Blue Label Telecoms

Six months ended 30 November 2018	Total  Unaudited  R'000	Africa  Distribution  Unaudited  R'000	International  Unaudited  R'000
Total segment revenue	16 975 493	16 579 987	12 940
Internal revenue	(4 673 776)	(4 562 065)	–
Revenue	12 301 717	12 017 922	12 940
Operating profit/(loss) before depreciation, amortisation and impairment charges	379 168	318 065	26 700
Net (loss)/profit for the period attributable to equity holders of the parent	(116 532)	(135 565)	19 570
Amortisation on intangibles raised through business combinations net of tax and non-controlling interest	33 658	30 140	2 688
Headline earnings adjustments net of non-controlling interest	(22 520)	(22 366)	(143)
Core headline earnings for the period attributable to equity holders of the parent	(105 394)	(127 791)	22 115
At 30 November 2018
Total assets	19 173 728	17 715 570	697 563
Net operating assets/(liabilities)	688 178	673 878	114 073
Six months ended 30 November 2017
Total segment revenue	17 150 096	16 755 138	–
Internal revenue	(3 516 654)	(3 397 307)	–
Revenue	13 633 442	13 357 831	–
Operating profit/(loss) before depreciation, amortisation and impairment charges	768 475	732 048	22 203
Net profit/(loss) for the period attributable to equity holders of the parent	1 350 261	1 383 659	(17 539)
Amortisation on intangibles raised through business combinations net of tax and non-controlling interest	13 987	12 047	825
Headline earnings adjustments net of non-controlling interest	(6 019)	(814)	(5 164)
Core headline earnings for the period attributable to equity holders of the parent	1 358 229	1 394 892	(21 878)
At 30 November 2017
Total assets	15 262 129	13 772 880	792 031
Net operating (liabilities)/assets	(491 030)	(631 138)	51 074
Year ended 31 May 2018	Audited  R'000	Audited  R'000	Audited  R'000
Total segment revenue	33 633 266	32 897 392	–
Internal revenue	(6 833 001)	(6 652 186)	–
Revenue	26 800 265	26 245 206	–
Operating profit/(loss) before depreciation, amortisation and impairment charges	1 340 153	1 344 824	(2 903)
Net profit/(loss) for the year attributable to equity holders of the parent	993 624	1 344 642	(227 000)
Amortisation on intangibles raised through business combinations net of tax and non-controlling interest	44 345	40 852	1 549
Headline earnings adjustments net of non-controlling interest	(5 953)	(755)	(5 164)
Core headline earnings for the year attributable to equity holders of the parent	1 032 016	1 384 739	(230 615)
At 31 May 2018
Total assets	17 930 951	16 671 589	518 045
Net operating assets/(liabilities)	1 848 117	1 758 210	94 701

Six months ended 30 November 2018	Mobile  Unaudited  R'000	Solutions  Unaudited  R'000	Corporate  Unaudited  R'000
Total segment revenue	169 407	106 326	106 833
Internal revenue	(3 968)	(910)	(106 833)
Revenue	165 439	105 416	–
Operating profit/(loss) before depreciation, amortisation and impairment charges	48 580	21 978	(36 155)
Net (loss)/profit for the period attributable to equity holders of the parent	29 447	25 155	(55 139)
Amortisation on intangibles raised through business combinations net of tax and non-controlling interest	830	–	–
Headline earnings adjustments net of non-controlling interest	(11)	–	–
Core headline earnings for the period attributable to equity holders of the parent	30 266	25 155	(55 139)
At 30 November 2018
Total assets	558 150	170 321	32 124
Net operating assets/(liabilities)	24 961	41 200	(165 934)
Six months ended 30 November 2017
Total segment revenue	178 848	103 577	112 533
Internal revenue	(5 860)	(954)	(112 533)
Revenue	172 988	102 623	–
Operating profit/(loss) before depreciation, amortisation and impairment charges	47 283	24 442	(57 501)
Net profit/(loss) for the period attributable to equity holders of the parent	26 433	13 715	(56 007)
Amortisation on intangibles raised through business combinations net of tax and non-controlling interest	1 115	–	–
Headline earnings adjustments net of non-controlling interest	(36)	(5)	–
Core headline earnings for the period attributable to equity holders of the parent	27 512	13 710	(56 007)
At 30 November 2017
Total assets	564 755	126 566	5 897
Net operating (liabilities)/assets	62 418	35 600	(8 984)
Year ended 31 May 2018	Audited  R'000	Audited  R'000	Audited  R'000
Total segment revenue	370 358	196 762	168 754
Internal revenue	(10 388)	(1 673)	(168 754)
Revenue	359 970	195 089	–
Operating profit/(loss) before depreciation, amortisation and impairment charges	101 883	42 838	(146 489)
Net profit/(loss) for the year attributable to equity holders of the parent	57 609	29 836	(211 463)
Amortisation on intangibles raised through business combinations net of tax and non-controlling interest	1 944	–	–
Headline earnings adjustments net of non-controlling interest	126	(22)	(138)
Core headline earnings for the year attributable to equity holders of the parent	59 679	29 814	(211 601)
At 31 May 2018
Total assets	561 330	146 672	33 315
Net operating assets/(liabilities)	62 036	36 780	(103 610)

