Notes to the financial statements

	Total			Continuing operations		Discontinued operations
		30 November  2021  Unaudited  R'000	30 November  2020  Unaudited  R'000	30 November 2021  Unaudited  R'000	30 November  2020  Unaudited  R'000	30 November  2021  Unaudited  R'000	30 November  2020  Unaudited  R'000
Profit attributable to equity holders of the parent		531 451	440 090	530 440	412 601	1 011	27 489
Net profit on disposal of property, plant and equipment		(244)	(672)	(244)	(332)	—	(340)
Net (profit)/loss on disposal of intangible assets		(270)	1 435	(270)	1 435	—	—
Impairment/(impairment reversal) of property, plant and equipment		1 887	(2 284)	1 887	—	—	(2 284)
Foreign currency translation reserve recycled to profit or loss		—	(52 538)	—	(52 538)	—	—
Net profit on sale of associates		—	(24 965)	—	(24 965)	—	—
Headline earnings		532 824	361 066	531 813	336 201	1 011	24 865
Headline earnings per share		60.86	40.96	60.74	38.14	0.12	2.82

		Total
		30 November  2021  Unaudited  R'000	30 November  2020  Unaudited  R'000	30 November  2021  Unaudited  R'000	30 November  2020  Unaudited  R'000
Headline earnings per share		Attributable  earnings	Attributable  earnings	Cents per  share	Cents per  share
Basic		532 824	361 066	60.86	40.96
Diluted		532 824	361 066	58.76	39.25
Core		548 831	376 433	62.69	42.70
Earnings attributable to ordinary equity holders
Basic		531 451	440 090	60.71	49.92
Diluted		531 451	440 090	58.61	47.85
Weighted average number of shares
Weighted average number of ordinary shares		875 496 083	881 556 907
Adjusted for forfeitable shares		31 243 614	38 295 663
Weighted average number of ordinary shares for diluted earnings		906 739 697	919 852 570
Number of shares in issue		913 655 873	913 655 873
Number of shares in issue excluding treasury shares		876 453 719	874 781 449
Reconciliation between profit and core headline earnings for the period:
Profit for the period attributable to equity holders of the parent		531 451	440 090
Amortisation on intangible assets raised through business combinations net of tax and net of non-controlling interest		16 007	15 367
Core profit for the period		547 458	455 457
Headline earnings adjustments		1 373	(79 024)
Core headline earnings		548 831	376 433
Core headline earnings per share (cents)		62.69	42.70

		Continuing operations
		30 November  2021  Unaudited  R'000	30 November  2020  Unaudited  R'000	30 November  2021  Unaudited  R'000	30 November  2020  Unaudited  R'000
Headline earnings per share		Attributable  earnings	Attributable  earnings	Cents per  share	Cents per  share
Basic		531 813	336 201	60.74	38.14
Diluted		531 813	336 201	58.65	36.55
Core		547 820	351 568	62.57	39.88
Earnings attributable to ordinary equity holders
Basic		530 440	412 601	60.59	46.80
Diluted		530 440	412 601	58.50	44.86
Weighted average number of shares
Weighted average number of ordinary shares		875 496 083	881 556 907
Adjusted for forfeitable shares		31 243 614	38 295 663
Weighted average number of ordinary shares for diluted earnings		906 739 697	919 852 570
Number of shares in issue		913 655 873	913 655 873
Number of shares in issue excluding treasury shares		876 453 719	874 781 449
Reconciliation between profit and core headline earnings for the period:
Profit for the period attributable to equity holders of the parent		530 440	412 601
Amortisation on intangible assets raised through business combinations net of tax and net of non-controlling interest		16 007	15 367
Core profit for the period		546 447	427 968
Headline earnings adjustments		1 373	(76 400)
Core headline earnings		547 820	351 568
Core headline earnings per share (cents)		62.57	39.88

