MW Asset Rentals (RF) Limited (Registration number 2002/030074/06) Annual financial statements for the year ended 31 March 2017

Transcription

1 Annual financial statements for the year ended 31 March 2017

2 General Information Country of incorporation and domicile Nature of business and principal activities Directors Registered office Business address South Africa Financial Services R J Jaspan R Thanthony B J Korb O H Shabangu 3rd floor 82 on Maude 82 Maude Street Sandton Maude Street Sandton 2196 Postal address P O Box Benmore 2010 Securitisation company Ultimate holding entity Bankers Auditor Secretary Merchant West Proprietary Limited incorporated in Republic of South Africa MW Issuer Owner Trust incorporated in Republic of South Africa Rand Merchant Bank Limited Nedbank Limited Investec Bank Limited Grant Thornton Johannesburg Partnership Chartered Accountants (SA) Registered Auditors South African member of Grant Thornton International Morestat Corporate Services Proprietary Limited Company registration number 2002/030074/06 Level of assurance Preparer These annual financial statements have been audited in compliance with the applicable requirements of the Companies Act 71 of The annual financial statements were internally compiled by: Michael Ross CA(SA) Head of Finance 1

3 Index The reports and statements set out below comprise the annual financial statements presented to the shareholder: Index Page Corporate Governance Report 3-4 Audit Committee Report 5 Directors' Responsibilities and Approval 6 Company Secretary s Certification 7 Independent Auditor's Report 8-9 Directors' Report Statement of Financial Position 12 Statement of Profit or Loss and Other Comprehensive Income 13 Statement of Changes in Equity 14 Statement of Cash Flows 15 Accounting Policies Notes to the Annual Financial Statements The following supplementary information does not form part of the annual financial statements and is unaudited: Detailed Income Statement 34 Published 22 September

4 Corporate Governance Report MW Asset Rentals (RF) Limited (the Company) is, as far as applicabley, fully committed to the principles of the Code of Corporate Practices (the code) as set out in the King III Report on Corporate Governance. In supporting the code, the directors recognise the need to govern, the Company with integrity and in accordance with the generally accepted corporate practices. The Company is a special purpose public Company and is a subsidiary of The MW Issue Owner Trust. The Company has no employees and its management is outsourced to Merchant West Proprietary Limited. In the context of the above, the directors of the Company are of the opinion that it has complied with the principles and recommendations of the code, in all material respects, with regard to the period under review. 1. Board of Directors The board consists of the following directors (refer to Director's Report note 4, page 10): Independent non-executive 3 3 Executive director The board has the following committee: Audit Committee 3

5 Corporate Governance Report 2. Compliance with King III The Company endeavours at all times to apply the principles of the King Code of Governance Principles for SA (King III Code/King III) in such a way that these requirements are met. For the period under review the board indicated that it was satisfied with the way in which the Company applied the recommendations of King III, or put alternative measures in place where necessary. In terms of the JSE Debt Listing Requirements, the Company has complied with King III Code, and is required to provide an explanation of which principles are not applied along with reasons for non-application. At 31 March 2017 the Company did not apply the below principles. Principles not applied The board has not appointed a Chief Executive Officer (CEO). Reason for Non-application The Company is a ring fenced special purpose securitisation vehicle. All its services are outsourced to Merchant West Proprietary Limited and the Company has no employees. Therefore it is not necessary for the board to appoint a CEO. Evaluations of the board have not been performed every year. An evaluation of the Board will be performed from There is not an effective risk-based internal audit. The Company does not produce an integrated report. The board of directors does not have a Board charter and an evaluation of the board members has not been performed. The board of directors does not delegate it's functions to a risk, nomination or remuneration committee and a framework for the delegation of authority has not been stablished. Due to the fact that the Company is a ring fenced special purpose vehicle there is not an internal audit department. The Board has delegated the responsibility that effective internal controls are implemented. As the Company is a ring fenced special purpose entity an integrated report is not compiled. A Board charter is currently being produced and it will be adopted in 2018 together with the evaluation of the Board. The Company is a ring fenced special purpose entity, and all of its services are outsourced to Merchant West Proprietary Limited and the Company has no employees. Therefore, it is not necessary for the Company to have a Remuneration Committee. All services performed by Merchant West are subject to the servicing agreement as well as other governance committees within Merchant West Proprietary Limited. 3. Independent advice A director or any member of a board committee may, if necessary, take independent professional advice at the expense of the Company. 4. Company secretary All directors have access to the advice and services of the Company secretary, who provides guidance to the board as a whole and to individual directors with regard to how their responsibilities should be discharged in the best interest of the Company. 5. Audit committee The board has concluded that the audit committee has fulfilled its responsibilities for the year under review in compliance with its terms of reference and statutory requirements. 6. Remuneration committee The Company is a special purpose vehicle which does not employ any employees and no remuneration is paid. The independent non-executive directors are provided by TMF Corporate Services (South Africa) Proprietary Limited and its fee for providing the service is agreed with Merchant West Proprietary Limited. 7. Integrated sustainability reporting and disclosure As a special purpose Company, the Company does not play an active role where the environment and the community is involved, therefore the integrated sustainability report will not form part of the Annual Financial Statements. 8. Fundamental and affected transactions The Company does not conduct business with entities in which its directors have an interest. Directors are required to declare their directorships in other companies on an annual basis. 4

