Notes to the Group annual financial statements | Note 2.1

On 2 August 2017, Blue Label, through its wholly owned subsidiary, TPC, acquired 45% of the issued share capital of Cell C for a purchase consideration of R5.5 billion. On recapitalisation, BLT, through its subsidiary, TPC, holds 49.53% participatory interest in its associate.

(d) Classification of significant associates

Assessment of control over Cell C

BLT holds 49.53% of the shareholder voting rights of Cell C and is able to appoint four out of 12 on the Cell C Board of Directors, where each director has one vote. It has been determined that the Cell C Board makes the decisions about the activities that significantly affect the returns of Cell C (the relevant activities).

As a result of loans made by TPC to SPV1 and SPV4, TPC is entitled to obtain additional shares comprising 13.66% in aggregate in Cell C at any time from the SPVs in settlement of the loans. Should TPC wish to obtain any of these additional shares, and hence the corresponding voting rights, the Group's external legal advisers have advised that it can only do so lawfully with the prior approvals of the Competition Commission and ICASA – as acquiring additional voting rights would result in TPC obtaining control over Cell C. According to the Group's external legal advisers, it is unlawful to give effect to a transaction that requires the approval of the Competition Commission before such approval is granted, and doing so could result in the transaction being set aside. Furthermore, the granting of the regulatory approvals is not a formality or within TPC's control, hence TPC does not, on its own, have the practical ability to obtain any additional shares (and voting rights). Therefore, management has concluded that TPC's rights under the loan agreements to obtain additional Cell C shares are not substantive until such approvals have been granted. Consequently, the potential voting rights of 13.66% have been excluded from the assessment of whether the Group has control over Cell C.

SPV1 and SPV4 hold the voting rights attached to the aggregate 13.66% equity interest. Even though TPC bears the economic risks and rewards of these shares (subject to upper limits of the amounts repayable under the loans), it does not have the ability to direct the way in which the corresponding voting rights in Cell C are exercised. These decisions lie with the Directors of SPV1 and SPV4, which are appointed by Albanta Trading 109 Proprietary Limited (Albanta), over which BLT has no control.

Although the SPVs will only benefit from the aggregate 13.66% equity interest in Cell C to the extent that they realise more than the amounts repayable to TPC under the loans, whether they exercise their Cell C voting rights in line with the way that TPC exercises its 49.53% Cell C voting rights or not, management is of the view that this would not affect the SPVs in any way. Similarly, whether the SPVs vote in line with TPC or not, management is of the view that this would have no impact on whether TPC elects to obtain the additional shares in settlement of its loans, subject to receiving the requisite regulatory approvals. Since management is of the view that the SPVs do not have any incentive to exercise their Cell C voting rights in the way that TPC would want them to such that TPC can rely on them to do so, it has been concluded that the SPVs are not de facto agents of TPC. Furthermore, Albanta holds other shares (5.50%) in Cell C, therefore management believes that Albanta would exercise all its Cell C voting rights in the same way and management is of the view that there is no incentive or reason why Albanta would necessarily vote in line with TPC.

Based on historical attendance at Cell C shareholder meetings, the fact that the shares of Cell C are not widely held (there are only nine shareholders currently; six if one recognises that SPV1, SPV4 and SPV5 are all subsidiaries of Albanta), and that Gramercy and Nedbank now hold 7.53% and 6.09% of Cell C, respectively, management is of the view that there is currently no basis for concluding that TPC has de facto control of Cell C at a shareholder level. Furthermore, it is the Memorandum of Incorporation (MOI) of Cell C that enables TPC to appoint only four of the 12 Directors, and changes to the MOI require shareholder approval of at least 82% including that of Gramercy and Nedbank, for as long as they are permitted to appoint a Director to the Cell C Board. Therefore, even if TPC had de facto control at a shareholder level, it could not, on its own, change the MOI to enable it to appoint the majority of the Directors. Management has thus concluded that the Group does not have control over Cell C and continues to exercise significant influence. Therefore, the Group continues to account for Cell C as an associate.

