NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS l NOTE 1
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Blue Label Telecoms Limited (the company) and its subsidiaries, joint ventures and associates (together referred to as the group) is involved in the procurement, selling and distribution of prepaid products for inter alia fixed and mobile networks and all business ancillary thereto.
The annual financial statements comprise the consolidated financial statements of the group and the stand-alone financial statements of the company and were authorised by the board of directors, as indicated on page 93.
| 1. | SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB) and the Companies Act, No. 71 of 2008. These financial statements are prepared in accordance with IFRS, issued and effective as at 31 May 2011. Basis of preparation The annual financial statements and group financial statements are prepared under the historical cost convention, as modified by the revaluation of certain financial instruments. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 2. Standards, interpretations and amendments effective in 2011 The following standards and amendments are effective for the first time for the year ended 31 May 2011 and have been applied when presenting the group’s financial statements:
The following standards, interpretations and amendments are effective for the first time for the year ended 31 May 2011 and have not had an impact on the group’s financial statements:
Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for financial years commencing 1 June 2011, but which the group has not early adopted, are as follows: Standards, amendments and interpretations not yet effective The group has evaluated the effect of all new standards, amendments and interpretations that have been issued but which are not yet effective. Based on the evaluation, management does not expect these standards, amendments and interpretations to have a significant impact on the group’s results and disclosures. The expected implications of applicable standards, amendments and interpretations are dealt with below. IAS 1 Amendment – Presentation of items of other comprehensive income (“OCI”) This amendment requires entities to separate items presented in OCI into two groups, based on whether or not they may be recycled to profit or loss in the future. Items that will not be recycled such as revaluation gains on property, plant and equipment will be presented separately from items that may be recycled in the future, such as deferred gains and losses on cash flow hedges. Entities that choose to present OCI items before tax will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on or after 1 July 2012. The group will evaluate the amended presentation and update disclosure accordingly from the effective date IAS 19 Amendment to IAS 19 – Employee benefits This amendment makes significant changes to the recognition and measurement of the defined benefit pension expense
and termination benefits, and to the disclosures for all employee benefits. The amendment could significantly change a
number of performance indicators and might also significantly increase the volume of disclosures. IAS 24 Amendment to IAS 24 – Related party disclosures This amendment provides partial relief from the requirement for government-related entities to disclose details of all transactions with the government and other government-Related entities. It also clarifies and simplifies the definition of a related party. No entities within the group are government-related entities therefore this amendment will have no impact. The group will evaluate the amended definition of related parties and update disclosure accordingly from the effective date. This amendment is effective for the period commencing on 1 January 2011. IFRS 9 Financial Instruments This IFRS is part of the IASB’s project to replace IAS 39. IFRS 9 addresses classification and measurement of financial assets and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value. This statement is effective on 1 January 2013. The group is currently considering the impact on the classification of financial assets, however do not believe the statement will have a significant impact, given the nature of the financial assets held by the group. IFRS 9 Financial Instruments (2010) The IASB has updated IFRS 9, ‘Financial instruments’ to include guidance on financial liabilities and derecognition of financial instruments. The accounting and presentation for financial liabilities and for derecognising financial instruments has been relocated from IAS 39, ‘Financial instruments: Recognition and measurement’, without change, except for financial liabilities that are designated at fair value through profit or loss. This statement is effective on 1 January 2013. The group is currently considering the impact on the derecognition of financial liabilities, however do not believe the statement will have a significant impact, given the nature of the financial liabilities held by the group Amendment to IFRS 1 – Limited Exemption from Comparative IFRS 7 Disclosures for First-Time Adopters The amendment to IFRS 1 provides first-time adopters with the same transition provisions as included in the amendment to IFRS 7. The amendment is effective for annual periods beginning on or after 1 July 2010 with early adoption permitted. This amendment is not applicable to the group as the group already applies IFRS. Amendments to IFRS 1, ‘First time adoption’ on hyperinflation and fixed dates The first amendment replaces references to a fixed date of ‘1 January 2004’ with ‘the date of transition to IFRS’, thus eliminating the need for companies adopting IFRS for the first time to restate derecognition transactions that occurred before the date of transition to IFRS. The second amendment provides guidance on how an entity should resume presenting financial statements in accordance with IFRS after a period when the entity was unable to comply with IFRS because its functional currency was subject to severe hyperinflation. This amendment is not applicable to the group as the group already applies IFRS. Amendment to IFRS 7 Disclosures – Transfer of financial assets The amendments are intended to address concerns raised during the financial crisis by the G20, among others, that financial statements did not allow users to understand the ongoing risks the entity faced due to derecognised receivables and other financial assets. This statement is effective on 1 July 2011. The group does not believe the statement will have a significant impact, given the nature of the financial assets held by the group. Amendment to IAS 12,’Income taxes’ on deferred tax Currently IAS 12, ‘Income taxes’, requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40 Investment Property. Hence this amendment introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. As a result of the amendments, SIC 21, ‘Income taxes – recovery of revalued non-depreciable assets’, would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is accordingly withdrawn. This amendment is not applicable to the group as the group does not have investment properties. IFRS 10 – Consolidated financial statements This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess. This new standard might impact the entities that a group consolidates as its subsidiaries. This statement is effective on 1 January 2013. The group is currently considering the impact on the consolidated financial statements, however do not believe the statement will have a significant impact. IFRS 11 – Joint arrangements This standard provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportionate consolidation of joint ventures is no longer allowed. This statement is effective on 1 January 2013. The group does not believe the statement will have a significant impact as the proportionate consolidation method of accounting for joint ventures is not applied by the group. The group is currently considering the impact on its contractual arrangements. IFRS 12 – Disclosures of interests in other entities This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. This statement is effective on 1 January 2013. The group is currently considering the impact on the consolidated financial statements, however do not believe the statement will have a significant impact as it merely provides for additional disclosures. IFRS 13 – Fair value measurement This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The requirements, which are largely aligned between IFRS and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS or US GAAP. This statement is effective on 1 January 2013. The group is currently considering the impact on the consolidated financial statements. however does not believe the statement will have a significant impact due to the nature of assets and liabilities carried at fair value. IAS 27 (revised 2011) – Separate financial statements This standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. This statement is effective on 1 January 2013. The group is currently considering the impact however does not believe the statement will have a significant impact. IAS 28 (revised 2011) – Associates and joint ventures This standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. This statement is effective on 1 January 2013. This statement will have no impact on the consolidated financial statements as joint ventures and associates are currently equity accounted. IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments This IFRIC clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished through the debtor issuing its own equity instruments to the creditor. A gain or loss is recognised in the profit and loss account based on the fair value of the equity instruments compared to the carrying amount of the debt. This interpretation is not applicable to the group. A mendments to IFRIC 14: Pre-payments of a Minimum Funding Requirement This amendment will have a limited impact as it applies only to companies that are required to make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement. This interpretation is not applicable to the group. Annual Improvements Project Improvements to IFRS (Issued April 2009 and May 2010) was issued by the IASB as part the “annual improvements process” resulting in the following amendments to standards issued, but not effective for 31 May 2011 year-ends:
Management are currently considering the effect of the changes. Basis of consolidation Subsidiaries Subsidiaries are all entities (including special purpose entities) in which the group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the group and are no longer consolidated from the date that control ceases. The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. Transactions in which combining entities are controlled by the same party or parties before and after the transaction, and that control is not transitory, are referred to as common control transactions. Where there are common control transactions in the group, predecessor accounting is applied. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless costs cannot be recovered. Non-controlling interest in the consolidated equity and results of the group are shown separately in the consolidated statement of financial position and statement of comprehensive income, respectively. Non-controlling interest is stated at the non-controlling interest’s proportion of the fair values of the identifiable assets and liabilities recognised. Non-controlling interests are treated as equity participants. Acquisitions of non-controlling interests or disposals by the group of its non-controlling interests in subsidiary companies where control is maintained subsequent to the disposal are accounted for as equity transactions with non-controlling interests. Consequently, the difference between the purchase price and the book value of a non-controlling interest purchased is recorded in equity. All profits and losses arising as a result of the disposal of interests in subsidiaries to non-controlling interests where control is maintained subsequent to the disposal, are also recorded in equity. Where the losses attributable to the non-controlling interests in a consolidated subsidiary exceed their interest in that subsidiary, the total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When the group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss When necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the group The company financial statements account for investment in subsidiaries at cost less any accumulated impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. Associates Associates are all entities over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the equity method of accounting and are initially recognised at cost. The group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The group’s share of its associates’ post-acquisition profits or losses is recognised in the statement of comprehensive income, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The group’s share of post-acquisition movements in equity compensation benefit reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payment on behalf of the associate. Unrealised gains on transactions between the group and its associates are eliminated to the extent of the group’s interest in the associate. Unrealised losses are also eliminated to the extent of the group’s interest in the associate unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group. The company financial statements account for investment in associates at cost less any accumulated impairment. Dilution gains and losses arising in investments in associates are recognised in the statement of comprehensive income. A listing of the group’s principal subsidiaries and associates is set out in note 33 to the financial statements. The financial effects of the acquisition and disposal of the subsidiaries and associates are disclosed separately in the notes to the financial statements. Joint ventures A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial operating decisions relating to the activity require the unanimous consent of the parties sharing control (venturers). The group’s interest in joint ventures is accounted for under the equity method of accounting whereby an interest in jointly controlled entities is initially recorded at cost and adjusted thereafter for post-acquisition changes in the group’s share of net assets of the joint venture. The statement of comprehensive income reflects the group’s share of the results of operations of the joint venture. The company financial statements account for investment in joint ventures at cost less any accumulated impairment. Loans granted to associates and joint ventures are regarded as part of the investment. |
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| Foreign currencies | |||||||||||||||||
| (a) | Functional and presentation currency | ||||||||||||||||
| Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in rand, which is the group’s functional and presentation currency. | |||||||||||||||||
| (b) | Transactions and balances | ||||||||||||||||
| Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the statement of comprehensive income.
