Annual Report 2009 When you keep looking forward, you’ll leave a lasting legacy behind It’s our time... Annual Report 2009 Blue Label Telecoms Limited (Incorporated in the Republic of South Africa) Registration number 2006/022679/06 JSE Code ISIN Code BLU ZAE000109088 75 Grayston Drive Cnr Benmore Road Morningside Ext 5 Sandton 2196 (PO Box 652261, Benmore, 2010) This Annual Report can be viewed on our website under the Investor Relations link. www.bluelabeltelecoms.com GROWTH REPORT CONTENTS Our group in brief 01 01 02 03 10 11 12 14 19 20 24 28 Nature of business Corporate thumbnail Vision, mission and values Our markets and brands Strategic and operational highlights Financial highlights Group structure Board of directors Segment heads Chairman’s report Joint chief executive officers’ report Segmental reviews Governance & sustainability 50 Corporate governance 60 Remuneration report 62 Sustainability report Financial statements 86 95 95 96 97 100 101 102 103 104 148 149 150 151 152 164 168 169 170 Chief financial officer’s report Directors’ responsibility Declaration by company secretary Independent auditors’ report Directors’ report Group balance sheet Group income statement Group statement of changes in equity Group cash flow statement Notes to the group annual financial statements Company balance sheet Company income statement Company statement of changes in equity Company cash flow statement Notes to the company annual financial statements Notice of annual general meeting Explanatory notes to resolutions for consideration at the annual general meeting Proxy form Notes to the proxy form page 1 CORPORATE PROFILE Nature of business Blue Label Telecoms and its subsidiaries and associate companies’ core business is the virtual distribution of prepaid secure electronic tokens of value and transactional services across its global footprint of touch points. Its prepaid product offerings include airtime, electricity and bus ticketing. Other solutions provided include location-based services, cell phone content and mobile applications. Transactions are processed through points-of-presence ranging from single entity retail outlets to national chain stores and petroleum forecourts in South Africa and in several countries beyond its borders. The focus is on distribution in emerging markets where the products and services are of significant value to the unbanked and badly banked. In-house proprietary technology to support the group’s initiatives plays an integral role in supporting the rollout of its bouquet of products and services. The group’s stated strategy is to extend its global footprint of touch points, both organically and acquisitively and to fulfil the significant demand for the delivery of multiple prepaid products and services through a single distribution base via various delivery mechanisms. CORPORATE THUMBNAIL Why do consumers use prepaid products and services? • Prepaid products and services are the ultimate budgeting tool, as consumers have absolute choice and control over what they spend. • The majority of prepaid transactions are cash based and using prepaid removes the requirement for credit checks. • Prepaid products and services can be conveniently topped up, either virtually or physically, as and when required by consumers. • Prepaid products and services are sold across a broad footprint of traditional and non-traditional outlets. • Prepaid products and services enable the world’s unbanked consumers to transact efficiently. IT’S OUR page 2 CORPORATE THUMBNAIL continued How does Blue Label Telecoms add value to its customers? Within emerging and developing economies, the supply of products and services via prepaid channels is becoming an increasingly significant distribution model. This is because the distribution of physical product is often logistically difficult. A significant portion of the consumers within these markets are unbanked and badly banked and therefore transact in cash and many do not qualify for credit. Although they are unbanked and badly banked and don’t qualify for credit, these consumers have cash and are now demanding equal access to first world products and services. VISION, MISSION AND VALUES Vision statement To become the leading global distributor of secure electronic tokens of value and transactional services within emerging markets. Mission statement We exist to provide world-class prepaid product and service offerings to consumers within the middle and lower tiers of the world’s economic pyramid. We aim to achieve this through the development and acquisition of cutting-edge technologies, the expansion of our global footprint of touch points and adherence to our core values of enduring relationships, entrepreneurship, innovation and respect. ENDURING RELATIONSHIPS ENTREPRENEURSHIP • Valuing our customers as partners • Empowering people • Embracing opportunities • Walking the talk INNOVATION RESPECT • Moving forward with lessons learnt • Forward thinking • A member of the Blue Label family • Interacting with mutual respect page 3 OUR MARKETS AND BRANDS... PRIME page 4 Distribution of prepaid secure electronic tokens of value (e-tokens) to the South African wholesale and retail consumer markets. page 5 START-UP page 6 Our proven business model and bouquet of product and technology offerings, enables customers to purchase prepaid airtime via multiple devices. page 7 AIR page 8 mibli™ powered by Microsoft OneApp™ is the group’s most advanced on-phone service, aimed at the mobile generation. It marks the entry into the direct-to-consumer market. page 9 PLAY page 10 STRATEGIC AND OPERATIONAL HIGHLIGHTS • International expansion into Nigeria, Mexico, United Kingdom and the United States of America • Launch of mibli™ powered by Microsoft OneApp™ in August 2009 • Expansion of the bouquet of products and services • Accolades: – The Prepaid Company was awarded Vodacom “Best Channel Partner” for the fourth year in succession – Number one prepaid distribution channel partner of Telkom for the past five years. page 11 FINANCIAL HIGHLIGHTS Revenue R billion 15,3 12,5 12,9 Actual 2008 Pro forma 2008 18% Revenues* 16% Net profit after tax* Actual 2009 R15,3 billion Core net profit 19% R million 427 371 Headline earnings per share* 270 31% Operating profit* Actual 2008 16% Core earnings per share* Pro forma 2008 Actual 2009 R427 million Core earnings per share cents 55,93 48,40 R667 million 45,81 Cash generated from operating activities *When compared to core pro forma earnings. Actual 2008 Pro forma 2008 Actual 2009 55,93 cents GROWTH TIME page 12 GROUP STRUCTURE BLUE LABEL TELECOMS See page 28 South African distribution • The Prepaid Company • Crown Cellular • Ventury • Cigicell • Matragon • Comm Express • Kwikpay • Virtual Voucher • The Post Paid Company See page 34 International distribution • Gold Label • Oxigen Services India – 37,22% • Ukash – 16,9% • Africa Prepaid Services – 72% • Africa Prepaid Services – DRC – 80% • Africa Prepaid Services – Mozambique – 90% • Africa Prepaid Services – Nigeria – 51% • Blue Label Mexico – 70% • Sharedphone – 50,1% • Blue Label Australasia – 50,5% See page 40 Technology • Activi Technology Services • Transaction Junction – 60% • Activi Development Services • Blue Label One Trading as Mobile Services Company (MSC) See page 46 Value-added services • Datacel • Velociti • CNS • Cellfind • Content Connect Africa * 100% owned by Blue Label Telecoms unless otherwise stated page 13 Global presence Bricks and mortar Technology offerings page 14 BOARD OF DIRECTORS FROM LEFT TO RIGHT Laurence (Larry) Nestadt Brett Levy Mark Levy Mark Pamensky David Rivkind Gary Harlow Herbert Cedrik Theledi Joe Mthimunye Lucy (Pani) Manage Tyalimpi Neil Lazarus SC Reitumetse Jackie Huntley Sidney Ellerine Peter Mansour* *Not present at time of photo page 15 page 16 BOARD OF DIRECTORS continued Laurence (Larry) Nestadt Mark Levy Independent non-executive chairman Joint chief executive officer (Born: 1950) (Born: 1971) Larry has experienced a long and successful corporate career, both in South Africa and internationally. Larry is a co-founder and former executive director of Investec Bank Limited. He assisted in the creation and strategic development of a number of listed companies such as Capital Alliance Holdings Limited, Super Group Limited, Hosken Consolidated Investments Limited, SIB Holdings Limited and Global Capital Limited. In addition to having served as past chairman on the boards of these aforementioned companies, he is currently the executive chairman of Global Capital (Proprietary) Limited. Larry has also served on the board of directors of Softline Limited, JCI Limited and Abacus Technologies Holdings Limited. Larry was a former director of the board on a number of non-listed companies, both internationally and locally; namely Stenham Limited (UK) and Prefsure Life Limited (AUS), the Pro Shop Group, Melrose Nissan, SellDirect Marketing (Proprietary) Limited, BCE Foodservice Equipment (Proprietary) Limited and Placo Holdings (Proprietary) Limited. Larry is a respected member of the South African business community. His strategic vision and experience contributes significantly to the board. Brett Levy Joint chief executive officer BCompt (UNISA) Mark graduated with a BCompt degree from UNISA in 1993. After initially taking up a position as a commodity trader, Mark decided to pursue his goal of becoming an entrepreneur in earnest and has spent the past several years spearheading Blue Label Telecoms’ impressive growth and international expansion. Together with his brother Brett Levy, Mark won the ABSA Jewish Business Achiever Non-Listed Company Award (2007). Mark was nominated as an Ernst & Young World Entrepreneur SA Finalist for 2007. Mark Pamensky Chief operating officer (Born: 1972) BCom (WITS), BCompt (Hons) (UNISA), CA(SA) Mark completed his articles with PricewaterhouseCoopers Inc. before moving to the corporate finance department of Mercantile Bank. In 1999 he joined a boutique corporate advisory firm, Nucleus Corporate Finance before joining Blue Label Investments (Proprietary) Limited in 2001. Mark has played an integral role in the new business development and operational management of the Blue Label Telecoms group and much of its telecommunications footprint can be attributed to his strategic initiatives. Mark is a member of SAICA and the Young Presidents Organisation (YPO). (Born: 1975) Brett has an impressive entrepreneurial history having founded and operated a number of small businesses from the early 1990s. During his career, Brett has been involved in a wide range of industries, including the distribution of fast moving consumer goods and insurance replacements for electronic goods. His business achievements have seen him secure a number of prestigious nominations and awards, including the ABSA Bank Jewish Entrepreneur of the Year Award (2003) and the ABSA Jewish Business Achiever NonListed Company Award (2007), which he won jointly with his brother Mark Levy. Brett was nominated as an Ernst & Young World Entrepreneur SA Finalist for 2007. David Rivkind Chief financial officer (Born: 1972) BAcc (UNISA), CA(SA) David completed his articles at Papilsky Hurwitz and in 1999 joined Merrill Lynch International (UK) as a financial controller. David was employed by Credit Suisse for a brief period before his return to South Africa in 2002. David then became the financial director at Integr8IT (Proprietary) Limited prior to his appointment as the chief financial officer for Blue Label Investments (Proprietary) Limited where he contributed significantly to the rapid growth of the group. David is a member of the South African Institute of Chartered Accountants (SAICA). page 17 Gary Harlow Joe Mthimunye Independent non-executive director Independent non-executive director (Born: 1957) (Born: 1965) BBusSci (Hons) (UCT), FCMA, CA(SA) BCom (Zululand), BCompt Hons/CTA (UNISA), CA(SA) Gary matriculated in 1975 from the South African College School in Cape Town. After graduating from the University of Cape Town in 1979, he qualified as a Chartered Accountant (SA) in 1982, an Associate of the Chartered Institute of Management Accountants (UK) in 1983 and as a Fellow Chartered Management Accountant (UK) in 1996. After forging a career in merchant banking, Gary was appointed adviser to the finance department of the African National Congress in the early 1990’s regarding developing black economic empowerment policy. In 1992, he played an instrumental role in the creation of Thebe Investment Corporation and also served as joint chief executive officer of Msele Corporate and Merchant Bank, South Africa’s first black-controlled merchant bank. Joe Mthimunye qualified as a Chartered Accountant in 1993. After working for KPMG, he joined Nampak Limited in the capacity of divisional accountant. In 1996, he co-founded Gobodo Incorporated, an accounting practice with eight other partners and it became the biggest black accounting firm in South Africa at the time. In 1999, he led a management buy-out of Gobodo Corporate Finance from the accounting firm and re-branded it as aloeCap (Proprietary) Limited. He currently serves as the executive chairman of aloeCap. He also serves on the board of directors of non-listed companies where aloeCap Private Equity is invested. Gary was appointed group chief executive officer of Unihold Limited in 1996, where he led the transformation from an engineering conglomerate holding company to an international IT and telecommunications focused group. Subsequent to leading a management buy-out, Unihold de-listed from the JSE in 2001. Gary has served on numerous private and public company boards, including three listed banking groups. Independent non-executive director Herbert Cedrik Theledi Non-executive director (Born: 1964) BCom (UNIN), HDip Ed (WITS) Herbert matriculated from Thembeka High School in 1984. He later obtained a BCom degree from the University of the North. He currently serves as managing director and chairperson of Nthwese Investments Holdings Consortium (Proprietary) Limited. Herbert holds shares and directorships in various multi-faceted businesses operating in the property, warehousing, logistics, motor dealership and distribution industries. Herbert serves in several business and community forums in the country. Lucy (Pani) Manage Tyalimpi (Born: 1962) BCom (Hons) (UNISA), MBL (UNISA), Diploma in Investment and Portfolio Analysis Pani is the divisional executive of the Development Bank of Southern Africa, largely responsible for the funding of municipality infrastructure programmes in the Eastern Cape, Mpumalanga and KwaZulu-Natal. Prior to working at the Development Bank of Southern Africa Pani worked for several financial institutions, including Public Investment Corporation (PIC) as the head of Isibaya Fund, being the private arm of the PIC for the funding of BEE transactions, infrastructure development in a socially responsible manner. She also worked for African Harvest Capital and ABN Amro, where she was employed in corporate advisory services. She currently serves on the board of directors of a number of companies and investment committees. Pani brings extensive market and investment knowledge to the board. page 18 BOARD OF DIRECTORS continued Neil Lazarus SC Sidney Ellerine** Non-executive director Non-executive director (Born: 1958) (Born: 1936) BA LLB (WITS) Neil graduated from the University of the Witwatersrand in 1981 with a BA LLB degree. After completing his articles, he was admitted as an attorney in 1983. He was admitted as an advocate in 1984 and practised at the Johannesburg bar. He was appointed as senior counsel by President Mandela in 1998. He also served as an acting judge. As an advocate, Neil specialised in corporate restructures, mergers and acquisitions and was involved in significant corporate reorganisations both locally and internationally. Upon leaving the profession in 2000 he became a director of Corpcapital Limited where he established and participated in its corporate finance business. Neil discharged both corporate finance and legal mandates in respect of a number of local and international transactions. In 2004 Neil became a legal and corporate finance adviser to Netcare Limited. He advised Netcare on its acquisition of the General Hospital group in the UK in 2006. Neil advised Blue Label Investments on its restructure in 2007 and played an important role in helping the group to achieve its listing in November 2007. Neil continues to render legal and corporate advisory services to the group. He advises the board of directors of a number of listed and non-listed companies on strategic, legal and corporate finance matters. Neil has served on the boards of directors of a number of public and significant non-listed companies. Reitumetse Jackie Huntley Independent non-executive director (Born: 1962) BProc, LLB (WITS) Sidney served on the board of directors for Ellerine Holdings Limited until his retirement. He was also actively involved in the running of his family business, Ellerine Bros. (Proprietary) Limited, a company involved in the private equity and real estate industry. Peter Mansour Non-executive director (Born: 1970) BSc (Economics), Minor in Engineering from the University of California, San Diego Peter began his career at Microsoft in 1995 as a Business and Strategy Analyst for MSN. During this period, he helped transition MSN from an internet access business to an internet portal business. He provided analytical and strategic support for several large acquisitions, including Hotmail and WebTV. In 1998, Peter joined the fledgling Windows CE team, where he served as the GPM for Pocket Outlook for the HandheldPC and PocketPC, which would eventually become Windows Mobile. In 2000, Peter left Microsoft to start Sproqit Technologies, where he served as president and CEO for six years. Sproqit’s patented thin-client architecture increased performance and simplified development for mobile applications. Peter returned to Microsoft in 2006, where, as GM of Strategy and Business Development for the Unlimited Potential Group, he created Microsoft’s emerging markets mobile payment strategy and lead equity investments in Blue Label Telecoms in South Africa and Oxigen Services India in India. Peter currently runs mobile engineering for Microsoft’s emerging market division. Jackie is a practising attorney with the law firm Mkhabela Huntley Adekeye Incorporated. She obtained her BProc and LLB degrees from the University of the Witwatersrand and her Management Advance Programme (MAP) at Wits Business School. Jackie joined Gold Fields of South Africa Limited as a legal adviser in the commercial law department. She subsequently