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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
3.2 Financial liabilities continued
3.2.2 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred, when the relevant contracts are
entered into. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the income statement over the period of the
borrowings using the effective interest rate method.
Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or
expired.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after year-end.
2017
R’000
2016
R’000
Non-interest-bearing borrowings
18 026
16 087
Less:
Amounts included in current portion of borrowings
(18 026)
(16 087)
—
—
The Group did not default on any loans or breach any terms of the underlying agreements during the period.
Borrowings are unsecured and are repayable on demand. Included in borrowings is R4.7 million (2016: R4.7 million)
owing to related parties, which is interest-free (refer to note 8).
Market risk
Market risk is the risk that changes in market prices (interest rate and currency risk) will affect the Group’s income or
the value of its holding of financial instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while optimising the return.
The Group is exposed to risks from movements in foreign exchange rates and interest rates that affect its assets,
liabilities and anticipated future transactions. The Group is not exposed to significant levels of price risk.
Cash flow and fair value interest rate risk
The Group’s cash flow interest rate risk arises from loans receivable, cash and cash equivalents, and borrowings
carrying interest at variable rates. The Group is not exposed to fair value interest rate risk as the Group does not have
any fixed interest-bearing instruments carried at fair value.
As part of the process of managing the Group’s exposure to interest rate risk, interest rate characteristics of new
borrowings and the refinancing of existing borrowings are positioned according to expected movements in interest
rates.
Foreign currency risk
The Group is exposed to foreign currency risk from transactions and translation. Transaction exposure arises because
affiliated companies undertake transactions in currencies other than their functional currency. Translation exposure
arises where affiliated companies have a functional currency other than the rand.
The Group manages its exposure to foreign currency risk by ensuring that the net foreign currency exposure remains
within acceptable levels. Hedging instruments may be used in certain instances to reduce risks arising from foreign
currency fluctuations.
IFRS 7 – Sensitivity analysis
The Group has used a sensitivity analysis technique that measures the estimated change to the income statement of
either an instantaneous increase or decrease of 1% (100 basis points) in market interest rates or a 10% strengthening
or weakening of the rand against all other currencies, from the rates applicable at 31 May 2017, for each class of
financial instrument with all other variables remaining constant. This analysis is for illustrative purposes only, as in
practice market rates rarely change in isolation.