Total | Continuing operations | Discontinued operations | |||||||
For the six months ended | 30 November 2022 Unaudited R'000 |
30 November 2021 Unaudited R'000 |
30 November 2022 Unaudited R'000 |
30 November 2021 Unaudited R'000 |
30 November 2022 Unaudited R'000 |
30 November 2021 Unaudited R'000 |
|||
---|---|---|---|---|---|---|---|---|---|
(Loss)/profit attributable to equity holders of the parent | (76 934) | 531 451 | (76 934) | 530 440 | — | 1 011 | |||
Net profit on disposal of property, plant and equipment | (853) | (244) | (853) | (244) | — | — | |||
Net profit on disposal of intangible assets | — | (270) | — | (270) | — | — | |||
Impairment of property, plant and equipment | 2 680 | 1 887 | 2 680 | 1 887 | — | — | |||
Reversal of impairment of investment in associate | (962 531) | — | (962 531) | — | — | — | |||
Net loss on disposal of property, plant and equipment in associate/joint venture* | 5 991 | — | 5 991 | — | — | — | |||
Impairment of property, plant and equipment in associate* | 330 129 | — | 330 129 | — | — | — | |||
Impairment of intangible assets in associate* | 516 009 | — | 516 009 | — | — | — | |||
Impairment of right-of-use assets in associate* | 203 889 | — | 203 889 | — | — | — | |||
Headline earnings | 18 380 | 532 824 | 18 380 | 531 813 | — | 1 011 | |||
Headline earnings per share (cents) | 2.09 | 60.86 | 2.09 | 60.74 | — | 0.12 |
* | Net loss on disposal of property, plant and equipment, impairment of property plant and equipment, impairment of intangible assets and impairment of right-of-use assets represents the Groups proportional share of impairments/(profit)/loss on disposals incurred by Cell C relating to historical unrecognised losses. |
Total | Continuing operations | |||||||||
Attributable earnings | Cents per share | Attributable earnings | ||||||||
For the six months ended | 30 November 2022 Unaudited R'000 |
30 November 2021 Unaudited R'000 |
30 November 2022 Unaudited |
30 November 2021 Unaudited |
30 November 2022 Unaudited R'000 |
30 November 2021 Unaudited R'000 |
||||
---|---|---|---|---|---|---|---|---|---|---|
Headline earnings | ||||||||||
Basic | 18 380 | 532 824 | 2.09 | 60.86 | 18 380 | 531 813 | ||||
Diluted | 18 380 | 532 824 | 2.07 | 58.76 | 18 380 | 531 813 | ||||
Core | 34 700 | 548 831 | 3.94 | 62.69 | 34 700 | 547 820 | ||||
Earnings attributable to ordinary equity holders | ||||||||||
Basic | (76 934) | 531 451 | (8.74) | 60.71 | (76 934) | 530 440 | ||||
Diluted | (76 934) | 531 451 | (8.74) | 58.61 | (76 934) | 530 440 | ||||
Weighted average number of shares | ||||||||||
Weighted average number of ordinary shares | 880 748 605 | 875 496 083 | 880 748 605 | 875 496 083 | ||||||
Adjusted for forfeitable shares | 8 975 234 | 31 243 614 | 8 975 234 | 31 243 614 | ||||||
Weighted average number of ordinary shares for diluted earnings | 889 723 839 | 906 739 697 | 889 723 839 | 906 739 697 | ||||||
Number of shares in issue | 913 655 874 | 913 655 874 | 913 655 874 | 913 655 874 | ||||||
Number of shares in issue excluding treasury shares | 881 768 827 | 876 453 719 | 881 768 827 | 876 453 719 | ||||||
Reconciliation between profit and core headline earnings for the period: | ||||||||||
(Loss)/profit for the period attributable to equity holders of the parent | (76 934) | 531 451 | (76 934) | 530 440 | ||||||
Amortisation on intangible assets raised through business combinations net of tax and net of non-controlling interest | 16 320 | 16 007 | 16 320 | 16 007 | ||||||
Core (loss)/profit for the period | (60 614) | 547 458 | (60 614) | 546 447 | ||||||
Headline earnings adjustments | 95 314 | 1 373 | 95 314 | 1 373 | ||||||
Core headline earnings | 34 700 | 548 831 | 34 700 | 547 820 | ||||||
Core headline earnings per share (cents) | 3.94 | 62.69 | 3.94 | 62.57 |
Continuing operations | Discontinued operations | |||||||||
Cents per share | Attributable earnings | Cents per share | ||||||||
For the six months ended | 30 November 2022 Unaudited |
30 November 2021 Unaudited |
30 November 2022 Unaudited R'000 |
30 November 2021 Unaudited R'000 |
30 November 2022 Unaudited |
30 November 2021 Unaudited |
||||
---|---|---|---|---|---|---|---|---|---|---|
Headline earnings | ||||||||||
Basic | 2.09 | 60.74 | — | 1 011 | — | 0.12 | ||||
Diluted | 2.07 | 58.65 | — | 1 011 | — | 0.11 | ||||
Core | 3.94 | 62.57 | — | 1 011 | — | 0.12 | ||||
Earnings attributable to ordinary equity holders | ||||||||||
Basic | (8.74) | 60.59 | — | 1 011 | — | 0.12 | ||||
Diluted | (8.74) | 58.50 | — | 1 011 | — | 0.11 | ||||
Weighted average number of shares | ||||||||||
Weighted average number of ordinary shares | 880 748 605 | 875 496 083 | ||||||||
Adjusted for forfeitable shares | 8 975 234 | 31 243 614 | ||||||||
Weighted average number of ordinary shares for diluted earnings | 889 723 839 | 906 739 697 | ||||||||
Number of shares in issue | 913 655 874 | 913 655 874 | ||||||||
Number of shares in issue excluding treasury shares | 881 768 827 | 876 453 719 | ||||||||
Reconciliation between profit and core headline earnings for the period: | ||||||||||
(Loss)/profit for the period attributable to equity holders of the parent | — | 1 011 | ||||||||
Amortisation on intangible assets raised through business combinations net of tax and net of non-controlling interest | — | — | ||||||||
Core (loss)/profit for the period | — | 1 011 | ||||||||
Headline earnings adjustments | — | — | ||||||||
Core headline earnings | — | 1 011 | ||||||||
Core headline earnings per share (cents) | — | 0.12 |
For the six months ended 30 November 2022 | Total Unaudited R'000 |
Africa Distribution Unaudited R'000 |
Inter– national Unaudited R'000 |
Solutions Unaudited R'000 |
Corporate Unaudited R'000 |
---|---|---|---|---|---|
Continuing operations | |||||
Total segment revenue | 12 957 780 | 12 700 132 | — | 145 569 | 112 079 |
Internal revenue | (3 134 637) | (3 022 413) | — | (145) | (112 079) |
Revenue | 9 823 143 | 9 677 719 | — | 145 424 | — |
Operating profit/(loss) before depreciation and amortisation | 609 405 | 614 468 | 10 916 | 21 045 | (37 024) |
(Loss)/profit for the period from continuing operations attributable to equity holders of the parent | (76 934) | (50 644) | 7 969 | 18 079 | (52 338) |
Amortisation of intangibles raised through business combinations net of tax and non-controlling interest | 16 320 | 16 320 | — | — | — |
Headline earnings adjustments | 95 314 | 95 312 | — | (2) | 4 |
Core headline earnings for the period | 34 700 | 60 988 | 7 969 | 18 077 | (52 334) |
For the six months ended 30 November 2021 | Total Unaudited R'000 |
Africa Distribution Unaudited R'000 |
Inter– national Unaudited R'000 |
Solutions Unaudited R'000 |
Corporate Unaudited R'000 |
Continuing operations | |||||