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11 Directors' Report The directors have pleasure in submitting their report on the annual financial statements of MW Asset Rentals (RF) Limited for the year ended 31 March Nature of business MW Asset Rentals (RF) Limited was incorporated in South Africa with interests in the Financial services industry. The Company is a securitisation special purpose vehicle created solely to acquire equipment finance agreements from group companies. There have been no material changes to the nature of the Company's business from the prior year. 2. Review of financial results and activities The annual financial statements have been prepared in accordance with International Financial Reporting Standards and the requirements of the Companies Act 71 of The accounting policies have been applied consistently compared to the prior year. Full details of the financial position, results of operations and cash flows of the Company are set out in these annual financial statements, and in our opinion, do not require any further comments. 3. Share capital Refer to note 7 of the annual financial statements for detail of the movement in authorised and issued share capital. 4. Directorate The directors in office at the date of this report are as follows: Directors Changes Office R J Jaspan Executive Related W H Swanepoel Resigned 03 April 2017 Non-executive Independent R Thanthony Non-executive Independent B Harmse Resigned 31 December 2016 Non-executive Independent B J Korb Appointed 31 December 2016 Non-executive Independent O H Shabangu Appointed 31 December 2016 Non-executive Independent 5. Holding entity The Company's ultimate holding entity is MW Issuer Owner Trust which is incorporated in Republic of South Africa. 6. Borrowing powers In terms of the Memorandum of Incorporation, the borrowing powers of the Company are unlimited. However all borrowings by the company are subject to board approval as required by the board delegation of authority. 7. Events after the reporting period The directors are not aware of any other material event which occurred after the reporting date and up to the date of this report that would have a material effect on the current years financial statements. 8. Going concern The directors believe that the Company has adequate financial resources to continue in operation for the foreseeable future and accordingly the annual financial statements have been prepared on a going concern basis. The directors have satisfied themselves that the Company is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements. The directors are not aware of any new material changes that may adversely impact the Company. The directors are also not aware of any material noncompliance with statutory or regulatory requirements or of any pending changes to legislation which may affect the Company. 9. Auditors Grant Thornton Johannesburg Partnership will continue in office in accordance with section 90 of the Companies Act of South Africa. 10

12 Directors' Report 10. Secretary The company secretary is Morestat Corporate Services Proprietary Limited. Business address: 24A 18th Street Menlo Park Pretoria Dividends During the year under review, preference share dividends were declared and paid to the value of R Debentures During the year under review, debentures to the value of R (2016: R ) were issued by the company. The debentures are secured by cession of finance debtors and equipment underlying to the finance debtors (refer to note 4 and 8). Debentures bear interest ranging between prime less 1.5% to prime less 0.75%. During the year under review, debentures to the value of R were settled. The debentures were replaced by Class A Floating Rate Notes. (Refer to note 8) 13. Class A Floating Rate Notes Towards 30 June 2016, the company's Notes on offer have been rated by Standard and Poor (S&P) and was listed on the interest Rate Market of the JSE. A Preliminary rating of za/aaa has been assigned to the Class A Notes. Class A Floating Rate Notes with a nominal amount of R were issued. The floating notes were issued at an interest rate of 3 month JIBAR plus 2.10%.(refer to note 8) The Class A Floating Rate Notes are secured by cession of finance debtors and equipment underlying to the finance debtors (refer to note 4 and 9). 11