(e) Going concern of Cell C

For purposes of the Group's annual financial statements, Cell C has been accounted for using the going concern assumption. Based on the following facts available, management is of the opinion that Cell C will continue as a going concern for the foreseeable future.

Cell C concluded the national roaming agreement with MTN on 7 August 2019, which became effective on 4 May 2020. This agreement is one of the key pillars in Cell C's transformation plan, as well as its long-term network strategy to optimise operating costs and reduce capital outlay as part of the turnaround strategy. This agreement has positively impacted the cost base and anticipated future cash flows.

Cell C appointed independent financial restructuring advisers to assist in stringent monitoring of the liquidity of Cell C, as well as designing the revised business plans that support the new operating business model.

A roaming agreement with Vodacom was concluded in November 2020 which is aligned to Cell C's revised network strategy, aimed at managing capacity in a more scalable and cost-efficient manner through a roaming model. Contract and broadband customers have been transitioned in stages to roam on the Vodacom network. The strategic vision is to differentiate Cell C by focusing on innovative products and services without being owners of capital intensive infrastructure. This creates more flexibility and capacity to deliver the right quality of service to our current and future customers.

Cell C embarked on a strategy to reconsider its current service offering, whereby Cell C identified the need to either wind down or restructure the service offering being provided to its postpaid mobile telecommunication business (the base). During the 2021 financial year, the Group, through its subsidiary CEC, entered into an arrangement with Cell C to facilitate Cell C's operation of the base. The agreement commenced on 1 November 2020 for an initial period of five years, with CEC having the right to renew for a further four years. CEC is entitled to receive a share of the subscription income generated by Cell C from a subset of postpaid subscribers that sign up, extend or upgrade their subscriptions with Cell C after 1 November 2020 (New and Upgrade subscribers) plus certain fixed and variable payments. Cell C will remain entitled to the subscription income of existing subscribers at 31 October 2020 for the remainder of the subscribers' contract and a share of the ongoing revenue of New and Upgrade subscribers. The aim of the reorganisation would be for the base to remain intact and grow in the future, and for Cell C to have limited downside risk on the base.

Cell C has implemented a turnaround strategy, focusing on operational efficiencies, reducing operational expenditure and optimising traffic. This includes a significant reduction in capital expenditure and a conversion of a fixed cost infrastructure-based network to a variable operational expenditure model. This, together with the recapitalisation of the current debt structure (refer below for further information in this regard), will result in a significant improvement of its liquidity and ensure the long-term sustainability of Cell C.

Overview of the Cell C Recapitalisation Transaction

On 26 August 2021, TPC concluded a term sheet for an Airtime Purchase transaction with Investec Bank Limited, FirstRand Bank Limited (acting through its Rand Merchant Bank division) and other financiers, the proceeds of which were intended to be utilised for the recapitalisation of Cell C. This arrangement was subject to the conclusion of all legal documentation and fulfilment of all conditions precedent under such legal documentation, which occurred at the end of September 2022. On 15 March 2022, Blue Label concluded a non-binding term sheet (Umbrella Restructure Term Sheet) with Cell C and various Cell C financial stakeholders (including certain shareholders and creditors of Cell C). In terms of the Umbrella Restructure Term Sheet, Cell C was to be restructured and refinanced (the Recapitalisation Transaction) with the purpose of deleveraging its balance sheet, providing it with liquidity with which to operate and grow its businesses and to position itself to achieve long-term success for the benefit of its customers, employees, creditors, shareholders and its other stakeholders. The Umbrella Restructure Term Sheet was non-binding, save for stand-still provisions and certain provisions of a general nature which were binding. The binding long-term agreements and the recapitalisation process, the completion of which endured for longer than initially anticipated, was effective and closed end September 2022.

The salient terms of the Recapitalisation Transaction are set out below:

Capital and debt restructure

In order to facilitate the restructuring of Cell C's debt owing to certain secured lenders totalling R7.3 billion, with such amount being fixed as at November 2019, TPC loaned to Cell C an amount required to affect a compromise offer made by Cell C to certain of its secured lenders of a maximum amount of up to R1.46 billion (TPC Debt Funding). TPC's actual funding obligation in respect of the compromise offer, however, amounted to R1.03 billion. The TPC Debt Funding was provided by TPC to Cell C in the form of a secured loan. Cell C utilised the TPC Debt Funding to settle the claims of secured lenders by paying an amount of 20c to the rand.

