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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
3.
Financial instruments and financial risks
continued
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.
Classes of financial instruments
2017
R’000
2016
R’000
Financial assets
Cash and cash equivalents
1 350 666
589 027
Trade and other receivables*
2 577 605
2 520 624
Contingent consideration receivable
—
15 860
Loans receivable
225 080
104 127
Loans to associates and joint ventures
19 338
282 196
Loans to venture capital associates and joint venture
252 615
—
4 425 304
3 511 834
Financial liabilities
Non-interest-bearing borrowings
18 026
16 087
Trade and other payables*
3 487 183
2 547 378
Contingent consideration
32 974
83 563
3 538 183
2 647 028
Net financial position
887 121
864 806
* Trade and other receivables and trade and other payables exclude non-financial instruments.
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. Refer to note 2.1 for credit risk on associates and joint ventures.
Trade receivables
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.
During the period, the Group identified a significant increase in the credit risk of one of its major wholesale
customers. This was not as a result of the customer failing to pay amounts as they became due and payable, but
rather as a result of other external factors that have affected them. As a result of this, the Group performed a detailed
impairment calculation to determine if an impairment of the trade and other receivables balance from this customer
was required. This included an analysis of the root cause of the increase in credit risk of the customer. Through
discussions with the customer, management have prepared detailed budgets and projections of the likely scenarios
that the customer will embark upon to mitigate the root cause of the increase in their credit risk. Management have
considered the customer’s business plan and the likelihood of the various scenarios and determined that, at the
reporting period, there is no impairment required to this balance. The Group’s maximum gross exposure to credit risk
of this counterparty amounted to R562 million at 31 May 2017. However, the Group has collateral in place that
would mitigate this risk, with a result that the net maximum exposure, albeit highly unlikely, to this customer is
R287 million at 31 May 2017.