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount are recognised in other comprehensive income. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in other comprehensive income. |
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| (c) | Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, such exchange differences are recognised in the statement of comprehensive income as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the foreign entity’s assets and liabilities and are translated at the closing rate. Financial instruments Financial instruments carried on the statement of financial position include: Financial assets:
Financial liabilities:
The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Regular way purchases and sales of financial assets that require delivery are recognised on trade date, being the date on which the group commits to purchase or sell the asset. The group recognises a financial asset or a financial liability on its statement of financial position when, and only when, the group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the rights to receive cash flows from the financial asset have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Financial liabilities (or a part of a financial liability) are removed from its statement of financial position when, and only when, they are extinguished – ie when the obligation specified in the contract is discharged or cancelled or expires. |
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| Financial assets | |||||||||||||||||
| The group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its investments at initial recognition. | |||||||||||||||||
| (a) | Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held-for-trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Assets in this category are classified as current assets if they are either held-for-trading or are expected to be realised within 12 months of the statement of financial position date. Financial assets at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. These assets are subsequently measured at fair value. All related realised and unrealised gains and losses arising from changes in fair value are recognised in the statement of comprehensive income. |
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| (b) | Loans and receivables | ||||||||||||||||
| Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. This category does not include those loans and receivables that the group intends to sell in the short term
or that it has designated as at fair value through profit or loss or available-for-sale. These assets are included in current
assets, except for maturities greater than 12 months after the statement of financial position date, which are classified
as non-current assets. Financial assets classified as loans and receivables are initially recognised at fair value plus transaction costs. Subsequent to initial recognition, loans and receivables are carried at amortised cost using the effective interest rate method, less any provision for impairment. Loans and receivables comprise loans receivable and trade and other receivables (excluding prepayments and VAT). |
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| (c) | Available-for-sale financial assets | ||||||||||||||||
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of
the other categories. They are included in non-current assets unless management intends to dispose of the investment
within 12 months of the statement of financial position date. Impairment of financial assets A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. |
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| (a) | Loans and receivables | ||||||||||||||||
The group assesses at each reporting date whether there is objective evidence that a financial asset or a group of
financial assets is impaired. A provision for impairment is established when there is objective evidence that the group will
not be able to collect all amounts due according to the original terms of the receivables. Objective evidence that receivables
are impaired includes observable data that comes to the attention of the group about the following events:
The amount of the provision is the difference between the carrying amount and the recoverable amount of the assets
being the present value of expected cash flows discounted at the original effective interest rate. The amount of the
provision is recognised as a charge in the statement of comprehensive income. |
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| (b) | Available-for-sale financial assets | ||||||||||||||||
The group assesses whether there is objective evidence that a financial asset carried at fair value is impaired at each reporting date. If any objective evidence of impairment exists for available-for-sale financial assets (for example, a significant or prolonged decline in the fair value of a security below its cost), the cumulative loss, measured as the difference between the acquisition cost and current fair value, less any impairment loss on the financial asset previously recognised in profit or loss, is removed from other comprehensive income and recognised in the statement of comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the statement of comprehensive income. Financial liabilities and equity Financial liability and equity instruments issued by the group are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any
contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Fair value estimation The best evidence of fair value on initial recognition is the transaction price, unless the fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on discounted cash flow models and option pricing valuation techniques whose variables include only data from observable markets. Subsequent to initial recognition, the fair values of quoted financial assets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances. Property, plant and equipment Property, plant and equipment are initially recorded at cost, being the purchase cost plus any cost to prepare the assets
for their intended use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and
the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of
comprehensive income during the financial period in which they are incurred.
