Blue Label Telecoms Integrated Annual Report 2019

Blue Label annual financial statements 2019 127 12. 2018 ACCOUNTING POLICIES continued 12.2 Financial instruments and financial risks continued Impairment of financial assets A financial asset is impaired if objective evidence indicates that a loss event has occurred after initial recognition which has a negative effect on the estimated future cash flows of the financial asset that can be estimated reliably. The Group assesses at each reporting date whether there is objective evidence that a financial asset which is carried at amortised cost is impaired. When a receivable is not recoverable, it is written off against the provision. Subsequent recoveries of amounts are credited to the income statement. 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, cash and cash equivalents and financial assets at fair value through profit or loss. 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. 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. Unsecured loans are advanced to parties with which the Group has a relationship in that they have dealt with them over numerous years, with no history of impairments in the past. All potential loans are assessed by relevant management in terms of the Board of Directors’ delegation of authority, and need to be approved by them before they can be advanced. Authorised management ensures that it has a thorough understanding of the counterparty’s financial position, their going concern capability and ability to repay the loan, before loans are advanced to counterparties. In certain cases, the Group has access to ongoing revenues which are payable to the counterparties and this reduces the credit risk of the borrower to the Group. 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.