	Six months ended 30 November 2018 Unaudited R'000		Six months ended 30 November 2017 Unaudited R'000	Year ended 31 May 2018 Audited R'000
Revenue from contracts with customers	12 041 879		13 633 442	26 628 637
Prepaid airtime, data and related revenue	9 651 183		12 387 119	22 968 967
Postpaid airtime, data and related revenue	78 187		54 028	110 535
Prepaid and postpaid SIM cards	603 092		425 555	889 001
Services	331 717		311 157	629 667
Electricity commission	190 470		154 325	299 850
Handsets, tablets and other devices	1 092 645		239 233	1 586 817
Other revenue	94 585		62 025	143 800
Finance revenue	259 838		–	171 628
	12 301 717		13 633 442	26 800 265

The Africa distribution segment contributed to each of the above revenue categories. The majority of revenue contributed by the Solutions and Mobile segments are within Services. The International segment contributed revenue only to Finance revenue. Refer to note 1, Segmental summary, for a disaggregation of revenue contribution by each segment.

On adoption of IFRS 15 Revenue from Contracts with Customers, the revenue recognition on the sale of certain handsets, postpaid airtime and prepaid and postpaid SIM cards has changed. Refer to note 6.

Financial instruments at fair value through profit or loss are classified as level 3 instruments in the fair value hierarchy. Changes in level 3 instruments are as follows:

	Bond notes  (SPV1)  R'000	Liquidity  support  (SPV2)  R'000	Loans at  fair value  R'000	Other  R'000	Total  R'000
Opening balance as at 1 June 2018	167 519	(45 360)	–	625	122 784
Reclassification from financial assets at amortised cost to financial assets at fair value through profit or loss	–	–	361 160	–	361 160
Additions	–	53 229	–	–	53 229
Fair value loss recognised in profit or loss (unrealised)	(46 823)	(445 816)	–	(613)	(493 252)
Closing balance as at 30 November 2018	120 696	(437 947)	361 160	12	43 921
Financial assets at fair value through profit or loss	120 696	–	361 160	12	481 868
Financial liabilities at fair value through profit or loss	–	(437 947)	–	–	(437 947)
Closing balance as at 30 November 2018	120 696	(437 947)	361 160	12	43 921

Bond notes and liquidity support

With effect from 2 August 2017 The Prepaid Company purchased bond notes, issued by Cedar Cellular Investments 1 Proprietary Limited (SPV1), from Saudi Oger Limited with a capital redemption value of USD42 million and with a coupon rate of 8.625% per annum for a purchase consideration of USD18 million. The Prepaid Company was entitled to assign its rights and obligations, in whole or in part, to a nominee. Accordingly, it has assigned such rights and obligations in respect of 50% of the bond notes, resulting in an effective purchase consideration of USD9 million with a capital redemption value of USD21 million.

As part of the restructure of the debt into Cell C Limited (Cell C) by third-party lenders, The Prepaid Company will be required to provide liquidity support to Magnolia Cellular Investment 2 (RF) Proprietary Limited (SPV2), which is 100% held by 3C Telecommunications Proprietary Limited, of up to USD80 million, which liquidity support will be provided over 24 months and will be in the form of subordinated funding to SPV2. Oger Telecoms contributed USD36 million of the aforesaid USD80 million thus reducing The Prepaid Company's obligation in this regard to a maximum of USD44 million. As at 30 November 2018, the Group had contributed USD4 million to SPV2.

Fair value estimate

SPV1 and SPV2 own 11.8% and 16% of the shares issued by Cell C respectively. No other assets are held by these entities, and as such the Group's bond note and liquidity support arrangements will be settled only when the value of the Cell C shares are realised by SPV1 and SPV2. The substance of these arrangements are therefore derivatives exposing the Group to the share price of Cell C.

The derivatives are initially recognised by the Group at fair value and subsequently measured at fair value through profit or loss.

The derivatives are not traded in an active market and therefore the fair value is determined by the use of a valuation technique. The finance department of the Group includes a team that outsources the valuation to a qualified independent third-party valuation specialist. This team reports directly to the Financial Director (FD) and the Audit, Risk and Compliance Committee (ARCC). The valuation was performed using a binomial model taking into account the value of Cell C and an expected exit event date of Cell C in the second quarter of 2020. As both arrangements are USD denominated, the model accounts for the forward rate of the USD at the expected listing date.

As at 30 November 2018, a qualified independent third-party specialist determined the value of Cell C to be R13.4 billion. As a result, an unrealised fair value loss totalling R493 million was recognised in the current period, of which R47 million related to SPV1 and R446 million to SPV2. The remaining exposure to these derivatives is R121 million and R102 million respectively.

The following table illustrates the sensitivity of the valuation of Cell C used to value the derivatives:

Unobservable input	Change to  inputs	Movement in  fair value of  SPV1  R'000	Movement in  fair value of  SPV2  R'000	Total  movement  in fair value  R'000
Valuation of Cell C	5%	5 990	27 666	33 656
	(5%)	(5 999)	(19 990)	(25 989)

Loans at fair value

Blue Label acquired a 48% share in Glocell Distribution Proprietary Limited (Glocell) on 30 June 2018 (refer to note 5). Following the acquisition, and due to new contractual arrangements with the remaining shareholders of Glocell, trade receivables to the value of R361 million held at amortised cost have been restructured, exposing the Group to the share price of Glocell and therefore have been reclassified to financial assets at fair value through profit or loss.