13 Statement of Financial Position as at 31 March Notes R R Assets Non-Current Assets Loans and advances to customers Current Assets Amounts due from group companies Loans and advances to customers Other receivables Cash and cash equivalents Total Assets Equity and Liabilities Equity Share capital Subordinated loan Retained income Liabilities Non-Current Liabilities Borrowings Deferred tax Current Liabilities Borrowings Trade and other payables Amounts due to group companies Current tax payable Total Liabilities Total Equity and Liabilities

14 Statement of Profit or Loss and Other Comprehensive Income Notes R R Interest income Interest expense 13 ( ) ( ) Net interest income Non-interest income Total income Impairment charges ( ) - Gross income Operating expenses ( ) ( ) Profit before taxation Taxation 15 ( ) ( ) Total comprehensive income for the year

15 Statement of Changes in Equity Share capital Subordinated Retained income Total equity loan R R R R Balance at 01 April Total comprehensive income for the year Balance at 01 April Total comprehensive income for the year Issue of shares Dividends - - ( ) ( ) Total contributions by and distributions to owners of company recognised directly in equity 1 - ( ) ( ) Balance at 31 March Notes

16 Statement of Cash Flows Notes R R Cash flows from operating activities Cash generated from operations Tax paid 17 ( ) ( ) Net cash from operating activities Cash flows from investing activities Loans and advances to customers ( ) Cash flows from financing activities Preference shares Proceeds from notes issued Repayment of debentures ( ) ( ) Dividends paid ( ) - (Repayment)/Proceeds of amounts from group companies ( ) Net cash from financing activities ( ) Total cash movement for the year ( ) Cash at the beginning of the year Total cash at end of the year

17 Accounting Policies 1. Presentation of annual financial statements The annual financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) and its interpretations adopted by the International Accounting Standards Board ( IASB ), the South African Institute of Chartered Accountants Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the South African Companies Act, No 71 of 2008, as amended, and the JSE Listings Requirements. The financial statements are presented in South African Rands( Rands ), rounded to the nearest rand. They are prepared on the basis that the Company is a going concerns, using the historical cost basis of measurement, and incorporate the principal accounting policies set out below. These accounting policies are consistent with the previous year. 1.1 Significant judgements and sources of estimation uncertainty In preparing the annual financial statements, management is required to make estimates and assumptions that affect the amounts represented in the annual financial statements and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the annual financial statements. Significant judgements include: Loans and advances to customers and Loans and receivables The company assesses its loans and advances to customers and Loans and receivables for impairment at the end of each reporting period. In determining whether an impairment loss should be recorded in profit or loss, the company makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset. The impairment for loans and advances to customers and Loans and receivables is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period. Taxation Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. 1.2 Financial instruments Classification The company classifies financial assets and financial liabilities into the following categories: Loans and receivables Financial liabilities measured at original cost plus accrued interest. Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. Classification is re-assessed on an annual basis. Initial recognition and measurement Financial instruments are recognised initially when the company becomes a party to the contractual provisions of the instruments. The company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument. 16

18 Accounting Policies 1.2 Financial instruments (continued) Impairment of financial assets At each reporting date the company assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired. For amounts due to the company, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payments are all considered indicators of impairment. Impairment losses are recognised in profit or loss. Where financial assets are impaired through use of an allowance account, the amount of the loss is recognised in profit or loss within operating expenses. When such assets are written off, the write off is made against the relevant allowance account. Subsequent recoveries of amounts previously written off are credited against operating expenses. Loans to (from) group companies These include loans to and from holding companies and fellow subsidiaries, and are recognised initially at fair value plus direct transaction costs. Loans to group companies are classified as loans and receivables. Loans from group companies are classified as financial liabilities measured at amortised cost. Loans and advances to customers and other receivables Loans and advances to customers and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. An allowance is made for the amortised cost when a Rental Agreement is defaulting. A Rental Agreement is defaulting when the customer has been liquidated or placed under judicial management or where the rental remains outstanding for more than 30 days for rentals collected by debit order or where the rental remains outstanding for more than 90 days for rentals collected by electronic fund transfer or cheque. A Rental Agreement ceases to be defaulting if the overdue rental is paid or the liquidation order or the judicial management is set aside. The carrying amount of the asset is reduced through an allowance account. No loss is recognized in profit or loss within operating expenses as the originator is obligated to repurchase the rental agreement. Trade and other payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents comprise cash on hand. These are initially recorded at fair value, and subsequently at amortised cost, using the effective interest rate method. Borrowings Borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Debentures These financial liabilities are initially recognised at fair value plus direct transaction costs, and are subsequently measured at amortised cost using the effective interest rate method. 17