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) for the period from continuing operations 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 of intangibles raised through business combinations net of tax and non-controlling interest | 16 007 | 16 007 | — | — | — |
Headline earnings adjustments | 1 373 | 1 433 | — | (6) | (54) |
Core headline earnings for the period | 548 831 | 596 722 | (796) | 18 424 | (65 519) |
Total | Africa Distribution | Solutions | |||||||
For the six months ended | 30 November 2022 Unaudited R'000 |
30 November 2021 Unaudited R'000 |
30 November 2022 Unaudited R'000 |
30 November 2021 Unaudited R'000 |
30 November 2022 Unaudited R'000 |
30 November 2021 Unaudited R'000 |
|||
---|---|---|---|---|---|---|---|---|---|
Revenue from contracts with customers | 7 998 391 | 8 627 886 | 7 852 967 | 8 501 977 | 145 424 | 125 909 | |||
Prepaid airtime, data and related revenue | 6 873 196 | 7 595 115 | 6 873 196 | 7 595 115 | — | — | |||
Postpaid airtime, data and related revenue | 73 633 | 45 696 | 73 633 | 45 696 | — | — | |||
Prepaid and postpaid SIM cards | 238 602 | 258 042 | 238 602 | 258 042 | — | — | |||
Services | 230 633 | 200 132 | 85 209 | 74 223 | 145 424 | 125 909 | |||
Electricity commission | 158 895 | 177 066 | 158 895 | 177 066 | — | — | |||
Handsets, tablets and other devices | 134 607 | 154 966 | 134 607 | 154 966 | — | — | |||
Other revenue* | 288 825 | 196 869 | 288 825 | 196 869 | — | — | |||
Subscription income share | 1 629 309 | 286 405 | 1 629 309 | 286 405 | — | — | |||
Revenue | 9 627 700 | 8 914 291 | 9 482 276 | 8 788 382 | 145 424 | 125 909 | |||
Finance revenue | 195 443 | 198 583 | 195 443 | 198 583 | — | — | |||
Total revenue | 9 823 143 | 9 112 874 | 9 677 719 | 8 986 965 | 145 424 | 125 909 |
* | Other revenue predominantly includes audit projects on municipalities and commissions earned on the sale of betting vouchers, bus ticketing and the facilitation of bill payments. |
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 2022 Unaudited R'000 |
31 May 2022 Audited R'000 |
||
---|---|---|---|
Interest-bearing borrowings | 4 740 849 | 2 567 752 | |
Non-interest-bearing borrowings | 719 | 719 | |
4 741 568 | 2 568 471 | ||
Current and non-current amount of borrowings: | |||
Total borrowings | 4 741 568 | 2 568 471 | |
Amounts included in non-current portion of borrowings | 2 757 429 | 474 471 | |
Amounts included in current portion of borrowings | 1 984 139 | 2 094 000 | |
Categories of borrowings: | |||
Total borrowings | 4 741 568 | 2 568 471 | |
Facilities | 3 293 230 | 2 564 926 | |
Airtime repurchase obligations (refer to note 7) | 1 275 624 | — | |
Class A preference shares | 169 169 | — | |
Other third party borrowings | 3 545 | 3 545 | |
The table below details the facilities drawn upon at 30 November 2022.
Facility utilised | |||
30 November 2022 Unaudited R'000 |
31 May 2022 Audited R'000 |
||
---|---|---|---|
General banking facility – Investec Bank Limited | 350 441 | — | |
General banking facility – FirstRand Bank Limited | 152 000 | — | |
Facility A – Investec Bank Limited | 660 000 | 941 584 | |
Facility B – FirstRand Bank Limited | 240 000 | — | |
African Bank Limited | 1 890 789 | 1 623 342 | |
3 293 230 | 2 564 926 |
The Group did not default on any loans or breach any terms of the agreements during the period.
Borrowings due within one year R'000 |
Borrowings due after one year R'000 |
Total R'000 |
|
Opening balance as at 1 June 2021 | 1 704 374 | 2 778 | 1 707 152 |
Non-interest-bearing borrowings repaid | (270) | — | (270) |
Interest-bearing borrowings raised through the acquisition of non-controlling interest | 104 950 | — | 104 950 |
Interest-bearing borrowings raised | 1 155 448 | 471 693 | 1 627 141 |
Interest accrued on interest-bearing borrowings | 183 280 | — | 183 280 |
Interest-bearing borrowings capital repaid | (870 502) | — | (870 502) |
Interest-bearing borrowings interest repaid | (183 280) | — | (183 280) |
Closing balance as at 31 May 2022 | 2 094 000 | 474 471 | 2 568 471 |
Interest-bearing borrowings raised | — | 2 282 958 | 2 282 958 |
---|---|---|---|
Interest accrued on interest-bearing borrowings | 213 262 | — | 213 262 |
Interest-bearing borrowings capital repaid | (120 149) | — | (120 149) |
Interest-bearing borrowings interest repaid | (202 974) | — | (202 974) |
Closing balance as at 30 November 2022 | 1 984 139 | 2 757 429 | 4 741 568 |
Substantially all financial instruments at fair value through profit and loss are classified as level 3 instruments in the fair value hierarchy. Changes in the instruments are as follows:
Surety loan receivable R’000 |
Loans receivable R’000 |
SPV 5 derivative liability R’000 |
Class B preference shares R’000 |
Derivative liability R’000 |
Other R’000 |
Total R’000 |
|
---|---|---|---|---|---|---|---|
Opening balance as at 1 June 2022 | 96 572 | 50 729 | — | — | (22 000) | ( 200) | 125 101 |
Additions | — | — | (13 214) | (66 859) | — | (10 285) | (90 358) |
Repayments | — | (4 529) | — | — | — | — | (4 529) |
Fair value gain recognised in profit or loss | 11 273 | 4 728 | — | — | 22 000 | 200 | 38 201 |
Closing balance as at 30 November 2022 | 107 845 | 50 928 | (13 214) | (66 859) | — | (10 285) | 68 415 |
Financial assets at fair value through profit or loss – included in current assets | — | 17 879 | — | — | — | — | 17 879 |
Financial assets at fair value through profit or loss – included in non-current assets | 107 845 | 33 049 | — | — | — | — | 140 894 |
Financial liabilities at fair value through profit or loss – included in current liabilities | — | — | (13 214) | (66 859) | — | (10 285) | (90 358) |
107 845 | 50 928 | (13 214) | (66 859) | — | (10 285) | 68 415 | |
Unrealised gains | 11 273 | 199 | — | — | — | 200 | 11 672 |
Surety loans relate to the personal sureties that B Levy and M Levy signed for the US Dollar denominated 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 November 2021 the payment terms for the surety loans were renegotiated, with the payments being agreed as instalments payable annually commencing on 30 September 2023 and ending on 30 September 2030.
As part of the fraud recoupment, the Group received the right to a loan, amounting to R73 million, advanced to a third party. The loan bears interest at prime overdraft rate and is repayable by 30 June 2026. Interest was payable up to 30 June 2022 and thereafter interest and capital are payable. In addition to the interest payments required, the borrower had the right to pay R10 million capital by 1 July 2022 in return for a R4.2 million discount in the capital amount of the loan. It is the Group’s view that this right results in the contractual cash flows failing to meet the requirements for amortised cost accounting, causing the loan to be measured at fair value through profit or loss. This right was not exercised. The fair value of the loan reflects a market-related interest rate of prime plus 5% and credit risk-adjusted expected cash flows.