joined Nedbank Limited, where she spent four years. Jackie has extensive experience in commercial and corporate law, including telecommunications law. She also worked extensively with issues pertaining to low cost housing and advised both the Department of Housing and various other institutions in the housing sector on housing policy issues and their legal aspects. Jackie is also a member of the Telkom board. ** Deceased. page 19 SEGMENT HEADS Panagiotis (Pedro) Christofides Chief operating officer: South African distribution BCom, BCompt (UNISA) After completing his accounting articles at Combanis and Associates, Pedro moved into the business world, where he began his career as the owner and manager of eleven retail outlets in the food and beverage industry. In 1998 Pedro founded Comm Express, which quickly grew into a leading distributor of prepaid airtime. Pedro headed up Matragon (holding company of Comm Express) as the chief executive officer. In 2008 Pedro was appointed COO of the South African distribution segment and is responsible for the management, coordination and business activities of this segment. Bradley Turkington Chief operating officer: International distribution BSoc Sci (Finance Hons) (Natal) After completing his postgraduate degree in finance, Bradley became the financial director of a London-based wholesaler. Bradley returned to South Africa after four years abroad and with the international relationships he had established became involved in the South African cellular telephony industry from inception. Bradley served on the local board of a NASDAQ listed company, which was involved in bringing prepaid to South Africa and many other markets. He joined a subsidiary of Matragon as a consultant in March 2006, to expand their international business. Bradley was responsible for formulating Blue Label Investment’s international strategy prior to listing. In November 2007 he was appointed COO of the international distribution segment and is responsible for all the international business operations and initiatives. Dr David Fraser Group chief technology officer BSc(Eng), MSc(Eng), PhD (Natal), CEng(UK), MIET(UK), MIEEE(USA), MSAIEE(SA), MSPE David is a professional engineer who has considerable international and local business experience in telecommunications, IT and associated technologies. After qualifying, David lectured and researched communications at university after which he established a number of successful companies, including a telecoms and broadcasting services company and a scientific consultancy firm. David’s knowhow in the broadband wireless and related businesses has assisted in the establishment and growth of several European and USA-based companies. David became involved at Sentech in South Africa with the development of the country’s first public broadband 3G wireless data network, and joined Blue Label Investments in 2005. Together with Dr Angelo Roussos, David is responsible for the development of integrated core technology solutions for the group, with an emphasis on the conceptualisation and implementation of cutting-edge mobile and media solutions. David is also involved with business development at Blue Label Telecoms and maintaining key relationships with the group’s partners, such as Microsoft. Dr Angelo Roussos Group chief information officer BSc (Lab. Med.), MBBCh (Wits) Angelo became interested in high-speed networking and supercomputing while pursuing a postgraduate medical degree, collaborating on the NSFNet, a precursor to the modern internet. In 1990, he established one of the first companies in South Africa to provide e-mail services, and later the second SA business to provide commercial internet services. With his partners, he created one of the largest ISPs in SA in 1994. In 1998, Angelo left medicine to focus full-time on IP-networking, and he formed InfoSat which was the second company in the world to offer DVB/IP services via satellite. Sentech, the largest signal distributor in Africa, acquired a majority stake in InfoSat. From July 2002 until October 2003, Angelo guided Sentech as group executive: Multimedia Services and was responsible for the technology selection, business strategy and business management of the new multimedia business. Apart from his extensive IPbased telecoms experience, Angelo has engaged in strategic, policy and regulatory representations to the SA government and regulator. Together with Dr David Fraser, Angelo is responsible for ensuring that the group remains ahead of the trend through the development of new and innovative technology solutions, with a focus on the transactional side of the business. Craig Ireland Chief executive officer: Value-added services (Datacel) BCom (Natal) Craig has been in the telecommunication and technology industry for over 16 years, having spent 12 years with Dimension Data, one of South Africa’s largest ITC companies. While at Dimension Data Craig headed up a number of strategic divisions including their call centre division. He spent four years developing the local call centre technology market in South Africa. In 2006 he assisted the Business Trust and the Department of Trade and Industry in the development of a business plan for South Africa’s outsourcing and BPO market. At the same time he established Velociti, a call centre outsourcing business, based in Durban South Africa. Craig is responsible for the group’s national call centre businesses. page 20 CHAIRMAN’S REPORT Larry Nestadt Blue Label Telecoms continues to be well-positioned to exploit the growth in the use of mobile phones in the developing world. Larry Nestadt Chairman Larry Nestadt Chairman page 21 DEAR STAKEHOLDERS developed markets now saturated the developing I am pleased to report on the performance of world will account for most of the growth in Blue Label Telecoms Limited for the year ended mobile penetration in the coming years and 31 May 2009. predicts the number of mobile phones to reach six billion by 2013. Despite operating in a very difficult global economic environment for much of the financial The company aims to deliver prepaid products year, the group’s product and service offerings and services to the unbanked and badly banked. showed resilience to these adverse conditions, Accordingly, it remains focused on growing its which is reflected in the strong growth that was points-of-presence (touch-points) and expanding achieved. its product offerings. Revenue of R15,2 billion (representing a Blue Label Telecoms continues to be well- growth of 18%), increased margins and cash positioned to exploit the growth in the use of flow generation resulted in core net profit of mobile phones in the developing world. R427 million (representing a growth of 15%). Core earnings per share increased from In furtherance of the objectives set out in the 48,40 cents to 55,93 cents. Headline earnings collaboration agreement between Blue Label increased by 19%. Net cash flow generated of Telecoms and Microsoft, we were pleased to R429 million resulted in accumulated cash-on- announce the development and launch of mibli™ hand at year-end of R1,7 billion. This is a strong powered by Microsoft OneApp™. The Microsoft foundation for the servicing of working capital application was launched in South Africa as a requirements and investment opportunities in global first and is in the process of being used the year ahead. as the forerunner for Microsoft’s international rollout. The group’s proprietary services and Further details of the company’s financial transactional technology have been integrated performance is to be found in the chief financial into Microsoft OneApp™. Microsoft intends to officer’s report on page 86. partner with Blue Label Telecoms in the rollout of the initiative in other territories. A special report in The Economist magazine recently noted that in the year 2000 developing Development of in-country money transfer countries accounted for one quarter of the technology has been completed. The company is world’s 700 million mobile phones users. By currently exploring the regulatory and technology the beginning of 2009 developing countries requirements to extend this initiative to cross- had grown this share to three-quarters of the border money remittances. total, which by then had risen to over four billion phones. The Economist further reports that with page 22 CHAIRMAN’S REPORT continued During the year the company made a number of Blue Label Telecoms is in the process of strategic acquisitions and investments. launching a number of group-wide training initiatives aimed at enhancing and developing The group also concentrated on consolidating its priority skills among junior and middle operations. A concerted effort has been made management bands. to achieve group-wide synergies, specifically in terms of new product development, innovation, CORPORATE CITIZENSHIP technology and footprint growth. As a result The Chairman’s Fund remains a major there have been improvements in efficiency, contributor to the company’s goodwill projects. cost-effectiveness and coordination. This process is likely to continue for some time as the four The group invested in a Legacy Park, which is segments of the group are aligned through more focused on providing supervised recreational effective consolidation and integration. facilities for young people with a view to developing skills and leadership qualities. EMPLOYEE SHARE SCHEME The Forfeitable Share Plan was introduced The group remains actively involved in the in November 2008 and will result in Nomonde Children’s Home and provides funding over 400 company employees becoming on a monthly basis. shareholders. In this regard 5,2 million shares were purchased by the company during the Other beneficiaries include The Trust, Feed SA financial year under review and a further and Malamulele Onward, a programme to 4,5 million were purchased subsequent to the support caregivers of children with cerebral year-end, for allocation to employees in the palsy. The sustainability report contains more current financial year. detailed information on our corporate social investment initiatives. Further share allocations are discretionary and performance-related. PROSPECTS The group is poised for further growth and is in TRANSFORMATION AND BBBEE a position to fund its growth both organically and The board continues to embrace South Africa’s acquisitively as a result of its cash resources and codes on transformation and BBBEE. Framework its ability to distribute additional products and policies and guidelines have been developed with services through its distribution network. the objective of enhancing these credentials across the group companies. page 23 APPRECIATION I would like to thank my fellow directors for the contributions they have made over the past year. The board expresses its appreciation to Mark and Brett Levy and their executive team for their entrepreneurial vision, energy and determination. The group also expresses its gratitude to the company’s employees for their hard work and achievements. Sid Ellerine, our friend and colleague passed away in July 2009. Sid made an invaluable contribution to the development of the group. He was respected by all who knew him and will be sorely missed. Larry Nestadt Chairman page 24 JOINT CHIEF EXECUTIVE OFFICERS’ REPORT Mark and Brett Levy – Joint CEOs Our investment in technology and strategic acquisitions will enhance our distribution capabilities, enabling the group to strike an equitable balance between organic and acquisitive growth. Mark and Brett Levy Joint CEOs page 25 South Africa officially entered a recession in mid-2009 resulting in soaring job losses with a consequent decline in consumer affordability. These negative conditions did not have an adverse effect on the performance of the group as a whole. This is attributable to the growing need of consumers to have access to communication in the most affordable and convenient way. A combination of growth in subscribers and the growing need for the group’s bouquet of products has resulted in growth in both revenue and profitability at sustained levels of prepaid average revenue per user (ARPU). This manifested itself in revenue growth of 18% equating to an increase in headline earnings per share of 19%. The above growth was achieved through a combination of the following: • An increase in local and international market penetration • Expansion in the range of prepaid electronic tokens of value and other services facilitated by the group • Additional revenue from annuity income streams • Economies of scale derived from operational and strategic integration. International expansion is of primary importance to the strategy and vision of the group. Various initiatives were launched, including the establishment of Blue Label Mexico, Blue Label USA, Africa Prepaid Services Nigeria and an investment in Ukash, a United Kingdom based company. These initiatives augmented our existing presence in India, Australia, Mozambique and the Democratic Republic of Congo. The significance of the group’s presence in South Africa, together with its growing international footprint, drives the expansion in the range of products and services so as to allow the group to capitalise on its distribution network. Our future product and service offerings include ticketing solutions, prepaid insurance, a single voucher for multiple prepaid products and services, lotto sales from mobile phones and till points and money remittances. Consumers will be able to transact by means of credit/debit cards, bank accounts, cash or Ukash vouchers at their discretion. MICROSOFT Our relationship with Microsoft is an ongoing strategic imperative. We share the common goal of engaging consumers and profiling them more effectively. Access to cutting-edge technology and products enable efficient delivery to the market. “LiveID” will facilitate inter-operability between cellphones and personal computers, providing substantial flexibility as products and solutions become device agnostic. Over the past 18 months, we have worked with Microsoft to deliver the next generation of mobile services to the mass markets of the developing world. mibli™ powered by Microsoft OneApp™, a completely integrated mobile “eco-system” was launched in August 2009. This world first embodies three solutions, namely: • Transactional capability • The mobile services functionality of our subsidiary, the Mobile Services Company (MSC) • Microsoft’s OneApp™ on-phone software. mibli™ powered by Microsoft OneApp™ is free to download and incorporates a wide range of interactive features, such as Facebook, Twitter, miLocate and a mobile wallet. An Apps store is scheduled to be released shortly, which will add to the revenue streams of white labelling, advertising and content downloads. Accessed through a single window in the installations menu of mobile phones, mibli™ powered by Microsoft OneApp™ works on nearly every brand and model of phone. GPRS and Java are the only prerequisites from a functionality perspective. Previously, this level of interactivity was only available on top-of-the-range smartphones. The majority of mobile phones used in South Africa are capable of running mibli™ powered by Microsoft OneApp™. Given the vast number of mobile phones in use, the scale of opportunity to generate additional revenue is substantial in that every user has the ability to access and vend our prepaid products and services through the mobile wallet feature. page 26 JOINT CHIEF EXECUTIVE OFFICERS’ REPORT continued In addition, mibli™ powered by Microsoft OneApp™ offers social networking platforms, which the majority of consumers were not able to access in the past. NEW PRODUCT DEVELOPMENT The mandate is to create and formalise internal product integration processes and develop an internal set of skills, focused on product development. This involves the identification of products which fit and complement the existing prepaid product range. The PowerPin voucher, which is an off-line prepaid electricity top-up, consolidates the purchase of prepaid electricity across national municipalities. The product offering of Cellfind has been enhanced with the introduction of miTRAFFIC, an MMS report on the status of traffic within a 50km radius of the subscriber. Prepaid insurance is our most recent product to enter a pilot phase. We have partnered with Metropolitan’s Cover2Go to offer a range of products, such as funeral and commuter cover. In-country and cross-border remittances will be an important focus in the future. STRATEGIC ACQUISITIONS AND INVESTMENTS Africa Prepaid Services Nigeria In December 2008 Africa Prepaid Services (Proprietary) Limited (APS) concluded a distribution agreement with Multi-Links Telkom Limited, a subsidiary of Telkom South Africa. This agreement embraces the servicing of the entire distribution channel of Multi-Links in Nigeria. Operations successfully commenced in May 2009 and are gaining momentum on a monthly basis. Blue Label Mexico Blue Label Mexico commenced trading operations in May 2009. distribution channels, spanning multi-lane retailers and petroleum forecourts, convenience outlets and informal sales channels. A public telephony launch, in conjunction with SharedPhone and Telefonica (a network provider in Mexico), is currently in pilot phase over a platform of 2 000 units. Virtual Private Network (VPN) In December 2008, Blue Label USA, a wholly owned subsidiary of the group, entered into a limited partnership agreement with wholesale distributors of physical international calling cards. The limited partnership, namely VPN was established with the objective of converting a captive client base from physical to virtual distribution. In July 2009 Blue Label USA withdrew its capital investment in the partnership and replaced it with a technical agreement with Activi, another subsidiary of Blue Label Telecoms. Blue Label USA was refunded its full capital investment in the sum of US$5 million. This technical agreement, which embodies installation of intellectual property, maintenance and support, will result in Activi receiving annual licence fees and transactional fees generated from sales to the country-wide captive base of the wholesalers. Ukash The strategic investment holding in Smart Voucher Limited trading as Ukash has provided the group with technology that enables it to supply the end user with prepaid Ukash vouchers which effectively digitises cash. This voucher enables the customer to transact on-line for multiple products and services through a single prepaid voucher. The Ukash initiative has given the group the ability to provide its products and services to a footprint established by