		Discontinued operations
		30 November  2021  Unaudited  R'000	30 November  2020  Unaudited  R'000	30 November  2021  Unaudited  R'000	30 November  2020  Unaudited  R'000
Headline earnings per share		Attributable  earnings	Attributable earnings	Cents per  share	Cents per  share
Basic		1 011	24 865	0.12	2.82
Diluted		1 011	24 865	0.11	2.70
Core		1 011	24 865	0.12	2.82
Earnings attributable to ordinary equity holders
Basic		1 011	27 489	0.12	3.12
Diluted		1 011	27 489	0.11	2.99
Weighted average number of shares
Weighted average number of ordinary shares		875 496 083	881 556 907
Adjusted for forfeitable shares		31 243 614	38 295 663
Weighted average number of ordinary shares for diluted earnings		906 739 697	919 852 570
Number of shares in issue		913 655 873	913 655 873
Number of shares in issue excluding treasury shares		876 453 719	874 781 449
Reconciliation between profit and core headline earnings for the period:
Profit for the period attributable to equity holders of the parent		1 011	27 489
Amortisation on intangible assets raised through business combinations net of tax and net of non-controlling interest		—	—
Core profit for the period		1 011	27 489
Headline earnings adjustments		—	(2 624)
Core headline earnings		1 011	24 865
Core headline earnings per share (cents)		0.12	2.82

		Total	Africa	International	Solutions	Corporate
		Unaudited  R'000	Distribution  Unaudited  R'000	Unaudited  R'000	Unaudited  R'000	Unaudited  R'000
Total segment revenue		12 617 920	12 326 227	—	126 460	165 233
Internal revenue		(3 505 046)	(3 339 262)	—	(551)	(165 233)
Revenue		9 112 874	8 986 965	—	125 909	—
Operating profit/(loss) before depreciation and amortisation		902 499	941 935	(876)	7 584	(46 144)
Profit/(loss) from continuing operations for the period attributable to equity holders of the parent		530 440	578 271	(796)	18 430	(65 465)
Profit for the period from discontinued operations attributable to equity holders of the parent		1 011	1 011	—	—	—
Profit/(loss) for the period attributable to equity holders of the parent		531 451	579 282	(796)	18 430	(65 465)
Amortisation on intangibles raised through business combinations net of tax and non-controlling interest		16 007	16 007	—	—	—
Headline earnings adjustments net of non-controlling interest		1 373	1 433	—	(6)	(54)
Core headline earnings for the period attributable to equity holders of the parent		548 831	596 722	(796)	18 424	(65 519)

		Total	Africa	International	Solutions	Corporate
		Unaudited  R'000	Distribution  Unaudited  R'000	Unaudited  R'000	Unaudited  R'000	Unaudited  R'000
Total segment revenue		13 667 036	13 489 243	—	91 740	86 053
Internal revenue		(4 085 014)	(3 996 437)	—	(2 524)	(86 053)
Revenue		9 582 022	9 492 806	—	89 216	—
Operating profit/(loss) before depreciation and amortisation		703 334	663 285	66 704	13 424	(40 079)
Profit/(loss) from continuing operations for the period attributable to equity holders of the parent		412 601	391 553	66 855	12 667	(58 474)
Profit for the period from discontinued operations attributable to equity holders of the parent		27 489	27 489	—	—	—
Profit/(loss) for the period attributable to equity holders of the parent		440 090	419 042	66 855	12 667	(58 474)
Amortisation on intangibles raised through business combinations net of tax and non-controlling interest		15 367	15 367	—	—	—
Headline earnings adjustments net of non-controlling interest		(79 024)	(1 475)	(79 493)	—	1 944
Core headline earnings for the period attributable to equity holders of the parent		376 433	432 934	(12 638)	12 667	(56 530)

		Total		Africa Distribution		Solutions
		30 November 2021 Unaudited R'000	30 November 2020 Unaudited R'000	30 November 2021 Unaudited R'000	30 November 2020 Unaudited R'000	30 November 2021 Unaudited R'000	30 November 2020 Unaudited R'000
Revenue from contracts with customers		8 627 886	9 365 787	8 501 977	9 276 571	125 909	89 216
Prepaid airtime, data and related revenue		7 595 115	8 333 550	7 595 115	8 333 550	—	—
Postpaid airtime, data and related revenue		45 696	54 723	45 696	54 723	—	—
Prepaid and postpaid SIM cards		258 042	293 229	258 042	293 229	—	—
Services		200 132	174 365	74 223	85 149	125 909	89 216
Electricity commission		177 066	184 911	177 066	184 911	—	—
Handsets, tablets and other devices		154 966	186 271	154 966	186 271	—	—
Other revenue		196 869	138 738	196 869	138 738	—	—
Subscription income share		286 405	—	286 405	—	—	—
Revenue		8 914 291	9 365 787	8 788 382	9 276 571	125 909	89 216
Finance revenue		198 583	216 235	198 583	216 235	—	—
Total revenue		9 112 874	9 582 022	8 986 965	9 492 806	125 909	89 216

Accounting policy

A discontinued operation is a component of the entity that has been disposed of or is classified as held-for-sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the statement of comprehensive income.

