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NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
CONTINUED
For the year ended 31 May 2014
140
BLUE LABEL INTEGRATED ANNUAL REPORT 2014
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, 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.
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 R1.9 million (2013: R1.8 million).