Fair value estimate

A discounted cash flow valuation of Glocell has been used to determine the fair value of the loan at fair value. This valuation has been performed by the finance department of the Group using cash flow projections based on forecasts for up to five years which are based on assumptions of the business, industry and economic growth.

The key assumptions used in the valuation calculation and their sensitivities are as follows:

	Growth rate  %	Discount rate  %
Key assumption applied to value-in-use calculation	5.00	19.48
Change in key assumption that would give rise to a fair value loss	(0.78)	0.46

The headroom in the valuation calculated and the Group carrying value is R19.8 million.

Financial liabilities

Put option liability (included in trade and other payables)

Put option liabilities represent contracts that impose an obligation on the Group to purchase the shares of a subsidiary for cash or another financial asset. Put option liabilities are initially raised from the transaction with non-controlling interest reserve in equity at the present value of the expected redemption amount payable. Subsequent revisions to the expected redemption amount payable as well as the unwinding of the discount related to the measurement of the present value of the put option liability, are recognised in the income statement. Where a put option liability expires unexercised or is cancelled, the carrying value of the financial liability is released to the transaction with non-controlling interest reserve in equity. The Group recognises the non-controlling interest over which a put option exists at acquisition date. Put option liabilities are presented within trade and other payables in the Group statement of financial position.

Changes in level 3 instruments are as follows:

	Six months  ended  30 November  2018  Unaudited  R'000		Six months ended 30 November 2017 Unaudited R'000	Year ended 31 May 2018 Audited R'000
Opening balance	97 947		–	–
Acquisition of Airvantage Proprietary Limited*	–		–	93 966
Acquisition of AV Technology Limited**	62 784
Remeasurements recognised in the income statement	(9 798)		–	3 981
Closing balance	150 933		–	97 947

*

This relates to a put option that the Group has on the remaining 40% shareholding in Airvantage Proprietary Limited. This is exercisable within the next six months. The Group will settle this from available cash resources. The option is valued based on the forecast net profit after tax for 12 months ending 28 February 2019 at a six multiple, initially present valued to the date of the acquisition 2 January 2018, as per the contract.

**

This relates to a put option that the Group has on the remaining 40% shareholding in AV Technology Limited. This is exercisable within the next six months. The Group will settle this from available cash resources. The option is valued based on the forecast net profit after tax for 12 months ending 28 February 2019 at a six multiple, initially present valued to the date of the acquisition 1 August 2018, as per the contract. Refer to note 5.

The sensitivities of the put options in aggregate are as follows:

	Increase/(decrease) in put option liabilities and loss/(gain) in the income statement
1% increase in discount rate, 10% decrease in net profit after tax	(15 765)
1% decrease in discount rate, 10% increase in net profit after tax	15 919

4.1 Investments in and loans to venture capital associates and joint venture

	Six months ended 30 November 2018 Unaudited R'000		Six months ended 30 November 2017 Unaudited R'000	Year ended 31 May 2018 Audited R'000
Venture capital associates and joint venture	156 095		292 266	142 981
Loan to venture capital associates and joint venture	147 276		275 221	134 854
	303 371		567 487	277 835

The exemption available in IAS 28 – Investments in Associate and Joint Ventures has been applied to the investment in Oxigen Services India, Oxigen Online (Oxigen group) and 2DFine Holdings Mauritius from 30 November 2016 and the investment is now 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. The differential between the carrying amount of the investment (previously equity accounted for) and the fair value at this date is reflected as a gain on associate measured at fair value in the reviewed condensed Group statement of comprehensive income. Any additional changes in the fair value are recognised in the Group statement of comprehensive income. The fair value gain recognised in the Group statement of comprehensive income for the period ended was R13 million (2017: R0.7 million gain).

Prior to 30 November 2016, the investment in Oxigen Services India was of a strategic nature, as it was it was expected to emulate the business model of the South African distribution operations. The original decision to invest in this business was because it was strategically aligned with other Blue Label distribution businesses in South Africa. However, its profile has changed from that of the traditional Group business to one of generating growth in the market value of the investment with a view to unlocking the Group's share thereof. With the advent of its change in focus to financial services through wallet subscription, it is no longer strategically aligned with the other business units of the Group and is unlikely to generate profitability in the short to medium term. However, the market value of the company is expected to increase exponentially in conjunction with its growth in wallet subscribers. This in turn creates the potential to unlock the investment in value in the future and the Group is pursuing this new strategy with respect to its investment in Oxigen Services India. In line with the Group's exit strategy, Oxigen Services India was demerged into two separate entities with effect from 1 June 2016. This was implemented to improve the marketability of these entities to potential investors.

2DFine Holdings Mauritius is an investment holding company that holds an interest in Oxigen Services India and Oxigen Online. Consequently, management reviews the results and operations of Oxigen Services India, Oxigen Online and 2DFine Holdings Mauritius on a fair value basis as opposed to the profits/losses that they generate. In addition, management has established an exit strategy with a view to realising this fair value in the foreseeable future.

Accordingly Oxigen Services India, Oxigen Online and 2DFine Holdings Mauritius are viewed as a venture capital investment which, in accordance with IAS 28 – Investments in Associates and Joint Ventures has been accounted for at fair value through profit or loss from 30 November 2016 at which date equity accounting ceased.

