4.0 - Imperial

Notes to the group annual financial statements continued...
for the year ended 30 June 2009
39. Financial instruments (continued)
Fair value of financial instruments by category (continued)
The directors consider that the carrying amounts of cash and cash equivalents, trade and other receivables and trade and other
payables approximates their fair value due to the short-term maturities of these assets and liabilities.
The fair values of financial assets represent the market value of quoted investments and other traded instruments. For non-listed
investments and other non-traded financial assets fair value is calculated using discounted cash flows with market assumptions,
unless the carrying value is considered to approximate fair value.
The fair values of financial liabilities is determined by reference to quoted market prices for similar issues, where applicable, otherwise
the carrying value approximates the fair value.
There were no defaults or breaches in terms of interest-bearing borrowings during either reporting periods.
There were no reclassifications of financial assets or financial liabilities that occurred during the period. There were no financial assets
or liabilities that did not qualify for derecognition during the period.
Financial instruments designated as fair value through profit or loss
2009 2008
Rm
Rm
Investments designated as fair value through profit or loss
Carrying value of investments designated as fair value through profit or loss 420 772
Maximum exposure to credit risk at reporting date 420 772
Included in the statement of changes in equity are the following adjustments relating
to financial instruments:
Amounts included in the hedging reserve
Continuing operations
– Effective portion of change in fair value of cash flow hedge (88) (13)
– Amount removed from equity on matured contracts (53) 7
(141) (6)
Discontinued operations
– Hedging reserve movement (2)
Total movement on hedging reserve (141) (8)
Capital management
The group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns
and growth for shareholders and benefits for other stakeholders. The group maintains an appropriate mix of equity and equity like
instruments and debt in order to optimise the weighted average cost of capital (WACC) within an appropriate risk profile. Capital
allocation is evaluated against the expected and forecast return on invested capital against the appropriate WACC for that division
or business.
The group has externally imposed capital requirements in terms of a debt covenant for a syndicated loan. The covenant requires the
group to maintain a target net debt to earnings before interest, taxation, depreciation and amortisation (EBITDA) of below 3.5:1. The
ratio at 30 June 2009 is 1.5:1 (2008: 2.2:1). Our insurance businesses have externally imposed regulatory capital requirements as set
out in Annexure C.
Consistent with others in the industry, the group monitors capital on the basis of its gearing ratio. This ratio is calculated as net debt
divided by total equity. Net debt is calculated as interest-bearing borrowings less cash and cash equivalents. Total invested capital
includes share capital and borrowings.
120
Imperial holdings limited Annual Report 2009