A debt owing to a lessor by Cell C was transferred into a new special purpose vehicle (SPV 5) in exchange for a 10% shareholding in Cell C (being the only asset of the SPV). SPV 5 is required to repay the debt of R275 million in tranches from 31 December 2024 to December 2026. BLT issued a guarantee in favour of the lessor for the repayment of its debt, and TPC has committed to provide SPV 5 with the necessary funding as and when it is required to make the payments of R275 million to the lessor, in return for a claim of R699 million in SPV 5. TPC’s loan will be repayable on demand at an amount equal to: i) the capital advanced of R275 million, plus ii) R424 million, plus iii) 50% of the fair value of the Cell C shares held by SPV 5 in excess of i) and ii).
The Cell C shares held by SPV 5 are pledged as security in favour of TPC, however, SPV 5 is permitted to sell the Cell C shares prior to TPC advancing it any funds provided that the net proceeds exceed R375 million. If SPV 5 disposes of its shares in Cell C, then R275 million of the net proceeds needs to be used to settle the lessor and R100 million is to be paid to TPC as an irrevocable and unconditional break fee. Once TPC has advanced funds to SPV 5, SPV 5 is precluded from selling the Cell C shares without TPC’s consent, but TPC has no rights with respect to directing the voting rights attached to the shares. In the event of default, TPC would be able to acquire the 10% shareholding in Cell C in settlement of its loan, but only with the prior approval of the Competition Commission of South Africa and ICASA as such acquisition would result in TPC acquiring control of Cell C. Such rights are not substantive as the Group does not have the practical ability to exercise its rights as it relates to SPV 5.
When the funds are advanced by TPC to SPV 5 they will be treated as an additional 10% investment (without voting rights) in Cell C because the shares in Cell C are the only means that the SPV has with which to repay TPC’s loan. As a result, TPC’s loan commitment is an in-substance written put option over the economic interest of SPV 5’s shareholding in Cell C, which meets the definition of a derivative. Accordingly, TPC has accounted for its loan commitment to SPV 5 as a derivative at fair value through profit or loss. The derivative is initially recognised by the Group at fair value and subsequently measured at fair value through profit or loss.
TPC issued Class B Preference Shares to the funders for a nominal issue price (refer to note 7 for more information in this regard). The shares are redeemable at the issue price, carry a mandatory preference dividend, and have no other participation rights. The preference dividend is indexed to 10.01% of TPC’s shareholding in Cell C immediately after the Cell C recapitalisation, which is equivalent to a 5% shareholding in Cell C. TPC has no obligation to pay any preference dividend unless the equivalent amount is received from Cell C or from an exit event.
Given that the indexation of the cash flows under the Class B Preference Shares to a 5% shareholding in Cell C results in them containing an embedded derivative which would otherwise need to be stripped out and accounted for separately, the Class B Preference Shares have been designated to be financial liabilities at fair value through profit or loss. The preference shares are initially recognised by the Group at fair value and subsequently measured at fair value through profit or loss.
On 15 December 2021, BLT concluded a put option agreement with Digital Ecosystems Proprietary Limited (DE), formerly Blue Label Mobile Proprietary Limited, in terms of which DE acquired the right to put up to 40% of the shares in Airvantage 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.
On 26 August 2022, in anticipation of the Cell C recapitalisation, the put obligation was terminated by DE.
On 2 August 2017, Blue Label, through its wholly owned subsidiary, The Prepaid Company (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 Rnil.
As at 30 November 2022, an internal valuation of Cell C reflected a recovery to a value of R1.5 billion.
The Group tests annually whether investment in associates and joint ventures has suffered any impairment, in accordance with the accounting policy. The recoverable amounts of the investment in associates and joint ventures have been determined based on value-in-use calculations. These calculations require the use of estimates.
BLT holds 49.53% of the shareholder voting rights of Cell C and is able to appoint four out of 12 on the Cell C Board of Directors, where each director has one vote. It has been determined that the Cell C Board makes the decisions about the activities that significantly affect the returns of Cell C (the relevant activities).
As a result of loans made by TPC to SPV 1 and SPV 4, TPC is entitled to obtain additional shares comprising 13.66% in aggregate in Cell C at any time from the SPVs in settlement of the loans. Should TPC wish to obtain any of these additional shares, and hence the corresponding voting rights, the Group’s external legal advisors have advised that it can only do so lawfully with the prior approvals of the Competition Commission and ICASA – as acquiring additional voting rights would result in TPC obtaining control over Cell C. According to the Group’s external legal advisors, it is unlawful to give effect to a transaction that requires the approval of the Competition Commission before such approval is granted, and doing so could result in the transaction being set aside. Furthermore, the granting of the regulatory approvals is not a formality or within TPC’s control, hence TPC does not, on its own, have the practical ability to obtain any additional shares (and voting rights). Therefore, management has concluded that TPC’s rights under the loan agreements to obtain additional Cell C shares are not substantive until such approvals have been granted. Consequently, the potential voting rights of 13.66% have been excluded from the assessment of whether the Group has control over Cell C.
SPV 1 and SPV 4 hold the voting rights attached to the aggregate 13.66% equity interest. Even though TPC bears the economic risks and rewards of these shares (subject to upper limits of the amounts repayable under the loans), it does not have the ability to direct the way in which the corresponding voting rights in Cell C are exercised. These decisions lie with the Directors of SPV 1 and SPV 4, which are appointed by Albanta Trading 109 Proprietary Limited (Albanta), over which BLT has no control.
Although the SPVs will only benefit from the aggregate 13.66% equity interest in Cell C to the extent that they realise more than the amounts repayable to TPC under the loans, whether they exercise their Cell C voting rights in line with the way that TPC exercises its 49.53% Cell C voting rights or not, management is of the view that this would not affect the SPVs in any way. Similarly, whether the SPVs vote in line with TPC or not, management is of the view that this would have no impact on whether TPC chooses to obtain the additional shares in settlement of its loans, subject to receiving the requisite regulatory approvals. Since management is of the view that the SPVs do not have any incentive to exercise their Cell C voting rights in the way that TPC would want them to such that TPC can rely on them to do so, it has been concluded that the SPVs are not de facto agents of TPC. Furthermore, Albanta holds other shares (5.50%) in Cell C therefore management believes that Albanta would exercise all its Cell C voting rights in the same way and management is of the view that there is no incentive or reason why Albanta would necessarily vote in line with TPC.
Based on historical attendance at Cell C shareholder meetings, the fact that the shares of Cell C are not widely held (there are only nine shareholders currently; six if one recognises that SPV 1, SPV 4 and SPV 5 are all subsidiaries of Albanta), and that Gramercy and Nedbank now hold 7.53% and 6.09% of Cell C, respectively, management is of the view that there is currently no basis for concluding that TPC has de facto control of Cell C at a shareholder level. Furthermore, it is the Memorandum of Incorporation (MOI) of Cell C that enables TPC to appoint only four of the 12 Directors, and changes to the MOI require shareholder approval of at least 82% including that of Gramercy and Nedbank, for as long as they are permitted to appoint a director to the Cell C Board. Therefore, even if TPC had de facto control at a shareholder level, it could not, on its own, change the MOI to enable it to appoint the majority of the directors. Management has thus concluded that the Group does not have control over Cell C and continues to exercise significant influence. Therefore the Group continues to account for Cell C as an associate.