19 Accounting Policies 1.3 Tax Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Taxation expenses Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the taxation arises from: a transaction or event which is recognised, in the same or a different period, to other comprehensive income, or a business combination. Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity. 1.4 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Finance leases - lessor The company recognises finance lease receivables in the statement of financial position. Finance income is recognised based on a pattern reflecting a constant periodic rate of return on the company s net investment in the finance lease. Instalment finance Rental, lease and instalment sale contracts are financing transactions, with rentals and instalments receivable, less unearned finance charges, being reflected as loans and advances to customers in the Statement of Financial Position. 1.5 Impairment of assets The company assesses at each end of the reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the company estimates the recoverable amount of the asset. If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated. 1.6 Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. 18

20 Accounting Policies 1.7 Provisions and contingencies Provisions are recognised when: the company has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the obligation. The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Provisions are not recognised for future operating losses. 1.8 Revenue Interest is recognised, in profit or loss, using the effective interest rate method. Ancillary rental income is recognised on an invoice basis when earned. Settlement profit is recognised on settlement date. Profit on sale of secondary equipment is recognised when the significant risks and rewards of ownership are transferred to the buyer and it is probable that the economic benefits, which can be measured reliably, will flow to the enterprise. 1.9 Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred. 19

21 Notes to the Annual Financial Statements R R 2. New Standards and Interpretations At the date of approval of these annual financial statements, certain new accounting standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the entity. Management anticipates that all of the pronouncements will be adopted in the entity's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the entity's financial statements is presented below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the entity's annual financial statements. 2.1 Standards and interpretations effective and adopted in the current year In the current year, the company has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations: Standard/ Interpretation: Disclosure Initiative: Amendment to IAS 1: Presentation of Financial Statements Effective date: Expected impact: Years beginning on or after 01 January 2016 The impact of the amendment is not material. 2.2 Standards and interpretations not yet effective The company has chosen not to early adopt the following standards and interpretations, which have been published and are mandatory for the company s accounting periods beginning on or after 01 April 2017 or later periods: Standard/ Interpretation: Effective date: Expected impact: Years beginning on or after IFRS 16 Leases 01 January 2019 Impact is currently being assessed IFRS 9 Financial Instruments 01 January 2018 Impact is currently being assessed IFRS 15 Revenue from Contracts with Customers 01 January 2018 Impact is currently being assessed Amendments to IFRS 15: Clarifications to IFRS 15 Revenue from Contracts with Customers 01 January 2018 Impact is currently being assessed Amendments to IAS 7: Disclosure initiative 01 January 2017 Impact is currently being assessed Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses 01 January 2017 Impact is currently being assessed 3. Controlling entities The MW Issuer Owner Trust holds 100% of the issued ordinary shares of MW Asset Rentals (RF) Limited. In terms of the International Financial Reporting Standards (IFRS) 10 Consolidated Financial Statements, an entity is consolidated when it is controlled by an investor. Control is achieved when the investor is exposed, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, an investor controls an investee if and only if the investor has power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities): exposure, or rights to variable returns from its involvement with the Investee and the ability to use its power over the investee to affect its returns. In terms of IFRS 10, the company is regarded to be controlled by Merchant West Proprietary Limited and is consolidated in the annual financial statements of Merchant West Proprietary Limited which is incorporated in South Africa. 20

22 Notes to the Annual Financial Statements R R 4. Loans and advances to customers Gross investment in the lease due - within one year in second to fifth year inclusive less: Unearned finance income ( ) ( ) Present value of minimum lease payments receivable less: non-performing loans ( ) ( ) Present value of minimum lease payments due - within one year in second to fifth year inclusive less: non-performing loans ( ) ( ) Non-current assets Current assets The advances to customers are ceded as security for the debentures issued by the company, refer to note 8. Credit quality of loans and advances to customers The credit quality of loans and advances to customers that are neither past due nor impaired are assessed by reference to the probabilities of default percentages as prescribed and regulated according to South African Reserve Bank regulations and standards, or by applying external International Credit Rating Agency's rating scales, or alternatively by considering historical information about counterparty default rates. Reconciliation of provision for impairment of loan balances 2017 Opening balance Charge to income statement Provision utilisation Closing balance Specific provision for non-performing loans ( ) ( ) ( ) General bad debt provision non-preforming loans - ( ) - ( ) 2016 Opening balance ( ) ( ) ( ) Charge to income statement Provision utilisation Closing balance Specific provision for non-performing loans ( ) - ( ) ( ) General bad debt provision non-preforming loans ( ) ( ) - ( ) ( ) The MW Asset Rentals (RF) Limited Lease Receivables Backed Note Programme Memorandum was restructured on 18 November Under the Initial Programme memorandum, loans which were impaired were required to be repurchased by Merchant West Proprietary Limited. Due to this requirement, no impairments were charged to the Statement of Comprehensive Income. This is no longer required under the current Programme Memorandum. Impairments are charged to the Statement of Comprehensive Income. 21

