
Contractual life  36 months 
Vesting conditions:   
– Time  Three years 
– Non-market  None 
– Market  None 

33.4

Hulamin Limited Deferred Bonus Plan 2007 

Under the Deferred Bonus Plan, participating employees purchase shares in Hulamin with a portion of their after-tax bonus. These pledged shares are held in escrow for a qualifying period, after which Hulamin awards the employee a number of shares in Hulamin Limited which match those pledged shares released from escrow. 

Grant price  Estimated 
weighted 
average 
fair value 
per right 
Expiring 
three years 
from 
Number of 
conditional 
awards at 
31 December 
2014 
Conditional 
awards 
granted in 
2015 
Conditional 
awards 
exercised in 
2015 
Conditional 
awards 
lapsed/ 
forfeited in 
2015 
Number of 
conditional 
awards at 
31 December 
2015 
Conditional 
awards time 
constrained 
R7,60  R6,91  16.4.2012  37 649  37 649  –  –  – 
R4,55  R3,73  4.3.2013  54 220  –  –  54 220  54 220 
R6,61  R6,74  14.3.2014  14 907  –  –  14 907  14 907 
R6,84  R8,79  8.5.2015  –  17 319  –  –  17 319  17 319 
106 776  17 319  37 649  –  86 446  86 446 

The volume-weighted average share price during the year for Hulamin shares was R6,56. 

The estimated fair value costing of these deferred bonus share awards was based on the following significant inputs:

Share price at grant date  2015 award: R6,84 
(2014 award: R6,84; 2013 award: R4,55; 2012 award: R7,60)
Expected dividends  The measurement of the fair value of the deferred bonus shares did not take into account dividends, as no dividend payment was expected. 
Expected early exercise  Early exercise is taken into account on an expectation basis. 
Expected remaining life  2015 award: 29 months 
(2014 award: 15 months; 2013 award: 4 months)
Contractual life  36 months 
Vesting conditions: 
– Time  Three years 
– Non-market  None 
– Market  None 

The Deferred Bonus Shares were purchased by the participating employees on 20 April 2012, 13 March 2013, 26 March 2014 and 8 May 2015 in terms of the 2012, 2013, 2014 and 2015 awards respectively. 

 

Other incentive schemes

33.5

BEE equity transaction 

Strategic partners 
On 22 December 2015, Hulamin concluded agreements with BEE partners (Imbewu Spv 14 (Pty) Ltd) to facilitate the
acquisition of an effective 13% equity interest in Hulamin. The BEE partners consist of Eligible Employees and long-standing strategic partners. 

The Strategic BEE partners subscribed for 9 018 000 B1 ordinary, 9 018 000 B2 ordinary shares, and 18 036 000 B3 ordinary shares at a total cost of R361 000. For accounting purposes the fair value of the transaction at grant date is R20 000 000, which was expensed in full in the 2015 financial year. 

The fair value of the transaction was determined using a Black Scholes valuation model using the following significant inputs: 

   
Share price at grant date  R5,49 
Expected option life  Five years 
Lock-in period  Three years 
Risk-free rate  8,58% 
Expected volatility  43,15% 
Expected dividends  0,5% 
Expected remaining life  59,5 months 
Contractual life  60 months 
Vesting conditions: 
– Time  Five years 
– Non-market  None 
– Market  Share price 
   

2015 Hulamin Share Ownership Plan (ESOP)
On 22 December 2015, the ESOP trust subscribed for 4 721 600 A1 ordinary and 26 755 733 A2 ordinary shares. Under the scheme, participating employees are granted conditional awards. The vesting of the award is conditional on the employee continuing employment with the company until the vesting date and the employee must fall within stipulated Patterson Bands. 

The estimated fair value costing of these conditional share awards at the grant date was based on the following significant inputs: 

   
Share price at grant date  R5,49 
Grant price  R5,83 
Risk-free interest rate  8,58% 
Expected volatility  43,15% 
Expected dividends  0,5% 
Expected remaining life  59,5 months 
Contractual life  60 months 
Vesting conditions: 
– Time  Five years 
– Non-market  None 
– Market  Share price 
    Equity-settled share-based payment transaction: Isizinda 
Refer to note 11 for details.
    

34.

