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| FINANCIAL
COMMENTARY (continued) |
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| Accounting
policies |
The financial statements of the group are prepared
in accordance with IFRS on the going-concern principal and using
the historical cost basis, except where otherwise indicated.
The accounting policies are consistent with those applied in
the previous year. |
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| Currency hedge |
Brait has consistently applied its policy of hedging
the majority of its South African rand tangible net assets into
US dollars, which is the presentation and performance measurement
currency of Brait S.A.. As at 31 March 2006, approximately 88%
of the group's capital, inclusive of the currency hedge, was
effectively maintained in US dollars. The average cover for
the year, including inherent hedges, exceeded 80%.
The purpose of the hedging policy is to protect the US dollar
capital of the group against rand weakness for the following
reasons: |
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the group's functional and presentation
currency is in US dollars; |
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the group's performance measurement targets are set
in US dollars in order to be aligned with its presentation
currency; |
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the group has a significant international shareholder
base which is unique for a predominantly South African
focused financial services business. The hedging strategy
offers these shareowners protection against Rand weakness;
and |
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the hedge provides greater reporting transparency and
simplicity of the group results. Without the hedge, the
impact of currency translation adjustments would obscure
the core underlying performance of the group's operations. |
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Included in the 88% US dollar capital cover is
a US$35,0 million five year currency call option, purchased
in March 2006, against the tangible net asset investment by
the group in its South African operation. The primary terms
of the option include a maturity date of 25 March 2011 and a
forward rate of ZAR7,084 to the US dollar. The spot rate at
the acquisition date of the option was ZAR6,235 to the US dollar.
The previous currency hedge comprised a US$30,0 million cross
currency swap taken out in February 2005 with a settlement date
at the end of March 2006, combined with a put option to sell
US$30,0 million against the rand at a rate of ZAR5,84 to the
US dollar.
The income statement charge for the period of the currency hedge
was US$2,2 million (2005: US$4,1 million). This cost is offset
by a gain of US$0,7 million arising from the translation of
the group's non-US dollar assets into US dollars at 31 March
2006 which is disclosed under the foreign currency translation
reserve in the balance sheet in compliance with IFRS.
An approximate illustrative impact of the currency hedge on
the group's net asset value ('NAV') in US dollars and rands
is set out respectively in the graphs below. |
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| US$ capital
before and after hedging |
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| ZAR capital before and after
hedging |
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