23 Notes to the Annual Financial Statements R R 4. Loans and advances to customers (continued) Loans and advances to customers past due but not impaired Finance lease receivables which are less than 3 months past due are not considered to be impaired. At 31 March 2017 R (2016: R ) were past due but not impaired. The ageing of amounts past due but not impaired is as follows: Local finance lease receivables 1 month past due months past due months past due Other receivables VAT Other receivables are short term in nature. The net carrying value of other receivables is considered a reasonable approximation of fair value. 6. Cash and cash equivalents Cash and cash equivalents consist of: Bank balances Share capital Authorised Ordinary no par value shares No par value preference shares The authorised share capital was increased through the creation of 100 no par value preference shares. Issued 120 Ordinary no par value shares Preference shares of R On the 18 Novemeber 2016 the Preference Shareholder subscribe for one Preference Share for a subscription price of R1. 22

24 Notes to the Annual Financial Statements R R 8. Borrowings Held at amortised cost Class A Floating Rate Notes (i) Debentures in issue (ii) (i) Class A Floating Rate Notes On the 8 June 2016 a R Lease Receivables Backed Note Programme was registered with the JSE Limited On 18 November 2016, the company sold Class A Floating Rate Notes with a nominal amount of R The issuance comprised floating rate notes with a tenor of three years. The floating notes were issued at an interest rate of 3 month JIBAR plus 2.10%. At 31 March 2017 this interest rate was 9.425%. The notes are listed on the Johannesburg Stock Exchange. The Notes were rated za.aaa (sf) by Standard and Poor Global Ratings. (ii) Debentures issued Held at amortised cost Long-term portion of debentures issued Nedbank Limited ABSA Bank Limited First Rand Bank Limited Short-term portion of debentures issued Nedbank Limited ABSA Bank Limited First Rand Bank Limited The debentures obtained a credit rating of A1.za by Moody's. The debentures bear interest at rates ranging between prime less 1,5% to prime less 0.75%. The debentures were paid in full on the 18 November Non-current liabilities At amortised cost Current liabilities At amortised cost

25 Notes to the Annual Financial Statements R R 9. Deferred tax Deferred tax liability Deferred tax liability arising out of temporary differences ( ) ( ) The deferred tax assets and the deferred tax liability relate to income tax in the same jurisdiction, and the law allows net settlement. Therefore, they have been offset in the statement of financial position as follows: Deferred tax liability ( ) ( ) Reconciliation of deferred tax asset / (liability) At beginning of year ( ) ( ) Recoupments and wear and tear ( ) ( ) Provisions ( ) Operating lease instalments Instalments received in advance Adjustment to prior year deferred tax ( ) ( ) 10. Trade and other payables Instalments received in advance Accrued expenses Accrued audit and rating fees All amounts are short term. The net carrying value of trade and other payables is considered a reasonable approximation of fair value. 11. Amounts due from (due to) group companies Merchant West Collections SPV Proprietary Limited Merchant West Proprietary Limited ( ) ( ) MWAR Warehouse SPV (RF) Proprietary Limited ( ) ( ) The amounts are unsecured, interest free and terms of repayment are reviewed on a month to month basis. Current assets Current liabilities ( ) ( ) ( ) The maximum exposure to credit risk at the reporting date is the fair value of each class of loan mentioned above. The company does not hold any collateral as security. 12. Interest income Interest received The weighted yield on 95.51% (2016: 92.10%) of loans and advances to customers yields a return of 3.61% (2016: 3.32%) above the prime interest rate. The weighted yield on 4.49% (2016: 7.90%) of the loans and advances to customers yields a fixed return of 15.80% (2016: 15.19%). 24

