In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of Telkom SA SOC Limited (the Company) and its subsidiaries (together the Group) as at 31 March 2022, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.
Telkom SA SOC Limited’s consolidated and separate financial statements set out in the financial statements comprise:
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated and separate financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards).
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Assessment of impairment of goodwill, investment in Business Connexion Group Limited (BCX) and property, plant and equipment (applicable to the consolidated and separate financial statements)
The Group’s net assets include R1.3 billion of goodwill at the reporting date. The goodwill is attributable to two cash generating units (CGUs), the Company (Telkom) and Business Connexion Group Limited (BCX).
The Group assessed internal and external indicators of impairment of the CGUs.
Key indicators of impairment included the market capitalisation being below the net asset value and the decline in the value in use mainly driven by a decline in cash flow projections in relation to the Telkom and BCX CGU’s respectively, which may trigger impairment of the underlying assets.
As required by International Accounting Standard 36, Impairment of Assets (IAS 36), the Group performs an impairment assessment of goodwill on an annual basis and when impairment indicators are identified.
The goodwill impairment assessment was a matter of most significance to our audit of the consolidated financial statements due to the significant judgements and assumptions made by management when performing the impairment assessment, and in estimating the key assumptions applied, particularly:
For the year ended 31 March 2022, management performed an impairment assessment over the goodwill balance by performing the following:
This matter is disclosed in note 2.4.14 and note 13 to the consolidated and separate financial statements.
In addition to the goodwill in the consolidated financial statements, the impairment considerations apply equally to the investment in BCX and the property, plant and equipment (PPE) in the separate financial statements.
The Company holds a 100% interest in BCX and accounts for this investment as a subsidiary in terms of International Accounting Standard 27 – Separate Financial Statements (IAS 27).
Under IAS 36, the Company 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 above, and performed impairment tests as a result.
PPE consists mainly of network equipment. The network equipment within the Company does not generate cash inflows that are largely independent of those from other assets or groups of assets. This resulted in PPE having to be assessed for impairment as part of the CGU. The recoverability of PPE is largely dependent on macro-economic factors, which include cash flows to be generated through the network assets, as well as internal assumptions and estimates related to realisation levels and operating costs. The impairment test included assessing the recoverable amount of PPE, with reference to all cash flows (including the fair value contributory asset income), and comparing this to the carrying amount of the PPE.
The impairment assessment of the investment in BCX and the PPE is a matter of most significance to our audit of the separate financial statements due to the significant judgements and assumptions made by management when performing the impairment assessment, and in estimating the key assumptions applied, as specified under the goodwill section above.
This matter is disclosed in note 11 and note 15 to the consolidated and separate financial statements.
We evalluated management's identification of the Group's CGUs based on the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. A key consideration in this evaluation was the assessment of the Enterprise cash flows within BCX which are generated using Telkom’s network assets.
We tested the mathematical accuracyWe tested the mathematical accuracy of the value in use model used by management and found no material differences. We also assessed the appropriateness of the valuation model applied by management, with reference to market practice and the requirements of IAS 36.
We assessed the manner in which IFRS 16 was included in the value in use valuation model used by management, and specifically whether the cash outflows in respect of the lease payments were excluded from the model and whether the discount rate was adjusted to include the lease liability and the cost of leasing as per our valuation methodology.
We assessed the reasonability of the respective CGUs’ budgets included in the business plans (which forms the basis of the cash flow forecasts) through discussions with management regarding the process followed to develop the budgets, forecasts and the assumptions utilised. We also compared the prior year budgets to the current year actual results to understand management's ability to follow a robust budgeting process which results in credible budgets, and evaluated differences noted against underlying documentation and explanations obtained from management.
We assessed the assumptions contained within the calculations including growth assumptions, discount rates and implications of industry changes. Our audit procedures included:
Utilising our valuation expertise, we independently sourced data such as the long-term growth rates and discount rate, cost of debt, risk-free rates in the applicable market, market risk premiums, debt/equity ratios, as well as the beta of comparable companies. We then independently calculated a discount rate for each cash generating unit using our independently sourced data. This was compared to the discount rates used by management. We found the discount rates used by management to be within acceptable ranges of our independent calculations.
We performed independent sensitivity analysis to assess the minimum changes in discount rates and terminal growth rates that would result in no headroom being available, and compared our results to that of management in order to evaluate whether the CGUs were not sensitive to reasonably possible changes in key assumptions.
With respect to the investment in BCX in the separate financial statements, we compared the recoverable amount of the BCX CGU as assessed by way of the procedures above to the carrying amount of the investment in BCX, and noted the value in use range exceeded the carrying amount of the BCX investment.
With respect to the PPE in the separate financial statements, we compared the recoverable amount of the Telkom CGU as assessed by way of the procedures above to the carrying amount of the Telkom CGU which includes PPE and goodwill, and noted that no impairment was identified. We assessed the appropriateness of the disclosures in the consolidated and separate financial statements as set out in notes 2.4.14 and 13 against the requirements of IAS 36.
The directors are responsible for the other information. The other information comprises the information included in the document titled “Telkom SA SOC Limited Annual Financial Statements for the year ended 31 March 2022”, which includes the Directors’ Report, the Audit Committee’s Report and the Certificate from the Group and Company Secretary as required by the Companies Act of South Africa, which we obtained prior to the date of this auditor’s report, and the document titled “Telkom SA SOC Ltd Integrated Report for the year ended 31 March 2022”, which is expected to be made available to us after that date. The other information does not include the consolidated or the separate financial statements and our auditor’s report thereon. Our opinion on the consolidated and separate financial statements does not cover the other information and we do not and will not express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and/or the Company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that PricewaterhouseCoopers Inc. and SizweNtsalubaGobodo Grant Thornton Inc. have been the auditors of Telkom SA SOC Limited for 4 years.
PricewaterhouseCoopers Inc.
Director: KJ Dikana
Registered Auditor
Johannesburg
10 June 2022
SizweNtsalubaGobodo Grant Thornton Inc.
Director: Gulam Mohammed Hafiz
Registered Auditor
Johannesburg
10 June 2022
The examination of controls over the maintenance and integrity of the Group’s website is beyond the scope of the audit of the financial statements. Accordingly, we accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
PricewaterhouseCoopers Inc.,
4 Lisbon Lane, Waterfall City, Jukskei View, 2090
Private Bag X36, Sunninghill, 2157, South Africa
T: +27 (0) 11 797 4000, F: +27 (0) 11 209 5800,
Chief Executive Officer: L S Machaba
The Company's principal place of business is at 4 Lisbon Lane, Waterfall City, Jukskei View, where a list of directors' names is available for inspection.
Reg. no. 1998/012055/21, VAT reg. no. 4950174682.
SizweNtsalubaGobodo Grant Thornton Inc.,
20 Morris Street East, Woodmead, 2191
PO Box 2939, Saxonwold, 2132
T: +27 (0) 11 231 0600, F: +27 (0) 11 234 0933,
Chief Executive: Victor Sekese
A comprehensive list of all Directors is available at the Company offices or registered office. Sizwe Ntsaluba Gobodo Incorporated.
Reg. no. M2005/034639/21