Ukash, covering several countries in Europe. The company is growing the number of points-ofpresence and transactions per site. The Ukash issuing, redemption and settlement platform facilitates integration with third party devices and technology, ensuring rapid deployment and broad-based coverage. Key agreements have been concluded with both mobile operators and important sales channels. In the forthcoming year the company is targeting points-of-presence which will cover a wide range of Ukash has concluded a technology deal with MasterCard “RePower” to be the recharge provider for the launch of the prepaid debit cash loading platform in Europe. page 27 Our medium/long-term strategy is that Ukash will provide consumers with the means to cash-in, utilise cash and cash-out at their own convenience. This business model is aligned with our over-riding purpose of delivering products and services to communities, where such products and services were previously inaccessible. PROSPECTS We are well positioned to grow our footprint organically and through strategic acquisitions. Our global reach provides access to a wide range of prepaid products and value-added services that are viable additions to our existing offering in South Africa and other emerging markets. It is anticipated that revenue will continue to grow organically, not only through the existing product offering, but also through the additional product offerings that have been developed in-house and which are expected to be rolled out across the group’s points-of-presence during the forthcoming year. • The appointment of Oxigen as a service provider of airtime sales in all Nokia branches. The Ukash transaction flow is expected to increase with the advent of high-end redemption merchants that have been added to its client portfolio. Its global issuing footprint will continue to expand into new territories which in turn will compound transactional revenue. Technology partnerships will be pursued in line with the model established in the USA. We constantly strive to increase shareholder value through the expansion of the distribution base and product and service offerings. Expense management and stringent asset management will ensure positive cash flow generation and growth in profitability. We anticipate that our investment in technology and strategic acquisitions will enhance our distribution capabilities, enabling the group to strike an equitable balance between organic and acquisitive growth. The Nigerian distribution initiative is expected to contribute to the growth of our international segment. APPRECIATION Blue Label Mexico is steadily increasing its pointsof-presence and turnover in accordance with its business plan. We also express our sincere gratitude to our executive team and employees for their invaluable contribution to the success of Blue Label Telecoms. There has been an improvement in the financial performance of Oxigen India which is expected to persist. Continued growth in outlets supplied and new initiatives implemented in Oxigen is expected to contribute towards Oxigen’s improvement in the year ahead. These initiatives include the following: • Reduction in monthly expenditure • Consolidation of technology competencies • Improvement of connectivity and reliability of the communications interface • Introduction of prepaid e-toll recharge vouchers • Piloting of prepaid railway ticketing • An agreement with The State Bank of India to pilot the PIN-less top-up of airtime and Oxicash via mobile phones to its consumer base (the integration is complete and testing is underway) • An agreement with Nokia’s Ovi stores to utilise Oxicash as a payment mechanism for all Nokia N-Gage products during the extended warranty period We thank the members of our board for their guidance and leadership. Mark Levy and Brett Levy Joint chief executive officers page 28 SEGMENTAL REVIEWS South African distribution page 29 The subsidiaries encompassing this segment all fulfil specific roles while simultaneously benefiting from the purchasing power and vertical integration of the group. page 30 SEGMENTAL REVIEWS continued South African distribution continued Pedro Christofides Chief operating officer: South African distribution This segment distributes prepaid secure electronic tokens of value (e-tokens) to the South African wholesale and retail consumer markets. The subsidiaries encompassing this segment all fulfil specific roles while simultaneously benefiting from the purchasing power and vertical integration of the group. The Prepaid Company (TPC) Established in 2001, TPC was the original company that spearheaded the group’s entrance into the prepaid airtime industry. It remains the major contributor to group revenue and profitability. TPC supplies virtual and physical e-tokens to all of the major chain stores in South Africa and is a leading distributor of airtime on behalf of all of the major networks. Distribution of all virtual products and starter packs is facilitated by proven technology developed in-house which ensures ultimate efficiency at purchasing, distribution and control levels. Crown Cellular (Crown) Crown trades as a wholesale and retail distributor of physical and virtual prepaid airtime and starter packs, servicing the informal market. Crown operates free-standing stores as well as several kiosks within large independent stores. Its entire inventory is purchased from TPC. page 31 The introduction of prepaid electricity vouchers into the channels serviced by the South African distribution segment, has demonstrated the ability to quickly grow the distribution of additional products to access the segment’s vast footprint. Comm Express Services (CES) CES markets and distributes prepaid airtime through in-house manufactured vending machines. The technology applied to this method of distribution is managed by Activi, the subsidiary of Blue Label Telecoms responsible for technology development, implementation and maintenance. CES also downloads virtual prepaid airtime directly into point-of-sale devices of independent retailers. Cigicell Cigicell is a distributor of virtual prepaid airtime and electricity through a broad network of distribution channels including the forecourts of the major oil companies. Virtual Voucher Distributor of prepaid airtime through an integrated prepaid voucher management system to in excess of 500 Engen petroleum sites nationwide. Kwikpay Distributes virtual prepaid airtime, electricity vouchers and bill payments through multi-application and managed terminal vending solutions and integrated point-of-sale devices. 2008 Revenue* 2009 Revenue 2008 EBITDA* 2009 EBITDA 94,3% 92,9% 97,8% 109,9% *When compared to core pro forma earnings page 32 SEGMENTAL REVIEWS continued South African distribution continued The introduction of RICA The introduction of the Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA) requires the registration of personal details of all South African cell phone subscribers. All new starter pack activations subsequent to 1 August 2009 require such registration. Furthermore, all historically active users of cell phones will have to be registered within eighteen months from that date. Registration is administratively complex and has the potential to slow down activations. As a solution to this, Activi has developed a suite of data collection products that are designed to complement existing point-of-sale devices, enabling registration to be seamlessly implemented. Prepaid electricity The introduction of prepaid electricity vouchers into the channels serviced by the South African distribution segment, has demonstrated the ability to quickly grow the distribution of additional products to access the segment’s vast footprint. Accolades For the fourth year in succession, Blue Label Telecoms has been awarded the Vodacom “Best Channel Partner”. This award is measured on volume, growth, average revenue per user (ARPU) and churn. The group has also been recognised as the number one prepaid distribution channel partner of Telkom for the past five years. page 33 For the fourth year in succession, Blue Label Telecoms has been awarded the Vodacom “Best Channel Partner”. This award is measured on volume, growth, average revenue per user (ARPU) and churn. PROSPECTS It is anticipated that revenue will continue to grow organically, not only through the existing product offering, but also through the additional product offerings that have been developed in-house and which are expected to be rolled out across the group’s points-ofpresence during the forthcoming year. These initiatives include: • A technical arrangement with Gidani, the licensed operators of Lotto in South Africa to integrate their products into till points and other distribution channels • Prepaid electricity distribution contracts with additional municipalities • The introduction of off- line prepaid top-up electricity that will complement the current on-line top-up facility that is currently being offered • Prepaid bus ticketing • Money remittances throughout the group’s touch points. page 34 SEGMENTAL REVIEWS continued International distribution page 35 The overall strategy is to ensure growth in the group’s global presence through a combination of establishing “bricks and mortar” operations in selected markets, entering into strategic partnerships and providing technology licences to third parties. page 36 SEGMENTAL REVIEWS continued International distribution continued Bradley Turkington Chief operating officer: International distribution During the period under review Blue Label Telecoms considered several international opportunities and potential investments. This culminated in the launching of Blue Label Mexico, Africa Prepaid Services Nigeria and investments into the United States of America and the United Kingdom, augmenting the group’s presence in India, Australia, Mozambique and the Democratic Republic of Congo. The overall strategy is to ensure growth in the group’s global presence through a combination of establishing “bricks and mortar” operations in selected markets, entering into strategic partnerships and providing technology licences to third parties. Blue Label Mexico Blue Label Mexico commenced trading operations in May 2009. Technology developed by Activi has enabled the company to facilitate on-line real time direct recharge of prepaid accounts. The company is growing the number of points-of-presence and an increase in the average number of transactions per site. A number of key agreements have been concluded with both mobile operators and important sales channels. In the forthcoming year the company is targeting points-of-presence which will cover a wide range of distribution channels, from multi-lane retailers and petroleum forecourts, to convenience outlets and informal sales channels. page 37 The Ukash initiative has given the group the ability to provide its products and services to a footprint established by Ukash, covering several countries in Europe. Africa Prepaid Services Nigeria In December 2008 Africa Prepaid Services (Pty) Limited concluded an agreement with Multi-Links Telkom Limited a subsidiary of Telkom South Africa, to service all of their distribution channels in Nigeria. Operations successfully commenced in May 2009. APS Nigeria is expected to be the major contributor to revenue and profits for the African initiative of Blue Label Telecoms. Virtual Private Network In December 2008, Blue Label USA, a wholly owned subsidiary of the group, entered into a limited partnership agreement with wholesale distributors of physical international calling cards. The objective of this new venture was to convert a captive client base from physical to virtual distribution. This conversion would be powered by the virtual distribution technology developed by Activi. In July 2009 Blue Label USA chose to withdraw its capital investment in the partnership and to replace it with a technical agreement with Activi, another subsidiary of Blue Label Telecoms. Blue Label received a refund of its capital investment in the sum of $5 million. This technical agreement, which embodies installation of intellectual property, maintenance and support, will result in Activi receiving annual licence fees and transactional fees generated from sales to the country-wide captive base of the wholesalers. The effect of this transaction is to afford the Blue Label group access to the footprint of the client base of the wholesale distributors. Ukash The strategic investment holding in Ukash has provided the Blue Label group with technology that enables it to supply the end user with prepaid Ukash vouchers which effectively digitises cash. This voucher enables the customer to transact on-line for multiple products and services through a single prepaid voucher. 2008 Revenue* 2009 Revenue 2008 EBITDA* 2009 EBITDA 3,9% 4,8% 5,2% 1,1% *When compared to core pro forma earnings page 38 SEGMENTAL REVIEWS continued International distribution continued The Ukash initiative has given the group the ability to provide its products and services to a footprint established by Ukash, covering several countries in Europe. The Ukash issuing, redemption and settlement platform facilitates integration with third party devices and technology, ensuring rapid deployment and broad-based coverage. Ukash has concluded a technology deal with MasterCard “RePower” to be the recharge provider for the launch of the prepaid debit cash loading platform in Europe. Oxigen India Although Oxigen India has not as yet turned to profitability, a combination of continued growth in outlets supplied and new initiatives resulted in an improvement towards the end of the financial year under review. These initiatives include the following: • Reduction in monthly expenditure • Consolidation of technology competencies • Improvement of connectivity and reliability of the communications interface • Introduction of prepaid E-Toll recharge vouchers • Piloting of prepaid railway ticketing • Agreement with The State Bank of India to pilot the PIN-less top-up of airtime and Oxicash via mobile phones to its consumer base (the integration is complete and testing is underway): • An agreement with Nokia’s Ovi stores to utilise Oxicash as a payment mechanism for all Nokia N-Gage products during the extended warranty period • The appointment of Oxigen as a service provider of airtime sales in all Nokia branches. Content Connect Australia This company was established as an aggregator of localised content to mobile operators and third-party clients. It is the intention to enhance the range of products distributed by the company in order to encompass all the e-tokens of value that comprise the bouquet of products and services that Blue Label Telecoms affords to customers globally. Democratic Republic of Congo The negative economic climate in the DRC has necessitated a restructure of the business model. Operating costs have been reduced in line with the elimination of an element of the product offering. page 39 The current mobile penetration level of 45% in Nigeria augurs well for potential future growth, considering that most established markets have penetrations in excess of 100%. Mozambique APS Mozambique established five additional branches. This initiative together with an escalation in starter pack activations resulted in improved margins emanating from additional volume discounts from the networks. SharedPhone International SharedPhone operates a SIM-card mobile payphone solution that allows vendors in rural areas – including other African countries – to offer consumers access to a public payphone and the means to vend prepaid airtime and prepaid electricity. The company has penetrated several international markets over the past year (with particular success in Africa) by: • becoming the leading connector of CST payphones in South Africa; • concluding an exclusive rollout in Rwanda with the leading GSM network; • pioneering in Liberia as the first GSM PayPhone supplier; and • making notable inroads in Mozambique. The company has successfully implemented pilot operations with Blue Label Mexico, positioning itself for expansion into Latin America in 2010. PROSPECTS Africa Prepaid Services is expected to contribute significant growth to the international segment primarily through its strategic 51% shareholding in Africa Prepaid Services Nigeria. The current mobile penetration level of 45% in Nigeria augurs well for potential future growth, considering that most established markets have penetrations in excess of 100%. Blue Label Mexico is steadily increasing its points-of-presence and turnover in accordance with its business plan. There has been an improvement in the financial performance of Oxigen India which is expected to continue. Ukash will provide consumers with the means to cash-in, utilise cash, and cash-out at their own convenience. The current economic climate has seen an increased acceptance of the prepaid model, even in developed markets. Ukash is well positioned to exploit this trend. Technology partnerships will be pursued in line with the model established in the USA. page 40 SEGMENTAL REVIEWS continued Technology page 41 The aim is to provide one central hosting facility for the South African business and a blueprint for international hosting, with a local, decentralised field support team. page 42 SEGMENTAL REVIEWS continued Technology continued Angelo Roussos Chief information officer The technology platforms segment houses all group companies which focus on the development, integration and management of the group’s IT systems, infrastructure and technology solutions. The group’s technology includes “business-to-business” and “direct-to-consumer” solutions. BUSINESS-TO-BUSINESS TECHNOLOGY SOLUTIONS Activi Technology Services (Activi) Activi develops, operates and maintains all core transactional and service platforms for the group. As such, focus is on providing: • Secure financial transactions • Secure e-tokens • Support and field support • Hosting/management of IT infrastructure • Manufacturing and maintenance. page 43 Activi remains focused on the development and support of commercially viable and functionally rich transaction engines that provide robust and stable platforms. During the past year, significant progress has been made in the following key areas: • Consolidation, management and enhancement of the technology platforms throughout the group • Integration of Lottery dispensers, on behalf of Gidani, into till points, allowing consumers to purchase “Quick Picks” when paying for other goods • Development and implementation of a mobile application facilitating the purchase of lottery numbers via cell phones • Integration of live bill payments into point-of-sale devices • Development of mobile services technologies, in association with Microsoft. DIRECT-TO-CONSUMER TECHNOLOGY SOLUTIONS Blue Label One, trading as the Mobile Services Company (MSC) MSC consists of divisions that offer business-to-business and direct-to-consumer products and services: • The direct-to-consumer division consolidates all products and services associated with mibli™ powered by Microsoft OneApp™ • An m-Commerce division provides a mobile wallet, which is a feature of mibli™ powered by Microsoft OneApp™ • MSC Media is the mobile advertising division. The group’s physical and virtual prepaid airtime inventory and distribution channels constitute valuable marketing space for certain brands and provide an innovative revenue stream for the group. 