Certain secured lenders indicated that they wish to remain invested in Cell C. These secured lenders were entitled to loan an amount equal to the 20c received, back to Cell C under a new loan arrangement (Reinvestment Instrument). The Reinvestment Instrument, which is interest bearing and secured, has an aggregate capital face value equal to 2.75 times of the amount advanced. In addition, the participating lenders were entitled to share pro rata in a fresh issue of ordinary shares in Cell C at a nominal value. All shareholders of Cell C diluted proportionately to enable the issuance of these ordinary shares to the participating lenders.

Simultaneously but separately with the issuance of the Reinvestment Instrument, Cell C, pursuant to a rights issue at nominal value, allotted and issued shares to TPC. Following such issue and various other issues of shares to be made by Cell C to third parties at nominal value pursuant to the Proposed Transaction, TPC holds 49.53% of the shares in Cell C, inclusive of those shares which TPC were entitled to, pursuant to the Reinvestment Instrument.

In addition, CEC (a wholly owned subsidiary of TPC) deferred an amount of R1.1 billion owed by Cell C and some of its subsidiaries to it on the date of implementation of the Recapitalisation Transaction, which amount will be repaid in equal monthly instalments over 60 months. At year-end, Cell C has met its payment obligations.

Liquidity requirements

In order to further assist Cell C with its working capital requirements, TPC has:

• purchased Cell C prepaid airtime for a purchase price of R1.2 billion (including VAT) on the Effective Date of the Recapitalisation Transaction; and
• will purchase, by way of four further quarterly payments of R300 million (including VAT), additional prepaid airtime, with each such quarterly payment payable at the beginning of each calendar quarter. The first such quarterly payment will be made at the beginning of the 13th month following the recapitalisation of Cell C and subsequent payments will be made at the commencement of each quarter thereafter.

Furthermore, TPC undertook to purchase certain minimum levels of prepaid airtime from Cell C in accordance with an agreed monthly schedule or otherwise in accordance with market requirements.

The prepaid airtime to be acquired by TPC from Cell C pursuant to the above prepaid airtime transactions, forms part of the average monthly prepaid airtime acquisitions by TPC of Cell C prepaid airtime in the ordinary course of business.

Other inter-related transactions

In addition to the conclusion of the Recapitalisation Transaction, the following transactions were concluded.

Under these further agreements TPC:

• acquired from certain funders to Cell C their right to reinvest in the Reinvestment Instrument for a purchase consideration of R1 from each such funder. Following such acquisition by TPC of such rights, TPC invested an aggregate amount of R111 million into Cell C via the Reinvestment Instrument;
• acquired debt notes in Cedar Cellular Investment 1 (RF) Proprietary Limited (SPV1), a shareholder in Cell C, for a purchase consideration of USD500 000 plus R16 million;
• acquired a credit claim of USD6 million against Cell C for an amount of USD4 million. This claim was subject to a compromise as between TPC and Cell C;
• acquired certain trade claims against Cell C, which claims were acquired for an aggregate amount of R12 million plus USD2.2 million and were then subject to a compromise as between TPC and Cell C;
• advanced an amount of R223 million to K2021889191 (South Africa) Proprietary Limited (SPV4), which amount SPV4 utilised to acquire from the joint liquidators of Magnolia Cellular Investments 2 (RF) Proprietary Limited (in liquidation) (SPV2), shares in Cell C owned by SPV2, such shares being 5.47% of the shares in Cell C post-recapitalisation. SPV2 used the proceeds of the aforesaid sale to compromise and settle all unsubordinated claims which lenders had against it;
• disposed of such shares in Cell C as equates to 5% post-recapitalisation equity in Cell C to SPV4 on loan account for R204 million. The loan to SPV4 is secured by the shares in Cell C held by SPV4;
• will loan an aggregate amount of R275 million to K2022559963 (South Africa) Proprietary Limited (SPV5) between 2024 and 2026, in return for a claim of R699 million. SPV5 will apply the loaned amount of R275 million to settle, in full, the above third-party claim on behalf of Cell C. In return for SPV5 undertaking such obligations on behalf of Cell C, it allotted and issued 10% of its share capital to SPV5. Such shares were provided by SPV5 to TPC as security for the above loan. Following the settlement of the claim of R699 million to TPC, TPC has a right to share in 50% of any economic benefit generated by SPV5 in excess of the aforementioned R699 million.