Description

Closure of WiConnect

While management had implemented a turnaround strategy at WiConnect (a wholly owned subsidiary of the Group), which incorporated the strengthening of the retail management team, a refocus of product sales as well as negotiating additional rebates from the network operators and original equipment manufacturers, Covid-19 had a significant negative impact on the retail operations of WiConnect. These included increased costs of inventories as a result of a weaker rand, periods of non-trading as a result of the nationwide lockdown and consumers foregoing discretionary purchases. Given the uncertainty of the tenure of the pandemic and the resultant losses attributable thereto impacting on its financial feasibility, a decision was made on 11 May 2020 to cease the operations of the WiConnect retail stores.

Significant management judgement was applied in determining whether WiConnect is a discontinued operation by assessing whether it had effectively been ceased to be used or abandoned by 31 May 2020 and also whether it represented a separate major line of business or geographical area of operations or was part of a single plan to dispose of a separate major line of business or geographical area of operations. For further information regarding management's considerations in concluding that WiConnect was a discontinued operation, please refer to the information under Critical accounting judgements and assumptions.

Management believes that the above assessment is still applicable for the six-month period ended 30 November 2021. The costs incurred and revenues earned post the 31 May 2020 year-end have all been elements of the winding down of the WiConnect operations. Management has negotiated terms with substantially all landlords resulting in significant savings on lease liability costs that were accounted for as modifications to the lease terms. These modifications have been recorded in the "Profit from discontinued operation" line item within the condensed Group statement of comprehensive income. Management is in the process of collecting outstanding debt owed to WiConnect from its trade receivables and in settling trade and other sundry creditors.

Financial performance of discontinued operations

			WiConnect  six months  ended  30 November  2021  Unaudited  R'000	WiConnect  six months  ended  30 November  2020  Unaudited  R'000
Revenue and other incomes			1 501	42 793
Expenses			(98)	(12 748)
Profit before taxation			1 403	30 045
Taxation			(392)	(2 556)
Profit after taxation of discontinued operations			1 011	27 489
Exchange differences on translation of discontinued operations			—	—
Other comprehensive loss from discontinued operations			—	—
Total comprehensive income from discontinued operations			1 011	27 489
Profit for the period attributable to:			1 011	27 489
	Equity holders of the parent		1 011	27 489
	Non-controlling interest		—	—
Total comprehensive income for the period attributable to:			1 011	27 489
	Equity holders of the parent		1 011	27 489
	Non-controlling interest		—	—
Net cash inflow from ordinary activities			150	10 099
Net cash outflow from investing activities			—	(1 981)
Net increase in cash generated by the discontinued operations			150	8 118

Critical accounting judgements and assumptions

WiConnect discontinued operations considerations

Paragraph 13 of IFRS 5 states that if a disposal group meets the discontinued operation criteria, the cash flows and results of the disposal group should be presented as discontinued operations at the date on which it ceases to be used. In considering whether the operations of WiConnect have “ceased to be used” management considered that as at year-end, and for some time prior, WiConnect’s retail stores had ceased trading (even during the periods of the national lockdown where trading was permissible). Furthermore, all inventory had been transferred to a central warehouse, cash collected and transferred from stores, and affected staff informed of their retrenchment. Additionally, all landlords to the WiConnect retail stores were also informed prior to year-end of the intention to cease all operations. Therefore, while there were still run-off costs to be incurred and assets to be sold and scrapped, these were elements of the closing down of the WiConnect operations. Based on this, together with the fact that inventory had been written down to its net realisable value and sold to one buyer, it was management’s contention that the operations were not ongoing and that the inflows and outflows which were still to occur did not comprise an activity. Based on these facts and circumstances, management applied its judgement and concluded that the operations of WiConnect had “ceased to be used”. Management believes that this assessment is still applicable.

