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NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
CONTINUED
120
BLUE LABEL INTEGRATED ANNUAL REPORT 2015
For the year ended 31 May 2015
3.
FINANCIAL RISKS
In the course of its business, the Group is exposed to a number of financial risks: credit risk, liquidity
risk and market risk (including foreign currency, interest rate and other price risks). This note presents
the Group’s objectives, policies and processes for managing its financial risk and capital.
Risk management is monitored and managed by key personnel of each entity in the Group on a daily
basis based on their specific operational requirements.
Credit risk
Credit risk arises because a counterparty may fail to meet its obligations to the Group.
The Group is exposed to credit risk on financial assets mainly in respect of trade receivables, loan
receivables and cash and cash equivalents.
Trade receivables consist primarily of invoiced amounts from normal trading activities. The Group has a
diversified customer base and policies are in place to ensure sales are made to customers with an
appropriate credit history and payment history. Individual credit limits are set for each customer and
the utilisation of these credit limits is monitored regularly. Customers cannot exceed their set credit
limit, without specific Senior Management approval. Such approval is assessed and granted on a
case-by-case basis. Management regularly reviews the debtors age analysis and follows up on
long-outstanding debtors. Where necessary, a provision for impairment is made. A portion of the
Group’s customer base is made up of major retailers and wholesalers with the balance of the customer
base being widely dispersed.
The risk of starter pack receivables is assessed as low due to the fact that annuity income can be
utilised in the settlement of the receivable balances and are recoverable within a period which may
exceed 12 months.
Loans are only granted to holders with an appropriate credit history, taking into account the holder’s
financial position and past experience.
The Group places cash and cash equivalents with major banking groups and quality institutions that
have high credit ratings.
The Group has significant concentrations of credit risk with Investec Bank Limited in line with its
treasury function.
The Group’s maximum credit risk exposure is the carrying amount of all financial assets on the
statement of financial position and sureties provided with the maximum amount the Group could
have to pay if the sureties are called on, amounting to R62 million (2014: R1.9 million). The Group
holds collateral in the form of sureties in respect of 50% of the loan receivable from 2DFine Holdings
Mauritius. Refer to note 29.