TPC airtime purchase transactions and working capital facility

TPC entered into agreements with Investec Bank Limited (acting through its Investment Banking Division: Corporate Solutions), FirstRand Bank Limited (acting through its Rand Merchant Bank division) and another financier (lenders):

• pursuant to which TPC sold Cell C prepaid airtime, with a face value of R2.115 billion, to the lenders for a purchase consideration of R1.692 billion (including VAT). TPC has a repurchase obligation in respect of this airtime, payable in 48 equal bi‑monthly instalments;
• to amend the terms of its working capital facility (Facility A) that existed at the time. The working capital facility has been increased from R1.125 billion to R1.4 billion (facility A, facility B and general banking facility) and will be settled in two tranches. Facilities A and B will be amortised at R20 million per month collectively from months 13 to 24 with the balance and the general banking facility being settled as a bullet at the end of 24 months; and
• whereby TPC issued to the lenders, two classes of preference shares for a nominal consideration. The first class of preference share affords the holders of such preference shares a right to 15% of the upside realised by TPC on the TPC Debt Funding (Preference Share A) and the second class the right to all amounts (dividends and sale proceeds) received by TPC from 5% of its shareholding in Cell C (Preference Share B).

Additionally, TPC sold to a third-party Cell C prepaid airtime for a purchase consideration of R250 million (including VAT). TPC has a repurchase obligation in respect of this airtime, payable in 18 equal monthly instalments. At year-end R156 million has been repurchased.

Accounting implications of the Cell C Recapitalisation Transaction

TPC borrowings – from lenders

The bank borrowings of R1.471 billion were structured as:

1. an airtime sale and repurchase,
2. the issue of Class A Preference Shares, and
3. the issue of Class B Preference Shares.

TPC borrowings – from other third parties

Refer to note 3.4.2

The borrowings were structured as an airtime sale and repurchase.

Loans to Cell C

Refer to note 2.1.2

TPC provided funding to Cell C in the form of two loans.

Loan to SPV4

Refer to note 2.1.2

TPC advanced R223 million to SPV4, which SPV4 used to acquire a 5.47% shareholding in Cell C from SPV2. SPV2 used the proceeds to repay certain of its debts after which it was liquidated. The loan is interest-free and is repayable on demand. The only asset securing this loan is the 5.47% shareholding in Cell C which TPC can acquire in settlement of its loan. If TPC elected to acquire these additional shares, it would first require the prior approval of the Competition Commission of South Africa and ICASA as such acquisition would result in TPC acquiring control of Cell C.

Sale of a 5% shareholding in Cell C to SPV4 on loan account

Prior to the effective date of the recapitalisation, TPC sold a 5% shareholding (in terms of post-recapitalisation shareholding) in Cell C to SPV4 thereby divesting itself of the ability to direct the voting rights attached to these shares. The shares were sold on loan account for R204 million which is repayable on demand on an interest-free basis. The only security for this loan is the 5% shareholding in Cell C which TPC can acquire in settlement of its loan. SPV4 is required to pay to TPC all payments it receives or realises on this 5% shareholding in Cell C towards settlement of the loan. In this way TPC retains the economic interest in this 5% shareholding in Cell C. If TPC elected to acquire these additional shares, it would first require the prior approval of the Competition Commission of South Africa and ICASA as such acquisition would result in TPC acquiring control of Cell C.