For purposes of the Group’s annual financial statements, Cell C has been accounted for using the going concern assumption. Based on the following facts available, management is of the opinion that Cell C will continue as a going concern for the foreseeable future.
Cell C concluded the national roaming agreement on 7 August 2019, which became effective on 4 May 2020. This agreement is one of the key pillars in Cell C’s transformation plan, as well as its long-term network strategy to optimise operating costs and reduce capital outlay as part of the turnaround strategy. This agreement has positively impacted the cost base and anticipated future cash flows.
Cell C appointed independent financial restructuring advisers to assist in stringent monitoring of the liquidity of Cell C, as well as designing the revised business plans that support the new operating business model.
A roaming agreement with Vodacom was concluded in November 2020 which is aligned to Cell C’s revised network strategy, aimed at managing capacity in a more scalable and cost-efficient manner through a roaming model. Contract and broadband customers have been transitioned in stages to roam on the Vodacom network. The strategic vision is to differentiate Cell C by focusing on innovative products and services without being owners of capital intensive infrastructure. This creates more flexibility and capacity to deliver the right quality of service to our current and future customers.
Cell C embarked on a strategy to reconsider its current service offering, whereby Cell C identified the need to either wind down or restructure the service offering being provided to its postpaid mobile telecommunication business (the base). During the 2021 financial year, the Group, through its subsidiary Comm Equipment Company (CEC), entered into an arrangement with Cell C to facilitate Cell C’s operation of the base. The agreement commenced on 1 November 2020 for an initial period of five years, with CEC having the right to renew for a further four years. CEC is entitled to receive a share of the subscription income generated by Cell C from a subset of postpaid subscribers that sign up, extend or upgrade their subscriptions with Cell C after 1 November 2020 (New and Upgrade subscribers) plus certain fixed and variable payments. Cell C will remain entitled to the subscription income of existing subscribers at 31 October 2020 for the remainder of the subscribers’ contract and a share of the ongoing revenue of New and Upgrade subscribers. The aim of the reorganisation would be for the base to remain intact and grow in the future, and for Cell C to have limited downside risk on the base.
Cell C has implemented a turnaround strategy, focusing on operational efficiencies, reducing operational expenditure and optimising traffic. This includes a significant reduction in capital expenditure and a conversion of a fixed cost infrastructure-based network to a variable operational expenditure model. This, together with the recapitalisation of the current debt structure (refer below for further information in this regard), will result in a significant improvement of its liquidity and ensure the long-term sustainability of Cell C.
On 26 August 2021, TPC concluded a term sheet for an Airtime Purchase transaction with Investec Bank Limited, FirstRand Bank Limited (acting through its Rand Merchant Bank division) and other financiers, the proceeds of which were intended to be utilised for the recapitalisation of Cell C. This arrangement was subject to the conclusion of all legal documentation and fulfilment of all conditions precedent under such legal documentation, which occurred at the end of September 2022. On 15 March 2022, Blue Label concluded a non-binding term sheet (Umbrella Restructure Term Sheet) with Cell C and various Cell C financial stakeholders (including certain shareholders and creditors of Cell C). In terms of the Umbrella Restructure Term Sheet, Cell C was to be restructured and refinanced (the Recapitalisation Transaction) with the purpose of deleveraging its balance sheet, providing it with liquidity with which to operate and grow its businesses and to position itself to achieve long-term success for the benefit of its customers, employees, creditors, shareholders and its other stakeholders. The Umbrella Restructure Term Sheet was non-binding, save for stand-still provisions and certain provisions of a general nature which were binding. The binding long-term agreements and the recapitalisation process, the completion of which endured for longer than initially anticipated, was effective and closed end September 2022.
The salient terms of the Recapitalisation Transaction are set out below:
In order to facilitate the restructuring of Cell C’s debt owing to certain secured lenders totalling c.R7.3 billion, with such amount being fixed as at November 2019, TPC loaned to Cell C an amount required to affect a compromise offer made by Cell C to certain of its secured lenders of a maximum amount of up to R1.46 billion (TPC Debt Funding). TPC’s actual funding obligation in respect of the compromise offer, however, amounted to R1.03 billion. The TPC Debt Funding was provided by TPC to Cell C in the form of a secured loan. Cell C utilised the TPC Debt Funding to settle the claims of secured lenders by paying an amount of 20c to the rand.
Certain secured lenders indicated that they wish to remain invested in Cell C. These secured lenders were entitled to loan an amount equal to the 20c received, back to Cell C under a new loan arrangement (Reinvestment Instrument). The Reinvestment Instrument, which is interest bearing and secured, has an aggregate capital face value equal to 2.75 times of the amount advanced. In addition, the participating lenders were entitled to share pro-rata in a fresh issue of ordinary shares in Cell C at a nominal value. All shareholders of Cell C diluted proportionately to enable the issuance of these ordinary shares to the participating lenders.
Simultaneously but separately with the issuance of the Reinvestment Instrument, Cell C, pursuant to a rights issue at nominal value, allotted and issued shares to TPC. Following such issue and various other issues of shares to be made by Cell C to third parties at nominal value pursuant to the Proposed Transaction, TPC holds 49.53% of the shares in Cell C, inclusive of those shares which TPC were entitled to, pursuant to the Reinvestment Instrument.
In addition, CEC (a wholly owned subsidiary of TPC) deferred an amount of R1.1 billion owed by Cell C and some of its subsidiaries to it on the date of implementation of the Recapitalisation Transaction, which amount will be repaid in equal monthly instalments over 60 months.
In order to further assist Cell C with its working capital requirements, TPC:
Furthermore, TPC undertook to purchase certain minimum levels of prepaid airtime from Cell C in accordance with an agreed monthly schedule or otherwise in accordance with market requirements.
The prepaid airtime to be acquired by TPC from Cell C pursuant to the above prepaid airtime transactions, forms part of the average monthly prepaid airtime acquisitions by TPC of Cell C prepaid airtime in the ordinary course of business.
In addition to the conclusion of Recapitalisation Transaction, the following transactions were concluded. Under these further agreements TPC:
TPC entered into agreements with Investec Bank Limited (acting through its Investment Banking Division: Corporate Solutions), FirstRand Bank Limited (acting through its Rand Merchant Bank division) and another financier (Lenders):
Additionally, TPC sold to a third-party Cell C pre-paid airtime for a purchase consideration of R250 million (inclusive of VAT). TPC has a repurchase obligation in respect of this airtime, payable in 18 equal monthly instalments.
The bank borrowings of R1.471 billion were structured as i) an airtime sale and repurchase, ii) the issue of Class A Preference Shares, and iii) the issue of Class B Preference Shares.
Accounting treatment:
The airtime sale and repurchase represents a financing transaction, with the airtime as security, together with the issue of the Class A, and Class B, Preference Shares, which provide the lenders with additional compensation for their risk. As such the amount of borrowings was attributed to these three elements at their respective fair values.
The airtime sale and repurchase loan, and the Class A Preference Shares were recognised initially at their fair values less transaction costs and have been accounted for as financial liabilities at amortised cost (included in borrowings). Given that the indexation of the cash flows under the Class B Preference Shares to a 5% shareholding in Cell C results in them containing an embedded derivative which would otherwise need to be stripped out and accounted for separately, the Class B Preference Shares have been designated to be financial liabilities at fair value through profit or loss.