2008 Revenue* 2009 Revenue 2008 EBITDA* 2009 EBITDA 0,2% 0,1% (2,28%) (8,5%) *When compared to core pro forma earnings page 44 SEGMENTAL REVIEWS continued Technology continued Dr David Fraser Chief technology officer mibli™ powered by Microsoft OneApp™ which was launched post year end, is the group’s most advanced on-phone service, aimed at the “mobile generation”. The group is uniquely positioned to leverage its global transactional experience and footprint to enable mibli™ powered by Microsoft OneApp™ to become a revenue-based, transaction-centric mobile services “eco-system”, in which many different products/ services are combined in one mobile interface, supported by a single, integrated back-end. MSC’s systems and technology platforms have the capacity and capability to support the mobile service requirements of Blue Label Telecoms, as well as any third-party client. The MSC eco-system and Activi’s transaction system are integrated and supply the group’s products and transactional services through the mobile channel. PROSPECTS Activi remains focused on the development and support of commercially viable and functionally rich transaction engines that provide robust and stable platforms. It strives to optimise the group’s technology investments, while standardising deployment processes, templates and methodologies. page 45 mibli™ powered by Microsoft OneApp™ is the group’s most advanced on-phone service, aimed at the “mobile generation”. The aim is to provide one central hosting facility for the South African business and a blueprint for international hosting, with a local, decentralised field support team. This model drives the group objective of increasing points-of-presence and footprint globally. Once the mibli™ powered by Microsoft OneApp™ App store is operational, significant interest from developers and advertisers is anticipated. South Africa is the first emerging market to launch mibli™ powered by Microsoft OneApp™. The group anticipates partnering with Microsoft in launching the application in other emerging markets in due course. page 46 SEGMENTAL REVIEWS continued Value-added services page 47 Specialises in telemarketing of cellular products and various financial services instruments and provides inbound customer care and technical support. page 48 SEGMENTAL REVIEWS continued Value-added services continued Craig Ireland Chief operating officer: Value-added services (Datacel) The value-added services segment houses all group companies that are broadly aligned with the South African information and communication technologies (ICT) industry. Datacel Datacel is a national business process outsourcing company, operating both inbound and outbound call centre services. During the year under review these functions are delivered through its subsidiaries Velociti, CNS and Blue Label Call Centre. It specialises in telemarketing of cellular products and various financial services instruments and provides inbound customer care and technical support. Services are provided for third parties and several companies within the Blue Label group. The outbound call centre insurance business underperformed, resulting in the consolidation of three call centres into two. Blue Label Call Centre was consequently closed post year-end. The Velociti Call Centre has expanded its cellular contract telemarketing area and inbound capabilities. This division has performed well. The outbound direct selling model continues to have good growth prospects as companies develop more products and services for the emerging income groups which are sold through the call centres. Cellfind Cellfind remains focused on delivering annuity income-driven location-based services via Vodacom and MTN, as well as providing WASP services. page 49 Cellfind remains focused on delivering annuity incomedriven location-based services via Vodacom and MTN, as well as providing WASP services. Key drivers of success are: • Network operator performance • Co-marketing opportunities • Uptake of new services • New value-added location-based services • Extended WASP service offerings • Extended white label offerings. In May 2009, the company expanded its product offering with the launch of miTRAFFIC, an MMS report on the traffic situation within a 50km radius of the cellphone subscriber. GuardMe, a mobile safety alert, was added to the MTN 2MyAid and Vodacom Look4Me emergency services. Further corporate and consumer location-based services and information products are scheduled for launch during the forthcoming financial year. Content Connect Africa (CCA) CCA is an aggregator of on-portal and off-portal localised content for mobile operators and third party clients throughout Africa. Additional offerings include the conceptualisation, production and execution of digital marketing campaigns on behalf of the major cellular networks in South Africa. PROSPECTS The predominantly outbound call centres are constantly procuring additional product offerings to the databases that they communicate with, utilising the existing infrastructure of call centre seats to achieve additional revenue. Additional location based services that were introduced in the latter part of the financial year-end 2009 are expected to gain momentum over a full year cycle. The company is exploring the introduction of value-added services in territories outside South Africa. 2008 Revenue* 2009 Revenue 2008 EBITDA* 2009 EBITDA 1,6% 2,2% 10,75% 13,2% *When compared to core pro forma earnings page 50 CORPORATE GOVERNANCE INTRODUCTION The group continues to develop its governance policies and procedures in line with an integrated governance, risk and compliance framework. The board regards corporate governance as fundamentally important to the success of the company’s business and is unreservedly committed to applying the principles of good corporate governance in the management of the company. The board is the focal point of the governance system and is ultimately accountable and responsible for the performance and affairs of the company. The board exercises leadership, integrity and sound judgement in directing the company to enable it to achieve its objectives and goals. GOVERNANCE APPROACH AND COMPLIANCE Blue Label Telecoms is committed to the governance principles of the Code of Corporate Conduct set out in the King Report on Corporate Governance – 2002 (King II). Standards of disclosure have increased significantly and internal governance structures have been reviewed and improved to reflect the principles of King II. This has occurred at both board and subsidiary level. The directors believe that Blue Label Telecoms has complied with all material aspects of King II during the year under review. In applying the governance principles of King II the company follows a principle-based approach rather than a rules-based approach. Accordingly this governance review is based on the “comply or explain” principle. BOARD STRUCTURE AND BOARD COMMITTEES Board composition Blue Label Telecoms is headed by a unitary board that leads and controls the company. The board comprised 13 directors: four executive directors and nine non-executive directors, five of whom are independent. The board composition provides a balance of power to ensure that no one individual has undue influence and that the interests of shareholders are protected. The balance between executive, non-executive and independent nonexecutive directors in the board composition allows for appropriate and efficient decision-making. There is a clear division of responsibilities between the executive responsibility for the running of the company’s business and the leadership of the board. The chairman of Blue Label Telecoms is an independent non-executive director. It was with deep sadness that Blue Label Telecoms announced the passing of Mr Sidney Ellerine on Friday, 17 July 2009. Mr Ellerine provided significant leadership and direction to the board and to executive management and always conducted himself with the utmost integrity and highest regard for the interests of the company. All directors are subject to retirement by rotation every three years. At the first annual general meeting of the company all directors were required to retire by rotation. The shareholders resolved at the annual general meeting held on 12 November 2008 that all the directors be reappointed. The articles of association require that one third of the directors retire by rotation each year but are eligible for re-election by the shareholders. The detailed categorisation of the directors as well as a brief curriculum vitae of each director appear on pages 16 to 18 of this report. Board responsibilities and charter The board’s primary responsibilities include determining the company’s purpose and values and giving strategic direction to the company. This involves, but is not limited to, identifying key risk areas and key performance indicators of the company’s business, monitoring the performance of the company against agreed objectives including transformation goals, advising on significant financial matters and reviewing the performance of executive management against defined objectives and, where applicable, industry standards. page 51 A board charter has been adopted by the board, the salient points of which are set out below. The charter aims to: • provide an overview of the parameters within which the board operates; • ensure the application of the core principles of integrity, transparency, accountability and responsibility in all dealings by, in respect and on behalf of, the company; • set out the specific responsibilities to be discharged by board members collectively, as well as the roles and responsibilities incumbent upon directors as individuals; and • provide an overview of the policies and practices of the board with regard to matters such as board governance, dealings by directors in securities, disclosure and conflicts of interest, board meeting documentation and proceedings and the nomination, appointment, induction, training and evaluation of directors and members of board committees. Key features of the charter include: • the roles of the chairman, joint chief executive officers and individual board members • board composition (including qualifications and key competencies for board membership) • disclosures of interest with a view to avoiding and managing conflicts • remuneration of board members • director orientation, induction and training • the role of the board (including the adoption of strategic plans and monitoring of operational performance and management) • board governance (including board, strategic and committee meetings) • matters reserved for the board and its committees, including the approval of: – group objectives, strategy, strategic financial plans, business plans and annual budgets and the monitoring of performance against agreed criteria; • • • • – annual financial statements, interim reports and related financial matters; – appointments to and removals from the board including chairman, joint chief executive officers, executive and non-executive directors; – delegations of authority – board committee mandates, authorities and membership; – adoption of any significant change in the accounting policies and practices of the company; – the making of any political, religious or charitable donations; – the adoption of appropriate risk management and internal control strategies share-dealing procedures internal audit and controls stakeholder communications board/individual director performance evaluation Board procedure and related matters The board retains full and effective control over the organisation and monitors executive management’s implementation of approved plans and strategies. The board meets quarterly and additional board meetings are convened as circumstances dictate. Where directors are unable to attend meetings personally, teleconferencing facilities are made available to enable their participation. All directors are entitled to liaise with the company secretary in regard to items on the agendas for board meetings. Management ensures that all relevant information and facts are provided to board members timeously to enable them to make informed decisions. Board agenda and meeting structures have been adapted to focus on performance monitoring, strategy, risk management and internal controls, governance and related matters. This ensures constructive discussion and efficient decision-making. page 52 CORPORATE GOVERNANCE continued The number of meetings held during the year under review and the attendance of the directors are detailed below: Attendance at meetings Director Aug Oct¹ Oct¹ Nov Jan Feb LM Nestadt (Chairman) P P A P P P BM Levy P A P P P P MS Levy P P P P P P S Ellerine P P A P P A GD Harlow P P P P P P RJ Huntley P P P P P P NN Lazarus SC P P P P P P P Mansour³ P² A P P P A JS Mthimunye P P P P P P MV Pamensky P P P P P P DB Rivkind P P P P P P HC Theledi P P P P A P LM Tyalimpi P A P P P P Legend: (P) Attendance (A) Apologies submitted and leave of absence granted ¹ Special board meetings held on the 13th and 28th of October ² Alternate director to Peter Mansour attended in person ³ Peter Mansour is based in United States of America and attended board meetings via teleconference Directors and director appointments The non-executive directors bring leadership, judgement and insight to the board. They are individuals of high calibre and integrity and provide a depth of wisdom based on knowledge and experience on a wide range of issues. Non-executive directors have access to management and may meet separately with management without the attendance of executive directors. The directors are empowered to obtain independent professional advice, at the group’s expense, should they deem it necessary to do so. The board, with the support of the Remuneration and Nomination Committee, ensures that it collectively contains the skills, experience, diversity in demographics and mix of personalities appropriate for the strategic direction of the company and necessary to secure its sound performance. Directors are selected and appointed by the board based on the recommendation of the Remuneration and Nomination Committee. The non-executive directors have no fixed term of appointment and no service contracts with the group. Their fees are independent of the group’s financial performance and they receive no bonuses and do not participate in the company’s Forfeitable Share Plan. Executive directors are bound by a three-year employment contract which commenced in November 2007. The contracts may be renewed on expiration thereof for a further three-year period. To avoid conflicts of interest, board members must disclose their interests in material contracts involving the group, their shareholdings in Blue Label Telecoms, as well as any other directorships. Board members are required to make appropriate disclosures when participation in deliberations or decision-making processes could in any way be affected by vested interests and, if the circumstances require, must recuse themselves from participation. Board performance assessment The first evaluation exercise comprising a board self-evaluation and director peer review was completed in 2009. This self-evaluation focused, page 53 as the first evaluation exercise, on the board as a whole and how the board discharges its duties and responsibilities. The results were collated in terms of board role, size and composition, independence of the board and its committees, board teamwork and management relations, board and committee meetings, director orientation and development, compensation of directors, succession planning, ethics and constituencies. The overall findings of the assessment are summarised as being “satisfactory” with the overall grading for board and committee meetings being “consistently good”. The areas for improvement have been identified and will be addressed during the ensuing financial year. The chairman performs an annual review of individual non-executive directors. The purpose of the director peer review is to evaluate individual director performances and the performance of fellow directors on the board. The outcome of the aforementioned process is discussed individually between the respective non-executive directors and the chairman. The chairman presents his findings to the Remuneration and Nomination Committee to make the appropriate recommendations to the board. The board as a whole considers the recommendations of the Remuneration and Nomination Committee. Board committees The board has established a number of boardappointed committees to assist them in discharging their duties and responsibilities. The responsibilities delegated to each board committee are formally documented in board-approved terms of reference. There is transparency and full disclosure from board committees to the board via the subcommittee chairman’s report to the board on recent committee activities as well as inclusion of the committee minutes in the board pack. Board committees are empowered to take independent professional advice as and when deemed necessary. The board recognises that it is ultimately accountable and responsible for the performance and affairs of the group and that the appointment of board committees and delegation of authority to these committees, in no way absolves the board and its directors of the obligation to carry out their duties and responsibilities. The membership and principal functions of the committees are set out below. The board is of the view that the committees effectively discharged their responsibilities as contained in their respective terms of reference. Audit, Risk and Compliance Committee (ARCC) The functions of the Audit and Risk Management Committee were increased by the board during the period under review to include compliance management. In this regard the committee name was changed to