Notes to the Group annual financial statements | Note 11

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 income statement.

Description

Closure of WiConnect

While management had implemented a turnaround strategy at WiConnect (a fully 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 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.

The above assessment was still applicable in the prior financial year. The costs incurred and revenues earned post the 31 May 2020 year-end were all elements of the winding down of the WiConnect operations. In the prior year, management had 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 were recorded in the "Profit from discontinued operation" line item within the Group statement of comprehensive income.

Management has substantially collected outstanding debt owed to WiConnect from its trade receivables and settled trade and other sundry creditors. As such, the discontinued operation has effectively been wound down.

Financial information relating to the various discontinued operations is set out below:

Critical accounting judgements and assumptions

WiConnect discontinued operation 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 swept 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 have "ceased to be used". In the prior financial year management believes that this assessment was still applicable. As mentioned above, in the current financial year the discontinued operation was effectively wound down.

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 clients 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 was 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. In the prior financial year management believed that this assessment was still applicable. As mentioned above, in the current financial year the discontinued operation was effectively wound down.