Airtime sale and repurchase loan |
Class A Preference Shares |
Class B Preference Shares |
TOTAL | |
Funds borrowed (R'000) | 1 238 707 | 165 966 | 66 859 | 1 471 532 |
Transaction costs (R'000) | 92 000 | — | — | 92 000 |
Effective interest rate (%) | 40.4 | 11.53 | N/A | N/A |
Carrying value at 30 November 2022 (R'000) |
1 078 492 | 169 169 | 66 859 | 1 314 520 |
The borrowings were structured as an airtime sale and repurchase.
Accounting treatment:
The airtime sale and repurchase represents a financing transaction, with the airtime as security.
The airtime sale and repurchase loan was recognised initially at its fair value less transaction costs and has been accounted for as a financial liability at amortised cost (included in borrowings).
Airtime sale and repurchase loan | ||||
Funds borrowed (R’000) | 217 391 | |||
Transaction costs (R’000) | — | |||
Effective interest rate (%) | 25.75 | |||
Carrying value at 30 November 2022 (R’000) | 197 132 |
TPC provided funding to Cell C in the form of two loans.
Debt Funding:
TPC advanced R1.03 billion to Cell C. The total capital amount to be repaid is R2.8 billion. The difference between the two, as well as any interest on this difference, is the 'upside' to which the mandatory preference dividends on the Class A Preference Shares are indexed (refer to "Issue of Class A Preference Shares").
The amount advanced is to be repaid by Cell C at the end of the 42nd month after the recapitalisation date, and the balance of the total capital amount at the end of the 66th month.
The loan bears no interest for the first 24 months, thereafter the total capital amount bears interest at a fixed rate of 10% per annum until month 42, and thereafter the outstanding amount bears interest at prime plus 3% until month 66. Interest payments are payable monthly in cash.
Accounting treatment:
Management assessed and concluded that the funding provided (Debt Funding and the Reinvestment Instrument) to Cell C as part of its recapitalisation should be classified as originated credit impaired loans. Cell C was restructured and refinanced with the purpose of deleveraging its balance sheet, providing it with liquidity with which to operate and grow its businesses and to position itself to achieve long-term success for the benefit of its customers, employees, creditors, shareholders and its other stakeholders. Cell C utilised the TPC Debt Funding to settle the claims of secured lenders by paying an amount of 20c to the rand. The face value of the funding provided by TPC is 2.75 times the cash it advanced. This deep discount evidences incurred losses.
Although Cell C's financial plan reflects that these loans will be repaid in full, the terms of the loans are 42 months for the Reinvestment Instrument and 66 months for the Debt Funding, and there is execution risk related to the achievement of the business plan.
Interest on these loans is being recognised using a credit adjusted effective interest rate. The credit adjusted effective interest rate reflects the initial estimate of lifetime expected credit losses. This means that TPC will only recognise the cumulative changes (both favourable and unfavourable) in the initial estimate of lifetime expected credit losses as a loss allowance.
The loans were recognised initially at the amount of the cash advanced plus transaction costs. The reason for using the amount of the cash advanced, and not fair value, is because the fair values yielded day 1 gains which could not be recognised immediately in profit or loss because the valuation techniques applied did not use data that was only from observable markets. As result, day 1 gains on loan 1 and loan 2, respectively, were deferred as part of the carrying values of the loans. These gains will only be recognised to the extent that they arise from a change in a factor (including time) that market participants would take into account when pricing the loans (i.e. these gains will be recognised with the passage of time). The position will be reassessed at year end. The fair value of the additional 9.53% shareholding in Cell C that was acquired for nominal consideration has been treated as part of TPC’s return for providing the funding to Cell C and has been reflected in the calculation of the effective interest rate on the loans.
Debt Funding | Reinvestment Instrument | TOTAL | |
Initial fair value (R’000) | 1 950 071 | 215 313 | 2 165 384 |
Funds advanced (R’000) | 914 396* | 111 112 | 1 025 508 |
Credit adjusted effective interest rate (%) | 31.25 | 31.80 | N/A |
Carrying value at 30 November 2022 | 962 643 | 117 080 | 1 079 723 |
* | This is after allocating R118 million of the gross amount advanced of R1.032 billion towards the net additional 9.53% shareholding in Cell C. |
TPC advanced R223 million to SPV 4, which SPV 4 used to acquire a 5.47% shareholding in Cell C from SPV 2. SPV 2 used the proceeds to repay certain of it’s debts after which it was liquidated. The loan is interest free and is repayable on demand. The only asset securing this loan is the 5.47% shareholding in Cell C which TPC can acquire in settlement of its loan. If TPC elected to acquire these additional shares, it would first need the prior approval of the Competition Commission of South Africa and ICASA because such acquisition would result in TPC acquiring control of Cell C.
Accounting treatment:
The loan to SPV 4 does not meet criteria to be classified as a financial asset at amortised cost because, by virtue of
the fact that the only means SPV 4 has to repay the loan is the 5.47% shareholding in Cell C, it represents a
participatory interest (without voting rights) in these shares subject to a limit of the debt plus accrued interest. Since
Cell C is accounted for as an associate, this participatory interest in Cell C has also been accounted for as part of the
investment in associate and equity accounted. Accordingly, the overall percentage interest in Cell C that is equity
accounted reflects TPC’s economic interest (and not only voting interest) which includes this participatory interest of
5.47%.
The assessment of control is concerned with substantive rights as it relates to decisions about the direction of the relevant activities of the investee, and therefore, it is management’s view that the additional interest without the additional right to vote, together with the operational barriers which prevent the Group from exercising its rights, will not change its assessment of whether Cell C is an associate, until such rights become substantive.
Prior to the effective date of the recapitalisation, TPC sold a 5% shareholding (in terms of post-recapitalisation shareholding) in Cell C to SPV 4 thereby divesting itself of the ability to direct the voting rights attached to these shares. The shares were sold on loan account for R204 million which is repayable on demand on an interest-free basis. The only security for this loan is the 5% shareholding in Cell C which TPC can acquire in settlement of its loan. SPV 4 is required to pay to TPC all payments it receives or realises on this 5% shareholding in Cell C towards settlement of the loan. In this way TPC retains the economic interest in this 5% shareholding in Cell C. If TPC elected to acquire these additional shares, it would first need the prior approval of the Competition Commission of South Africa and ICASA because such acquisition would result in TPC acquiring control of Cell C.
Accounting treatment:
Although TPC has not retained the voting rights attached to this 5% shareholding in Cell C, it has retained
substantially all the risks and rewards of ownership. TPC continues to recognise the economic interest of this
shareholding as part of the investment in associate and to equity account it. Accordingly, the overall percentage
interest in Cell C that is equity accounted reflects TPC’s economic interest (and not only voting interest) which
includes this economic interest of 5%.
The assessment of control is concerned with substantive rights as it relates to decisions about the direction of the relevant activities of the investee, and therefore, it is management’s view that the additional interest without the additional right to vote, together with the operational barriers which prevent the Group from exercising its rights, will not change its assessment of whether Cell C is an associate, until such rights become substantive.
TPC received additional shares from Cell C for a nominal amount.
After the recapitalisation of Cell C, TPC now has a shareholding, and voting rights, of 49.53% in Cell C, derived as follows:
Percentage (%) | |
Pre-recapitalisation shareholding | 45.00 |
Sale of shares | (5.00) |
Net new issue | 9.53 |
Dilution | (29.61) |
New issue | 39.14 |
Post-recapitalisation shareholding | 49.53 |
Accounting treatment:
The fair value at the date of recapitalisation of the 9.53% additional shares received (R118 million) has been
recognised as an increase in the equity accounted investment in Cell C and as part of TPC’s return on the loans to Cell C which will be recognised over the period of the funding using the effective interest method.
