Tiger Brands | Annual Financial Statements 2023

TRADE AND OTHER RECEIVABLES

Right-of-return assets

A right-of-return asset is recognised for the right to recover the goods expected to be returned by customers. The asset is measured at the former carrying amount of the inventory less any expected costs to recover the goods and any potential decreases in value. The group updates the measurement of the asset for any revisions to the expected level of returns and any additional decreases in the value of the returned products.

Impairment of financial assets

The group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures where there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures where there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables and contract assets, the group applies a simplified approach to calculating ECLs. Therefore, the group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. In terms of inter-company amounts and investments, the group evaluates potential impairments based on the net asset value of the subsidiary company and its liquidity.

The group considers a financial asset in default when contractual payments are 60 days past due the standard credit terms, which are 30 days to 45 days, and the repayment profile of customers. Eighty-five percent of all customers have payment terms of 30 days or less. Sixty days past due is considered to be an appropriate indicator of default on the group’s financial assets when considered against the group’s customer base, the trading terms for which are predominantly 30 days. This is also informed by the group’s extensive experience with its customer base. However, in certain cases, the group may also consider a financial asset to be in default when internal or external information indicates that the group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Factors taken into consideration would include external market and economic outlook reports, observable trends, and cyclicality.

In terms of inter-company amounts, the group evaluates potential impairments based on the nature of the entity and its liquidity and solvency position. Even with the consideration of forward-looking information relevant to the industries and environment in which the group companies operate, the credit risk relating to these entities is very low and no/limited provisioning is required. No further IFRS 7/ECL disclosure is provided in this regard.

21.1

Analysis of trade and other receivables

	GROUP		COMPANY
(R’million)	2023	2022	2023	2022
Analysis of trade and other receivables
Trade receivables	3 947,8	3 455,3
Derivative assets	8,9	16,5
Other receivables		–
VAT receivable	147,1	104,2
Sundry receivables*	245,9	149,0	43,7	39,7
Prepayments	196,3	208,2	0,1	0,1
Garnishee order**	102,3	87,7
Pension fund contribution holiday (refer note 30)	41,4	38,9
Tax receivable	22,2	10,9	–	0,4
Rebates receivable	1,2	12,4
Total gross receivables	4 713,1	4 083,1	43,8	40,2
Expected credit loss	(70,7)	(127,5)	(37,1)	(37,1)
Total net receivables	4 642,4	3 955,6	6,7	3,1
Trade receivables, which generally have 30 to 60-day terms, are non-interest-bearing and are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

21.2

Expected credit loss^#

	GROUP		COMPANY
(R’million)	2023	2022	2023	2022
Balance at beginning of the year	(127,5)	(124,2)	(37,1)	(58,1)
Utilised during the year	–	2,7	–	–
Reversed during the year	68,3	0,7	–	21,0
Raised during the year	(9,3)	(6,7)	–	–
Effect of translation	(2,2)	–	–	–
Balance at end of the year*	(70,7)	(127,5)	(37,1)	(37,1)

**	The ECL on sundry receivables is considered to be immaterial due to the low level of credit losses experienced in relation to the balance
*	Consideration has been made on the ECL for sundry receivables
**	A garnishee order was served against the Chococam subsidiary, resulting in several of Chococam’s bank accounts being blocked. The amounts seized were reclassified to other receivables and not disclosed as cash and cash equivalents on the basis that the cash is not readily available
^#	The ECL results in the recognition of a loss allowance before the credit loss is incurred. Factors that are considered accounts for current conditions along with reasonable and supportable forward-looking information that is not time-consuming or costly to obtain. The company has adopted the “simplified approach” in determining the ECL

Considering that IFRS 9 does not provide an explicit guide or any specific requirements, we have opted to use a provision matrix approach to calculate the ECL. This involves allocating individual trade debtors into groups that share similar credit risk characteristics.

Customers' risk ratings were determined by applying the following criteria:

Historical data spanning three years, which includes payment history and behavioural trends
Economic environment that has a significant impact on each customer
Geographical location of the customer

Low-risk receivables are considered as fully performing receivables where customers are in compliance with their credit terms. This is supported by Tiger Brands' assessment of the financial soundness of the customer, customer trading patterns, and their credit rating.

Medium-risk receivables are those performing receivables where there has been an increase in their credit risk since the time the credit was granted. These receivables are further classified into the following categories and allocated a risk rating, which is then used to calculate the expected future credit loss:

Medium-risk 1 customers are those customers with whom the group has had a lengthy period of trading history, customers who mostly maintain their accounts within terms – with one or two exceptions – and where the ratings agencies provide the customer with a reasonable score
Medium-risk 2 customers are those customers between medium-risk 1 rating and medium-risk 3 rating. Judgement is applied in the evaluation of the triggers, resulting in a drop from a medium-risk 1 rating to a medium-risk 2 rating, which would mainly be as a result of a decline in trading history with the customer and scores from the ratings agencies
Medium-risk 3 customers are those customers that are viewed as risky due to limited trading history with the customer, long overdue amounts outstanding, customers who consistently pay late, or where the rating agencies give the customer a poor credit score

These risk ratings are reviewed bi-annually and adjusted accordingly.

