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NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
continued
For the year ended 31 May 2016
BLUE LABEL INTEGRATED ANNUAL REPORT 2016
104
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:
2016
R’000
2015
R’000
Group 1
—
7 900
Group 2
282 196
193 186
Group 3
—
—
282 196
201 086
The Group has subordinated a portion of its loan to 2DFine Holdings Mauritius Limited in favour of other creditors, to the
value of R41 million.
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:
2016
2015
Growth
rate
%
Discount
rate
%
Growth
rate
%
Discount
rate
%
Oxigen Services India Private Limited
5.0
35.00
5.0
21.00
SupaPesa Africa Limited
4.0
17.74
4.0
17.38
Blue Label Mexico
S.A.deC.V.
3.5
16.44
3.5
18.46
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:
2016
Growth
rate
%
Discount
rate
%
SupaPesa Africa Limited
(3)
2
For Oxigen Services India Private Limited and 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.
In considering the impairment of the Group’s investment in Oxigen Services India Private Limited (OSI), the Group has
evaluated the company’s historical performance and future strategy. OSI currently has 127 000 touch points
operational in its offline division, with the Group’s share of profits from this division increasing by R21.4 million in the
current year. In India there has been a shift in demand for online wallets. Accordingly a strategic decision was made to
enter this market. Through the extensive marketing OSI has undertaken, the number of wallet subscribers acquired as
well as the volume of transactions performed will continue to increase. This growth is evidenced by the fact that the
wallet subscriber base has increased from 5.4 million to 22.6 million in the current financial year. Daily money transfer
deposits have grown from USD3.3 million per day as at 31 May 2015 to USD4.0 million per day as at 31 July 2016,
increasing exponentially through its connectivity with the National Payment Corporation of India. Accordingly, the
Group’s share of losses generated by the online division increased by R31.5 million in the current year.
In assessing the Group’s investment into the 2DFine Group, the factors relating to OSI above were taken into account
as this is 2DFine Group’s main investment.
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 losses in BLM are 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.