TPC acquired several trade claims held by two parties against Cell C.
Claims of one of the parties were acquired for cash payments totalling USD4 million (R65 million). These claims were settled in full by Cell C by providing TPC with airtime vouchers with an aggregate face value of R75.8 million (including VAT).
Claims of the other party of R153 million were acquired for cash payments totalling R53 million. TPC agreed to a compromise with Cell C which reduced the amount owing by Cell C by 45%, down to R84 million. The balance is to be repaid by Cell C on an interest-free basis from the 25th month after the date of recapitalisation. On a quarterly basis from this date TPC is entitled to receive as settlement 11% of any excess cash held by Cell C above an amount of R700 million until the debt is repaid.
Accounting treatment:
TPC accounted for the acquisition, and settlement, of the fore-mentioned claims as the purchase of airtime stock for
R65 million. In respect of the last-mentioned claims acquired, TPC recognised a long-term financial asset, initially at its
fair value of R53 million. Subsequently management recognised a 100% ECL against this balance taking cognisance of
the unsecured nature and payment terms of the claim.
An existing claim of R1.1 billion by CEC against Cell C will now be repaid by Cell C in 60 equal monthly instalments, plus interest on the outstanding amount at a fixed rate of 12% per annum.
Accounting treatment:
CEC accounted for the change in repayment terms as a significant modification, which resulted in the derecognition
of the previous carrying value of the financial asset (trade receivable) and the recognition of a new long-term loan,
initially at its fair value of R1.035 billion. This resulted in the recognition of a loss of R65 million in profit or loss.
Management assessed and concluded that this loan should be classified as an originated credit impaired loan as a
result of management renegotiating the terms of the amount owing in order to assist Cell C as part of its
restructuring and recapitalisation. Cell C was restructured and refinanced with the purpose of deleveraging its
balance sheet, providing it with liquidity with which to operate and grow its businesses and to position itself to
achieve long-term success for the benefit of its customers, employees, creditors, shareholders and its other
stakeholders. Interest on this loan is being recognised using a credit adjusted effective interest rate of 12.67%. The
credit adjusted effective interest rate reflects the initial estimate of lifetime expected credit losses. This means that
CEC will only recognise the cumulative changes (both favourable and unfavourable) in the initial estimate of lifetime
expected credit losses as a loss allowance.
TPC purchased airtime vouchers from Cell C with a face value of R1.992 billion (incl VAT) for a cash payment of R1.2 billion (incl VAT).
For four quarters from the 13th month after the Cell C recapitalisation TPC is required to purchase airtime vouchers from Cell C with a face value of R498 million (including VAT) for a cash payment of R300 million (including VAT) per quarter.
In addition, TPC is required to make minimum monthly purchases of airtime vouchers from Cell C for a period of 24 months from the date of the Cell C recapitalisation. For each of the first 12 months, the minimum purchase is airtime with a face value of R427 million (incl. VAT), and for each of the second 12 months it is airtime with a face value of R378 million (incl. VAT). The cash purchase price payable is at a discount of 6% to the face value of the airtime. The minimum monthly purchases will be reduced by R125 million (including VAT) per month until TPC's airtime repurchase obligation towards the funders has been settled. Furthermore, if in any calendar quarter following the effective date of the Cell C recapitalisation, Cell C's actual MVNO Revenue is in excess of the MVNO Revenue for the relevant period as stated in the Agreed Financial Base Case, then for the following quarter the minimum monthly purchase requirement will be reduced by one-third of such excess.
Of the carrying value of inventory as of 30 November 2022, R1.4 billion is restricted because it is held by the funders and other third parties under the airtime sale and repurchase agreements which form part of TPC's borrowings in connection with the Cell C recapitalisation, as detailed above. As a result of TPC's repurchase obligation, the airtime stock that was sold to the funders has continued to be recognised as TPC's stock, and the repurchase obligation has been recognised as borrowings. As airtime stock is repurchased it becomes unrestricted and is available to be sold. During the next 12 months, TPC is required to repurchase R715.8 million of the restricted airtime.
Included in the carrying value of inventory as of 30 November 2022 are amounts that have been purchased to date (and not yet sold) by TPC from Cell C as part of the Cell C recapitalisation as detailed above. TPC has the right to sell this airtime stock without restriction before the 28th September 2024. However, there are certain restrictions regarding TPC's ability to dispose of any of this airtime that is still on hand at that date (which carrying value of airtime management believes will be negligible), these restrictions fall away from the 28th March 2026 or earlier should certain trigger events occur.
To provide Cell C with the funds to settle an aggregate amount of R197 million owing to a lessor, TPC agreed to purchase additional airtime from Cell C. Airtime with a face value of R645 million was purchased by TPC before 30 November 2022 for a cash purchase price of R161 million (excluding VAT), and airtime with a face value of R145 million will be purchased by TPC in September 2023 for a cash purchase price of R36 million (excluding VAT). TPC is only permitted to sell the airtime in specified tranches of face value, on specified dates, as follows: R114 million in February 2025, R8 million in February 2027, R208 million in February 2028, and R230 million in both February 2029 and in February 2030.
Accounting treatment:
The amounts paid to Cell C have been treated as prepayments and not as airtime stock because, until TPC is free to sell the airtime, it does not have the associated risks and rewards of ownership. The prepayment will be tested for impairment at each reporting date and written down accordingly.
TPC acquired additional notes comprising 72% of the issued notes in SPV 1 for R25 million. The notes have a face value of USD201 million. The only asset that SPV 1 has is a 4.04% shareholding in Cell C which has been pledged as security for the repayment of the notes. The redemption date of 2 August 2022 has passed, as such TPC can demand repayment of its notes at any time and can acquire 79% of the Cell C shares held by SPV 1, which constitutes a 3.19% interest in Cell C, as settlement thereof. Prior to acquiring these additional shares, TPC would first need the approval of the Competition Commission of South Africa and ICASA because such acquisition would result in TPC acquiring control of Cell C.
Accounting treatment:
The notes acquired in SPV 1 fail the criteria to be classified as a financial asset at amortised cost because, by virtue of the fact that the only means SPV 1 has to redeem the notes is its shareholding in Cell C, it represents a participatory interest (without voting rights) in these shares subject to a limit of the debt plus accrued interest. Since Cell C is accounted for as an associate, TPC's participatory interest in Cell C has also been accounted for as part of the investment in associate and equity accounted. Accordingly, the overall percentage interest in Cell C that is equity accounted reflects TPC's economic interest (and not only voting interest) which includes this participatory interest of 3.19%.
The assessment of control is concerned with substantive rights as it relates to decisions about the direction of the relevant activities of the investee, and therefore, it is management's view that the additional interest without the additional right to vote, together with the operational barriers which prevent the Group from exercising its rights, will not change its assessment of whether Cell C is an associate, until such rights become substantive.
Please refer to the narrative in Note 5 related to the "SPV 5 derivative liability" for further information related to the guarantee.
