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Notes to the financial statements
continued
for the year ended 30 September 2015
172
Tiger Brands Limited integrated annual report
2015
GROUP
(R’million)
2015
2014
36
Guarantees and contingent liabilities
Guarantees and contingent liabilities
16,9
70,8
Guarantees exist against the group for third-party obligations of R16,9 million at 30 September 2015 (2014:
R70,8 million), as well as R390,0 million (2014: Rnil) relating to TBCG as noted in further detail in note 39.
Company
Guarantees exist against the company for the obligations of certain subsidiaries amounting to R91,3 million at
30 September 2015 (2014: R55,0 million).
Shares in Chocolaterie Confiserie Camerounaise Sa (“Chococam”), acquired on 1 August 2008 have been pledged
as security for the foreign loan utilised to acquire the subsidiary. (Refer note 31.1.)
37 Financial instruments
The group’s objective in using financial instruments is to reduce the uncertainty over future cash flows arising principally
as a result of commodity price, currency and interest rate fluctuations. The use of derivatives for the hedging of firm
commitments against commodity price, foreign currency and interest rate exposures is permitted in accordance with
group policies, which have been approved by the board of directors. Where significant finance is taken out, this is
approved at board meetings.
The foreign exchange contracts outstanding at year end are marked to market at closing spot rate.
The group finances its operations through a combination of retained surpluses, bank borrowings and long-term loans.
The group borrows short-term funds with fixed or floating rates of interest through the a subsidiary company, Tiger
Consumer Brands Limited.
The main risks arising from the group’s financial instruments are, in order of priority, procurement risk, foreign currency
risk, interest rate risk, liquidity risk and credit risk as detailed below.
37.1 Procurement risk (commodity price risk)
Commodity price risk arises from the group being subject to raw material price fluctuations caused by supply conditions,
weather, economic conditions and other factors. The strategic raw materials acquired by the group include wheat,
maize, rice, oats and sorghum.
The group uses commodity futures and options contracts or other derivative instruments to reduce the volatility of
commodity input prices of strategic raw materials. These derivative contracts are only taken out to match an underlying
physical requirement for the raw material. The group does not write naked derivative contracts.
The group has developed a comprehensive risk management process to facilitate, control and to monitor these risks.
The procurement of raw materials takes place in terms of specific mandates given by the executive management.
Position statements are prepared on a monthly basis and these are monitored by management and compared to the
mandates.
The board has approved and monitors this risk management process, inclusive of documented treasury policies,
counterparty limits, controlling and reporting structures.