Management applied further significant judgement in determining whether the operations of WiConnect met the discontinued operations criteria as at 31 May 2020. More specifically, management needed to consider whether WiConnect may have been classified as a separate major line of business. Under IFRS 8, reportable segments could comprise more than one business segment. Therefore, the fact that WiConnect does not form its own reportable segment (it is included in the Africa Distribution segment) did not preclude it from being considered a major line of business. Executive management and chief operating decision-makers considered WiConnect to be a separate major line of business as a result of several considerations, namely that it was brick-and-mortar retail (or physical stores owned and operated by the Group) directly interacting with customers in the retail space through our own channels/stores selling hardware and other value-added services directly to consumers. This, coupled with the loss after tax of R318 million (which is considered to be material in the context of the overall Group results for the year ended 31 May 2020), led to management applying its judgement in concluding that WiConnect was a separate major line of business and consequently met the definition of a discontinued operation. Management believes that this assessment is still applicable.

Borrowings are recognised initially at fair value, net of transaction costs incurred, when the relevant contracts are entered into. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.

Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expired.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after period end.

		30 November  2021  Unaudited  R'000	31 May  2021  Audited  R'000
Interest-bearing borrowings		1 968 633	1 706 163
Non-interest-bearing borrowings		719	989
		1 969 352	1 707 152
Less: Amounts included in current portion of borrowings		(1 834 282)	(1 704 374)
Non-current portion of borrowings		135 070	2 778

The table below details the facilities drawn upon at 30 November 2021.

				Facility utilised
Facility		Investec	Africa Bank	30 November 2021 Unaudited R'000	31 May 2021 Audited R'000
Mezzanine facility		100%	—	—	410 532
Facility A		100%	—	1 465 851	1 292 637
Africa Bank*		—	100%	500 000	—
				1 965 851	1 703 169

*

CEC has access to a total facility of R1.9 billion with Africa Bank, of which R500 million was drawn down as at 30 November 2021. The security provided on the R500 million comprised the outstanding value of handset receivables totalling R1.35 billion and a parent guarantee of R250 million provided by BLT. Interest is charged at 11.05% fixed and the borrowing is repayable over 24 months.

The Group did not default on any loans or breach any terms of the underlying agreements during the period.

Changes in liabilities arising from financing activities

		Borrowings  due within  one year  R'000	Borrowings  due after  one year  R'000	Total  R'000
Opening balance - 1 June 2020		2 316 383	2 778	2 319 161
Acquisition of subsidiary		726	—	726
Non-interest-bearing borrowings raised		270	—	270
Non-interest-bearing borrowings repaid		(13 959)	—	(13 959)
Interest-bearing borrowings repaid		(751 053)	—	(751 053)
Interest-bearing borrowings raised		152 007	—	152 007
Closing balance - 31 May 2021		1 704 374	2 778	1 707 152
Interest-bearing-borrowings raised through the acquisition of non-controlling interest (refer to note 7)		104 950	—	104 950
Non-interest-bearing borrowings repaid		(270)	—	(270)
Interest-bearing borrowings repaid		(368 155)	—	(368 155)
Interest-bearing borrowings raised		393 383	132 292	525 675
Closing balance - 30 November 2021		1 834 282	135 070	1 969 352

Financial guarantee contracts are recognised at fair value on the date that the Group becomes a party to an irrevocable commitment. Financial guarantee contracts are subsequently stated at the higher of the amount determined by the expected credit loss (ECL) model and the amount initially recognised. Any difference between the redemption value guarantee obligation and the amount paid is recognised in the income statement.

		30 November  2021  Unaudited  R'000	31 May  2021  Audited  R'000
Opening balance		105 621	201 474
Foreign exchange movement		—	(9 113)
Used during the year		—	(53 285)
Extinguishment of guarantee contract through the acquisition of non-controlling interest*		(104 950)	—
Amounts released through profit or loss - continuing operations		—	(33 455)
Closing carrying amount		671	105 621
Less: Amounts included in non-current portion of financial guarantee contracts		—	—
		671	105 621

*	On 29 June 2021, The Prepaid Company Proprietary Limited (TPC) acquired the remaining 52% shareholding in Glocell Distribution Proprietary Limited (Glocell). As part of the purchase arrangement, TPC assumed Glocell's obligation of R105 million to Investec Bank Limited. Refer to note 6.

