Independent auditor's report on summarised Group financial statements

To the shareholders of Blue Label Telecoms Limited

OPINION

The summary consolidated financial statements of Blue Label Telecoms Limited, contained in the accompanying provisional report, which comprise the summary consolidated statement of financial position as at 31 May 2019, the summary consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and related notes, are derived from the audited consolidated financial statements of Blue Label Telecoms Limited for the year ended 31 May 2019.

In our opinion, the accompanying summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements, in accordance with the requirements of the JSE Limited Listings Requirements for provisional reports, as set out in the basis of preparation section in the summary consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summary financial statements.

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards and the requirements of the Companies Act of South Africa as applicable to annual financial statements. Reading the summary consolidated financial statements and the auditor's report thereon, therefore, is not a substitute for reading the audited consolidated financial statements and the auditor's report thereon.

THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND OUR REPORT THEREON

We expressed a qualified audit opinion on the audited consolidated financial statements in our report dated 26 September 2019.

The basis for our qualified opinion was as follows: 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:

  • share of (losses)/gains from associates and joint ventures (in the Group income statement); and
  • 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.

During the year, however, the adverse trading conditions experienced by Cell C, 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 on the following).

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:

  • 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.
  • The headline earnings per share (HEPS) measure and core HEPS measure would also be impacted, should the equity-accounted losses and impairment of investment in Cell C materially differ as explained.
  • The disclosure of summary financial information of Cell C Limited, presented in note 2.1 to the consolidated financial statements may be materially misstated.

The audit report also includes:

  • A material uncertainty relating to going concern section that draws attention to note 9.2 to the audited consolidated financial statements. Note 9.2 of the audited consolidated financial statements indicated that one of the Group's significant facilities has been extended to 29 November 2019. A renegotiation for a further extension beyond that date is currently in process. These events or conditions indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter. The summary consolidated financial statements are affected to the equivalent extent as the audited consolidated financial statements. These matters are addressed in the going concern section of the summary consolidated financial statements.
  • The communication of other key audit matters. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period.

DIRECTOR'S RESPONSIBILITY FOR THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

The directors are responsible for the preparation of the summary consolidated financial statements in accordance with the requirements of the JSE Limited Listings Requirements for provisional reports, as set out in the basis of preparation section in the summary consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summary financial statements.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on whether the summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 (Revised), Engagements to Report on Summary Financial Statements.

OTHER MATTERS

We have not audited future financial performance and expectations expressed by the directors included in the commentary in the accompanying financial statements and accordingly do not express an opinion thereon.

PricewaterhouseCoopers Inc.
Director: D Storm
Registered Auditor
Johannesburg
26 September 2019