Blue Label Telecoms Integrated Annual Report 2019

8 Blue Label annual financial statements 2019 Independent auditor’s report to the shareholders of Blue Label Telecoms Limited REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Our opinion In our opinion, except for the possible effects of the matter described in the basis for qualified opinion section of our report, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Blue Label Telecoms Limited (the Company) and its subsidiaries (together the Group) as at 31 May 2019, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act of South Africa. What we have audited Blue Label Telecoms Limited’s consolidated financial statements set out on pages 24 to 129 comprise: u u the Group statement of financial position as at 31 May 2019; u u the Group income statement for the year then ended; u u the Group statement of comprehensive income for the year then ended; u u the Group statement of changes in equity for the year then ended; u u the Group statement of cash flows for the year then ended; and u u the notes to the financial statements, which include a summary of significant accounting policies. BASIS FOR QUALIFIED OPINION The Group holds a 45% interest in Cell C Limited (Cell C) and accounts for this investment as an equity- accounted associate. The Group’s interest in Cell C is included in the following financial statement line items within the Group’s financial statements: u u share of (losses)/gains from associates and joint ventures (in the Group income statement); and u u investments in and loans to associates and joint ventures (in the Group statement of financial position). Cell C has a December year-end and management requested them to prepare financial information as at 31 May 2019 for the purposes of preparing the consolidated financial statements of the Group. This financial information was prepared and audited in accordance with the accounting policies of Blue Label Telecoms Limited, and was presented on the going concern basis. The Group’s investment in Cell C was included in the consolidated financial statements accordingly. However, continuation of the adverse trading conditions experienced by Cell C during the year, which included a significant decrease in forecast revenue and lower than anticipated growth in their subscriber base could result in insufficient available cash resources to settle their debts as they come due. For these reasons, the Group’s investment in Cell C was impaired to nil (as explained in the key audit matters section below). In light of the trading circumstances, it is possible that the use of the going concern basis of preparation may not be appropriate for the financial information of Cell C. However, we were not able to obtain sufficient appropriate audit evidence regarding that determination. If the going concern basis of preparation were considered inappropriate, this would result in the remeasurement of assets and liabilities within the financial information of Cell C, with a corresponding net impact on its profit or loss. Such remeasurement would be dependent on which alternate basis of preparation was adopted. Under an alternate basis of preparation, assets and liabilities of Cell C could be impaired, measured at fair value rather than cost, or written off entirely, depending how Cell C planned to recover or settle these assets and liabilities. The possible effect of this matter on the consolidated financial statements would be as follows: u u there could be a material classification misstatement in the Group income statement. The share of losses from associates and joint ventures as disclosed in note 2.1 may be materially understated in the current year. However, there would be an equal and opposite overstatement of the impairments on associates and joint ventures financial statement line item. Therefore, this potential classification misstatement would have no effect on the Group’s loss before taxation; u u the headline earnings per share (HEPS) earnings measure and core HEPS earnings measure would also be impacted, should the equity-accounted losses and impairment of investment in Cell C materially differ as explained above; and