bold spirit - ArcelorMittal South Africa

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162 ArcelorMittal South Africa Annual Report 2010 Notes to the group and company annual financial statements continued for the year ended 31 December 2010 Group 2010 Rm 2009 Rm 2010 Rm Company 2009 Rm 18. TRADE AND OTHER RECEIVABLES Trade receivables – Local 1 485 1 717 1 371 1 609 – Exports 249 1 77 183 118 Total gross trade receivables 1 734 1 894 1 554 1 727 Less allowances Allowance for doubtful debts – Local (1) (16) (1) (16) – Exports (4) (1) (4) (1) Total allowances for doubtful debts (5) (17) (5) (17) Other allowances – Local (178) (171) (178) (171) – Exports (1) (1) (1) (1) Total other allowances (179) (172) (179) (172) Net trade receivables – Local 1 306 1 530 1 192 1 422 – Exports 244 175 178 116 Total net trade receivables 1 550 1 705 1 370 1 538 Other receivables 146 328 120 89 Less: allowance for doubtful debts (17) (28) (17) (28) 129 300 103 61 Net value-added tax receivable 137 91 109 45 Net other receivables 266 391 212 106 Total 1 816 2 096 1 582 1 644 Average credit period for trade receivables The sectoral split of the average credit period on sales of goods is as follows: – Local 34 33 34 34 – Exports 9 9 9 9 No interest is charged on trade receivables for the first 30 days from date of statement. Thereafter, interest is charged at prime + 3% per annum on the outstanding balance. Other receivables relate primarily to by-product sales, site rental due, prepayments and staff education and bursary loans. In determining the recoverability of trade and other receivables, the group and company consider any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. Management believes that there is no further credit provision required in excess of the allowance for doubtful debts. The following allowances exist: • Allowance for doubtful debts, which is based on the ageing of customers and the calculation of customers handed over to the insurers, based on whether there is insurance cover or not. The amount provided for, is 10% excess for receivables that are handed over to the insurers and the remaining 90% will be paid as the participation percentage of the insurer. Customers without cover and older than 180 days are fully provided for. The movement in allowance for doubtful debts is not deemed material. • Other allowances, which relate to settlement discounts, price, quality, dispatch and related claims, are based on the exact amounts as withheld from payment by customers, for which credit notes still have to be issued. The movement in other allowances is not deemed material. The group and company did not transfer any receivables to related or unrelated entities during the current or comparative years. No factoring or securitisation arrangements were transacted.
163 ArcelorMittal South Africa Annual Report 2010 18. TRADE AND OTHER RECEIVABLES continued The credit risk management policy sets out the framework within which the customer credit risk is managed. The objectives of the credit risk management policy are to: • increase sales through investing in the customer base; • avoid extensions that could lead to the financial distress and default by customers; • maintain productive customer relationships within the framework of prudent risk management; • optimising cash collection periods; and • diversifying credit exposure over a broad client base. The Credit Policy is enacted by the Credit Management department (Credit Management). Credit Management ensures that credit extension and management is conducted within the approved frameworks, and adequately assesses and reports all credit exposures, which includes the maintenance of appropriate collateral, financial guarantees and credit insurance. Customer credit risk is assessed on a group-wide basis and refers to the risk that a customer will default on its contractual obligations resulting in financial loss to the group. Customers are independently rated. Independent rating agency, Experian South Africa (Proprietary) Limited, are used for domestic customers. If there is no independent rating, Credit Management assesses the credit quality of the specific customer, taking into account its financial position, past experience and other factors. Credit limits are regularly monitored. Credit insurance is placed with the Coface Group with a maximum liability of R1 800 million with a 10% excess. The group is exposed to three main customers, which account for approximately a third of its trade and other receivables balance. These top three customers operate in the domestic market. The table below details the cumulative credit limit and balances (both inclusive of value-added tax) of the top three customers at the balance sheet date for the group and company: Customer Rating Credit limit 2010 Rm Balance 2010 Rm Credit limit 2009 Rm Balance 2009 Rm Top three customers by sales value Two with A-ratings and one with a B-rating 1 850 429 1 550 511 % of net trade receivables – Group 28% 30% – Company 31% 33% Credit risk exposure by class for the group and company is as follows: Group 2010 % Company 2010 % Local 86 88 Exports 14 12 100 100
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