the ARCC. Members: JS Mthimunye (Chairman), GD Harlow, LM Tyalimpi Composition and meeting procedures: All the members of the ARCC are independent nonexecutive directors as defined in the Corporate Laws Amendment Act, 2006 (CLAA). Mandatory attendees of the ARCC include the joint chief executive officers, chief financial officer, chief financial officer of TPC, the major subsidiary of Blue Label Telecoms, the senior audit partner from PricewaterhouseCoopers Inc. and the head of the outsourced internal audit function from KPMG Services (Proprietary) Limited. The quorum for an ARCC meeting is two members present throughout the meeting. The ARCC meets quarterly and at every meeting the external and internal auditors have an opportunity to have separate private discussions with the ARCC. The internal and external auditors have unrestricted access to the chairman of the ARCC. Committee agendas are planned in accordance with the yearly meeting plan to ensure that the committee considers all relevant matters pertaining to internal controls, internal audit, external audit, financial policies and reporting, risk management and compliance. page 54 CORPORATE GOVERNANCE continued Mandate: The committee is specifically mandated to perform the functions required under section 270A(1) of the CLAA and the recommendations of the King Report on Corporate Governance for South Africa, on behalf of the group. In this regard the committee supported the formation of an Internal Risk and Compliance Committee to assist it in discharging its duties and responsibilities with regard to the subsidiary companies by collating and recording the information that the committee requires to perform its duties. Role and functions: The ARCC assists the board in discharging its duties relating to the safeguarding of assets, the operation of adequate systems and internal controls, the preparation of accurate financial reporting in compliance with all applicable legal requirements and accounting standards, the responsibility and authority of the risk management function within the group as well as monitoring the group’s compliance with its legal and regulatory obligations. Responsibilities of the ARCC set out in its terms of reference include: • dealing with matters pertaining to the group’s financial statements and reporting of interim and final results, the accompanying message to stakeholders and any other announcements regarding the company’s results or other financial information to be made public; • monitoring and supervising the effective function of internal audit, including the review and/or approval of the internal audit charter, internal audit plans, reports and findings; • reviewing and assessing the integrity of the risk control environment of the group to ensure that all risks to which the group are exposed are identified and managed; • considering and making recommendations to the board with regard to the appointment, re-appointment and removal of the company’s external auditors as well as fees payable to such auditors; • reviewing and/or approving external audit plans, findings and reports; • considering whether any non-audit services rendered by the external auditors substantively impairs their independence; • evaluating the independence and effectiveness of the external auditors; • monitoring compliance by the group with relevant laws, regulations, policies and procedures and ensuring that compliance is managed and reported in accordance with the Internal Audit Charter. The audit committee confirms that it has carried out its functions in terms of the CLAA by: • nominating the appointment of PricewaterhouseCoopers Inc. (PWC) as the group’s registered independent auditor after satisfying itself through enquiry that PWC and Mr Eben Gerryts, the designated auditor, are independent of the company; • approving the terms of engagement and fees to be paid to PWC; and • determining the nature and extent of any nonaudit services which the external auditors may provide to the company. The non-audit services rendered by the external auditors during the 12-month period ended 31 May 2009 consist of tax advisory services, tax compliance services, due diligence work and accounting advisory services. The fees applicable to the aforementioned services amounted to R4,4 million in total. Prohibited non-audit related services include: • performing any internal audit or internal audit outsourcing services to Blue Label Telecoms or any of its relevant subsidiaries; • performing any valuations on any business assets of Blue Label Telecoms, or any of its relevant subsidiaries for which the external auditors will be required to subsequently issue an audit opinion. In accordance with paragraph 3.84(h) of the JSE Limited Listings Requirements, the committee considered the appropriateness of the expertise and experience of the financial director of the company. The ARCC was satisfied that David Rivkind, chief page 55 financial officer of Blue Label Telecoms, possesses the appropriate expertise and experience to meet his responsibilities in that position. Attendance at meetings Members (and invitees) July Aug Nov Feb JS Mthimunye (Chairman) P P P P GD Harlow P P P P LM Tyalimpi A P A P BM Levy^ A P P P MS Levy^ A P A P DB Rivkind^ P P P P DA Suntup^ A P P P Legend: (P) Attendance (A) Apologies submitted and leave of absence granted ^Attends by invitation and is not a member of the committee The internal and external auditors, in their respective capacities, attended and reported at all meetings of the ARCC. Remuneration and Nomination Committee (RNC) Members: NN Lazarus SC (Chairman), GD Harlow, RJ Huntley, S Ellerine Composition and meeting procedures: All members of the RNC are non-executive directors. The joint chief executive officers and chief financial officer attend meetings by invitation, but do not participate in discussions and decisions regarding their own remuneration and benefits. The chairman, at his discretion, may invite other executives or employees to attend and to be heard at meetings of the committee. Meetings are held at least twice a year. The quorum for an RNC meeting is two members present throughout the meeting. Mandate: To assist the board in fulfilling its responsibilities in respect of maintaining an appropriate remuneration strategy, ensuring the directors and senior executives are fairly rewarded, providing for succession planning, assessing the effectiveness of the composition of the board and evaluating the board and individual directors’ performance. Role and functions: Some of the responsibilities of the RNC is to: • determine and agree with the board the framework or broad policy for the remuneration of the executive directors, non-executive directors and such other members of the executive management as it is designated to consider; • review, for recommendation to the board, the design of, and targets for, any performance related pay schemes operated by the company and to approve the total annual payments made under such schemes; • review the design of all share incentive plans for approval by the board and shareholders and to determine each year whether awards will be made, and if so, the overall and individual amounts of such awards; • make recommendations to the board regarding the remuneration of non-executive directors for final approval by the shareholders; • identify and nominate candidates for the approval of the board to fill vacancies as and when they arise; • make recommendations to the board concerning the: – formulation of succession plans for both executive and non-executive directors and in particular, for the key roles of chairman and chief executive officer; – appointment of new executive and non-executive directors, including making recommendations on the composition of the board and the balance between executive and non-executive directors and any adjustments that are deemed necessary; – reappointment of any director under the “retirement by rotation” provisions of the articles of association, having due regard to their performance and ability to continue to contribute to the board in light of the knowledge, skills and experience required. page 56 CORPORATE GOVERNANCE continued Attendance at meetings Attendance at meetings Members (and invitees) Jun Aug Sept NN Lazarus SC (Chairman) P P P S Ellerine P P GD Harlow P P Members (and invitees) Jun¹ Jun¹ Sept² Sept² Nov P GD Harlow (Chairman) P P P P P P S Ellerine P P P P P P P P P P RJ Huntley P P P D Hilewitz BM Levy^ A A A NN Lazarus SC P A P P P MS Levy^ A A A BM Levy A P P P P DB Rivkind^ P A A MS Levy P P A P P JS Mthimunye A P A A A MV Pamensky P P A P P DB Rivkind P P P P P DA Suntup P P A P P HC Theledi A P P P P Legend: (P) Attendance (A) Apologies submitted and leave of absence granted ^Attends by invitation and is not a member of the committee Investment Committee (IC) Members: GD Harlow (Chairman), NN Lazarus SC, HC Theledi, JS Mthimunye, S Ellerine, BM Levy, MS Levy, MV Pamensky, DB Rivkind, DA Suntup and D Hilewitz Composition and meeting procedures: The IC comprises an equal number of executive and nonexecutive directors. Meetings are held at least four times per year. The quorum for an IC meeting is four members, of which two are executive and two nonexecutive, present throughout the meeting. Mandate: To review, consider and approve proposed acquisitions and investments of Blue Label Telecoms and its subsidiaries in accordance with the limits of authority as defined by the board. Role and functions: The responsibilities of the IC include: • the review of acquisitions and investments made by the executive committee in accordance with the authority granted to it by the board; • the review, consideration and approval of acquisitions and investments of the group ranging between R20 million and R100 million; • making recommendations to the board on acquisitions and investments of the group above R100 million; • reviewing the performance of investments made. Legend: (P) Attendance (A) Apologies submitted and leave of absence granted ¹ Two committee meetings held in June 2008 on the 1st and 12th respectively ² Two committee meetings held in September 2008 on the 16th and 26th respectively Transformation Committee (TC) Members: RJ Huntley (Chairman), S Ellerine, LM Tyalimpi, BM Levy, DB Rivkind (alternate to BM Levy) Composition and meeting procedure: The committee comprises at least three members with a majority being non-executive directors. The quorum for a TC meeting is two members of the committee present throughout the meeting. Meetings are held at least two times per year. The chairman, at her discretion, may invite other executives or employees to attend and to be heard at meetings of the committee. The group human resource and transformation manager is a mandatory attendee of the TC meetings. Mandate: To develop framework policies and guidelines for the management of transformation issues including affirmative procurement, enterprise development, employment equity, human resource development, social development matters and ensuring their progressive implementation throughout Blue Label Telecoms and its subsidiaries. page 57 Role and functions: The responsibilities of the TC include: • developing a transformation framework and policy; • monitor and oversee the implementation of the transformation framework and policy; • oversee the BBBEE accreditation process of the group and monitor the group’s compliance with the dti Codes of Good Practice. Attendance at meetings Members (and invitees) Aug Nov Feb RJ Huntley (Chairman) P P P S Ellerine P P P BM Levy A P P¹ LM Tyalimpi A P P I Hindley^ P P P Legend: (P) Attendance (A) Apologies submitted and leave of absence granted ¹ David Rivkind as alternate to Brett Levy attended in person ^Attends by invitation and is not a member of the committee Executive Committee (Exco) and the Strategy Implementation Committee Members: MS Levy (Chairman), BM Levy, MV Pamensky, DB Rivkind Composition and meeting procedure: Exco meetings take place on a weekly basis. The chief financial officer of TPC, a major subsidiary of Blue Label Telecoms and the group legal adviser, attend Exco meetings by invitation. Mandate: Exco is responsible for managing and monitoring the business affairs of the company in line with board-approved plans, budgets, delegations and limits of authority, prioritising the allocation of capital and other resources and establishing best management and operating practices. Exco is also mandated, empowered and held accountable for implementing the strategies, business plans and policies determined by the board. In assisting Exco with the implementation of strategies, business plans and policies throughout the group, a Strategic Implementation Committee (SIC) was established. The SIC meets monthly and comprises 15 members, which include the Exco members, the chief information officer, the chief technology officer, senior managers of the group responsible for the four organisational segments, as well as the heads of product development and commercial product offerings. The role and function of the SIC include: • assisting Exco with group strategy and direction; • responsibility for implementing board decisions regarding strategy and direction throughout the group; • ensuring all subsidiaries, associates and partners are aligned and striving to achieve the same goals and objectives; • ensuring that correct and consistent information is conveyed to all customers and suppliers; • ensuring that the group is functioning as one combined company; • implementing the group’s values and mission. COMPANY SECRETARY All directors have access to the advice of the group company secretary and may liaise with the group company secretary on agenda items for board meetings. The company secretary provides guidance to the board as a whole and to individual directors with regard to their responsibilities and plays a pivotal role in ensuring compliance with procedures and applicable statutes and regulations. Responsibilities of the group company secretary, include inter alia: • induction of new or inexperienced directors; • assisting the chairman and joint chief executive officers in determining the annual board plan; • assisting with other strategic issues of an administrative nature; • facilitating full and timely access by directors to all information such as corporate announcements, investor communications and other developments which may affect Blue Label Telecoms or its operations; • acting as a central source of guidance on matters of ethics and governance. The group company secretary is furthermore responsible for the functions specified in section 268(G) of the Companies Act No 61 of 1973, as amended (the Act). All meetings of shareholders, directors, and board subcommittees are properly page 58 CORPORATE GOVERNANCE continued recorded as per the requirements of section 242 of the Act. The removal of the group company secretary is a board decision. RISK MANAGEMENT The board has committed Blue Label Telecoms to a process of risk management that is aligned to the principles of King II. The features of this process are outlined in the Blue Label Telecoms Enterprise Wide Risk Management Policy Framework (risk framework). The risk framework is applicable to the entire Blue Label Telecoms group. This enterprise wide approach adopted by the company, means that every risk in the group will be identified, assessed and monitored in a structured and systematic process of risk review and management. Management is accountable to the board for designing, implementing and monitoring the process of risk management and integrating it into the day-to-day activities of Blue Label Telecoms. In this regard, management established an Internal Risk and Compliance Committee (IRC) to identify, evaluate and measure group-wide risks and compliance in all functional areas and to implement and maintain adequate internal controls. The IRC is chaired by the chief financial officer of Blue Label Telecoms and reports directly to the ARCC at the quarterly meetings. The members of the IRC comprise the senior managers of the group responsible for the four organisational segments as well as the heads of product development and commercial product offerings, the group legal adviser, group company secretary and group human resource and transformation manager. The head of external audit and the head of the outsourced internal audit function also attend the IRC meetings. The IRC has conducted group-wide risk assessments to identify and prioritise major risks in accordance with the impact and likelihood of these risks. In line with the group’s risk framework the potential impact of the risks are quantified on a five point scale comprising catastrophic, critical, serious, significant and minor/insignificant. Risks are then further quantified in terms of the probability of occurrence in accordance with probability factors, namely; almost certain, likely, possible, unlikely and rare. Internal controls to mitigate the identified risks are evaluated to establish the appropriateness and adequacy of the existing controls to ensure that they perform the required risk mitigation. Management decides on the acceptance of the identified risk or exposure and, if considered high, an action plan and timeframe are put in place to reduce the level of risk to a more acceptable level. INTERNAL AUDIT AND CONTROL The Blue Label Telecoms internal audit function is an integral part of the group, and functions under the internal audit charter approved by the board. Internal audit is responsible to both the board and management, providing them with reasonable assurance regarding the effectiveness of the group’s governance and risk management processes as well as systems of internal control. The Blue Label Telecoms internal audit function is outsourced to KPMG Services (Proprietary) Limited (KPMG). The activities of the internal audit function as detailed in the approved internal audit charter, include but are not restricted to: • evaluating the effectiveness of controls over the reliability and integrity of information for management purposes, with particular emphasis on financial information; • ascertaining the level of compliance with policies, plans, procedures, laws and regulations; • assessing the adequacy of controls to safeguard assets, including intangible assets; • appraising the economy and efficiency with which resources are employed; • reviewing operations to ascertain whether established objectives and goals are being achieved as planned; and • assisting management in identifying business risks and assessing the adequacy of their risk management processes. During the period under review, KPMG