The percentage ECL provision for receivables classified as medium-risk 3 is impacted due to a change in mix between customers for whom the group enjoys trade credit insurance and those where the group is fully exposed and thus had to raise higher ECL provisions. A higher proportion of performing receivables are covered through trade credit insurance with external parties, resulting in a lower provision overall.

The percentage used to calculate the ECL for each risk segment was determined by:

Past three years' specific impairment provisions
Past three years' specific bad debts written off
Past three years' trade credit insurance claims ratios
Management's forward-looking analysis of the FMCG environment
An unbiased approach that involves evaluating a range of possible outcomes based on current economic trends

The company makes use of selective trade credit insurance. For those debtors that are not insured, the full carrying value of the outstanding debt was included in the calculation of the ECL. For those debtors that are insured, only the uninsured portion of the debt was included in the calculation of the ECL. Once all internal measures to collect contractual cash flows have been exhausted, the group will engage the assistance of a debt collection agency in an attempt to secure payment. Twice a year, an assessment of the outstanding amounts owed by the customer, together with detailed information from the debt collection agency, is undertaken and the decision made as to whether collection efforts should continue or be suspended. The timing of this decision is uncertain, as it will depend on the facts and merits of the collection efforts, and is based on the cost versus benefit of continuing the collection effort.

A process of identifying specific impairments is included in the total impairment provision. Management will raise a specific impairment provision when all internal and/or pre-legal efforts to collect overdue debt have been exhausted.

	Performing receivables
(R’million)	Low risk	Medium- risk level 1	Medium- risk level 2	Medium- risk level 3	Defaulted receivables*	Total
2023
As at 30 September 2023	2 692,5	359,2	408,4	355,1	132,6	3 947,8
Expected credit loss*	–	(16,7)	(4,3)	(6,9)	(42,8)	(70,7)
Expected credit loss rate	–	(4,6%)	(1,1%)	(1,9%)	(32,3%)	(1,8%)
Net amount	2 692,5	342,5	404,1	348,2	89,8	3 877,1
2022
As at 30 September 2022	2 153,9	326,7	533,8	421,0	19,9	3 455,3
Expected credit loss*	–	(13,4)	(10,7)	(83,5)	(19,9)	(127,5)
Expected credit loss rate	–	(4,1%)	(2,0%)	(19,8%)	(100,0%)	(3,7%)
Net amount	2 153,9	313,3	523,1	337,5	–	3 327,8

* The substantial increase in defaulted receivables relative to the prior year relates to the reclassification of medium-risk performing receivables to defaulted receivables. In addition, the insurance cover has been reassessed resulting in a 32,3% expected credit loss rate in the current year

21.3

Past due analysis

	GROUP		COMPANY
(R’million)	2023	2022	2023	2022
As at 30 September, the ageing of trade receivables was as follows:
Not past due*	3 512,5	3 290,9
Past due:
Current to 60 days	326,3	81,9
61 to 90 days	32,8	25,2
91 to 180 days	25,6	26,3
>180 days	50,6	31,0
Total	3 947,8	3 455,3
As at 30 September, the ageing of all other receivables, excluding tax receivable and prepayments, was as follows:
Not past due	360,0	217,4	6,5	1,3
Past due:
Current to 60 days	6,6	137,4	0,1	1,4
61 to 90 days	4,4	6,8	–	–
91 to 180 days	8,3	3,7	–	–
>180 days	167,5	43,4	37,1	37,0
Total	546,8	408,7	43,7	39,7

*	Debtors that are neither past due nor impaired are made up of customers with high credit ratings and with a sound payment history

21.4

Trade receivable analysis

	GROUP		COMPANY
(R’million)	2023	2022	2023	2022
Industry spread of trade receivables:
Retail	1 991,5	2 093,2
Wholesale/distributors	1 208,0	654,4
Export	657,8	565,4
Other	90,5	142,3
Total	3 947,8	3 455,3
Geographical spread of trade receivables:
South Africa	3 138,5	2 863,4
Rest of Africa	652,5	439,5
Europe	97,9	46,1
Rest of the world	58,9	106,3
Total	3 947,8	3 455,3

21.5

Collateral held

	GROUP		COMPANY
(R’million)	2023	2022	2023	2022
Collateral held	23,0	23,8
Collateral held represents hawker deposits that may be applied against accounts that are in default.