Notes to the Group Annual Financial Statements | Note 3.3

All loans receivable are unsecured and repayable within five years. Interest-bearing loans bear interest at a range of between prime and prime plus three percent. The fair value of the loans, which include loans to product distributors, approximates their carrying value. This has been corroborated through discounted cash flow calculations at the effective interest rate the lender would have been able to secure from a financing institution, using an expected payment timeframe.

Trade receivables comprise receivables that are due from customers which arise from transactions for the sale of goods and rendering of services in the ordinary course of business. For details related to the ECLs, refer to note 3.2.1. Receivables for prepayments and VAT are stated at their nominal values.

The following table provides an analysis of the Group's trade and other receivables, including an analysis of trade receivables by originating transaction type as well as by counterparty:

The fair value of the trade and other receivables approximates their carrying amounts due to the market-related discount factor that has been applied to the balances.

Advances to customers comprise receivables arising on financing transactions where, in substance, the nature of the business activities undertaken by certain subsidiaries of the Group is to engage in the provision of financing. For details related to the ECLs, refer to note 3.2.1.

The fair value of the advances to customers approximates their carrying amounts due to the market-related discount factor that has been applied to the balances.

Included in advances to customers are handset sales to Cell C contract subscribers which are received by CEC over the life of the contract. Under the Supply, Sale and Financing of Products Agreement effective 1 November 2020, Cell C does not guarantee bad debts and cancellations and this now exposes the Group to the credit risk of the population of the underlying subscribers who are all customers of Cell C.

In terms of the above agreement, if Cell C is unable or admits inability to make a payment as they fall due, or is deemed to or declared to be unable to pay its debts under the applicable law, suspends or threatens to suspend making payments by reason of actual or anticipated financial difficulties, they would be in breach of their agreement. If not remedied the Group ultimately has a right to port the Cell C base.

Critical accounting estimates and assumptions

Management has conducted an assessment of the retained credit risk following the transfer of customer advances related to the books sold. After comparing the retained credit risk before and after the transfer, and evaluating it against management's internal threshold for retained credit risk, it was determined that for Book Sale One, substantially all credit risk has been transferred. However, for Book Sale Two and Four, the transaction resulted in the derecognition of the book as the transfer qualifies for derecognition, except for a contractually specified portion of the book, referred to as the holdback debtor, for which CEC retained the risks and rewards associated with ownership. This transaction also resulted in CEC obtaining a new financial asset, referred to as the Escrow debtor for which a risk margin is held in an Escrow account. CEC has a contractual right to the remaining balance in the Escrow account at the end of a specified period. The Escrow debtor was recognised at fair value and is measured at fair value through profit or loss. Book Sale Three and Five consisted of fully written-off advances to customers; therefore, the proceeds are considered a recovery of bad debts.

Transferred financial assets

Book Sale One

In September 2023 CEC entered into an agreement to sell and transfer receivables (all rights, title and interest with respect to the remaining handset fee payable by a subscriber under a subscriber agreement) to a financial institution. The purchase price of the receivable was equal to the outstanding handset fee for such receivable (i.e. no discount). CEC pays the financial institution a monthly facility fee for all debtors sold, calculated by applying the facility fee rate to the outstanding handset receivable balance on the last business day of the month.

The proceeds in respect of Book Sale One were reduced by a facility fee of R68 million included in 2024 finance costs. Refer to note 1.4. A further facility fee of R54 million, included in finance costs, was incurred in the current year.

Book Sale Two

In March 2024, a financial institution and CEC made the following amendments to the terms of the Book Sale One agreement when implementing Book Sale Two.

The purchase price paid at the date of sale is equal to 90% of the present value of expected contractual cash flows due over the remainder of the subscription term.

CEC agreed that the financial institution may transfer back to CEC, at the end of four months, specified non-performing advances referred to as the holdback receivable. Based on the nature of the contractually specified advances, it is virtually certain at the transaction date that CEC will retain ownership of these advances to customers, and therefore at the transaction date, it was determined that CEC retained the risks and rewards associated of ownership relating to the specified advances. Contractually, the advances subject to the holdback arrangement is capped at maximum of 10% of the present value of the expected cash flows of the book sold to the financial institution.

This transaction also resulted in CEC obtaining a new financial asset, referred to as the Escrow debtor for which a risk margin is held in an Escrow account. CEC has a contractual right to the remaining balance in the Escrow account at the end of a specified period. The Escrow debtor was recognised at fair value and is measured at fair value through profit or loss. Included in the financial assets at fair value through profit or loss.

Included in the 2024 current portion of advances to customers is R51.6 million relating to the 10% hold back on the book sales that have not been derecognised.

Included in 2024 finance cost is R93 million in respect of Book Sale Two. Refer to note 1.4.

Book Sale Three

CEC sold receivables which had been written off as irrecoverable for which CEC retained no involvement post the sale.

Book Sale Four

This was transacted on similar terms to that of Book Sale Two.

At year-end all advances to customers sold had passed the initial four month hold back period and as such there is no balance remaining included in the advances to customers balance.

Included in finance cost is R83.1 million in respect of Book Sale Four. Refer to note 1.4.

Book Sale Five

CEC sold receivables which had been written off as irrecoverable for which CEC retained no involvement post the sale.

Cash and cash equivalents include cash on hand and deposits held on call with banks.

Included in this balance is restricted cash of R34.2 million (2024: R36.7 million), received on behalf of and immediately due to third parties, which may not be utilised in the Group's ordinary course of business. There is further restricted cash of R67.3 million (2024: R84.1 million) relating to collateral for guarantees issued by insurers on the Group's behalf.