Although TPC has not retained the voting rights attached to this 5% shareholding in Cell C, it has retained substantially all the risks and rewards of ownership. TPC continues to recognise the economic interest of this shareholding as part of the investment in associate and to equity account it. Accordingly, the overall percentage interest in Cell C that is equity accounted reflects TPC's economic interest (and not only voting interest) which includes this economic interest of 5%. The loan does not meet criteria to be classified as a financial asset at amortised cost as it represents an additional interest (without voting rights) in these shares. Since Cell C is accounted for as an associate, TPC's additional interest in Cell C has also been accounted for as part of the investment in associate and equity accounted.

The assessment of control is concerned with substantive rights as it relates to decisions about the direction of the relevant activities of the investee, and therefore, it is management's view that the additional interest without the additional right to vote, together with the operational barriers which prevent the Group from exercising its rights, will not change its assessment of whether Cell C is an associate, until such rights become substantive.

Shareholding in Cell C

TPC received additional shares from Cell C for a nominal amount.

Following the recapitalisation of Cell C, TPC has a shareholding and voting rights of 49.53% in Cell C, as well as additional interests of 13.66%, derived as follows:

Percentage of Cell C equity accounted

Up until 22 September 2022, the Group had a 45% shareholding in Cell C which was held via TPC, and which represented the percentage interest in Cell C that was equity accounted up to that date. Post the Cell C recapitalisation, Cell C continues to be an associate of the Group with 49.53% participatory (with voting rights) shareholding therein. When applying the equity method to investments in associates, the carrying amount is increased or decreased to recognise the investor's share of the associate's profit or loss since the date of acquisition. An investor's interest in an associate is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights or other derivatives, unless they currently give the investor access to returns associated with an ownership interest. As a result of its transactions with SPV1 and SPV4, in substance, TPC has additional interests of 13.66% (subject to certain caps, being the amounts to be repaid by the SPVs in respect of the loans from TPC) in the equity of Cell C (but without the corresponding voting rights). The caps have not become effective as yet. Therefore, since the date of the recapitalisation the Group has equity accounted 63.19% of the earnings of Cell C.

Purchase of certain trade claims against Cell C

TPC acquired several trade claims held by two parties against Cell C.

Claims of one of the parties were acquired for cash payments totalling USD4 million (R65 million). These claims were settled in full by Cell C by providing TPC with airtime vouchers with an aggregate face value of R75.8 million (including VAT).

Claims of the other party of R153 million were acquired for cash payments totalling R53 million. TPC agreed to a compromise with Cell C which reduced the amount owing by Cell C by 45%, down to R84 million. The balance is to be repaid by Cell C on an interest-free basis from the 25th month after the date of recapitalisation. On a quarterly basis from this date TPC is entitled to receive as settlement 11% of any excess cash held by Cell C above an amount of R700 million until the debt is repaid. Refer to note 3.3.2.

Deferred repayment terms of an amount of R1.1 billion owing by Cell C to CEC

Refer to note 2.1.2

An existing claim of R1.1 billion by CEC against Cell C will be repaid by Cell C in 60 equal monthly instalments, plus interest on the outstanding amount at a fixed rate of 12% per annum. At year-end, Cell C has met its payment obligations.

Bulk airtime purchases from Cell C

TPC purchased airtime vouchers from Cell C with a face value of R1.992 billion (including VAT) for a cash payment of R1.2 billion (including VAT).

TPC will purchase, by way of four further quarterly payments of R300 million (including VAT), with a face value of R498 million (including VAT), additional prepaid airtime, with each such quarterly payment payable at the beginning of each calendar quarter. The first such quarterly payment will be made at the beginning of the 13th month following the recapitalisation of Cell C and subsequent payments will be made at the commencement of each quarter thereafter.

In addition, TPC is required to make minimum monthly purchases of airtime vouchers from Cell C for a period of 24 months from the date of the Cell C recapitalisation. For each of the first 12 months, the minimum purchase is airtime with a face value of R427 million (including VAT), and for each of the second 12 months it is airtime with a face value of R378 million (including VAT). The cash purchase price payable is at a discount of 6% to the face value of the airtime. The minimum monthly purchases will be reduced by R125 million (including VAT) per month until TPC's airtime repurchase obligation towards the funders has been settled. Furthermore, if in any calendar quarter following the effective date of the Cell C recapitalisation, Cell C's actual MVNO Revenue is in excess of the MVNO Revenue for the relevant period as stated in the Agreed Financial Base Case, then for the following quarter the minimum monthly purchase requirement will be reduced by one-third of such excess.