Fair value estimate

The finance department of the Group includes a team that outsources the valuations to a qualified independent third-party valuation specialist required for financial reporting purposes, including level 3 fair values. This team reports directly to the FD and the ARCC. Discussions of valuation processes and results are held between the FD, ARCC and the valuation team at least once every six months, in line with the Group's reporting periods.

In the current period management has taken the inputs from the qualified independent third-party valuation specialist and adjusted the inputs for corporate transactions currently in progress.

The investments in venture capital associates and joint venture are classified as level 3 valuations in the fair value hierarchy.

In terms of IFRS 13 – Fair Value Measurement, the market approach has been utilised in determining the fair value of Oxigen Services India and Oxigen Online. This approach utilises relevant information generated by similar market transactions that have been concluded by comparable businesses. The valuation is based on a multiple applied to gross revenue, based on the same principles adopted by similar businesses to that of the Oxigen group, that were recently disposed of. The adjusted revenue multiple of 4.3 (2017: 5.1 to historical revenues) was applied to future revenues in determining the fair value.

The following table summarises the quantitative information about the significant unobservable inputs used in the level 3 fair value measurement for this investment.

Unobservable input	Change  to inputs	Movement
Revenue multiple	0.2	11 929
	0.1	6 288
	(0.1)	(4 993)
	(0.2)	(10 634)
	(0.3)	(16 274)

Critical accounting judgements and assumptions

A corporate transaction that is in progress has been taken into account in determining the fair value of the Oxigen group. However, should this transaction not materialise, the fair value of the Oxigen group would reduce significantly. The full fair value of and loans to the Oxigen group would be required to be written down through profit or loss. In addition, the Group has provided guarantees amounting to USD8 million on behalf of the Oxigen group, which the Group would have to honour should the corporate transaction not materialise.

4.2 Impairment of investments in and loans to associates and joint venture

The fair value movements on the derivatives related to SPV1 and SPV2 which are linked to Cell C's fair value triggered the need to perform an impairment test on the Group's investment in Cell C. In addition, management also performed an impairment test on the Group's investment in Blue Label Mexico due to the losses incurred in that company.

The recoverable amount has been determined as the higher of fair value less cost of disposal and the value-in-use.

Cell C

The fair value less cost of disposal has been used to value Cell C. The fair value was determined using a discounted cash flow valuation technique which uses cash flow projections based on a forecast approved by the Board of Directors for the forthcoming year and forecasts for up to five years. These forecasts include cash flows based on the successful execution of a corporate transaction. These cash flows are then discounted at an appropriate rate incorporating a risk premium for the outcome of a corporate transaction being successful.

Blue Label Mexico

The value-in-use has been used to value Blue Label Mexico. These value-in-use calculations use 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 include assumptions of the business, industry and economic growth.

The key assumptions used for the valuation calculations are as follows:

Unobservable input	Growth rate %	Discount rate %
Cell C Limited	5.1	18.35
Blue Label Mexico S.A. de C.V.	3.5	20.60
The discount rates used are pre-tax and reflect specific risks relating to the relevant associate and joint venture. The growth rate is used to extrapolate cash flows beyond the budget period. The growth rates are consistent with publicly available information relating to long-term average growth rates for each of the markets in which the companies operate.
The inputs used when calculating the valuations would need to be increased/(decreased) by the following amounts before any impairment would need to be recognised:
	Growth rate %	Discount rate %
Cell C Limited	(0.15)	0.1
Blue Label Mexico S.A. de C.V.	(7.1)	3.6
The headroom between the valuations calculated and the Group carrying value is as follows:
		Excess over carrying value R'000
Cell C Limited		49 343
Blue Label Mexico S.A. de C.V.		32 928

Based on the impairment testing performed, the Group has concluded that no impairment is necessary.

In order to mitigate further losses in Blue Label Mexico, major rationalisation and restructure programmes were implemented with effect from December 2018. These measures should result in a return to profitability.

Critical accounting judgements and assumptions

In determining the future cash flows of Cell C, management has applied their judgement, in conjunction with taking into account the likelihood of corporate transactions being successful, that no impairment to the carrying value of the investment in Cell C is required. However, should these corporate transactions not materialise an impairment to the carrying value of the investment may well have to be recognised.

The Group acquired shares in the following subsidiaries during the current period:

	Effective date of acquisition		% acquired
Subsidiaries
Glocell Distribution Proprietary Limited	30 June 2018		48%
Distributor of airtime, starter packs and mobile phones through its retail outlets and to wholesale customers in South Africa, including postpaid and prepaid contracts
AV Technology Limited	1 August 2018		60%
Owner of retail stores trading in cellular handsets, tablets and related accessories, as well as SIM cards, post-paid and pre-paid contracts
Lornanox Proprietary Limited	31 July 2018		100%
Owner of retail stores (subsequently rebranded WiConnect) trading in cellular handsets, tablets and related accessories, as well as SIM cards, postpaid and prepaid contracts

Details of the total net assets acquired and the resulting goodwill as at the date of acquisition are as follows:

	Glocell  Distribution  Proprietary  Limited  R'000		AV  Technology  Limited  R'000		Lornanox  Proprietary  Limited  R'000
Total purchase consideration	173 398		84 187		5 000
Provisional fair value of net assets acquired	15 239		34 889		(40 587)
Goodwill	158 159		49 298		45 587

The provisional assets and liabilities acquired through acquisition are as follows:

	Glocell Distribution Proprietary Limited				AV Technology Limited				Lornanox Proprietary Limited
	Provisional  fair value at  acquisition  date  R'000		Acquirer's  provisional  carrying  amount on  acquisition  date  R'000		Provisional  fair value at  acquisition  date  R'000		Acquirer's  provisional  carrying  amount on  acquisition  date  R'000		Provisional  fair value at  acquisition  date  R'000		Acquirer's  provisional  carrying  amount on  acquisition  date  R'000
Cash and cash equivalents	5 978		5 978		65 442		65 442		10 605		10 605
Property, plant and equipment	4 086		4 086		–		–		39 251		39 251
Intangible assets	54 529		31 736		78 059		440		–		–
Goodwill	158 159		–		49 298		–		45 587		–
Inventories	7 267		7 267		–		–		34 255		34 255
Receivables	14 677		14 677		10 039		10 039		29 659		29 659
Deferred tax	(6 382)		–		(21 733)		–		6 880		18 067
Borrowings	–		–		–		–		(104 529)		(144 481)
Payables	(48 407)		(48 407)		(73 658)		(73 658)		(56 709)		(56 709)
Provisional value of subsidiaries acquired	189 907		15 337		107 447		2 263		4 999		(69 353)
Non-controlling interest			(7 975)				(905)				–
Provisional value of net assets acquired			7 362				1 358				(69 353)
Total purchase consideration			173 398				84 187				5 000
Less: trade receivables capitalised			(173 398)				–				–
Cash and cash equivalents in subsidiary acquired			(5 978)				(65 442)				(10 605)
Cash (inflow)/outflow from acquisitions			(5 978)				18 745				(5 605)

Glocell Distribution Proprietary Limited (Glocell) and Lornanox Proprietary Limited (Lornanox) were purchased with the objective of affording the Group access to new channels for the supply and distribution of airtime, mobile devices and contracts. AV Technology Limited (AV Technology) gives the Group the ability to advance airtime, data and mobile money services to mobile network subscribers in Africa.

In most business acquisitions, there is a part of the cost that is not capable of being attributed in accounting terms to identifiable assets and liabilities acquired and is therefore recognised as goodwill. In the case of the above acquisitions, this goodwill is underpinned by a number of elements, which individually cannot be quantified. Most significant among these in Glocell and Lornanox is the opportunity that the distribution network affords the Group. Most significant in AV Technology is the opportunity that the prepaid airtime advance system affords the Group.

Circular 2/2017

During the year ended 31 May 2018, the South African Institute of Chartered Accountants issued Circular 2/2017 which replaced Circular 9/2006. Circular 9/2006 – Transactions giving rise to adjustments to revenue/purchases previously included guidance on the recognition of financing elements. Although the Group did not believe that their revenue and purchase transactions constituted financing activities, the Group had previously accounted for its sale and purchase transactions as including a financing element based on the guidance in Circular 9/2006.

Subsequent to the issuing of Circular 9/2006, the International Financial Reporting Standards Interpretations Committee (Interpretations Committee) had debated financing elements contained within transactions for both revenue and purchases under the current accounting standards (IAS 2 – Inventories and IAS 18 – Revenue). Circular 2/2017 considers these developments and updates the previous guidance contained in Circular 9/2006 relating to financing elements of revenue and purchases. Circular 2/2017 repeals the guidance in Circular 9/2006 that deals with extended payment terms (paragraphs 23 to 30).

As a result of the revised guidance in Circular 2/2017, the Group reconsidered its accounting policy with respect to financing components included in its sale and purchase transactions in the ordinary course of business. In line with the guidance contained in Circular 2/2017, in particular the indicators provided in paragraph 7 of the Circular, the Group concluded that there is no financing component included in its sale and purchase transactions that occur in the ordinary course of business. In accordance with IAS 8, the Group has accordingly restated its comparative financial information for the period ended 30 November 2017 for this change in accounting policy.

Group statement of financial position
As at	Restated  November  2017  R'000		Adjustments  R'000		Previously  reported  November  2017  R'000
Assets
Non-current assets	9 589 037		–		9 589 037
Current assets	5 673 092		11 505		5 661 587
Trade and other receivables	3 049 105		11 505		3 037 600
Total assets	15 262 129		11 505		15 250 624
Equity and liabilities
Capital and reserves	9 026 790		(7 709)		9 034 499
Retained earnings	4 640 491		(7 709)		4 648 200
Non-current liabilities	71 217		(2 998)		74 215
Deferred taxation liabilities	66 463		(2 998)		69 461
Current liabilities	6 164 122		22 212		6 141 910
Trade and other payables	6 073 592		22 212		6 051 380
Total equity and liabilities	15 262 129		11 505		15 250 624

Group income statement
For the period ended	Restated  November  2017  R'000		Adjustments  R'000		Previously  reported  November  2017  R'000
Revenue	13 633 442		83 745		13 549 697
Changes in inventories of finished goods	(12 492 195)		(93 571)		(12 398 624)
Operating profit	708 013		(9 826)		717 839
Finance costs	(126 431)		91 191		(217 622)
Finance income	69 074		(79 352)		148 426
Net profit before taxation	1 591 797		2 013		1 589 784
Taxation	(190 438)		(564)		(189 874)
Net profit for the year	1 401 359		1 449		1 399 910
Net profit for the year attributable to:
Equity holders of the parent	1 350 261		1 449		1 348 812
Earnings per share for profit attributable to:
Equity holders (cents)
– Basic	167.61		0.18		167.43
– Diluted	149.83		0.18		149.65

The change in accounting policy had no impact on the Group cash flow statement.