26 Notes to the Annual Financial Statements R R 13. Interest expense Utilisation of capital Interest expense on subordinated loan Interest expense on corporate bonds Interest expense on debentures Non-interest income Ancillary rental income Documentation fees received Settlement profit Sundry income Taxation Major components of the taxation expense Current Local income tax - current period Deferred Deferred taxation arising from temporary differences ( ) Reconciliation of the tax expense Reconciliation between accounting profit and tax expense. Accounting profit Tax at the applicable tax rate of 28% (2016: 28%) Tax effect of adjustments on taxable income Adjustment to prior year deferred tax ( ) Permanent difference - ( ) Cash generated from operations Profit before taxation Changes in working capital: Other receivables ( ) ( ) Trade and other payables ( ) Taxation paid Balance at beginning of the year ( ) Current taxation for the year recognised in profit or loss ( ) ( ) Balance at end of the year ( ) ( ) 25

27 Notes to the Annual Financial Statements R R 18. Directors' emoluments Executive Executive director fees are paid by Merchant West Proprietary Limited for management services provided to MW Asset Rentals (RF) Limited. Non-executive S Naidoo R Mohlala B Harmse* - - W H Swanepoel* - - R Thanthony* - - B J Korb* - - O H Shabangu* *Non executive directors fees are paid to TMF Corporate Services (South Africa) Proprietary Limited who supply the services of non executive directors. A total of R (2016: R Nil) was paid to TMF Corporate Services (South Africa) Proprietary Limited. 26

28 Notes to the Annual Financial Statements 19. Categories of financial instruments Notes Loans and receivables Financial liabilities at amortised cost Leases Equity and non financial assets and liabilities Total Categories of financial instruments Assets Non-Current Assets Advances to customers Current Assets Amounts due from group companies Trade and other receivables Loans and advances to customers Cash and cash equivalents Total Assets Equity and Liabilities Equity Equity Attributable to Equity Holders of Parent: Share capital Subordinated loan Retained income Total Equity Liabilities Non-Current Liabilities Other financial liabilities Deferred tax Current Liabilities Trade and other payables Amounts due to group companies Other financial liabilities Current tax payable Total Liabilities Total Equity and Liabilities

29 Notes to the Annual Financial Statements Notes Loans and receivables Financial liabilities at amortised cost Leases Equity and non financial assets and liabilities Total Categories of financial instruments Assets Non-Current Assets Advances to customers Current Assets Trade and other receivables Loans and advances to customers Cash and cash equivalents Total Assets Equity and Liabilities Equity Equity Attributable to Equity Holders of Parent: Share capital Subordinated loan Retained income Total Equity Liabilities Non-Current Liabilities Other financial liabilities Deferred tax Current Liabilities Trade and other payables Amounts due to group companies Other financial liabilities Current tax payable Total Liabilities Total Equity and Liabilities

30 Notes to the Annual Financial Statements R R 20. Related parties ` Relationships Ultimate controlling company Securitisation company Holding entity Fellow subsidiary Directors Merchant West Holdings Proprietary Limited Merchant West Proprietary Limited MW Issuer Owner Trust Merchant West Capital Finance Proprietary Limited Merchant West Collections SPV Proprietary Limited Ariva Rentals Proprietary Limited Merchant West Capital Markets Proprietary Limited MW Brands Proprietary Limited Merchant West Working Capital Solutions Proprietary Limited Merchant West Specialised Finance Proprietary Limited MWAR Warehouse SPV (RF) Proprietary Limited MW Working Capital Solutions (RF) Proprietary Limited Refer to note 4, on page 10 in the Directors' Report Related party balances Amounts - due from (due to) related parties Merchant West Collections SPV Proprietary Limited Merchant West Proprietary Limited ( ) ( ) MWAR Warehouse SPV (RF) Proprietary Limited ( ) - Subordinated Loan accounts - Owing (to) by related parties Merchant West Proprietary Limited ( ) - Merchant West Capital Finance Proprietary Limited - ( ) Subordinated funds - reclassified as equity The loan is unsecured, bears interest at a rate to be decided from time to time up to a maximum of 25% nominal annual compound monthly in arrears and is repayable on demand. From 18 November 2016, bears an interest rate of 3 month JIBAR plus 10% nominal annual compounded quaterly in arrers and is payable on a monthly basis. The loan is in terms of a loan agreement where interest will accrue on the outstanding capital of the loan balance once the company's assets, fairly valued, exceed it's liabilities. In terms of the trust deed relating to the MW Asset Rentals Debentures Holders Trust, a minimum amount of R Nil (2016: R Nil) may not be repaid in order to meet the required subordinated funding ratios. Subordinated funds are reclassified as equity and disclosed as capital and reserves. Related party transactions Interest paid to related parties Merchant West Capital Finance Proprietary Limited Merchant West Specialised Finance Proprietary Limited Merchant West Proprietary Limited Securitisation fees paid to related parties Merchant West Specialised Finance Proprietary Limited