Restricted inventory

Of the carrying value of inventory as of 31 May 2023, R1 billion (excluding VAT) is restricted as it is held by the funders and other third parties under the airtime sale and repurchase agreements which form part of TPC's borrowings in connection with the Cell C recapitalisation, as detailed above. As a result of TPC's repurchase obligation, the airtime stock that was sold to the funders has continued to be recognised as TPC's stock, and the repurchase obligation has been recognised as borrowings. As airtime stock is repurchased it becomes unrestricted and is available to be sold. During the next 12 months, TPC is required to repurchase R787.4 million (excluding VAT) of the restricted airtime.

Included in the carrying value of inventory as of 31 May 2023 are amounts that have been purchased to date (and not yet sold) by TPC from Cell C as part of the Cell C recapitalisation as detailed above. TPC has the right to sell this airtime stock without restriction before 28 September 2024. However, there are certain restrictions regarding TPC's ability to dispose of any of this airtime that is still on hand at that date (which carrying value of airtime management believes will be negligible), these restrictions fall away from 28 March 2026 or earlier should certain trigger events occur.

Airtime purchase agreement

Refer to note 3.3.2

To provide Cell C with the funds to settle an aggregate amount of R197 million owing to a lessor, TPC agreed to purchase additional airtime from Cell C. Airtime with a face value of R645 million was purchased by TPC before 31 May 2023 for a cash purchase price of R161 million (including VAT), and airtime with a face value of R145 million will be purchased by TPC in September 2023 for a cash purchase price of R36 million (excluding VAT). TPC is only permitted to sell the airtime in specified tranches of face value, on specified dates, as follows: R114 million in February 2025, R8 million in February 2027, R208 million in February 2028, and R230 million in both February 2029 and in February 2030.

Acquisition of additional notes in SPV1

Refer to note 2.1.2

TPC acquired additional notes comprising 72% of the issued notes in SPV1 for R25 million. The notes have a face value of USD201 million. The only asset that SPV1 has is a 4.04% shareholding in Cell C which has been pledged as security for the repayment of the notes. The redemption date of 2 August 2022 has passed, as such TPC can demand repayment of its notes at any time and can acquire 79% of the Cell C shares held by SPV1, which constitutes a 3.19% interest in Cell C, as settlement thereof. Prior to acquiring these additional shares, TPC would first require the approval of the Competition Commission of South Africa and ICASA as such acquisition would result in TPC acquiring control of Cell C.

SPV5 derivative liability

Refer to note 3.5

A debt owing to a lessor of Cell C was transferred into a new special purpose vehicle (SPV5) in exchange for a 10% shareholding in Cell C (being the only asset of the SPV). SPV5 is required to repay the debt of R275 million in tranches from 31 December 2024 to 31 December 2026. BLT issued a guarantee in favour of the lessor for the repayment of its debt, and TPC has committed to provide SPV5 with the necessary funding as and when it is required to make the payments of R275 million to the lessor, in return for a claim of R699 million in SPV5. TPC's loan will be repayable on demand at an amount equal to: i) the capital advanced of R275 million, plus ii) R424 million, plus iii) 50% of the fair value of the Cell C shares held by SPV5 in excess of i) and ii).

The Cell C shares held by SPV5 are pledged as security in favour of TPC, however, SPV5 is permitted to sell the Cell C shares prior to TPC advancing it any funds provided that the net proceeds exceed R375 million. If SPV5 disposes of its shares in Cell C, then R275 million of the net proceeds needs to be used to settle the lessor and R100 million is to be paid to TPC as an irrevocable and unconditional break fee. Once TPC has advanced funds to SPV5, SPV5 is precluded from selling the Cell C shares without TPC's consent, but TPC has no rights with respect to directing the voting rights attached to the shares. In the event of default, TPC would be able to acquire the 10% shareholding in Cell C in settlement of its loan, but only with the prior approval of the Competition Commission of South Africa and ICASA as such acquisition would result in TPC acquiring control of Cell C. Such rights are not substantive as the Group does not have the practical ability to exercise its rights as it relates to SPV5.