IFRS 15 – Revenue from Contracts with Customers

IFRS 15 replaces both IAS 11 and IAS 18 as well as SIC 31, IFRIC 13, IFRIC 15 and IFRIC 18 and establishes a comprehensive framework for recognition of revenue from contracts with customers. Revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires a certain level of judgement.

On application of IFRS 15, the following material changes and considerations have been made:

Revenue category	Nature of material considerations and changes in accounting policy
Postpaid airtime, data and related revenue	Due to the change in considerations for the recognition of principal versus agent under IFRS 15, revenue relating to certain contracts that were previously recognised as agent at a point in time, are now accounted for as principal and over the term of the contract (generally 24 months). This new treatment aligns with the majority of revenue that was recognised in this category, both under IAS 18 and now under IFRS 15. The effect of this change in the current year income statement due to a change in timing of revenue recognition reduces net profit after tax attributable to equity holders of the parent by R15 million.
Prepaid and postpaid SIM card	The Group earns activation and ongoing revenue on starter packs that have been distributed to prepaid customers. Under IFRS 15, the recognition of ongoing revenue requires a certain level of judgement (refer to critical accounting judgements and assumptions below) and the Group has concluded that the treatment remains unchanged. However, the initial sale of starter packs is now deemed to have a financing element under IFRS 15. As such revenue is recognised at the point of sale of starter packs taking into account the time value of money. The unwinding of the corresponding trade receivables balance is recognised in revenue, resulting in an immaterial effect on the group statement of comprehensive income.
Sale of handsets, tablets and other devices	Due to the change in considerations for the recognition of principal versus agent under IFRS 15, revenue relating to the sale of handsets under certain contracts that were previously recognised as principal are now accounted for as agent. In general, the sale of handsets, tablets and devices remain as principal under IFRS 15 as they were historically under IAS 18. The effect of this change due to IFRS 15 on the current year group statement of comprehensive income is only a reclassification between revenue and changes in inventories of finished goods to the value of R672 million. The gross profit effect of this change is nil.
Income from associates and joint ventures	Nature of material considerations and changes in accounting policy
Contract and equipment revenue in associate	The Group capitalises costs incurred in obtaining contract customers. These costs were previously expensed under IAS 18. The Group recognises the costs of obtaining and fulfilling a contract as an intangible asset only when the costs: relate directly to an existing contract or specified anticipated contract; generate or enhance the resources of the Group that will be used to satisfy performance obligations in the future; and are expected to be recovered. The Group adopted the practical expedient and expenses costs incurred in obtaining a contract with customers when the contract is less than a year. This has been the most significant impact on the income from associates and joint venture line item in the statement of comprehensive income.
Revenue category	Critical accounting judgements and assumptions
Prepaid and postpaid SIM cards – ongoing revenue	The Group earns ongoing revenue on starter packs that have been distributed to prepaid customers. The Group is entitled to ongoing revenue on all future prepaid airtime purchases that a signed-up prepaid customer makes, even if the subscriber does not top up through Group companies in the future. Ongoing revenue earned is variable in nature as the Group's entitlement to these amounts is dependent on the future spending patterns of the prepaid customers, and therefore contingent on a future event occurring or not occurring. IFRS 15 requires an entity to estimate the amount of variable consideration it will be entitled to for the contracts it has entered into with its customers and include this in the transaction price at contract inception, to the extent the variable consideration is not constrained. The Group has concluded that the ongoing revenue is fully constrained at the individual contract level due to the high variability in behaviour of the individual customers, including: the period over which prepaid customers remain on the same SIM card (this can range from one day to a number of years); and the spending patterns of individual customers, which is also highly variable. In addition, because the terms of the ongoing revenue structure with the telecommunication companies are regularly up for negotiation, the Group is not able to predict the likelihood or magnitude of a revenue reversal. The Group's policy is therefore only to recognise the variable consideration as revenue as and when it is received because it is only at this point that it is highly probable that a significant reversal in revenue for that contract will not occur in the future.

IFRS 9 – Financial Instruments

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.

Classification and measurement of financial assets

The adoption of IFRS 9 has not had a material impact on the Group's accounting policies related to the classification and measurement of financial assets, financial liabilities and derivative financial instruments.

Impairment of financial assets

IFRS 9 replaces the "incurred loss" model in IAS 39 with an "expected credit loss" (ECL) model. The Group has four types of financial assets that are subject to the new ECL model:

• trade receivables;
• loans receivable and loans to associates and joint ventures;
• guarantees; and
• cash and cash equivalents (immaterial impairment loss identified).

The Group was required to revise its impairment methodology under IFRS 9 for each of these classes of assets. The impact of the change in impairment methodology on the Group's retained earnings is disclosed below.