Details of investments in associates, subsidiary companies and joint ventures

The financial statements of the group include the financial statements of the company and the associates, subsidiary companies and joint ventures listed in the following table: 
  Name  Country of incorporation  % Equity
interest 
2015 
% Equity
interest 
2014 
Subsidiaries 
Hulamin Rolled Products (Pty) Ltd*  South Africa  100  100 
Hulamin Systems (Pty) Ltd*  South Africa  100  100 
Hulamin Operations (Pty) Ltd  South Africa  100  100 
Hulamin Extrusions (Pty) Ltd*   South Africa  100  100 
Hulamin North America LLC*  United States of America  100  100 
Isizinda Aluminium (Pty) Ltd*# South Africa  40 
Associates 
Almin Metal Industries Limited**  Zimbabwe  49  49 

Almin Metal Industries Limited, an associate company, was fully impaired in prior years and at the end of the current reporting period. Therefore, information in respect of the assets, liabilities, revenues and profit or loss of this company has not been disclosed. 

All the investments are unlisted.

Special purpose vehicles
The following special purpose vehicles have been consolidated: 

– ESOP Trust 
– Imbewu SPV 14 (Pty) Ltd.

35. 

FINANCIAL RISK MANAGEMENT

35.1 

Financial risk factors 

The group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The group's financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group's financial performance, and uses derivative financial instruments to hedge certain risk exposures. 

Hedging is carried out by a central treasury department (group treasury) under policies approved by the board of directors,
and in close cooperation with the group's operating units. 

MARKET RISK 

Foreign exchange risk
The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar. 

Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities that are denominated in a currency that is not the group's functional currency, which is South African Rand. The group's risk management policy is to hedge its currency exposure related to import and export transactions, foreign currency assets and liabilities. Aluminium purchases and sales are determined with reference to the US Dollar and it is the group's policy to hedge all currency exposure on aluminium, while the value-added portion of export transactions is hedged from invoice date. The group uses foreign exchange contracts, transacted with commercial banks, to manage these risks. 

For every 5% weakening or strengthening of the South African Rand against the US Dollar at 31 December, the after tax profit for the year would have been lower or higher by R12 059 000 (2014: higher or lower by R6 492 000) based on the group's exposure at the balance sheet date. The sensitivity of profits to changes in exchange rates is a result of foreign exchange gains or losses on translation of US Dollar-denominated trade receivables and payables and financial assets and liabilities at fair value through profit or loss that are offset by equivalent gains or losses in currency derivatives. Profit was no more sensitive to movements in currency exchange rates in 2015 than in 2014, as all foreign currency-denominated assets and liabilities are hedged through foreign exchange contracts. The above change in currency exchange rates would have resulted in equity being lower or higher by R56 376 000 (2014: R41 201 000). The change in equity is mainly from foreign exchange losses or gains on translation of US Dollar-denominated cash flow hedging instruments. 

Commodity price risk 
The group purchases and sells aluminium at prices that fluctuate with movements in prices on the London Metal Exchange and is thus exposed to commodity price risk. Due to this commodity price risk having opposing effects on cash and profit, the approach is to hedge approximately 50% of the risk using futures contracts. At 31 December 2015, 49% (2014: 51%) of the risk was hedged.

For every 5% weakening or strengthening of the price of aluminium at 31 December, after tax profit for the year would have been lower or higher by R28 314 000 (2014: higher or lower by R37 727 000) based on the group's exposure at the balance sheet date. The sensitivity of profits to changes in aluminium prices is a result of commodity price gains or losses on aluminium futures contracts that were all hedge accounted in 2015 and 2014. For this reason, profit was no more sensitive to movement in commodity prices in 2015 than in 2014. The above change in aluminium prices would have resulted in equity being lower or higher by R19 809 000 (2014: R18 272 000). The change in equity is mainly from losses or gains on translation of US Dollar-denominated cash flow hedging instruments.

Interest rate risk
The group has no significant interest-bearing assets and interest rate risk is solely related to borrowings. The group's borrowings bear interest at variable rates and it had not fixed the interest rate on any of its borrowings. Consequently, every 0,5 percentage point increase or decrease in the interest rate at 31 December would have no fair value effect on after tax profit (2014: nil) and no effect on equity (2014: nil). 

The group is also exposed to future cash flow risks on borrowings. Had interest rates for the year been 0,5 percentage points higher or lower and been applied to the period end net debt, the interest expense for the year would have been higher or lower by R4 876 000 (2014: R2 170 000). 

The group analyses the impact on profit and loss of defined interest rate shifts – taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. The analysis is only for liabilities that represent the major interest-bearing positions. 

CREDIT RISK 

Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. All deposits are held with major South African banks and all foreign exchange hedging transactions are undertaken with these banks. All aluminium futures are undertaken with a major London Metal Exchange broker which carries an A credit rating,
per Standard and Poor's. Foreign currency counterparty rating of all banks transacted with, as rated by Standard and Poor's, is BBB- which equals South Africa's rating.