Impairment of associates and joint ventures

The recoverable amount is the higher of fair value less cost of disposal and the value-in-use. The value-in-use calculation applies cash flow projections based on financial budgets approved by the Board of Directors for the forthcoming year and forecasts for up to five years which are based on assumptions of the business, industry and economic growth. Cash flows beyond this period are extrapolated using terminal growth rates, which do not exceed the expected long-term economic growth rate.

The following investments were tested for impairment in line with IAS 36, by comparing the recoverable amount against the carrying value of the investments.

Valuation of Cell C and impairment reversal

The value-in-use of Cell C as at 30 November 2022 equated to R1.5 billion, of which TPC's share amounted to R962.5 million.

Of the accumulated impairment of R2.5 billion (refer to accumulated impairment), R962.5 million was accounted for as a reversal of impairment of investment in associate. At year-end there was no further adjustment required.

The key assumptions applied in determining the value-in-use calculation as at 30 November 2022 were as follows:

As a result of an indication of a reversal of the previous impairment due to the Recapitalisation Transaction, an internal valuation was performed in order to determine the value-in-use of Cell C based on cash flow projections incorporated in its five-year business plan. Assumptions relating to the business, the industry and economic growth were applied. Cash flows beyond this point were then extrapolated, applying terminal growth rates. The discount rates used are pre-tax and reflect specific risks related to Cell C. The valuation incorporates the effects of the recapitalisation which was effective end September 2022.

Considering Cell C has recently undertaken a financial recapitalisation, management was required to apply a probability of distress overlay to the Discounted Cash Flow valuation. Assumptions related to the Moody's rating of both Cell C and BLT were taken into account, given the strategic relationship between the two companies.

TPC's equity share of the value as at 30 November 2022 reflected a partial recovery following the implementation of the recapitalisation.

The recovery in value is attributable to the following:

a. a significant decrease in interest-bearing borrowings in line with a compromise offer made by Cell C to certain of its secured lenders in line with the Recapitalisation Transaction;

b. an increase in cash flow generation over the forecast period due to improved trading on the back of less constrained cash flows, however this was more than negated by the effects of the increase in the discount rate;

c. a decrease in the value of capitalised finance lease contracts due to the restructuring thereof; and

d. an increase in the value of the assessed loss tax shield due to earlier utilisation.

An increase/decrease in the following valuation inputs, when calculating the value-in-use of Cell C, would result in the following adjustments to TPC's share of the value-in-use:

The sensitivities were stress tested at year-end and no further adjustments were required.

Exposure to Cell C

The Group's exposure to Cell C is as follows:

There is indirect exposure to Cell C as a result of the subscription sharing arrangement, refer to notes 1.2 and 4.2.

The Group holds the following investments in and loans to associates and joint ventures:

Loans to associates and joint ventures

All loans with an on-demand feature approximate fair value.

Loans receivable from Cell C

³ Debt funding and reinvestment instruments

Management assessed and concluded that the funding provided (Debt Funding and the Reinvestment Instrument) to Cell C as part of its recapitalisation should be classified as originated credit impaired loans. Cell C was restructured and refinanced with the purpose of deleveraging its balance sheet, providing it with liquidity with which to operate and grow its businesses and to position itself to achieve long-term success for the benefit of its customers, employees, creditors, shareholders and its other stakeholders. Cell C utilised the TPC Debt Funding to settle the claims of secured lenders by paying an amount of 20c to the rand. The face value of the funding provided by TPC is 2.75 times the cash it advanced. This deep discount evidences incurred losses.

Although Cell C's financial plan reflects that these loans will be repaid in full, the terms of the loans are 42 months for the Reinvestment Instrument and 66 months for the Debt Funding, and there is execution risk related to the achievement of the business plan.

