3. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
 

Financial instruments carried on the statement of financial position include:

Financial assets

  • Loans receivable
  • Loans receivable from associates and joint ventures
  • Trade and other receivables
  • Advances to customers
  • Cash and cash equivalents
  • Financial assets at fair value through profit or loss

Financial liabilities

  • Borrowings
  • Trade and other payables
  • Lease liabilities
  • Contingent purchase consideration
  • Financial guarantee contracts
  • Financial liabilities at fair value through profit or loss

Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments.

Financial assets are classified as current if expected to be realised within 12 months of the statement of financial position date; if not, they are classified as non-current. Financial liabilities are classified as non-current if the Group has the right to defer settlement beyond 12 months of the statement of financial position date.

The Group classifies financial assets on initial recognition as measured at amortised cost, fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL) on the basis of the Group's business model for managing the financial asset and the cash flow characteristics of the financial asset.

Financial assets are classified as follows:

Measurement category Criteria
Amortised cost The asset is held within a business model with the objective to collect the contractual cash flows, and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.
Fair value through profit or loss Debt investments that do not qualify for measurement at amortised cost or FVOCI (the Group does not currently hold any FVOCI instruments); and equity investments that are held-for-trading.

Financial assets are not reclassified unless the Group changes its business model for managing those financial assets. In rare circumstances where the Group does change its business model, reclassifications are done prospectively from the date that the Group changes its business model.

Financial liabilities are classified as measured at amortised cost except for those derivative liabilities that are measured at FVTPL.

Measurement on initial recognition

All financial assets (unless it is a trade receivable without a significant financing component) and liabilities are initially measured at fair value, including transaction costs, except for those classified as fair value through profit or loss which are initially measured at fair value excluding transaction costs. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. A trade receivable without a significant financing component is initially recognised at the transaction price.

Subsequent measurement

Subsequent to initial recognition, financial instruments are measured as described below:

Category Subsequent measurement
Financial assets
Amortised cost These financial assets are subsequently measured at amortised cost using the effective interest method, less any impairment losses. Interest income, foreign exchange gains and losses and impairments are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Where the amortised cost using the effective interest method is materially lower than the fair value, this is separately disclosed.
Fair value through profit or loss These financial assets are subsequently measured at fair value and changes therein (including any interest or dividend income) are recognised in profit or loss.
Financial liabilities
Amortised cost These financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expenses and foreign exchange gains and losses are recognised in profit or loss. Where the amortised cost using the effective interest method is materially more than the fair value, this is separately disclosed.
Fair value through profit or loss These financial liabilities are subsequently measured at fair value with changes therein recognised in profit or loss.
Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when the obligations specified in the contracts are discharged, cancelled or expire. On derecognition of a financial asset/liability, any difference between the carrying amount extinguished and the consideration paid is recognised in profit or loss.

Impairment

Under IFRS 9, the Group calculates its allowance for credit losses as expected credit losses (ECLs) for financial assets measured at amortised cost. ECLs are a probability weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the original effective interest rate (EIR) of the financial asset.

In order to calculate ECLs, the Group aggregates trade receivables by customer type, as disclosed in the trade and other receivables note (note 3.5.2). The Group applies the simplified approach to determine the ECL for trade and other receivables. This results in calculating lifetime ECLs for trade and other receivables. ECLs for trade and other receivables are calculated using a provision matrix. Refer to the credit risk note (note 3.1) for more detail about ECLs and how this is calculated.

ECLs for receivables other than trade receivables have been determined using the general approach in IFRS 9. Under the general approach, an entity calculates ECLs for loans and receivables at initial recognition by considering the consequences and probabilities of possible defaults only for the next 12 months, rather than the life of the asset. It continues to apply this method until a significant increase in credit risk has occurred, at which point the loss allowance is measured based on lifetime ECLs.

Financial risk management

In the course of its business, the Group is exposed to a number of financial risks, namely 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.

Classes of financial instruments
2020 
R’000 
  2019 
R’000 
 
Financial assets
Trade and other receivables*  3 475 089     3 812 824    
Cash and cash equivalents  2 014 917     1 385 596    
Loans to associates and joint ventures (refer to note 2.1) 9 488     26 260    
Loans receivable  72 120     147 526    
Advances to customers  1 682 075     1 617 097    
Financial assets at fair value through profit or loss  249 538     289 742    
   7 503 227     7 279 045    
Financial liabilities 
Interest-bearing borrowings  2 305 209     3 200 408    
Non-interest-bearing borrowings  13 952     35 876    
Trade and other payables*  4 553 659     5 232 241    
Lease liability  141 123     —    
Derivative liability  77 524     —    
Put option liability  —     158 638    
Contingent consideration  —     1 923    
Liquidity support  350 410     301 716    
Other financial liabilities at fair value through profit or loss  7 152     —    
Financial guarantee contracts  201 474     243 492    
Bank overdraft  192     7 843    
7 650 695     9 182 137    
Net financial position  (147 468)    (1 903 092)   

* Trade and other receivables and trade and other payables exclude non-financial instruments.

Reconciliation of financial assets and non-financial assets

    2020           2019      
Total
R’000
  Financial
asset
R’000
  Non-
financial
asset
R’000
  Total
R’000
  Financial
asset
R’000
  Non-
financial
asset
R’000
 
Loans receivable 72 120   72 120     147 526   147 526    
Trade and other receivables 3 929 743   3 475 089   454 654   4 257 266   3 812 824   444 442  
Advances to customers 1 682 075   1 682 075     1 617 097   1 617 097    
Cash and cash equivalents 2 014 917   2 014 917     1 385 596   1 385 596    
Financial assets at fair value through profit or loss 249 538   249 538     289 742   289 742    
Loans to associates and joint ventures 9 488   9 488     26 260   26 260    
7 957 881   7 503 227   454 654   7 723 487   7 279 045   444 442  

Reconciliation of financial liabilities and non-financial liabilities

    2020           2019      
Total
R’000
  Financial
asset
R’000
  Non-
financial
asset
R’000
  Total
R’000
  Financial
liability
R’000
  Non-
financial
liability
R’000
 
Interest-bearing borrowings 2 305 209   2 305 209     3 200 408   3 200 408    
Non-interest-bearing borrowings 13 952   13 952     35 876   35 876    
Trade and other payables 4 611 643   4 553 659   57 984   5 369 463   5 232 241   137 222  
Lease liability 141 123   141 123          
Derivative liability 77 524   77 524          
Put option liability       158 638   158 638    
Contingent consideration       1 923   1 923    
Liquidity support 350 410   350 410     301 716   301 716    
Other financial liabilities at fair value through profit or loss 7 152   7 152          
Financial guarantee contracts 201 474   201 474     243 492   243 492    
Bank overdraft 192   192     7 843   7 843    
7 708 679   7 650 695   57 984   9 319 359   9 182 137   137 222