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BLUE LABEL
INTEGRATED ANNUAL REPORT 2017
3.
Financial instruments and financial risks
continued
Starter packs
The risk of starter pack receivables is assessed as low due to the fact that annuity income through activation and
ongoing revenue is utilised in the settlement of the receivable balances. These receivables are recoverable within a
period which may exceed 12 months.
Loans receivable
Loans are only granted to holders with an appropriate credit history, taking into account the holder’s financial position
and past experience.
Cash and cash equivalents
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.
Investec Bank Limited has a credit rating of BB+ based on the latest S&P Global Ratings local currency long-term issuer
default ratings.
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 R85.5 million (2016: R98.8 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 8).
Liquidity risk
Liquidity risk arises when a company encounters difficulties in meeting commitments associated with liabilities and
other payment obligations. The Group’s objective is to maintain prudent liquidity risk management by maintaining
sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit
facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the
Group aims to maintain flexibility in funding by keeping committed credit lines available.
Cash flow forecasting is performed in the operating entities of the Group to ensure sufficient cash to meet
operational needs while maintaining sufficient headroom to ensure that borrowing limits (where applicable) are not
breached.
Surplus cash held by the operating entities over and above the balance required for working capital management is
transferred to the Group treasury. Group treasury invests surplus cash in interest-bearing accounts, identifying
instruments with sufficient liquidity to provide adequate headroom as determined by the above mentioned forecasts.
The Group has a short-term loan facility with Investec Bank Limited of R1.5 billion (2016: R1.5 billion). The facility was
unutilised at year-end. Drawdowns were made and fully repaid during the year.
The facility bears certain debt covenants. The Group has not been in breach in respect of these covenants. The Group
has pledged certain securities in respect of this facility. Refer to notes 3.1.2, 3.1.3 and 4.4.
The Company and a subsidiary company issued a cross surety in respect of an overdraft facility in the amount of
R19.85 million (2016: R19.85 million) in favour of FNB, a division of First National Bank Limited (FNB). This facility was
unutilised as at 31 May 2017. In addition, the Company and four of its subsidiaries issued a cross surety in the
amount of R1.3 million in respect of credit card facilities granted by FNB.
Guarantees to the value of R319.4 million (2016: R116 million) are issued by the Group’s bankers in favour of
suppliers on behalf of the Group. The Group does not have access to this cash while amounts owing to suppliers are
outstanding.
A guarantee to the value of R19.7 million has been issued by the Group’s bankers in favour of RBL Bank on behalf of
the Group. The Group does not have access to this cash while the guarantee is in place.
Notes
to the Group annual financial statements
continued
For the year ended 31 May 2017