Notes to the Group annual financial statements | Note 2.1

The Group holds the following investments in and loans to associates and joint ventures:

Loans to associates and joint ventures

The loans as at 31 May 2022 are neither past due nor impaired with a low risk of default. The carrying amount of the loans approximates their fair value.

The loans to I Talk Holdings and Blue Train are repayable on demand. All other loans are payable within 12 months.

Impairment of associates and joint ventures

The following investments were tested for impairment in line with IAS 36, by comparing the recoverable amount against the carrying value of the investments.

The recoverable amount is the higher of fair value less cost of disposal and the value-in-use. The value-in-use calculation applies cash flow projections based on financial budgets approved by the Board of Directors for the forthcoming year and forecasts for up to five years which are based on assumptions of the business, industry and economic growth. Cash flows beyond this period are extrapolated using terminal growth rates, which do not exceed the expected long-term economic growth rate.

Cell C Limited

The key assumptions used for the value-in-use calculations of Cell C Limited are as follows:

A limited scope desktop 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 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 does not take into account the effects of any planned future restructuring or recapitalisation.

The Prepaid Company's equity share of the value as at 31 May 2022 remained at Rnil, however there was a decline in value compared to the prior year attributable to the following:

(a) An increase in interest-bearing borrowings due to unfavourable exchange rate fluctuations and capitalised interest expense.

(b) A decrease in cash flow generation over the forecast period.

(c) A decrease in the assessed loss tax shield value due to delayed utilisation thereof.

The Group's remaining exposure to Cell C is as follows:

The Airtime Purchase transaction and the Umbrella Restructure Term Sheet referred to in note 2(e) are non-binding and do not create any unilateral obligation on the Group's behalf. There are no guarantees issued by the Group relating to any obligation of Cell C.

There is indirect exposure to Cell C as a result of the derivative liability. This results from the potential extinguishment of the derivative liability, linked to the solvency and liquidity of Cell C. Refer to note 3.7.

There is indirect exposure to Cell C as a result of the subscription sharing arrangement, refer to note 1.2 and 4.2.

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, The Prepaid Company would be required to purchase such inventory from the consortium on a piecemeal basis over a specified period that was 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 The Prepaid Company on a monthly basis. This would have resulted in the Cell C facility reducing to nil by 31 March 2021. However, as at 31 May 2021, the above funding had declined to R182 million, as a result of The Prepaid Company purchasing from the security airtime. This outstanding balance was paid by way of The Prepaid Company purchasing approximately R35 million per month from the security airtime, commencing June 2021. The facility has been settled at year-end.