Hulamin's credit risk exposure to customers is mainly influenced by individual customer characteristics and there is no significant concentration of risk related to industry segments. In addition to any significant exposures arising from specific customers, credit exposures to both local and overseas customers are detailed in note 8 to the annual financial statements. The creditworthiness of new customers is assessed when credit is first extended and is reviewed on a monthly basis thereafter. The establishment and subsequent maintenance of credit limits is, in the majority of cases, based on the specific amount of credit insurance that can be secured for each new customer. The value of all trade receivables covered by insurance is detailed in note 8

Quantitative data on credit risk is disclosed in the notes to the annual financial statements on derivative financial instruments (note 9) and trade and other receivables (note 8). 

LIQUIDITY RISK

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, flexibility in funding is maintained through ensuring availability under committed credit lines. Management monitors rolling forecasts of the group's liquidity reserve, being the excess of available facilities over forecast net borrowings. 

The group's facility utilisation at the period end was: 

   
  Note 2015 
R'000 
2014 
R'000 
Working capital  1 000 000  1 200 000 
General banking  250 000  250 000 
Pension fund  72 019  71 306 
Current facilities  1 322 019  1 521 306 
Non-current facilities  270 000  – 
Total borrowing facilities  1 592 019  1 521 306 
Less: 
Non-current borrowings  13  (216 000) – 
Current borrowings  17  (829 401) (686 144)
Committed undrawn facilities      546 618  835 162 
   

During the year, Hulamin entered into a five-year term loan of R270 000 000 to fund the upgrade of the aluminium recycling plant. Repayments on the loan facility are repayable quarterly in arrears starting on 31 March 2016. 

In addition to the term loan, Hulamin borrowing facilities also include a general short-term facility of R250 000 000, revolving working capital facilities of R1 000 million that are committed for a further nine months, and a pension fund loan facility of R72 019 000.

As R54 000 000 of the term loan is due within 12 months, this has been classified as current and the remainder is classified as non-current. Financial liabilities with maturity dates less than one year comprise current borrowings, trade and other payables, sundry accruals and derivative liabilities.

The table below summarises the maturity profile of the group's financial liabilities based on contractual undiscounted payments: 

    Less 
than 
one year 
R'000 
One to 
two years 
R'000 
Two to 
three years 
R'000 
Three to 
four years 
R'000 
Greater 
than four 
years 
R'000 
Total 
R'000 
2014 
Current borrowings  686 144  686 144 
Trade and other payables (excluding employee benefit payables) 888 031  888 031 
Derivative financial liabilities  70 519  70 519 
    1 644 694  –  –  –  –  1 644 694 
2015 
Non-current borrowings  –  54 000  54 000  54 000  54 000  216 000 
Current borrowings  829 401  829 401 
Trade and other payables (excluding employee benefit payables) 711 109  711 109 
Derivative financial liabilities  235 650  235 650 
        1 776 160  54 000  54 000  54 000  54 000  1 992 160 

Included in the above amounts payable within a period of less than one year, are financial liabilities in the amount of R1 699 million (2014: R1 527 million) which are payable within a period of three months, including trade payables in the amount of R564 097 000 (2014: R779 627 000). Trade receivables amounting to R1 071 million (2014: R745 266 000) are recoverable within a period of three months. 

35.2

Capital risk management 

The group's objectives when managing capital are to maintain the optimum mix of liquidity and low cost of capital and to be able to finance future growth. 

These objectives result in varying capital ratios, with current and future borrowings being evaluated against the group's expected operating cash flows and capital investment needs. Capital adequacy and liquidity are managed by monitoring gearing ratios, interest cover and debt service ratios. 

The group's gearing ratio at the period end was as follows: 

      Notes 2015 
R'000 
2014 
R'000 
    Non-current borrowings  13  216 000  – 
    Current borrowings  17  829 401  686 144 
    Total borrowings  1 045 401  686 144 
    Less: Cash and cash equivalents  10  (70 158) (249 106)
    Net borrowings  975 243  437 038 
    Total equity  3 854 517  3 833 817 
    Total capital  4 829 760  4 270 855 
    Gearing ratio (net debt over total capital) (%) 20  10 
   

36.

POST BALANCE SHEET EVENTS 

On 21 February 2016, an amount of R57 044 000 was received from the Department of Trade and Industry in respect of a claim with the Manufacturing Competitiveness Enhancement Programme. This transaction is accounted for in the 2016 financial year as confirmation of the claim approval was received after 31 December 2015. 

No other material changes have taken place in the affairs of the group between the end of the financial year and the date of this report.