The Group has not raised a liability for its guarantee to the consortium of financial institutions in respect of Cell C's funding of R30.6 million (May 2021: R182 million) due to the fact that it holds sufficient collateral, which the Group expects to realise should the guarantee be called upon and the residual financial risk not be material.

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

		Loans  receivable  R'000	Derivative  liability  R'000	Surety  loan  receivable  R'000	Other  R'000	Total  R'000
Opening balance as at 1 June 2021		126 604	(68 178)	83 713	8 258	150 397
Additions		49 524	—	—	750	50 274
Repayments		—	—	—	(7 875)	(7 875)
Conversion to equity		(126 604)	—	—	—	(126 604)
Fair value gains recognised in profit or loss		133	—	—	563	696
Closing balance as at 30 November 2021		49 657	(68 178)	83 713	1 696	66 888
Financial assets at fair value through profit or loss		49 657	—	83 713	1 696	135 066
Current		8 163	—	8 371	1 696	18 230
Non-current		41 494	—	75 342	—	116 836
Financial liabilities at fair value through profit or loss		—	(68 178)	—	—	(68 178)
Current		—	(68 178)	—	—	(68 178)
Non-current		—	—	—	—	—

Loans at fair value

The Prepaid Company Proprietary Limited (TPC) acquired a 48% share in Glocell Distribution Proprietary Limited (Glocell Distribution) on 30 June 2018.

In terms of an agreement entered into between TPC and Glocell Proprietary Limited (Glocell) during the year ended 31 May 2019, Glocell pledged its 40% shareholding in Glocell Distribution to TPC in the event of Glocell defaulting on amounts owing to TPC.

On 29 June 2021, TPC acquired the remaining 52% shareholding in Glocell Distribution for a total purchase consideration of R137 million, of which R126 million was discharged by way of a conversion of the loan at fair value owing by Glocell to TPC.

As part of the fraud recoupment (refer note 11), the Group acquired the right to a loan made to a third party. The loan is for R73 million, bears interest at prime (30 November 2021: 7.25%) and is repayable in full by 30 June 2026. Only interest is payable up to 30 June 2022 and thereafter interest and capital are payable. In addition to the interest payments required, the borrower has the right to pay R10 million capital by 1 July 2022 in return for a R14 million reduction (i.e. a R4 million discount) in the capital amount of the loan. It is the Group's view that this term results in the contractual cash flows failing to meet the requirements for amortised cost accounting, causing the right to the loan to be measured at fair value through profit or loss. The fair value of the right to the loan reflects a market-related interest rate of prime plus 5% and credit risk-adjusted expected cash flows.

Derivative liability

This relates to the put options for the acquisition of a 40% minority interest in Airvantage and AV Technology. There have been no changes to the facts and circumstances related to the liability for the six months ended 30 November 2021. Refer to note 12 for details on the amendment to the terms of this agreement.

Surety loans receivable

Surety loans relate to the personal sureties that B Levy and M Levy signed for the loan owed by 2DFine Holdings Mauritius to Gold Label Investments Proprietary Limited. Their liability is limited to the difference between the loan owing to Gold Label Investments Proprietary Limited and the value of 16.95% of the shares in Oxigen Services India Private Limited (Oxigen Services) and 17.29% of the shares in Oxigen Online Services India Private Limited (Oxigen Online). In the 2020 financial year the payment terms for the surety loans were renegotiated, with the payments being agreed as instalments payable annually commencing on 30 September 2021 and ending on 30 September 2030.

