Notes to the financial statements | Note 12.2

Common control transactions

Legal separation of Openserve

On 14 July 2022, the Telkom Board approved the carve-out and legal separation of the Openserve division through the sale of Telkom's infrastructure business as a going concern to Openserve NewCo (Openserve (Pty) Ltd), effective 1 September 2022, resulting in Openserve (Pty) Ltd becoming a 100% subsidiary of Telkom SA SOC Ltd. The purchase price is in the form of two land the Openserve equity shareholding is determined based on the net asset value. Refer to note 7.2.2.

Openserve was under the control of Telkom both before and after the sale transaction. This transaction has no impact at a Telkom Group level. Telkom Company has derecognised the assets and liabilities of Openserve and recognised Openserve NewCo's net asset value as an investment in subsidiary.

The disposal of Openserve by Telkom Company has not been disclosed as a discontinued operation in the current financial year as the cash flows and assets are not separately identifiable and distinguishable. In terms of IFRS 5.31 a component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial purposes, from the rest of the entity. Even though Openserve is disclosed as a reportable segment before and after the carve-out, it is however not considered to be a component in terms of IFRS 5 as it was not a CGU and the cash flows and assets could not be clearly distinguished.

Only after the above was done, was Telkom Company in a position to carve out Openserve. The legal separation of Openserve impacted the following financial statement line items on Telkom Company on 1 September 2022 (day 1):

Yellow Pages (Pty) Ltd ("Yellow Pages") divisionalisation

Telkom entered into a sale of business agreement with its 100% owned subsidiary, Yellow Pages, in terms of which Yellow Pages sold its business to Telkom SA SOC Ltd, with effect from 1 July 2022.

The operations of Yellow Pages have been integrated into Telkom SA SOC Ltd, effective 1 July 2022. The legal entity known as Yellow Pages (Pty) Ltd will continue as a going concern due to the subsidiaries that still reside therein as well as their separate operations. The planned deregistration of Yellow Pages will occur post deregistration of the subsidiaries. This transaction had no impact at a Telkom Group level.

The divisionalisation of Yellow Pages impacted the following financial statements' line items on Telkom Company from 1 July 2022:

Acquisitions

Dotcom Software Solutions (Pty) Ltd

BCX acquired 100% shareholding of Dotcom Software Solutions (Pty) Ltd ("Dotcom Software Solutions") with an effective date of 1 December 2022. Dotcom Software Solutions is a Microsoft-affiliated software solutions company specialising in creative cloud and systems solutions for the financial services sector in South Africa.

Dotcom Software Solutions was bought for a total purchase consideration of R150 million. The components of the purchase consideration are as follows:

• R80 million transfer of cash
• R70 million contingent consideration is payable as and when the net profit after tax targets are met. The R70 million is payable in four intervals

The following inputs were used to calculate the fair value of contingent consideration on acquisition date:

• Probabilities of cash flows: 90% threshold for probability for meeting net profit after tax
• Discount rate: 10% risk-free rate

The fair value of contingent consideration as at 1 December 2022 approximates the fair value as at 31 March 2023.

The fair value of the identifiable assets and liabilities at acquisition date were determined as follows:

From the date of acquisition (1 December 2022), Dotcom Software Solutions has contributed R39 million of revenue and R11 million to the net profit before tax from the continuing operations of the Group. If the acquisition had taken place at the beginning of the year, revenue from continuing operations would have been R126 million and R11 million for net profit before tax from continuing operations for the Group.

Goodwill of R99 million was recognised as part of the transaction to acquire Dotcom Software Solutions. The goodwill relates to the skilled and assembled workforce (intellectual capital) that cannot be recognised as a separate intangible asset under IFRS.

Transaction costs of R2 million, which include issue costs, valuation, purchase price allocation (PPA) and due diligence have been expensed since the inception of the acquisition. These expenses were recognised in service fees.

The PPA valuation has been completed by a management expert before reporting period end (31 March 2023).