Interest on these loans is being recognised using a credit adjusted effective interest rate. The credit adjusted effective interest rate reflects the initial estimate of lifetime expected credit losses. This means that TPC will only recognise the cumulative changes (both favourable and unfavourable) in the initial estimate of lifetime expected credit losses as a loss allowance.

The Debt Funding and Reinvestment Instrument receivables were initially recognised at the amount of the cash advanced plus transaction costs in accordance with the requirements of IFRS 9 for instruments which utilise unobservable inputs to determine their fair value. The fair value of the additional 9.53% shareholding in Cell C that was acquired for nominal consideration has been treated as part of TPC's return for providing the funding to Cell C and has been reflected in the calculation of the effective interest rate on the loans.

⁴ Deferred repayment terms of an amount of R1.1 billion owing by Cell C to CEC

CEC accounted for the change in repayment terms as a significant modification, which resulted in the derecognition of the previous trade receivable and the recognition of a new long-term loan, initially at its fair value of R1.035 billion. This resulted in the recognition of a loss of R64.5 million in profit or loss. Management assessed and concluded that this loan should be classified as an originated credit impaired loan as a result of management renegotiating the terms of the amount owing in order to assist Cell C as part of its restructuring and recapitalisation. Cell C was restructured and refinanced with the purpose of deleveraging its balance sheet, providing it with liquidity with which to operate and grow its businesses and to position itself to achieve long-term success for the benefit of its customers, employees, creditors, shareholders and its other stakeholders. Interest on this loan is being recognised using a credit adjusted effective interest rate of 12.67%. The credit adjusted effective interest rate reflects the initial estimate of lifetime expected credit losses. This means that CEC will only recognise the cumulative changes (both favourable and unfavourable) in the initial estimate of lifetime expected credit losses as a loss allowance.

Included in the statement of cash flows is the "Additional investment in and acquisition of shares in associates" amounting to R373 million which is made up of "Acquisition of associates and joint ventures" of R6.4 million as well as "Additional investments" of R366 million.

Acquisition of additional notes in SPV1

The notes acquired in SPV1 fail the criteria to be classified as a financial asset at amortised cost because, by virtue of the fact that the only means SPV1 has to redeem the notes is its shareholding in Cell C, it represents an additional interest (without voting rights) in these shares subject to a limit of the debt plus accrued interest. Since Cell C is accounted for as an associate, TPC's additional interest in Cell C has also been accounted for as part of the investment in associate and equity accounted. Accordingly, the overall percentage interest in Cell C that is equity accounted reflects TPC's economic interest (and not only voting interest) which includes this additional interest of 3.19%.

The assessment of control is concerned with substantive rights as it relates to decisions about the direction of the relevant activities of the investee, and therefore, it is management's view that the additional interest without the additional right to vote, together with the operational barriers which prevent the Group from exercising its rights, will not change its assessment of whether Cell C is an associate, until such rights become substantive.

Additional shareholding in Cell C of 9.53%

The fair value at the date of recapitalisation of the 9.53% additional shares received of R118 million has been recognised as an increase in the equity-accounted investment in Cell C and as part of TPC's return on the loans to Cell C which will be recognised over the period of the funding using the effective interest method.

Loan to SPV4

The loan to SPV4 does not meet the criteria to be classified as a financial asset at amortised cost because, by virtue of the fact that the only means SPV4 has to repay the loan is the 5.47% shareholding in Cell C, it represents an additional interest (without voting rights) in these shares subject to a limit of the debt plus accrued interest. Since Cell C is accounted for as an associate, this additional interest in Cell C has also been accounted for as part of the investment in associate and equity accounted. Accordingly, the overall percentage interest in Cell C that is equity accounted reflects TPC's economic interest (and not only voting interest) which includes this additional interest (without voting rights) of 5.47%.

The assessment of control is concerned with substantive rights as it relates to decisions about the direction of the relevant activities of the investee, and therefore, it is management's view that the additional interest without the additional right to vote, together with the operational barriers which prevent the Group from exercising its rights, will not change its assessment of whether Cell C is an associate, until such rights become substantive.

Accumulated impairment

The Group's share of accumulated losses not guaranteed