		Six months  ended  30 November  2021  Unaudited  R'000	Six months  ended  30 November  2020  Unaudited  R'000	Year   ended  31 May  2021  Audited  R'000
Sales to related parties
T3 Telecoms SA Proprietary Limited*		2 054 917	1 469 472	3 394 108
Cell C Proprietary Limited*		1 047 730	1 015 039	1 729 573
I Talk Holdings Proprietary Limited*		11 774	12 661	23 756
Purchases from related parties
Cell C Proprietary Limited*		2 483 678	1 400 244	4 275 098
T3 Telecoms SA Proprietary Limited*		6 760	—	14 154
I Talk Holdings Proprietary Limited*		8 164	14 194	12 935
Finance revenue received from related parties
Cell C Proprietary Limited*		47 426	48 237	95 951
Dividends received from related parties
I Talk Holdings Proprietary Limited*		—	14 000	5 000
Loans to related parties
2DFine Holdings Mauritius*#		214 674	218 879	196 513
2DFine Investments Mauritius*#		3 943	3 700	3 318
Brett Levy		41 857	46 283	45 908
Mark Levy		41 857	46 283	41 857
Oxigen Services India Private Limited*#		54 105	50 658	41 857
T3 Telecoms SA Proprietary Limited*		14 735	8 254	15 016
I Talk Holdings Proprietary Limited*		21 900	2 000	2 000
Total loss allowance on loans to related parties		(275 478)	(274 673)	(247 992)
Lease liability due to related parties
Ellerine Bros. Proprietary Limited		14 343	21 943	18 419
Moneyline 311 Proprietary Limited		14 343	21 943	18 419
Uvongo Falls No 26 Proprietary Limited		14 723	23 048	18 859
Amounts due from related parties included in trade receivables
Cell C Proprietary Limited*		2 122 181	1 510 876	1 677 193
Total loss allowance on trade receivables to related parties		(10 263)	(8 801)	(10 931)
Amounts due to related parties included in trade payables
Cell C Proprietary Limited*		767 353	69 175	456 902

*	These entities are associates/joint ventures.
#	These loans have been fully provided for both in the current and prior years and are included as part of the total loss allowance on loans to related parties balance.

On 2 August 2017, Blue Label, through its wholly owned subsidiary, The Prepaid Company Proprietary Limited (TPC) acquired 45% of the issued share capital of Cell C Limited (Cell C) for a purchase consideration of R5.5 billion.

As at 31 May 2019, the Group's investment in Cell C was impaired to nil. It remains at nil as at 30 November 2021.

Critical accounting judgements and assumptions

Going concern of Cell C

For purposes of the Group's interim financial statements for the half-year ended 30 November 2021, Cell C has been accounted for using the going concern assumption. As the Group's share of Cell C's losses exceed the carrying amount of the investment (Rnil), the Group has ceased recognising its share of further losses. If Cell C subsequently generates profits, the Group will resume recognising its share of profits only after its share of the profits equals the share of losses not recognised.

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 is anticipated to positively impact the cost base and future cash flows on the successful implementation of this transaction.
• The board of Cell C established a liquidity committee to monitor the liquidity position of Cell C and to ensure that the business is not trading recklessly during the negotiations of the recapitalisation and debt restructure. Although the liquidity position of Cell C remains challenging, Cell C has proven that it has managed to continue trading despite the liquidity concerns and management is confident that this committee will manage the liquidity position of Cell C until the conclusion of the recapitalisation process.
• 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.
• Management remains optimistic that the planned recapitalisation of Cell C will be successful. The recapitalisation is important to improve the capital structure of the Company and the deferral of repayments that will support the long-term sustainability of Cell C. Stakeholders have appointed independent advisers to assist with the recapitalisation and/or debt restructuring process and formal engagements are ongoing.
• 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 will be 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.

On 4 August 2020, Cell C notified its noteholders that it defaulted on the payment of capital on its USD184 002 000 note which was due on 2 August 2020, as well as interest and capital repayments related to the respective bilateral loan facilities between Cell C and Nedbank Limited, China Development Bank Corporation, Development Bank of Southern Africa Limited and Industrial and Commercial Bank of China Limited, which were due in January and July 2020.

Currently, none of the bilateral loan facilities have been accelerated as noteholders are aware and support that Cell C is committed to resolving the situation by agreeing to restructuring terms with its lenders while it also continues to work proactively with all stakeholders to improve its liquidity, debt profile and long-term competitiveness.

Management and the directors have taken the default into consideration as part of their overall assessment of the going concern principle for Cell C and are of the view that the going concern assumption is still applicable. The default does not change any judgements or assumptions made in the financial assumptions that are dependent on the continuing operation of Cell C as a going concern.

