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BLUE LABEL
INTEGRATED ANNUAL REPORT 2017
Notes
to the Group annual financial statements
continued
For the year ended 31 May 2017
2.
Group composition
continued
2.1 Investments in and loans to associates and joint ventures continued
Loans to associates and joint ventures continued
The Group considers its maximum exposure in respect of these loans, without taking into account any collateral and
financial guarantees, to be as follows:
2017
R’000
2016
R’000
Group 1
1 591
—
Group 2
11 032
282 196
Group 3
6 715
—
19 338
282 196
The rating groups for counterparties are categorised as follows:
Group 1 – New customers/related parties (less than six months).
Group 2 – Existing customers/related parties (more than six months) with no defaults in the past.
Group 3 – Existing customers/related parties (more than six months) with some defaults in the past.
Impairment of associates and joint ventures
There was no impairment of investment in associates and joint ventures. This was tested by comparing the recoverable amount
against the carrying value of the investment in associates and joint ventures.
The recoverable amount is the higher of fair value less cost of disposal and the value-in-use. These value-in-use calculations use cash
flow projections based on financial budgets approved by the Board of Directors for the forthcoming year and forecasts for up to five
years which are based on assumptions of the business, industry and economic growth. Cash flows beyond this period are
extrapolated using terminal growth rates, which do not exceed the expected long-term economic growth rate.
The key assumptions used for the value-in-use calculations are as follows:
2017
2016
Growth
rate
%
Discount
rate
%
Growth
rate
%
Discount
rate
%
Oxigen Services India Private Limited
*
*
5
35.00
SupaPesa Africa Limited
4
14.97
4
17.74
Blue Label Mexico S.A. de C.V.
3.5
15.52
3.5
16.44
* Refer to note 2.2.
The discount rates used are post-tax and reflect specific risks relating to the relevant associates and joint ventures. The growth rate is
used to extrapolate cash flows beyond the budget period. The growth rates were consistent with publicly available information
relating to long-term average growth rates for each of the markets in which the companies operate.
The inputs used when calculating the value-in-use would need to be increased/(decreased) by the following amounts before any
impairment would need to be recognised:
2017
2016
Growth
rate
%
Discount
rate
%
Growth
rate
%
Discount
rate
%
SupaPesa Africa Limited
(2.5)
1.7
(3)
2
For Blue Label Mexico S.A. de C.V., if one or more of the inputs were changed to a reasonable possible alternative, there would be
no impairments that would have to be recognised.
Based on these factors, as well as the impairment testing performed the Group has concluded that no impairment is indicated.
The Group has concluded that no impairment of its investment in Blue Label Mexico S.A. de C.V. (BLM) is required. The decline in
losses in BLM is primarily due to BLM becoming a multi-carrier distributor as opposed to historically being confined to one network.
This has created a more competitive environment amongst the networks to the benefit of BLM. The introduction of the distribution
of starter packs that generate monthly compounded annuity income is expected to gain momentum which will result in further
declines in losses going forward.