Trade receivables

The Group applies the IFRS 9 simplified approach to measuring ECL which uses a lifetime expected loss allowance for all trade receivables. ECLs are calculated by applying a loss ratio to the aged balance of trade receivables at each reporting date. The loss ratio is calculated according to the ageing/payment profile of sales by applying historic/proxy write-offs to the payment profile of the sales population. Trade receivable balances have been grouped so that the ECL calculation is performed on groups of receivables with similar risk characteristics and ability to pay. Similarly, the sales population selected to determine the ageing/payment profile of the sales is representative of the entire population and in line with future payment expectations. The historic loss ratio is then adjusted for forward looking information to determine the ECL for the portfolio of trade receivables at the reporting period.

Loans receivable, loans to associates and joint ventures, and guarantees

The Group applies the IFRS 9 general approach to measuring expected credit losses which uses a 12-month expected loss allowance for all loans receivables, loans to associates and joint ventures, and guarantees individually. ECLs are calculated by applying a loss ratio to the balance of each loan and guarantee at each reporting date. The loss ratio for loans is calculated according to the ageing/payment profile of loans by applying historic write-offs to the payment profile of the loan population. The loss ratio for guarantees is calculated according to the past history of drawdowns on the financial guarantee contract population. The historic loss ratio is then adjusted for forward looking information to determine the ECL for each loan and guarantee at the reporting period to the extent that there is a strong correlation between the forward looking information and the ECL. To calculate an ECL, management allocates a risk rating to each loan and guarantee. The risk rating is assigned an average cumulative default rate based on management assessing market default rates for emerging markets. This rate is added to the historical loss ratio to determine the ECL of the relevant loan or guarantee.

Critical accounting judgements and assumptions

The ECL for financial assets is based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the input to the impairment calculation, based on the Group's past history, existing market conditions, as well as forward looking estimates at the end of each reporting period.

IFRS 15 and IFRS 9 transition

The Group has applied both IFRS 9 – Financial Instruments and IFRS 15 – Revenue from Contracts with Customers using the modified retrospective approach, by recognising the cumulative effect of initially applying IFRS 9 and IFRS 15 as an adjustment to the opening balance of equity at 1 June 2018. Therefore the comparative information on the unaudited condensed Group statement of financial position and unaudited condensed Group statement of comprehensive income has not been restated for the adoption of these new standards and continues to be reported under the previously applied standards.

In accordance with the requirements of applying the modified retrospective approach under IFRS 9 and IFRS 15, the current financial information has been presented below with adjustments to indicate the Group results had IFRS 9 and IFRS 15 not been adopted.

Group statement of financial position
As at	November  2018  under  previously  applied  standards  R'000		IFRS 9  adjustments  R'000		IFRS 15  adjustments  R'000		Reported  November  2018  R'000
ASSETS
Non-current assets	10 331 485		80 816		(175 924)		10 426 593
Property, plant and equipment	203 648		–		–		203 648
Intangible assets	1 168 684		–		–		1 168 684
Goodwill	1 291 529		–		–		1 291 529
Investments in and loans to associates and joint ventures	6 162 270		83 164		(164 994)		6 244 100
Investments in and loans to venture capital associates and joint venture	303 371		–		–		303 371
Loans receivable	53 827		962		–		52 865
Financial assets at fair value through profit or loss	481 868		–		–		481 868
Trade and other receivables	591 434		–		–		591 434
Deferred taxation assets	74 854		(3 310)		(10 930)		89 094
Current assets	8 864 399		25 995		91 269		8 747 135
Inventories	1 350 442		–		–		1 350 442
Loan to associate	–		–		–		–
Loans receivable	180 163		10 235		–		169 928
Financial assets at fair value through profit or loss	–		–		–		–
Trade and other receivables	6 349 655		15 760		91 269		6 242 626
Current tax assets	34 386		–		–		34 386
Cash and cash equivalents	949 753		–		–		949 753
Total assets	19 195 884		106 811		(84 655)		19 173 728
EQUITY AND LIABILITIES
Capital and reserves	9 042 097		125 478		(106 556)		9 023 175
Share capital, share premium and treasury shares	7 598 999		–		–		7 598 999
Restructuring reserve	(1 843 912)		–		–		(1 843 912)
Other reserves	101 986		–		–		101 986
Share-based payments	32 107		–		–		32 107
Transactions with non-controlling interest reserve	(1 132 052)		–		–		(1 132 052)
Retained earnings	4 098 084		123 489		(106 556)		4 081 151
	8 855 212		123 489		(106 556)		8 838 729
Non-controlling interest	186 885		1 989		–		184 896
Non-current liabilities	2 103 392		–		11 796		2 091 596
Deferred taxation liabilities	285 890		–		11 796		274 094
Borrowings	1 804 250		–		–		1 804 250
Trade and other payables	13 252		–		–		13 252
Current liabilities	8 050 395		(18 667)		10 105		8 058 957
Trade and other payables	5 718 380		(19 770)		10 105		5 728 045
Provisions	42 522		–		–		42 522
Financial liabilities at fair value through profit or loss	437 947		–		–		437 947
Current tax liabilities	36 297		1 103		–		35 194
Bank overdraft	10 105		–		–		10 105
Borrowings	1 805 144		–		–		1 805 144
Total equity and liabilities	19 195 884		106 811		(84 655)		19 173 728

