Loans key assumptions

All the loans made by Telkom SA SOC Limited in its subsidiaries are accounted for at amortised cost. Loans to subsidiaries are considered to have low credit risk as the subsidiaries are performing well and there has been no deterioration of credit risk since the loans were originated. Therefore, the loss allowance recognised during the period was limited to the 12-month expected credit loss. No material expected credit loss was accounted for on any of these instruments. The carrying value of loans and preference shares approximate the fair value as the instruments have been granted on market related terms.

FutureMakers Fund

This fund is an Enterprise and Supplier Development (ESD) programme. In partnership with Identity FutureFund (Pty) Ltd, the fund was created in terms of the Department of Trade and Industry’s Code of Good Practice on Black Economic Empowerment 2007, as amended, and specifically in terms of the Information and Technology Charter.

Telkom Company accounts for this at cost as an investment in a subsidiary. Telkom Group consolidates the fund and holds the investments within the fund at fair value. The underlying investments in the fund has been designated as at fair value through profit or loss as this more appropriately reflects the basis on which management measures and monitors the performance of the investment. No change was made to this designation following the adoption of IFRS 9. In 2018, the partnership agreement was amended to also include BCX. BCX invested an amount of R100 million which is reflected as a financial asset in the BCX stand-alone financial statements and included in cash and cash equivalents in the Group financial statements.

Investment in associate

The Number Portability Company (NPC) was incorporated in response to Regulations of 2005 that required a national centralised database of ported numbers for mobile numbers. The investment has been classified as an associate in line with the requirements of the revised IAS 28 Investments in Associates. The year end of the associate, 31 December, is different to that of the Company and the impact is not material.

Absa sinking fund investment

The Absa sinking fund investment is accounted for at fair value through profit or loss. The investment is a part of the Absa cell captive which is held in the form of a 100% preference share. The cell captive is divided into two ringfenced funds. The annuity fund, which serves as the fund asset for Telkom’s Post Retirement Medical Aid liability (refer to note 30) and the sinking fund. The investment above relates to the sinking fund and represents the fair value of the underlying investments made by the fund. The sinking fund is invested in highly liquid instruments and is classified as a current asset as it is management’s intention to liquidate portions of the asset in the short term.

The significant decrease in the Absa sinking fund investment was due to a withdrawal of R1.5 billion that took place in the current financial year.

Investment in insurance cell captive

Telkom has entered into a cell captive agreement with Mutual and Federal, to allow Telkom’s customers to insure their devices. This cell captive arrangement is accounted for in terms of IFRS 4 Insurance Contracts. The detailed accounting treatment has been set out in note 2.6.24.

Fair value

Refer to note 15.2 for the respective fair value disclosures related to the investments noted above.

The Company holds a 100% interest in BCX and accounts for this investment as a subsidiary in terms of IAS 27 Separate Financial Statements. Under IAS 36, the Group is required to test investments in subsidiaries carried at cost for impairment if there is an indicator of impairment.

Management identified an impairment indicator regarding the material investment in BCX due to the matters noted in the goodwill section and performed impairment tests as a result (refer to note 14).