31 Notes to the Annual Financial Statements 21. Risk management Capital risk management The company's objectives when managing capital are to safeguard the company's ability to continue as a going concern in order to provide returns for shareholder and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The capital structure of the company consists of debt, which includes the borrowings disclosed in notes 8 & 11 cash and cash equivalents disclosed in note 6, and equity as disclosed in the statement of financial position. Consistent with others in the industry, the company monitors capital on the basis of the debt: equity ratio. This ration is calculated as net debt divided by total equity. Net debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the statement of financial position) less cash and cash equivalents. Total equity is represented in the statement of financial position. Financial risk management The company s activities expose it to a variety of financial risks: market risk (including cash flow interest rate risk), credit risk and liquidity risk. Liquidity risk The company s risk to liquidity is a result of the funds available to cover future commitments. The company manages liquidity risk through an ongoing review of future commitments and credit facilities. Cash flow forecasts are prepared and adequate utilised borrowing facilities are monitored. At 31 March 2017 < 1 month > 1 month <= 3months >3 months <=1 year >1 year <=5 years > 5 years and non-cash items Assets Liabilities ( ) ( ) ( ) - ( ) ( ) Equity Liquidity gap/interest rate sensitivity gap Cumulative liquidity gap/interest rate gap Cumulative earnings risk: 1% changes in rates At 31 March 2016 < 1 month > 1 month <= 3months Total ( ) ( ) ( ) ( ) >3 months <=1 year >1 year <=5 years > 5 years and non-cash items Assets Liabilities ( ) ( ) ( ) ( ) ( ) ( ) Equity Liquidity gap/interest rate sensitivity gap Cumulative liquidity gap/interest rate gap Cumulative earnings risk: 1% changes in rates Total ( )

32 Notes to the Annual Financial Statements 21. Risk management (continued) Interest rate risk The Company's interest rate risk arises from borrowings. Borrowings issued at variable rates expose the company to cash flow interest rate risk. Cash flow interest rate risk The company is exposed to cash flow interest rate risk on floating rate borrowings detailed in note 8. The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of +/-1% (2016: +/-1%). These changes are considered to be reasonably possible based on observation of current market conditions. Profit for the year +1% -1% 31 March ( ) 31 March ( ) Equity +1% -1% 31 March ( ) 31 March ( ) 31

33 Notes to the Annual Financial Statements 21. Risk management (continued) Credit risk Credit risk consists mainly of cash deposits, cash equivalents, derivative financial instruments and trade debtors. The company only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party. Financial assets exposed to credit risk at year end were as follows: 2017 <1-3 months 3 months - 1 year 1-5 years 5 years and non-cash items Carrying amount Non-current assets Long term portion of loans receivable Current assets Amounts due from group companies Trade and other receivables Short term portion of loans receivable Cash and cash equivalents Non-current liabilitie Borrowings Deferred tax Current liabilities Amount due to group companies Borrowings Current tax payable Trade and other payables <1-3 months 3 months - 1 year 1-5 years 5 years and non-cash items Carrying amount Non-current assets Long term portion of loans receivable Current assets Trade and other receivables Cash and cash equivalents Short-term portion of loans receivable Subtotal Non-current liabilities Borrowings Deferred tax Current liabilities Amount due to group companies Borrowings Current tax payable Trade and other payables Credit risk is reduced by the following: Exposure to any one client is limited to 3.0% (2016: 2.5%) of the aggregate net present value of the rental book. Exposure of the top five clients is limited to 12.5% (2016: 10.0%) of the aggregate net present value of the rental book. Exposure to the top ten clients is limited to 20.0% (2016: 17.5%) of the aggregate net present value of the rental book. Exposure to the top thirty clients is limited to 40.00% (2016: 0.0%) of the aggregate net present value of the rental book. 32