Accounting treatment:
When the funds are advanced by TPC to SPV 5 they will be treated as an additional 10% investment (without voting rights) in Cell C because the shares in Cell C are the only means that the SPV has with which to repay TPC's loan. As a result, TPC's loan commitment is an in-substance written put option over the economic interest of SPV 5's shareholding in Cell C, which meets the definition of a derivative. Accordingly, TPC has accounted for its loan commitment to SPV 5 as a derivative at fair value through profit or loss. The initial fair value of the loan commitment liability remained unchanged at R13.2 million.
Up until 22 September 2022, the Group had a 45% shareholding in Cell C which was held via TPC, and which represented the percentage interest in Cell C that was equity accounted up to that date. After the Cell C recapitalisation, Cell C continues to be an associate of the Group with a 49.53% shareholding therein. When applying the equity method to investments in associates, the carrying amount is increased or decreased to recognise the investor's share of the associate's profit or loss since the date of acquisition. An investor's interest in an associate is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights or other derivatives, unless they currently give the investor access to returns associated with an ownership interest. As a result of its transactions with SPV 1 and SPV 4, in substance, TPC has additional participatory interests of 13.66% (subject to certain caps, being the amounts to be repaid by the SPVs in respect of the loans from TPC) in the equity of Cell C (but without the corresponding voting rights). The caps have not come into play yet. Therefore, since the date of the recapitalisation the Group has equity accounted 63.19% of the earnings of Cell C.
The value-in-use of Cell C as at 30 November 2022 equated to R1.5 billion, of which TPC's share amounted to R962.5 million.
Of the accumulated impairment of R2.5 billion (refer to accumulated impairment below), R962.5 million was accounted for as a reversal of impairment of investment in associate.
The key assumptions applied in determining the value-in-use calculations are as follows:
November 2022 | May 2022 | ||||||
Average EBITDA margin % |
Terminal growth rate % |
Pre-tax discount rate % |
Average EBITDA margin % |
Terminal growth rate % |
Pre-tax discount rate % |
||
---|---|---|---|---|---|---|---|
Cell C Limited | 18.3 | 4.2 | 39.0 | 15.6 | 4.0 | 16.3 |
An internal valuation was performed by Cell C in order to determine the value-in-use of Cell C based on cash flow projections incorporated in its five-year business plan. Assumptions relating to the business, the industry and economic growth were applied. Cash flows beyond this point were then extrapolated, applying terminal growth rates. The discount rates used are pre-tax and reflect specific risks related to Cell C. The valuation incorporates the effects of recapitalisation which was effective end September 2022.
Considering Cell C have recently undertaken a financial recapitalisation, management was required to apply a probability of distress overlay to the Discounted Cash Flow valuation. Assumptions related to the Moody's rating of both Cell C and BLT were taken into account, given the strategic relationship between the two companies.
The Prepaid Company's equity share of the value as at 30 November 2022 reflected a partial recovery following the implementation of the recapitalisation.
The recovery in value is attributable to the following:
An increase/decrease in the following valuation inputs, when calculating the value-in-use of Cell C, would result in the following adjustments to TPC's share of the value-in-use:
2% increase in discount rate R’000 |
1% decrease in terminal growth rate R’000 |
5% decrease in annual EBITDA R’000 |
|
Cell C Limited | (78 912) | (21 359) | (190 390) |
The Group’s remaining exposure to Cell C is as follows:
30 November 2022 R'000 |
30 November 2021 R'000 |
||
---|---|---|---|
Concentration of credit risk: | |||
Loans receivable | 2 082 248 | — | |
Loss allowance on loans receivables to Cell C | (14 004) | — | |
Trade receivables | 305 241 | 2 612 065 | |
Loss allowance on trade receivables to Cell C | (55 992) | (26 717) | |
Payables due to Cell C: | |||
Trade payables | (219 223) | (851 473) |
Principal activity: Mobile network
Country of incorporation: South Africa
Financial year-end: 31 December*
30 November 2022 R'000 |
31 May 2022 R'000 |
||
---|---|---|---|
Statement of financial position | |||
Non-current assets | 11 910 806 | 12 833 049 | |
Current assets | 5 780 919 | 5 305 662 | |
17 691 725 | 18 138 711 | ||
Total equity | (1 829 059) | (8 007 848) | |
Non-current liabilities | 6 022 174 | 5 280 021 | |
Current liabilities | 13 303 610 | 20 866 538 | |
17 691 725 | 18 138 711 | ||
Effective percentage held (%) | 49,53 | 45 | |
Effective economic percentage held (%)1 | 63,19 | 45 | |
Net assets | (1 829 059) | (8 007 848) | |
Company net assets | (9 148 553) | (15 307 778) | |
Carrying value of purchase price allocations net of deferred taxation | 7 319 494 | 7 299 930 | |
Accumulated impairment (refer to reconciliation below) | 1 558 621 | 2 521 152 | |
Accumulated losses not guaranteed (refer to reconciliation on page 33) | 904 823 | 4 806 908 |
* | 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. |
1 | Refer to the “percentage of Cell C equity accounted” narrative on page 30. |
Accumulated impairment
30 November 2022 R'000 |
||
---|---|---|
Opening balance at 31 May 2022 | 2 521 152 | |
Reversal of previous impairment | (962 531) | |
Closing balance | 1 558 621 |
Accumulated losses not guaranteed
30 November 2022 R'000 |
|||
---|---|---|---|
Opening balance at 31 May 2022 | 4 806 908 | ||
Share of profit for the six months ended 30 November 2022 | (2 573 318) | ||
Recognition of historical losses previously not recognised | (1 328 767) | ||
Reversal of previous impairment | (962 531) | ||
Additional investment | (366 236) | ||
Closing balance | 904 823 |
1 June 2021 to 30 November 2022 R’000 |
1 June 2021 to 30 November 2021 R’000 |
||
---|---|---|---|
Revenue | 6 393 316 | 6 679 641 | |
Net profit/(loss) before taxation | 5 813 525 | (832 692) | |
Taxation | — | — | |
Net profit/(loss) after taxation | 5 813 525 | (832 692) | |
Other comprehensive income | — | — | |
Total comprehensive income | — | — | |
Share of total comprehensive income | — | — | |
Effective economic percentage held (%) | 63,19 | 45 | |
(Share of profits)/losses** | 2 573 318 | (374 711) |
* | 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. The Group could not recognise the current years profits as a result of historical losses not guaranteed. These profits reduced the balance of the Group's accumulated losses not guaranteed. |
Cost and share of reserves | Loans | Investments and loans | |||||||
30 November 2022 R’000 |
31 May 2022 R’000 |
30 November 2022 R’000 |
31 May 2022 R’000 |
30 November 2022 R’000 |
31 May 2022 R’000 |
||||
---|---|---|---|---|---|---|---|---|---|
Cell C | — | — | 2 068 244 | — | 2 068 244 | — | |||
Other associates and joint ventures | 85 509 | 76 147 | 53 639 | 48 603 | 139 148 | 124 750 | |||