Major leasehold improvements are amortised over the shorter of their respective lease periods and estimated useful life. |
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| Intangible assets | |||||||||||||||||
| (a) | Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Computer software has a finite useful life and is subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of the computer software over its estimated useful life (three years). Costs associated with the maintenance of existing computer software programmes are expensed as incurred. |
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| (b) | Trademarks and licences
Trademarks and licences are shown at historical cost. Trademarks and licences have a finite useful life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licences over their estimated useful lives (ten years). |
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| (c) | Franchise fees
Franchise fees are shown at historical cost. Franchise fees have a finite useful life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of franchise fees over their estimated useful lives (twenty years). |
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| (d) | Databases, customer listings, distribution agreements and customer relationships
Databases, customer listings, distribution agreements and customer relationships acquired through business combinations are initially shown at fair value as determined in accordance with IFRS 3 – Business combinations, and are subsequently carried at the initially determined fair value less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the value of these assets over their estimated useful lives (three – ten years). |
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| (e) | Research and development
Costs incurred on development projects are recognised as intangible assets when the following criteria are fulfilled:
Research expenditure is recognised as an expense as incurred. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is available for use (ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management) on a straight-line basis over its useful life (five – ten years). Direct costs include the product development employee costs and an appropriate portion of relevant overheads. Costs associated with the maintenance of existing products are expensed as incurred. |
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| (f) | Purchased starter pack bases
Purchased starter pack bases represent the right to earn future revenue from starter packs already distributed and are initially recognised at the cost to the group. Starter pack bases have a finite life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over their estimated useful lives (five – seven years). |
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| (g) | Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net identifiable
assets of the acquired subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is attributable
to synergies that the group expects to derive from the transaction. If the cost of acquisition is less than the net assets
of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income. Goodwill on
the acquisition of subsidiaries is included in “goodwill” in the statement of financial position. Goodwill on acquisitions of
associates and joint ventures is included in “investments in associates and joint ventures”. Impairment of non-financial assets The group evaluates the carrying value of assets with finite useful lives when events and circumstances indicate that the
carrying value may not be recoverable. Intangible assets that have an indefinite useful life are not subject to amortisation
and are tested annually for impairment. Intangible assets not yet available for use are tested annually for impairment. An impairment loss recognised for an asset, other than goodwill, in prior years is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised and the recoverable amount exceeds the new carrying amount. The reversal of the impairment is limited to the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised in prior years. The reversal of such an impairment loss is recognised in the statement of comprehensive income in the same line item as the original impairment charge. |
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| Leased assets | |||||||||||||||||
| (a) | Finance leases | ||||||||||||||||
| Lease agreements that transfer substantially all the risks and rewards of ownership are classified as finance leases at
inception of the lease. The asset is capitalised at the lower of the fair value of the asset or the present value of the
minimum lease payments at inception of the lease, with an equivalent amount being stated as a finance lease liability.
