Blue Label Telecoms Integrated Annual Report 2019

20 Blue Label annual financial statements 2019 Audit, Risk and Compliance Committee’s report continued Based on the above impairment assessments, as well as management judgement, the following impairments were applied: Viamedia goodwill impairment of R74 million Viamedia’s performance has been negatively impacted as a result of a sector-wide decline in the B2C (direct to consumer) WASP industry. Previously this was significantly offset by growth in its Enterprise division. However, over the past six months, the latter division has flat-lined which, together with the continued decline in the B2C channel, has caused a negative impact on operating profits with marginal growth expectations going forward. SupaPesa investment impairment of R30 million A decline in revenue, primarily attributable to legislative changes and loss in clientele, has resulted in the impairment. Blue Label Connect goodwill impairment of R49 million Blue Label Connect’s performance has been negatively impacted as a result of challenging economic conditions that have affected one of its major clients. Furthermore, margin compression resulting from reduced incentives from the networks, as well as an increase in product costs, has resulted in an impairment to goodwill. Management concluded there was no need for any further impairment. The impairment assessment of the investment in BLM For the year ended 31 May 2019, management performed an impairment assessment over the investment in BLM as follows: u u assessing the recoverable amount as being value-in-use, as BLM is held-for-trading and not for sale; u u calculating the value-in-use for BLM using a discounted cash flow model; u u performing a sensitivity analysis over the value-in-use calculations, by varying the assumptions used (growth rates, terminal growth rate and WACC, i.e. discount rate) to assess the impact on the valuation; and u u as a final check, comparing the carrying value of the Group’s investment in BLM with the calculated value-in-use. Management concluded there was no need for any impairment. The impairment assessment of the investment in Oxigen, Oxigen Online and 2DFine The investments in Oxigen Services India, Oxigen Online Services India, collectively Oxigen Services India, and 2DFine Holdings Mauritius (2DFine) were historically accounted for as investments in associates and joint ventures, applying the equity method up until 30 November 2016. From that date, the exemption available in IAS 28 – Investments in Associate and Joint Ventures for venture capital organisations has been applied to these investments and accounted for in accordance with IAS 39 – Financial Instruments: Recognition and Measurement at fair value with changes in fair value recognised in profit or loss. In the current year a fair value loss was recognised in the income statement. This accounting treatment was accepted by the Group’s auditing firm following rigorous debates and internal consultations. This accounting treatment was highly judgemental, therefore the Group included detailed disclosure on the critical judgement it had applied. This judgement was also listed as a key audit matter in the audit report. In June 2018, the Group received notification from the JSE proactive monitoring panel stating that they did not agree with the exemption we had applied in IAS 28. This resulted in various letters and face to face meetings to ultimately get to the correct accounting treatment. After months of debates the JSE asked the Financial Reporting Investigation Panel to review and they found in favour of the JSE.