On 26 August 2021, TPC concluded a term sheet for an Airtime Purchase transaction with Investec Bank Limited, First Rand Bank Limited (acting through its Rand Merchant Bank division) and other financiers, the proceeds of which are 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.

Although no certainty exists around the successful implementation of the recapitalisation, management remains optimistic.

Classification of Cell C Limited as an associate

The Group will be entitled to appoint four of the 11 directors to the Cell C Board which will represent 36% of the overall votes of the Board. Based on the Group's shareholding and representation on the Board, management has assessed Cell C Limited to be an associate, as the Group will have the power to participate in (but not control) the financial and operating policy decisions of Cell C Limited.

Impairment of Cell C

TPC's share of the value-in-use of Cell C as at 30 November 2021 remained at nil value. The 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 that were applied by Cell C relate to the business, the industry and economic growth. Cash flows beyond this point were then extrapolated, applying a terminal growth rate. The valuation does not take into account the effects of any planned future restructuring or recapitalisation.

Summarised financial information

Principal activity: Mobile network
Country of incorporation: South Africa
Financial year-end*: 31 December

		30 November  2021  R'000	31 May  2021  R'000
Statement of financial position
Non-current assets		13 693 399	13 565 997
Current assets		7 466 021	6 228 984
		21 159 420	19 794 981
Total equity		(6 392 031)	(5 559 338)
Non-current liabilities		5 636 332	5 800 315
Current liabilities		21 915 119	19 554 004
		21 159 420	19 794 981
Effective percentage held (%)		45	45
Net assets		(6 392 031)	(5 559 338)
Company net assets		(13 691 961)	(12 859 268)
Carrying value of purchase price allocations net of deferred taxation		7 299 930	7 299 930
Interest in associate		(2 876 414)	(2 501 702)
Goodwill		1 317 776	1 317 776
Accumulated impairment		(2 521 152)	(2 521 152)
Accumulated losses not guaranteed		4 079 790	3 705 078
Balance at the end of the period		—	—

Statement of comprehensive income for the six months ended

			30 November  2021  R'000	30 November  2020  R'000
Revenue			6 679 641	7 121 155
Net (loss)/profit before taxation			(832 694)	1 217 679
Taxation			—	—
Net (loss)/profit after taxation			(832 694)	1 217 679
Other comprehensive income			—	—
Losses not guaranteed/(profits not recognised)**			832 694	(1 217 679)
Total comprehensive income			—	—
Effective percentage held			45	45
Share of total comprehensive income			—	—

*	Where the financial half-year-end differs from the Group's half-year-end of 30 November, special purpose accounts are prepared to coincide with the Group's reporting period.
**	The Group will resume recognising its share of the profits only after its share of the profits equals the share of accumulated losses not recognised.

Financial guarantee in respect of Cell C’s facility

On 2 August 2018, Cell C procured R1.4 billion of funding from a consortium of financial institutions for a tenure of 12 months, secured by airtime to the value of R1.75 billion. In the event of default, TPC could have been required by the consortium to purchase such inventory from the consortium on a piecemeal basis over a specified period that has been agreed upon. These purchases would be made in lieu of purchases that would have been made from Cell C within that period.

An extension was concluded on 31 May 2020 with an agreed quantum of airtime purchases required to be made by TPC on a monthly basis. This would have resulted in the Cell C facility reducing to nil by 31 March 2021. As at 30 November 2021, the above funding had declined to R31 million (May 2021: R182 million) as a result of TPC purchasing from the security airtime.

It is the intention of TPC to accelerate payments to the banking consortium in order to distribute the vault stock in full if there is risk/indication that Cell C will not be able to meet its obligations to the banking consortium. The fair value of the financial guarantee issued in respect of Cell C’s facility was valued to be insignificant, taking into account the inventory held as collateral.

Management has performed detailed assessments considering seasonality of trading and has determined that, based on current inventory holdings and anticipated sales cycles, should circumstances dictate the need to purchase the above mentioned inventory from the consortium, acceleration of such payments could well result in the debt being expunged within two and a half months through its trading capabilities in the ordinary course of business at normal operating margins.