Internal Audit, Risk and Control Services (IARCS), performed an internal audit over the corporate governance and human resource and payroll processes of Blue Label Telecoms. Both of these risk-based audits were assigned an overall “acceptable rating”, meaning that a good control framework is in place, but improvements are needed in certain key control page 59 activities. The majority of the key findings were, subsequent to the review, discussed at the ARCC and the RNC respectively as appropriate, and were addressed. The ARCC is satisfied that internal audit has met its responsibilities for the year with respect to its terms of reference. SHARE DEALINGS Blue Label Telecoms and TPC, its major subsidiary, have adopted an “Insider Trading and Dealings in Securities” policy. This policy requires all relevant directors who wish to deal in Blue Label Telecoms shares to obtain prior written clearance from the chairman of the Remuneration and Nomination Committee and either the chief financial officer or group company secretary. The same restriction applies to the group company secretary. In his own case, the chairman of the Remuneration and Nomination Committee must obtain clearance to deal in Blue Label Telecoms shares from the chairman of the board and the chief financial officer of Blue Label Telecoms. The group operates “closed periods” as defined in the JSE Limited Listings Requirements. These periods are communicated to directors, officers and employees in the group via the policy document and special electronic notices announcing the commencement or termination of closed periods. During these closed periods, the group’s directors and their associates, officers and employees may not deal in Blue Label Telecoms shares. Additional closed periods may be enforced, when required, in terms of corporate activities. There was no requirement for additional closed periods during the period under review. GOING CONCERN The board has considered and recorded the facts and assumptions on which it relies to conclude that the business will continue as a going concern in the ensuing financial year. The directors are of the opinion that the business will be a going concern in the year ahead and their statement in this regard is also contained in the statement on the responsibility of the directors for the consolidated financial statements on page 95 of this report. CODE OF BUSINESS CONDUCT The code of business conduct (code), guides how the group interacts with its respective stakeholders in support of the group’s values. The fundamental principles that underpin the group’s values include integrity, respect, accountability, competitiveness and innovation. INTEGRITY RESPECT • We value people’s differences. • We value diverse opinions. • We treat stakeholders fairly with respect and dignity. • We do not discriminate on the basis of race, religion, gender or sexual orientation. • We are honest and trustworthy in all of our dealings with all of our employees, customers, business partners, suppliers, competitors, and other stakeholders. • We adhere to business practices and all laws and regulations governing our business. ACCOUNTABILITY • We admit mistakes, learn from them and ask for help. • We take ownership and responsibility for our actions and performance. • We take initiative to make a difference and to help. • We focus on results. • We recognise and celebrate our successes. CODE OF BUSINESS CONDUCT COMPETITIVENESS • We are determined in our pursuit of success. • We strive to be leaders in the markets we serve. • We are committed to ensuring that we have the best people, technology, quality, service, and market knowledge. • We act with a sense of urgency, and we strive for excellence in everything we do. INNOVATION • We work creatively to develop new ways to provide value to our customers. • We drive our innovation by understanding our market’s needs, and we are the first to deliver against those needs. • We create new markets with unique technologies and solutions. page 60 REMUNERATION REPORT INTRODUCTION ADVISORS This report has been prepared by the remuneration and nomination committee (RNC) to provide stakeholders with an overview of the remuneration policy and practices applicable to executive directors and nonexecutive directors of the company. In determining the remuneration of executive and nonexecutive directors and certain senior executives the RNC obtains information on remuneration trends and seeks advice from external independent remuneration consultants. REMUNERATION PHILOSOPHY REMUNERATION POLICY Blue Label Telecoms’ remuneration philosophy promotes remuneration at market related levels to attract, retain and motivate the talent required by the company to achieve its strategic and operational objectives. The philosophy seeks to achieve an optimum balance between the interests of shareholders and providing attractive and competitive remuneration packages. The group’s remuneration structure for executive and senior management has three components: • Fixed remuneration – fixed monthly salary and benefits; • Variable remuneration – a short-term performance related bonus scheme; • Forfeitable Share Plan – a long-term performance related incentive scheme. GOVERNANCE The board remains ultimately responsible for the remuneration policy and the RNC operates under approved terms of reference. The focus of its activities is on the group’s remuneration framework, the determination of levels of remuneration for executive and non-executive directors, annual salary adjustments and bonuses and the determination of awards to be made in terms of the company’s Forfeitable Share Plan (share plan). The chairman of the RNC reports to the board at quarterly board meetings and submits recommendations made by the RNC to the board for consideration. The board accepted the recommendations made by the RNC during the year. Fixed remuneration is reviewed annually to ensure that the executives and senior management who contribute to the success of the group remain remunerated at appropriate levels in accordance with the remuneration philosophy. The variable pay element provided by the short-term bonus scheme is intended to enhance total pay opportunities, should that be merited by corporate and individual performance. Long-term incentives, in the form of forfeitable shares awarded under the share plan, are based on a percentage of total annualised salary packages and are intended to reward sustained long-term performance and to align the interests of the executive and senior management with those of shareholders. COMPOSITION AND ROLE OF THE RNC The composition, meeting procedure, role and functions of the RNC as well as the attendance of the RNC meetings, are reflected in the governance review on page 55 of this report. All the members of the RNC have the relevant skills and experience to perform their duties. The key activities of the RNC during the period under review included: • the introduction and design of a balanced scorecard for executive directors and senior management; • the determination of the remuneration of executive directors and subject to shareholder approval, the remuneration of the group chairman and nonexecutive directors; • the determination of increases in the fixed remuneration of executive directors and senior management across the group; • the confirmation of bonus structures in the group with reference to the achievement of stipulated performance criteria; • the determination of awards to be made to executive directors and senior management in accordance with the rules of the share plan. The purpose of the annual performance related bonus scheme is to reward and motivate the achievement of group and subsidiary financial targets, as well as to motivate strategic and personal performance. The joint chief executive officers may earn an annual incentive bonus of up to 120% of fixed remuneration and other executive directors up to 70%. Senior management may earn up to 50% of their annualised salary package. For the year ended 31 May 2009 the joint chief executive officers and the chief operating officer elected not to take up their bonus allocations in view of the current economic climate. Details of the directors’ emoluments for the period ended 31 May 2009 appear on pages 140 – 141 of this report. SERVICE CONTRACTS The company concluded three-year employment contracts with the executive directors in November 2007. The contracts provide for an option to renew (by mutual agreement) upon the expiry of the initial term. page 61 NON-EXECUTIVE DIRECTORS’ REMUNERATION Non-executive directors receive fees for service on the board and board committees, dependent on attendance. Nonexecutive directors do not receive short-term incentives nor do they participate in the share plan of the company. The fees payable to the chairman and non-executive directors are recommended by the RNC to the board, which in turn proposes the fees for approval by the shareholders at the annual general meeting. Details of the fees paid to the respective non-executive directors during the period under review are reflected on pages 140 – 141 of this report. The proposed fees payable to the non-executive directors for the period 1 June 2009 to 31 May 2010 are as follows: Proposed capped fee per annum ** Current fee per meeting Proposed fee per meeting * Services as directors • chairman of the board ¹ • board members — R30 000 — R32 550 R700 000 R162 750 Audit, risk and compliance committee • chairman • member R41 666 R25 000 R45 208 R27 125 R180 832 R108 500 Remuneration committee • chairman • member R33 333 R20 000 R36 166 R21 700 R144 664 R86 800 Investment committee • chairman • member R25 000 R15 000 R27 125 R16 275 R217 000 R130 200 Transformation committee • chairman • member R25 000 R15 000 R27 125 R16 275 R108 500 R65 100 Ad hoc committee • chairman • member R25 000 R15 000 R27 125 R16 275 R108 500 R65 100 * In the event that there are fewer meetings than envisaged, the member shall receive the fee in respect of the number of meetings attended. ** In the event that there are more meetings per year than initially planned, directors’ fees will be paid only up to the cap. ¹ The annual fee paid to the chairman in respect of the year ended 31 May 2009 amounted to R600 000. FORFEITABLE SHARE PLAN The group implemented the share plan as approved by shareholders at the annual general meeting held on 12 November 2008. During the year forfeitable shares were granted to executive directors and qualifying employees. Particulars relating to the share plan are set out in note 30 to the financial statements. Forfeitable shares held by executive directors of Blue Label Telecoms BM Levy MS Levy MV Pamensky DB Rivkind Balance 1 June 2008 0 0 0 0 Issue date Forfeitable shares awarded Balance 31 May 2009 Vesting date 26/02/2009 26/02/2009 26/02/2009 26/02/2009 369 936 369 936 269 745 138 726 369 936 369 936 269 745 138 726 01/09/2010 01/09/2010 01/09/2010 01/09/2010 page 62 SUSTAINABILITY REPORT Our responsibility page 63 The company aims to sustain its business model by growing the range of users to which its technology and distribution footprints may be put to use, thereby positively impacting upon the lives of its customers. page 64 SUSTAINABILITY REPORT continued Blue Label Telecoms’ primary focus is to deliver goods and services to unbanked and badly banked people in communities which have previously been ignored or under-serviced. The Economist reports a recent study that demonstrates that adding an extra 10 mobile phones per 100 people in a typical developing country can lead to a boost in GDP per person of 0,8%. Blue Label Telecoms recognises that the well-being of the communities that it services impacts upon the sustainability of the company, and attempts to manage its business practices in a manner which positively impacts its economic, social and environmental responsibilities to those communities. The company aims to sustain its business model by growing the range of uses to which its technology and distribution footprints may be put to use, thereby positively impacting upon the lives of its customers while ensuring the continuity of the business model. Also key to the sustainability of the company is a focus on its governance structures, targets and risk management. REPORT BOUNDARIES AND REPORTING STANDARDS Blue Label Telecoms was guided by the Sustainability Reporting Guidelines prepared by the Global Reporting Initiative (GRI) in compiling this sustainability report. This report provides information in respect of the financial year ended 31 May 2009. Since Blue Label Telecoms is still a newly listed company, joining the JSE Limited (JSE) two years ago, processes for reporting continue to be in an improvement phase. Thus, this report represents the group’s first sustainability report in compliance with GRI G3 guidelines, and therefore contains no comparable data. However, systems and processes have been implemented from the commencement of the 2010 financial year to assist in the more accurate recording of those aspects of its business practices which will affect the sustainability issues herein reported. In most cases, the scope of this report predominantly incorporates information on the activities and initiatives of the South African operations of the group and statistical “non-financial” data is limited to where systems and processes allow (e.g. employment statistics). The content of this report has been set according to GRI’s guidance on “materiality”; to the best of the company’s ability, noting that while areas of material risk and/or opportunity have been identified upon which there are currently inadequate systems and/ or information to report on, the content is nonetheless a fair representation of the company’s ability to respond to the concerns and interests of its varied stakeholders. Where necessary, re-statements of financial and/or operational data will have been disclosed in the directors’ report (e.g. new acquisitions). However, because this is Blue Label Telecoms’ first sustainability report, there are no re-statements of sustainability information or measurement techniques to be discussed. page 65 VALUE-ADDED STATEMENT “Value added” is the measure of wealth the group has created in its operations by “adding value” to the cost of products and services. The statement below summarises the total wealth created and shows how it was shared by employees and other parties who contributed to its creation. Also set out below is the amount retained and re-invested in the group for the replacement of assets and the further development of operations VALUE-ADDED Value-added by operating activities Revenue Net operating expenses Value added by investing activities Fair value movement on financial assets at fair value through profit or loss Interest income 2009 R’000 2009 % 847 005 15 281 449 (14 434 444) 158 539 84,2 278 970 278 970 4 891 4 891 190 144 190 144 – 166 574 93 220 61 269 27 445 (15 360) 364 965 390 547 (25 582) 1 005 544 2008 % 594 545 12 545 471 (11 950 926) 176 002 32 158 507 1 005 544 VALUE DISTRIBUTED Distributed to employees Salaries, wages, medical and other benefits Distributed to providers of finance Finance costs Distributed to the state Income tax STC Value reinvested Depreciation, amortisation and impairment Net discounting finance cost Share of losses of associates Deferred taxation Value retained Retained profit Minority shareholders’ interest 15,8 2008 R’000 77,2 22,8 (1 375) 177 377 100 770 547 100 27,7 265 003 265 003 46 575 46 575 102 009 101 759 250 149 168 58 670 85 225 17 441 (12 168) 207 792 180 891 26 901 34,4 770 547 100 0,5 18.9 16,6 36,3 100 2009 6,0 13,2 19,4 27,0 2008 27,0% 27,7% 34,4% ■ Distributed to employees 36,3% ■ Distributed to providers of finance 0,5% 18,9% 16,6% ■ Distributed to the state ■ Value reinvested 19,4% 6,0% ■ Value retained 13,2% page 66 SUSTAINABILITY REPORT continued STAKEHOLDER RELATIONS The building of long-term and transparent relationships with our stakeholders is a business imperative. The group has a deliberate and measured approach to its interaction with stakeholders, developed over the course of a number of years. These interactions take account of the impact that the stakeholders may have on the business. The frequency and form of that engagement is commensurate with such estimated impact. Initiatives such as media roundtables, bi-annual analyst perception audits and feedback from employees result in stakeholder concerns being identified and presented to the executive committee for consideration and/or further action. Blue Label Telecoms has identified the following as the stakeholders that contribute to its sustainability, either directly or indirectly: Stakeholder group Stakeholder engagement Employees Communication with employees is achieved via the intranet, staff meetings, monthly newsletter and e-mail correspondence providing information in respect of new products, competitions, business initiatives, charitable initiatives and the like. Once a month the group holds a one-day strategy meeting for senior managers to agree and plan the most effective manner of implementing the board strategy. Senior managers are thereafter required to convey the group strategy to their businesses. Shareholders, investors, analysts and the media Presentations covering the financial performance of the group and an overview of the strategic direction of the group are made to the investor community by the joint chief executive officers and the chief financial officer at year-end and interim stages. Meetings and discussions are held during the year with these parties on an ad hoc basis. The company also held a media roundtable in May 2009 to provide the media with a better insight to Blue Label Telecoms and its operations and to introduce the respective segment heads of the group. Results and presentations of the group are published in the press and company website. Customers The group’s customer base is comprised of corporate clients, chainstores, large independent retail clients, wholesale/cash-and-carry stores, and petroleum industry forecourts. Field representatives and key account managers engage directly on a continual basis with these customers in terms of new products, market trends, business queries, device installations and marketing. Blue Label Telecoms senior management liaise regularly with senior management of customers and suppliers, as appropriate, to achieve enduring relationships. page 67 Stakeholder group Stakeholder engagement Business partners The relationships that Blue Label Telecoms has with its business partners such as Microsoft, Vodacom, MTN, Cell C, Telkom, municipalities and parastatals, among