Group statement of comprehensive income
For the period ended	November  2018  under  previously  applied  standards  R'000		IFRS 9  adjustments  R'000		IFRS 15  adjustments  R'000		Reported  November  2018  R'000
Revenue	12 964 380		–		662 663		12 301 717
Other income	76 343		(28 159)		–		104 502
Changes in inventories of finished goods	(11 636 449)		–		(642 723)		(10 993 726)
Employee compensation and benefit expense	(301 043)		–		–		(301 043)
Depreciation, amortisation and impairment charges	(128 441)		–		–		(128 441)
Other expenses	(724 620)		7 662		–		(732 282)
Operating profit	250 170		(20 497)		19 940		250 727
Finance costs	(119 520)		–		(701)		(118 819)
Finance income	80 349		–		1 858		78 491
Gain on associates and joint venture measured at fair value	13 115		–		–		13 115
Share of losses from associates and joint ventures	(201 277)		48 790		(112 029)		(138 038)
Net profit before taxation	22 837		28 293		(90 932)		85 476
Taxation	(189 118)		(140)		(5 907)		(183 071)
Net profit for the period	(166 281)		28 153		(96 839)		(97 595)
Other comprehensive income:
Items reclassified to profit or loss
Foreign currency translation reserve reclassified to profit or loss	(143)		–		–		(143)
Items that may be subsequently reclassified to profit or loss
Share of other comprehensive income/(loss) of associates and joint ventures	14 114		–		–		14 114
Foreign exchange loss on translation of foreign operations	3 058		–		–		3 058
Other comprehensive income/(loss) for the period, net of tax	17 029		–		–		17 029
Total comprehensive income for the period	(149 252)		28 153		(96 839)		(80 566)
Net profit for the period attributable to:	(166 281)		28 153		(96 839)		(97 595)
Equity holders of the parent	(185 770)		27 601		(96 839)		(116 532)
Non-controlling interest	19 489		552		–		18 937
Total comprehensive income for the period attributable to:	(149 252)		28 153		(96 839)		(80 566)
Equity holders of the parent	(168 446)		27 601		(96 839)		(99 208)
Non-controlling interest	19 194		552		–		18 642
Earnings per share for profit attributable to:
Equity holders (cents)
– Basic	(20.07)		2.98		(10.46)		(12.59)
– Diluted	(18.19)		2.96		(10.39)		(10.76)

The change in accounting policies had no impact on the Group cash flow statement.

	Six months ended 30 November Unaudited 2018 R'000		Six months ended 30 November Unaudited 2017 R'000		Year ended 31 May Audited 2018 R'000
Sales to related parties
Cell C Proprietary Limited	937 558		146 789		1 100 788
Purchases from related parties
Cell C Proprietary Limited	3 613 074		2 858 002		4 873 215
Interest received from related parties
2DFine Holdings Mauritius	12 853		11 092		21 736
Cell C Proprietary Limited	229 524		17 854		96 380
Loans to related parties
2DFine Holdings Mauritius*	109 524		239 028		100 837
Brett Levy*	33 179		–		27 503
Cell C Proprietary Limited	–		749 279		1 029 626
Mark Levy*	33 179		–		27 503
Oxigen Services India Private Limited	37 752		36 193		34 017
ZOK Cellular Proprietary Limited	16 716		20 950		19 768
Amounts due from related parties included in trade receivables
3G Mobile (Botswana) Proprietary Limited	30 346		44 940		31 688
Cell C Proprietary Limited	2 895 691		135 148		2 623 94
Amounts due to related parties included in trade payables
3G Mobile (Botswana) Proprietary Limited	744		9 285		30 799
Cell C Proprietary Limited	1 615 760		2 055 178		1 573 472

*	Brett Levy and Mark Levy have signed personal sureties for the loan owed by 2DFine Holdings Mauritius to Gold Label Investments Proprietary Limited. As at November 2018 a combined surety asset of R66 million has been raised (May 2018: R55 million).

The condensed unaudited consolidated interim financial statements have been prepared in accordance with the requirements of section 8.57 of the JSE Limited Listings Requirements, the presentation and disclosure requirements of IAS 34 – Interim Financial Reporting and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council. The condensed unaudited consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act, No 71 of 2008.

These condensed unaudited consolidated interim financial statements have been prepared in accordance with the going concern principle, under the historical cost convention, adjusted for financial instruments measured at fair value through profit or loss. The condensed unaudited consolidated interim report does not include all the disclosures required for complete annual financial statements prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). The accounting policies used in preparing the condensed unaudited consolidated interim report are consistent with those applied in the previous annual financial statements, except for the adoption of IFRS 9 – Financial Instruments and
IFRS15 – Revenue from Contracts with Customers. See note 6 for more detail.

We aim to provide stakeholders with the same additional information that management uses to evaluate the performance of the Group's operations. Accordingly, we make reference to operating profit before depreciation, amortisation and impairment charges (EBITDA). In addition, the Group applies core net profit and core headline earnings as non-IFRS measures 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(R) – Business Combinations. Core headline earnings are calculated by adjusting core net profit with the headline earnings adjustments required by SAICA Circular 2/2015.

The results for the period ended 30 November 2018 have not been reviewed or audited.