The Group uncovered a fraudulent scheme, operating since 2015, which was perpetrated by two former senior key executives (“the perpetrators”) of a subsidiary company (“the subsidiary”). These fraudulent transactions were performed primarily outside the course and scope of the subsidiary’s immediate field of commercial dealings, whereby the perpetrators interposed themselves between intermediary companies and the subsidiary for their own benefit. In addition, certain transactions were identified evidencing theft of funds from the subsidiary and the fraudulent concealment thereof. Settlement agreements were signed with the perpetrators in late October 2021, in terms of which rights to all, but a few, assets of the perpetrators were signed-over to the Group. The Group holds Powers of Attorney over these assets. As of 31 October 2021, the aggregate value of assets either realised by or signed-over to the Group as a result of the fraudulent scheme, amounted to R315 million, which has been recognised as recoupment income within other income, and comprised the following:

		R’000
Rights to:
Immovable property		42 2951
Loans made to third parties		63 1242
Unlisted shares		13 1003
Listed share portfolio		7504
Bank accounts		191 5275
Inventory		448
Other		4 240
		315 484

1	Rights to immovable property have been accounted for as rights to receive non-current assets and were recognised initially at their fair value using comparable market prices. As it is not the intention of the Group to acquire legal title to the properties or to keep the rights for the long term, the Group is actively marketing these properties and expects to realise them all within the next 12 months. Accordingly, the rights to receive immovable property have been classified as non-current assets held-for-sale and are presented as such under current assets on the statement of financial position. These rights are measured at the lower of the initial amount recognised and fair value less costs to sell. Since the perpetrators are required to bear the costs to sell, these have been assumed to be zero for the Group’s measurement purposes. Properties to the value of R8.5 million were sold by 30 November 2021, resulting in the derecognition of the related right and the recognition of a receivable for the sale proceeds which are expected to be received within the next 12 months.
2	The right to a loan made to a third party with a carrying amount of R49.5 million has been accounted for as a financial asset at fair value through profit or loss. Early prepayment features resulted in the underlying loan failing the requirements for amortised cost accounting. Refer to note 8. The rights to the remaining loans receivable have been measured at amortised cost.
3	At about the time of the settlement agreement, an agreement was reached for the sale of certain unlisted shares owned by the perpetrators, the proceeds of which are payable to the Group within the next few months. Accordingly, the Group recognised a receivable for such proceeds, measured initially at fair value, which is subject to the Group’s accounting policy for expected credit losses.
4	The right to the listed share portfolio has been accounted for as a financial asset at fair value through profit or loss based on quoted share prices.
5	Substantially all funds that were found to be held in bank accounts have been transferred to the Group’s bank accounts.

Professional fees incurred relating to the fraud recoupment amounted to R36 million to the end of November 2021 and have been included in other expenses.

Subsequent to the fraud investigation and detailed review of the control environment and business processes within the subsidiary, management has implemented the necessary improvements relating to the existing control environment.

Banking facilities

In February 2022, The Prepaid Company Proprietary Limited renegotiated a further extension of its Investec facility to 31 March 2023. The total facility amounting to R1.56 billion outstanding as at 30 November 2021 was reduced by R340 million to R1.22 billion to date. Thereafter, the exposure to Investec is required to be reduced by a further R30 million per month in order to reduce the maximum facility balance to R1.01 billion.

Airvantage and AV Technology put obligations

On 14 December 2021 Blue Label Telecoms Limited (BLT) concluded agreements with the 40% shareholders of each of AV Technologies Limited (Mauritius) and Airvantage Proprietary Limited (South Africa) in terms of which the put options which such vendors had against BLT were terminated. On 15 December 2021 BLT concluded a put option agreement with Digital Ecosystems Proprietary Limited (formerly Blue Label Mobile Group) in terms of which Digital Ecosystems acquired the right to put up to 40% of the shares in Airvantage Proprietary Limited (South Africa) to BLT no earlier than 15 December 2022 for a maximum amount of R110 million. If Cell C Limited, through a board resolution, passes a solvency and liquidity test prior to 15 December 2022, the put option will be terminated.

The condensed unaudited consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards, IAS 34 –Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of these interim financial statements are in terms of International Financial Reporting Standards (IFRS) and are consistent with those applied in the previous annual financial statements.

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 4/2018.

The results for the period ended 30 November 2021 have not been reviewed or audited.