others, are managed in terms of distributor and/or dealer agreements and collaboration agreements. Relationship managers are appointed to each partner to provide a single and dedicated point of contact. In most instances engagement with these business partners occurs regularly and at least once a month in the form of informal and formal meetings. Communities The Prepaid Company formed a community division known as TPC Community Channel. This division specialises in the development and empowerment of broad-based communities through the deployment of mobile technology and products. The community channel aims to not only distribute the group’s products more widely but to create job opportunities for the members of the communities and to share a portion of the revenues earned with those communities. Government, regulatory bodies and the public sector The group regularly engages government (at a national and local level), parastatals and other public organisations through various tender processes. From a compliance point of view, the completion and rendition of statutory returns is undertaken diligently. Blue Label Telecoms is not a member of any industry association and/or national/international advocacy organisation in which the company has positions in governance bodies, participates in projects or committees or provides substantive funding. Suppliers Suppliers are subjected to a formal procurement process whereby issues such as quality of product, credit worthiness and BBBEE status are confirmed prior to becoming suppliers. Suppliers of services are, if appropriate, initially engaged through a tender process and if successful, agreements are concluded which are then managed by Blue Label Procurement. The majority of the group’s goods and services are procured from locally based suppliers. page 68 SUSTAINABILITY REPORT continued SHAREHOLDER ANALYSIS Below is a synopsis of Blue Label’s shareholder spread, distribution of shareholders and beneficial shareholders holding 3% or more of the issued share capital of the company. No of shareholdings % No of shares % Shareholder spread 1 – 1 000 shares 1 001 – 10 000 shares 10 001 – 100 000 shares 100 001 – 1 000 000 shares 1 000 001 shares and over 626 1 251 479 107 56 24,85 49,66 19,02 4,25 2,22 361 248 4 669 913 14 680 162 33 434 847 713 214 724 0,05 0,61 1,92 4,36 93,06 Total 2 519 100,00 766 360 894 100,00 Distribution of shareholders Banks Close corporations Empowerment Endowment funds Individuals Insurance companies Investment companies Medical schemes Mutual funds Nominees and trusts Other corporations Retirement funds Private companies Public companies Treasury stock 24 61 1 13 1 982 11 18 2 41 216 28 28 85 8 1 Totals Public/non-public shareholders Non-public shareholders Directors and associates Strategic holdings (more than 10%) Treasury stock Public shareholders Total 0,95 2,42 0,04 0,52 78,68 0,44 0,71 0,08 1,63 8,58 1,11 1,11 3,37 0,32 0,04 77 433 972 1 380 644 76 441 268 536 704 202 910 208 7 973 414 31 397 804 19 000 36 289 943 57 454 925 197 226 16 300 887 157 553 936 95 269 250 5 201 713 10,10 0,18 9,97 0,07 26,48 1,04 4,09 0,00 4,74 7,50 0,03 2,13 20,56 12,43 0,68 2 519 100,00 766 360 894 100,00 20 18 1 1 2 499 0,79 346 066 942 0,71 249 013 377 0,04 91 851 852 0,04 5 201 713 99,21 420 293 952 45,16 32,49 11,99 0,68 54,84 2 519 100,00 766 360 894 100,00 Beneficial shareholders holding 3% or more No of shares % Shotput Investments (Proprietary) Limited Microsoft Corporation Levy, BM Nthwese Investment Holdings Consortium (Proprietary) Limited Levy, MS Investec Asset Management 116 736 000 91 851 852 82 613 331 76 441 268 75 205 922 43 667 468 15,23 11,99 10,78 9,97 9,81 5,70 Total 486 515 841 63,48 page 69 ETHICAL PRACTICES Blue Label Telecoms strives to become the leading global distributor of secure electronic tokens of value and transactional services, including non-banking value-added transactional services, within emerging and developing markets. In pursuing this vision we are committed to behaving and interacting with all stakeholders in a professional and ethical manner. The values that underpin our interaction with stakeholders include: • Integrity • Respect • Accountability • Innovation • Competitiveness. Blue Label Telecoms is a proud supporter of Business Against Crime South Africa. Key impacts and risks The group has identified the following key impacts and risks to the group. Impact/Risk Comment Response General economic conditions In an economic downturn consumers are forced to limit expenditure, particularly on non-essential needs. This could have an adverse effect on revenue and profitability. It has been the group’s experience thus far that its mix of products, services and distribution channels has limited its exposure to economic downturns, in that the bulk of the product mix consists of goods, the demand for which thus far appears inelastic. Consumers appear to be unwilling to reduce spending on utilities, transport and airtime. High volume/low margin business which is sensitive to supplier pricing Network operators determine the margins available to the prepaid airtime distribution channel. Blue Label Telecoms may not always be able to pass on to the retailer or customer any margin compression enforced by the network operators. Management is confident that based on the terms of the group’s customer agreements and business model it should be able to pass on margin compression to its customers. The possible margin compression is also likely to force marginal distributors out of the distribution chain. Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA) RICA requires the registration of personal details of all South African cell phone subscribers. All new starter pack activations subsequent to 1 August 2009 require such registration. Activi, the technology arm of the group, has developed a suite of data collection products that are designed to complement existing point-of-sale devices, enabling the immediate registration of RICA details. Furthermore, all historically active users of cell phones will have to be registered within eighteen months from that date. Once RICA’d the starter pack base is likely to be more stable and less likely to churn. By developing superior capabilities to RICA customers this presents both an opportunity and a competitive edge for the group. Registration is administratively complex and leads to a delay in the ultimate activation of starter packs. page 70 SUSTAINABILITY REPORT continued Key impacts and risks (continued) Impact/Risk Comment Response Reduction of inter-connect fees Parliamentary intervention to reduce cellular inter-connect fees in the immediate future appears likely. It is management’s view that prepaid customers currently consume not as much airtime as they require, but as much as they are able to afford. It would therefore appear likely that prepaid consumers spend will remain the same, but consumers will receive more value for that spend. This, in turn, is likely to lead to lower cellular airtime prices. Lower pricing may lead to margin compression by the networks. Inability to attract and retain key personnel and qualified employees, in whom intellectual capital resides. Non-exclusivity of various supply, distribution and WASP agreements Blue Label Telecoms conducts the majority of its existing business in South Africa and is subject to certain political, social, environmental and economic conditions in South Africa The group’s future performance will depend largely on the efforts and abilities of its key personnel and employees. The existing management at Blue Label Telecoms pioneered the mass prepaid market and established the group’s business model. Blue Label Telecoms’ future success will depend, in part, upon its ability to continue to attract, retain and motivate the necessary personnel, including the succession of executive officers and certain other key employees. Certain of the group’s supply, distribution and WASP agreements are non-exclusive and can be terminated at short notice. This type of agreement is standard in the industry. While South Africa features a highly developed financial and legal infrastructure at the core of its economy, it has high levels of unemployment, poverty and crime. Particular considerations include how the South African Government will ultimately address the political tensions and social and economic problems, to what extent its efforts will be successful, the political, social and economic consequences of such efforts and the effect on South African businesses of the continuing integration of the South African economy with the economies of the rest of the world. For these reasons management believes that the group’s business will not be materially affected by the reduction in inter-connect fees. The joint chief executive officers and co-founders are both substantial shareholders and are dedicated to the sustainability and growth of the group. Key members of the management team are bound by service agreements, restraint of trade undertakings and are also strategic shareholders in the group. Blue Label Telecoms’ remuneration committee has designed remuneration policies that include long-term retention and incentives. The group also focuses on training existing staff to develop required skills internally. Management is committed to continue to grow the group’s footprint by increasing its points-of-presence (touch points) and owning the entire technological value chain, which drives the group’s products and services. This has placed the group in a strong position in the distribution chain. Relationships with and service to suppliers and customers are of paramount importance and an important factor in management’s time allocation. Blue Label Telecoms believes that the economic sentiment is broadly positive for the future. The group continues to expand its operations beyond the borders of South Africa, with particular focus on emerging markets. page 71 Key impacts and risks (continued) Impact/Risk Comment Response As the group diversifies its operations Rapid growth of off-shore operations in territories far to earn income from off-shore removed from head office. companies, executive management’s ability to closely oversee those operations could be diminished. The group always enters international territories with a local partner, whom it carefully selects. The group also has a policy of seconding senior managers from within the South African operation to off-shore subsidiaries. This is designed to ensure Blue Label Telecoms’ strategy and culture is effectively and consistently applied throughout the group. Vulnerability of the middle man From its inception, the objective of the group was to become a “one stop” destination for the supply and distribution of all of the networks’ offerings. This would provide both convenience and efficiency to the retailer and customer. Furthermore the technology and footprint developed by the group allows retailers to earn additional revenue by the introduction of additional products. This would make it difficult to disintermediate the group. In most industries a wholesaler is at risk of being eliminated from the supply chain if the supplier elects to supply the customer directly. No single network can offer this complete solution. SOCIAL PRACTICES Transformation and broad-based black economic empowerment The group decided that BBBEE verification at subsidiary level, as opposed to group verification, was more effective in terms of mitigating commercial risk and developing priority skills for the specific subsidiary companies. The board-appointed transformation committee has developed transformation targets for the South African subsidiaries of the group. Subsidiary companies that have completed the formal verification process include: Subsidiary Demtrade 11 (Proprietary) Limited trading as Blue Label Procurement Cigicell (Proprietary) Limited Activi Technology Services (Proprietary) Limited Comm Express Services SA (Proprietary) Limited Velociti (Proprietary) Limited BBBEE status Level 2 contributor Level 4 contributor Level 5 contributor Level 6 contributor Level 6 contributor Socio-economic development (SED) The group’s main SED areas of focus are the youth, sports development and HIV/AIDS. During the year under review the group’s main initiatives have revolved around Nomonde’s Children’s Home, Legacy Parks, Jakaranda Children’s Home and Malamulele Onward. The group budgeted and disbursed approximately R2,3 million in respect of these initiatives. page 72 SUSTAINABILITY REPORT continued Nomonde’s Children’s Home Nomonde Duda is a retired nursing sister who cares for abandoned HIV/AIDS children. Blue Label Telecoms in conjunction with Nedbank Limited and Watprop, secured suitable premises in Lombardy East for Nomonde and her children and assisted in renovating the home to better suit the requirements of the home. A nursery for the babies and a sick bay were built. Currently a nursery school and after-care facility are operated daily for the toddlers and school-going children. Blue Label Telecoms hosted a Christmas party for the children at the home in December 2008. LEGACY PARKS The South African Rugby Legends Association has been running a number of projects designed primarily to uplift disadvantaged youth. One of these projects is Legacy Parks which involves the development of sporting facilities in previously disadvantaged areas. Blue Label Telecoms joined forces with South African Rugby Legends Association, the Gauteng government, Lucas Radebe and the Protea Glen Community Forum by sponsoring the Lucas Radebe Sustainable Legacy Park in Protea Glen, Soweto. The sporting facilities are used during the day to host school-run sports clinics free of charge for the youth in the community. These clinics also help identify talent and occupy the youth in constructive and sociable activities. In the early evenings the park is used by corporate leagues, that pay a fee, in order to ensure the sustainability and maintenance of the park. At night, the Police Services assist at the park to hand out meals and provide positive role models to homeless children who use the park as a place of security. MALAMULELE ONWARD Malamulele Onward is a non-profit organisation that has taken on the substantial task of identifying and helping caregivers of children with cerebral palsy (CP) in some of the most deprived areas of southern Africa. The project started in the Malamulele area of Limpopo Province and rapidly expanded to the Eastern Cape. Children severely disabled by CP survive, often into adulthood, but they and their families are neglected by the health and education systems. Malamulele Onwards’ programmes aim to address the rehabilitation needs of children with CP through the provision of hands-on therapy and equipment to children living in the most disadvantaged areas page 73 of the region; training and empowerment of caregivers and local rehabilitation workers; and the provision of training to therapists caring for children with CP in southern and central African countries (notably Rwanda, Tanzania, Lesotho; Mozambique, Swaziland and Botswana.) Malamulele Onward has been operating for nearly four years. To date, eight outreach projects in Limpopo and in the Eastern Cape have been completed involving 166 children and their caregivers and over 20 local rehabilitation therapists. The group has also provided financial support to Training @ Work, an accredited training service provider. This organisation is a black-owned exempted micro enterprise that provides a vast range of practical oriented learning and skills development programmes aimed at developing the competencies of young people and local communities – including the unemployed, corporates and government agencies. The funding received from the group has been used towards improving their business marketing, human resources and IT capacities. Blue Label Telecoms has supported this cause by making donations to Malamulele Onward which have been used to purchase equipment for the children. These include specialised seating equipment, wheelchairs and computers. Going forward, the group will be utilising the training services offered by Training @ Work, in particular, sales and call centre training. Enterprise development Blue Label Telecoms, through its major subsidiary The Prepaid Company continued to provide financial assistance on an interest-free basis to ZOK Cellular (Proprietary) Limited (ZOK). In addition Blue Label Telecoms provides management and strategic support and other resources to ZOK. ZOK aims to empower budding entrepreneurs from South Africa’s previously disadvantaged communities by equipping them with a ready-made FMCG retailing solution in the form of a ZOK container. This container is a licensed business unit designed as a self contained turn-key business with start-up stock for the retail section, starter packs and airtime, public phones, fax facilities, internet services and ATM facilities. The placement of ZOK containers in previously disadvantaged areas is intended to bridge the gap in telecommunications, ICT and banking services in such areas, as well as to uplift the communities in the areas served by the containers. page 74 SUSTAINABILITY REPORT continued PRESS RELEASE BY ZOK CELLULAR CIRCULATED TO MEDIA ATTENDING THE LAUNCH ZOK Cellular (Proprietary) Limited. Schools initiative launch: Johannesburg: 5 August 2009: ZOK Cellular (Proprietary) Limited today launches a project that seeks to ensure that schools in previously disadvantaged communities are able to generate revenue that will help them improve the running of their schools. Hlonipha Secondary School in Kwa Ndebele (Mpumalanga) is the first recipient of this opportunity and has been selected to pilot this project. The ZOK School Income project is informed by the realisation that in providing for better education in previously disadvantaged schools government resources have been significantly stretched and there is just not enough to cover all the needs of a school. ZOK Cellular (Proprietary) Limited has come on board and is offering a sustainable income generating business to schools. ZOK Cellular (Proprietary) Limited is offering this high achieving school a ZOK Container Business Unit. A ZOK container is a licensed business unit designed as a self-contained business, enabling the operator of the business to offer retail, public telephones, and banking, internet and fax facilities. The container comes completely equipped and once delivered starts operating immediately – “Plug and Play”. ZOK believes the initiative will give the school a platform to be more self-reliant. Other advantages of such a contribution are the fact that both