Finance lease liabilities are classified as non-current or current liabilities, as appropriate. Each lease payment is allocated
between the liability and finance charges using the effective interest rate. Finance costs are charged to the statement of
comprehensive income over the lease period. The capitalised asset is depreciated over the shorter of the useful life of the asset or the lease term to its residual value. |
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| (b) | Operating leases | ||||||||||||||||
Leases in which a significant portion of the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments under operating leases, net of incentives, are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. Starter pack assets A starter pack is a tool which enables the connection of a mobile device to a mobile network operator, also known as a
SIM (subscriber identity module) card. Inventories Inventories are stated at the lower of cost or estimated net realisable value. Cost comprises direct materials and, where applicable, overheads that have been incurred in bringing the inventories to their present location and condition, excluding borrowing costs. The cost of the inventory is determined by means of the weighted average cost basis. Net realisable value is the estimate of the selling price in the ordinary course of business, less selling expenses. Provisions are made for obsolete, unusable and unsaleable inventory and for latent damage first revealed when inventory items are taken into use or offered for sale. Trade receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of
business. If collection is expected in the normal operating cycle of the business, they are classified as current assets. If
not, they are presented as non-current assets. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. Assets and liabilities of disposal group held for sale Disposal groups are classified as assets and liabilities held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is highly probable. They are stated at the lower of carrying amount and fair value less cost to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. Share capital Ordinary shares are classified as equity and the shares are fully paid up. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of
tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are shown as a
deduction from equity. Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is
more likely than not that an outflow of resources embodying economic benefits will be required to settle the obligation
and a reliable estimate of the amount of the obligation can be made. Provisions are not recognised for future operating
expenses. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred when the relevant contracts are
entered into. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of
the borrowings using the effective interest method. Normal taxation The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at year end in
the countries where the company’s subsidiaries and associates operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are
subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to
the tax authorities. Deferred taxation Deferred taxation is provided using the liability method for all temporary differences arising between the tax bases of
assets and liabilities and their carrying values for financial reporting purposes. However, if the deferred income tax arises
from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by year end and are expected to apply when
the related deferred income tax asset is realised or the deferred income tax liability is settled. Secondary tax on companies (STC) South African companies are subject to a dual corporate tax system, one part of the tax being levied on the taxable
income and the other, a secondary tax (STC) on distributed income. STC is not a withholding tax on shareholders but a
tax on companies. Trade and other payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within the normal operating cycle of the business. If not, they are presented as non-current liabilities. Trade payables are measured initially at fair value and are subsequently measured at amortised cost, using the effective interest rate method. Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the
ordinary course of the group’s activities. Revenue is shown net of indirect taxes, estimated returns, rebates and discounts
and after eliminated sales within the group. |
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| (a) | Sale of starter packs | ||||||||||||||||
Revenue is recognised when the significant risks and rewards of ownership are transferred to the customer, and when the entity no longer retains continuing managerial involvement to the degree usually associated with ownership. Activation bonuses received from the networks are recognised when the SIM-card is activated on the relevant cellular phone network. Ongoing revenue and other incentives are recognised once certain criteria have been met. The point of activation is determined by the relevant cellular phone networks. |
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| (b) | Sales of prepaid airtime | ||||||||||||||||
| Sales of prepaid airtime are recognised when the group sells the airtime to the customer. Sales are recorded based on the price specified in the sales contracts, net of discounts at the time of sale. | |||||||||||||||||
| (c) | Sales of services | ||||||||||||||||
| Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. | |||||||||||||||||
| (d) | Interest income | ||||||||||||||||
| Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. | |||||||||||||||||
| (e) | Electricity commission | ||||||||||||||||
| Commissions on the sale of prepaid electricity are recognised when the group sells electricity to the customer on behalf of the utility suppliers. Commissions are recorded based on agreed rates per the contracts. For this category of revenue the group acts as an agent, for all other categories the group acts as a principal. | |||||||||||||||||
| Employee benefits | |||||||||||||||||
| (a) | Equity compensation benefit | ||||||||||||||||
| The group operates an equity-settled forfeitable share incentive plan, under which the entity receives services from
employees as consideration for equity instruments of the group. The fair value of the services received in exchange for
the grant of forfeitable shares is recognised as an expense. The total amount to be expensed is determined by the fair
value of the forfeitable shares granted. The total amount expensed is recognised over the vesting period, which is the
period over which all of the vesting conditions are to be satisfied. At each reporting date, the entity recognises the impact
of any shares that have been forfeited prior to the end of the vesting period, if any, in the statement of comprehensive
income with a corresponding adjustment to equity. The subsidiaries procure the shares in order to settle the award but these are accounted for as a purchase of shares in the holding company and only once the shares vest as the performance conditions are met would the share be derecognised. When shares are derecognised the investment in shares in Blue Label Telecoms Limited will be credited and equity will be debited as a contribution to the shareholder. |
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| (b) | Bonus plans | ||||||||||||||||
| The group recognises a liability and an expense for bonuses. A provision is recognised where the group is contractually obliged or where there is a past practice that has created a constructive obligation. | |||||||||||||||||
| (c) | Leave pay accrual | ||||||||||||||||
| The group recognises a liability and an expense for leave. The accrued liability is determined by valuing all future leave
expected to be taken and payments expected to be made in respect of benefits.
Dividend distribution Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in which they are approved by the shareholders. Core net profit Core net profit is a non-IFRS measure used by the group in evaluating the group’s performance. This supplements the
IFRS measures. Core net profit is calculated by adjusting net profit for the year with the amortisation of intangible assets
that arise as a consequence of the purchase price allocations completed in terms of IFRS 3: Business Combinations. |
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