85 509 | 76 147 | 2 121 883 | 48 603 | 2 207 392 | 124 750 | ||||
Disclosed as: | |||||||||
– Non-current assets | 85 509 | 76 147 | 1 875 155 | 22 745 | 1 960 664 | 98 892 | |||
– Current assets | — | — | 246 728 | 25 858 | 246 728 | 25 858 |
Company | Associate | Other associates* |
Other joint ventures* |
Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Principal activity | Cell C Limited Network provider |
|||||||||||
Country of incorporation | South Africa | |||||||||||
30 November 2022 R’000 |
31 May 2022 R’000 |
30 November 2022 R’000 |
31 May 2022 R’000 |
30 November 2022 R’000 |
31 May 2022 R’000 |
30 November 2022 R’000 |
31 May 2022 R’000 |
|||||
Cost and share of reserves at the beginning of the period | — | — | 53 536 | 41 258 | 22 611 | 14 344 | 76 147 | 55 602 | ||||
Acquisition of associates and joint ventures | — | — | — | 17 682 | — | — | — | 17 682 | ||||
Share of (losses)/profits from associates and joint ventures | (1 328 767) | — | 2 111 | (770) | 6 529 | 8 812 | (1 320 127) | 8 042 | ||||
Share of results after tax | (1 328 767) | — | 2 111 | 325 | 6 529 | 8 812 | (1 320 127) | 4 105 | ||||
Amortisation of intangible assets | — | — | — | (1 521) | — | — | — | (1 521) | ||||
Deferred tax on intangible assets amortisation | — | — | — | 426 | — | — | — | 426 | ||||
Foreign currency translation reserve | — | — | 722 | 1 251 | — | — | 722 | 1 251 | ||||
Dividends received | — | — | — | (5 885) | — | — | — | (5 885) | ||||
Diluted | — | — | — | — | — | (545) | — | (545) | ||||
Additional investment | 366 236 | — | — | — | — | — | 366 236 | 9 137 | ||||
Reversal of impairment of investment in associate | 962 531 | — | — | — | — | — | 962 531 | — | ||||
Cost and share of reserves at the end of the period | — | — | 56 369 | 53 536 | 29 140 | 22 611 | 85 509 | 76 147 | ||||
Loans to associates and joint ventures | ||||||||||||
Loans at the beginning of the period | — | — | 4 067 | — | 44 536 | 22 763 | 48 603 | 22 763 | ||||
Loans granted to associates and joint ventures | 2 205 294 | — | 4 988 | 4 115 | 30 101 | 22 450 | 2 240 383 | 26 565 | ||||
Loans repaid by associates and joint ventures | (58 546) | — | — | — | (29 568) | (1 805) | (88 114) | (1 805) | ||||
Expected credit loss | (14 004) | — | (454) | (48) | (31) | 1 128 | (14 489) | 1 080 | ||||
Loss on modification of financial instrument | (64 500) | — | — | — | — | (64 500) | — | |||||
Loans at the end of the period | 2 068 244 | — | 8 601 | 4 067 | 45 038 | 44 536 | 2 121 883 | 48 603 | ||||
Closing net book value | 2 068 244 | — | 64 970 | 57 603 | 74 178 | 67 147 | 2 207 392 | 124 750 | ||||
Share of (losses)/profits from associates and joint ventures | (1 328 767) | — | 2 111 | (770) | 6 529 | 8 812 | (1 320 127) | 8 042 |
* | The Group also has interests in a number of individually immaterial associates and joint ventures that are accounted for using the equity method which are aggregated under “Other associates” and “Other joint ventures”. |
Six months ended 30 November 2022 Unaudited R'000 | Six months ended 30 November 2021 Unaudited R'000 |
Year ended 31 May 2022 Audited R'000 |
||
---|---|---|---|---|
Sales to related parties | ||||
Cell C Limited and its related entities* | 2 488 389 | 1 558 514 | 3 975 162 | |
I Talk Financial Services Proprietary Limited* | 2 204 | 2 395 | 5 924 | |
T3 Telecoms SA Proprietary Limited* | 1 484 624 | 2 054 917 | 3 619 533 | |
Utilities World Proprietary Limited* | 5 423 | 84 | 3 803 | |
I Talk Holdings Proprietary Limited* | 14 689 | 11 774 | 28 192 | |
Purchases from related parties | ||||
Cell C Limited and its related entities* | 4 463 983 | 2 483 678 | 6 624 066 | |
I Talk Financial Services Proprietary Limited* | 2 730 | 259 | 2 452 | |
T3 Telecoms SA Proprietary Limited* | 14 729 | 6 760 | 20 561 | |
I Talk Holdings Proprietary Limited* | 3 981 | 8 164 | 42 542 | |
Income received from related parties | ||||
Dividends received from related parties | ||||
Utilities World Proprietary Limited* | — | — | 5 885 | |
Finance revenue from related parties | ||||
Cell C Limited and its related entities* | 36 244 | 47 426 | 96 788 | |
Interest from related parties | ||||
Cell C Limited and its related entities* | 79 785 | — | — | |
Loans to related parties | ||||
Cell C Limited and its related entities* | 2 082 248 | — | — | |
2DFine Holdings Mauritius*^ | — | 214 674 | — | |
2DFine Investments Mauritius*^ | — | 3 943 | — | |
Oxigen Services India Private Limited*^ | — | 54 105 | — | |
Brett Levy | 53 923 | 41 857 | 48 286 | |
Mark Levy | 53 923 | 41 857 | 48 286 | |
I Talk Financial Services Proprietary Limited* | 8 000 | 8 000 | 8 000 | |
I Talk Holdings Proprietary Limited* | 19 900 | 21 900 | 18 900 | |
T3 Telecoms SA Proprietary Limited* | 13 898 | 14 735 | 14 682 | |
Total loss allowance on loans to related parties | (15 661) | (275 478) | (1 173) | |
Lease liability due to related parties | ||||
Ellerine Bros. Proprietary Limited | 5 155 | 14 343 | 10 059 | |
Moneyline 311 Proprietary Limited1 | — | 14 343 | 10 059 | |
Uvongo Falls No 26 Proprietary Limited1 | — | 14 723 | 10 257 | |
Amounts due from related parties included in trade receivables | ||||
Cell C Limited and its related entities* | 305 421 | 2 122 181 | 2 612 065 | |
Oxigen Services India Private Limited*# | 5 876 | 5 876 | 5 876 | |
I Talk Holdings Proprietary Limited* | 25 159 | 4 069 | 10 031 | |
T3 Telecoms SA Proprietary Limited* | 6 609 | 7 040 | 9 687 | |
Total loss allowance on trade receivables to related parties | (62 714) | (10 263) | (32 575) | |
Amounts due to related parties included in trade payables | ||||
Cell C Limited and its related entities* | 219 223 | 767 353 | 851 473 | |
I Talk Holdings Proprietary Limited* | 4 894 | 2 436 | 3 123 | |
I Talk Financial Services Proprietary Limited* | 706 | 104 | 626 | |
Blue Train Proprietary Limited* | 10 912 | 124 | 1 207 | |
Amounts due from related parties included in other receivables | ||||
Utilities World Proprietary Limited* | 2 641 | — | 5 885 |
* | These entities are associates/joint ventures. |
# | This receivable has been fully provided for both in the current and prior years and is included as part of the total loss allowance. |
^ | These loans were written off in the prior year. |
1 | Due to the resignation of GD Harlow on 20 October 2022, these entities are no longer related parties to the Group as of that date. |
An announcement was released on 6 February 2023, stating that SNG Grant Thornton (“SNG”) replaced PwC as the external auditors of Blue Label, with Mr A Philippou as the designated individual audit partner. The change in external auditors is in alignment with the principles of good governance and early adoption of mandatory audit firm rotation, whereby audit firms shall not serve as the appointed auditor of a public interest entity for more than 10 consecutive years, with effect from 01 April 2023. The acceleration of the mandatory audit firm rotation was prudent in order to achieve future cost savings and efficiencies, as SNG are Cell C’s auditors, and to ensure alignment with them relating to the audit of the recapitalisation transaction of Cell C from inception thereof.
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 2022 have not been reviewed or audited.