learners and educators who will be managing the operations of the container will have first hand practical experience of running an enterprise and the possibility of becoming entrepreneurs themselves. “Our learners also benefit from the container because now they can use the internet for research and join the global information highway,” said Mr Mabasa, Principal of Hlonipha Secondary School. page 75 For ZOK a clear benefit is the ability to bring services closer to communities that previously had to travel long distances to access them. “Before the ZOK container arrived, the community around Hlonipha Secondary School had to travel long distances in order to access products that we in the cities take for granted, like ATM machines, prepaid electricity, photocopiers, telephones and faxes. Through this initiative we have brought services to our people and saved them money,” said ZOK CEO, Nonhlanhla Matshazi. It is ZOK Cellular’s intention to continue to introduce more products that help to improve the quality of life of ordinary South Africans. “We are excited about the ZOK container because it is not just for the School of Hlonipha, but will bring much needed services to our community,” said Principal Mabasa. The pilot with Hlonipha Secondary will also include comprehensive training on all products and services as well as the business management of the container. The ZOK Container Business Unit is worth R300 000 complete with its products and services. The cost of the manufacture of the container is supported through partnerships between ZOK and key service suppliers within the container – such as Premier Foods, ABSA Bank, Vodacom and iBurst. The school will be continually supported by ZOK Cellular as per our current operations with regard to licensees but will also be monitored on an ongoing basis with regards to upkeep of the school, where the money is going to, renovations etc. Gifts were handed out to the invited guests, students and community at the launch event: page 76 SUSTAINABILITY REPORT continued Preferential procurement The group has initiated a move to procure on a centralised basis via Blue Label Procurement. The centralisation of group procurement will ensure greater efficiencies and coordination of the group’s transformation procurement initiatives. Blue Label Procurement completed its formal BBBEE verification and achieved a Level 2 contributor status. As part of the centralisation process a database has been set up to continually keep track of the group’s suppliers and their BEE status. The group strives to procure all goods and services from BEE certified suppliers, where possible. HUMAN CAPITAL The group recognises that its employees are its most important asset. Executive management ensures that the group’s value and belief system is inculcated throughout the group by the adherence to the group’s Code of Conduct including ethics, environment, health and safety. All new employees undergo an induction session during which they receive their staff manual comprising of the group’s visions, mission, values, conditions of employment, standard group practices, procedures and policies, as well as a health and safety booklet. Blue Label Telecoms’ human resource department oversees the group’s skills development and training initiatives. Senior management in each of the subsidiaries are responsible for ensuring that group strategy and culture are implemented consistently. All permanent employees are automatically included in various group-wide schemes, namely group life as well as group benefits such as miTRAFFIC, Look4help, Look4me, MTN WhereRU and MTN 2MyAid. Group life is an employer-funded benefit which includes death benefit, disability benefit and a funeral benefit. All employees are given the option of joining Discovery Health. All changes to terms and conditions of employment, inclusive of changes to significant operational matters are dealt with on the basis of consultation with staff and mutual buy-in. Employment equity The group is committed to achieving equity in the workplace by promoting equal opportunity and fair treatment in employment. The ultimate objective is to create an environment in which all employees are able to compete for job opportunities on the sole criterion of merit and where the demographics at all levels within the workplace are a fair representation of the demographics of the relevant general and regional population. Each individual subsidiary company monitors their employment equity statistics in line with the targets set for the specific subsidiary company. It has been a group focus area to ensure that job descriptions and functionalities of top, senior and junior management were accurately reflected in the Employment Equity reports submitted on an annual basis to ensure alignment between the dti Codes of Good Practice (CoGP) and the EE2A reports. Blue Label Telecoms is a non-unionised environment. page 77 The table below depicts the demographics of the employee base in the group: Male Female African Coloured Indian White African Coloured Indian White Top management Senior management Professionally qualified, experienced specialists and mid-management Skilled technical and academically qualified workers, junior management, supervisors, foremen, and superintendents Semi-skilled and discretionary decision-making Unskilled and defined decision-making Total permanent Non-permanent employees Grand total Foreign nationals Male Female 2009 Total 2008 Total 2 1 0 2 0 6 44 26 0 1 1 0 0 2 6 10 0 0 0 0 53 48 45 50 10 3 15 71 5 6 3 45 3 1 162 75 68 22 39 96 11 11 24 43 3 0 317 146 206 39 22 14 293 85 38 80 6 3 786 654 4 5 15 1 1 1 2 0 67 88 86 256 325 104 68 185 14 35 3 322 69 76 398 25 109 4 1 433 1 058 13 133 36 148 6 0 0 94 195 269 458 140 216 191 14 4 546 558 1 979 1 616 The increase in the total number of employees compared to the previous reporting period is attributable to the group’s expansion and its consequent support requirement. page 78 SUSTAINABILITY REPORT continued TRAINING AND SKILLS DEVELOPMENT LEADERSHIP DEVELOPMENT SKILLS Detailed training plans addressing the requirements of each individual subsidiary company have been compiled for the majority of the group. These plans are aligned with business and individual requirements as well as the annual work place skills plan. The execution of the training and skills development plans is managed in consultation with the group human resource and transformation manager. A number of the group’s subsidiaries have run leadership programmes aimed at their junior management staff levels. It is based on creating a leadership model that includes self-awareness, group awareness and behaviour design. The workshop develops the staff at both a team and individual level and facilitates the identification of high-potential members for the succession planning process. LIVING LEADERSHIP The group is currently reviewing a number of competency-based performance assessment systems to be implemented as a group-wide initiative, which will enable Blue Label Telecoms to assess the performance of employees and hence identify individual training needs, career development objectives, succession planning, remuneration benchmarking and the like. It is anticipated that this will only be in place in the early part of the next financial year. Velociti (Proprietary) Limited, a subsidiary of Blue Label Telecoms, runs a “Living Leadership” programme aimed at developing their management levels. This workshop has been highly effective and looks at leadership and its relevance in order to transform both the individual and business. It focuses on insights and skills to enable staff to realise their full potential and to use those skills within the work environment. The group has planned and implemented new training and development initiatives during the year as follows: SAFETY AND HEALTH PRACTICES LEARNERSHIP INITIATIVES Cigicell (Proprietary) Limited, a subsidiary of Blue Label Telecoms, is participating in the contact centre support learnership programme offered by the Services Sector Education and Training Authorities (SSETA). The initiative is proving to be successful, providing skills training and development as well as the possibility of employment to those who would not ordinarily have the opportunity to obtain a qualification. The qualification aims to enhance the provision of entry-level service within the contact centre industry. Contact centres have become key business tools that form an integral part of the way in which organisations are run. The group runs a few contact centre operations, both inbound and outbound and hopes to implement the programmes on a regular basis in the future, across its subsidiaries. A healthy, safe and incident-free working environment enhances productivity and contributes towards employee wellbeing. A group health and safety officer has been appointed with the express intention of enhancing the existing health and safety policy, compliance with legislative requirements, monthly health and safety meetings and health and safety audits. Awareness of the company’s health and safety requirements is created for all new employees as part of their induction process. Frequent information updates are circulated via e-mail to all existing employees. Trained first-aid employee representatives are available on site to assist with any incident. The group had no major safety and health incidents during the year under review. page 79 Blue Label Telecoms has a comprehensive HIV/AIDS strategy to minimise the risk to exposure by way of: • instilling a prevention culture within the organisation; • providing employees with an opportunity to volunteer to have an HIV/AIDS test resulting in detection of infections; and • providing medication and treatment to affected employees as the final element to the strategy. Workplace awareness programmes include awareness activities, condom distribution, voluntary HIV testing, infection control, counselling and treatment. The company has a partnership with the Bryanston Assessment Centre and all employee matters of a psychological nature are referred and treated accordingly. In addition, as Discovery Health is the chosen medical aid service provider, all employees are referred to the existing disease management forums within Discovery Health such as the oncology, diabetes and HIV management forums. A number of other initiatives, however, are under way reflecting the group’s commitment to the environment. These are: Water use Water consumption and use is limited to drinking purposes and ablution facilities. During the year under review infrared activated touch-free taps were installed in the bathrooms of the main premises situated at 75 Grayston Drive, Sandton. 90% 80% 70% 60% 50% 40% 30% 20% 10% Long-term cost Water saving Process ENVIRONMENTAL PRACTICES Given the nature of Blue Label Telecoms’ business, the group’s environmental impact could be classified as low. The group’s participation in the JSE SRI Index as a newly listed company highlighted a number of areas requiring improvement including environmental management reporting. Blue Label Telecoms is therefore evaluating the respective reporting areas to ensure a more detailed report going forward. In this regard processes and procedures are being established to improve the measurement and monitoring of the group’s environmental impact including carbon emissions. We do not currently measure the following environmental impacts: • Direct and indirect water use • Environmental supplier standards • Transportation/logistical impacts • Overall environmental expenditures. ■ Sensor taps ■ Normal taps Energy saving page 80 SUSTAINABILITY REPORT continued Land use The group occupies leased properties comprising mainly office buildings, none of which is situated in biodiversity-rich or ecologically significant habitats as determined by the Global Reporting Initiative. The company reached agreement with its landlord to expand its main office building situated at 75 Grayston Drive, Sandton, in support of management’s objective to retain as many subsidiaries and employees as possible in one environment to enhance communication and to ensure alignment in culture and objectives. The impact of the centralisation of the group’s business location has been considered and management has agreed to overcome this potential challenge by instituting three different work shifts which employees may elect, dependent on their circumstances. The landlord and its architects gave due consideration to the environmental impact of the building expansion and to this end incorporated a wide spectrum of solutions and best practices to ensure an eco-friendly building. On completion, the entire building will be operated to reduce the overall impact on human health and the natural environment by more efficient use of energy, water and other resources, as well as protecting occupant health and improving employee productivity. Energy efficiency The energy consumption of Blue Label and its subsidiaries located at the office building on 75 Grayston Drive, Sandton for the 12-month period ended 31 May 2009 amounted to a total to 1 648 186,64kWh. Energy saving initiatives have been identified and will be implemented in the existing building as well as the new building currently being erected. Recycling Blue Label continues to recycle its office waste such as paper and printer cartridges in an environmentally friendly manner. Waste paper and scrap, including printer cartridges, associated with an office environment are collected by scrap dealers for disposal in an environmentally friendly manner. Greenhouse gas emissions Business activities resulting in greenhouse gas emissions include electricity usage, transportation, waste treatment and disposal and industrial processes such as air conditioning and the like. The group is aware that it is necessary to take reasonable steps to limit the effects of such emissions. During the year, no prosecutions or fines were brought against the group for the contravention of any environmental laws and regulations. page 81 INDEPENDENT ASSURANCE STATEMENT To the board and stakeholders of Blue Label Telecoms: SustainabilityAssurance.co.za (SA) was commissioned by Blue Label Telecoms (hereafter, BLT) to provide independent third-party assurance over the 2009 sustainability report (the report, covering the period 1 June 2008 to 31 May 2009) contained within BLT’s integrated annual report. The assurance team comprised primarily of Michael H Rea, our principal corporate social responsibility (CSR) consultant, with experience in environmental and social performance measurement. Over the past 10 years, Michael has undertaken over 30 assurance engagements in various countries, including Sudan, Kenya, the DRC, Nigeria, Cameroon, Swaziland, Zimbabwe, Namibia, South Africa, Peru and Canada: working either as part of a team (while in the employ of PWC and KPMG), or as an Independent CSR consultant. INDEPENDENCE SA was not responsible for the preparation of any part of this report and has not undertaken any commissions for BLT in the reporting period concerning reporting or data collection. SA’s responsibility in performing its assurance activities is to the management of BLT alone and in accordance with the terms of reference agreed with them. ASSURANCE OBJECTIVES The objectives of the assurance process were to provide stakeholders of BLT with a low level independent assurance opinion on whether the report meets standard reporting principles of completeness, accuracy, consistency and neutrality, as well as to assess the degree to which the report is consistent with the Global Reporting Initiative (GRI) G3 guidelines, with the objective of establishing whether or not the report has met the Global Reporting Initiative (GRI) G3 Application Level C reporting requirements. SCOPE OF WORK PERFORMED The process used in arriving at this assurance statement is based on best practices in sustainability reporting assurance. Our approach to assurance included the following: • Reviews of drafts of the report for significant data and/or assertion anomalies, and to assess whether sufficient ‘neutrality’ (ie success and challenges) could be identified. • Interviews with individuals responsible for writing the report in order to assess BLT’s measurement and reporting procedures, and to ensure that selected claims/assertions could be substantiated. • A review of the process used to define the content of the report by looking at materiality of issues included in the report, determination of sustainability context and coverage of material issues. • A review of the approach of management to addressing topics discussed in the report. • An assessment of whether or not the requisite number of GRI G3 performance indicators have been covered in the report to meet Application Level C requirements. FINDINGS In general, the company’s sustainability reporting processes are adequate, and this report reflects a significant improvement over BLT’s 2008 report. However, it was found that: • Although BLT actively engages an array of key stakeholders, as defined within this report, the assurance process did not allow for additional engagement to confirm or refute BLT’s assertion that the report adequately reflects the information requirements of their key stakeholders. • Although additional performance data would be required to enhance the overall quality of BLT’s sustainability reports, this report appears to reflect an accurate accounting of BLT’s sustainability performance for the period ending 31 May 2009. page 82 INDEPENDENT ASSURANCE STATEMENT continued Based on our review of the report, as well as the processes employed to collect and collate information reported herein, it is our assertion that this report meets the GRI G3’s requirements for Application Level C (responses to all required indicators, as well as no fewer than 10 core indicators, with at least one from each of social, economic and environment). However, it was found that: • The reporting of performance against some GRI G3 indicators continues to require either data quality improvements, or further detail in disclosure, particularly with respect to environmental performance. Indicator-specific performance is identified in BLT’s GRI G3 indicator table. RECOMMENDATIONS While we are satisfied that this report is a fair demonstration of BLT’s ability to collect, collate and report on its sustainability performance, the following recommendations have been identified: • BLT should ensure that stakeholder engagement procedures include an assessment of whether or not this report, and all future reports, adequately reflect the reporting requirements of key stakeholders. • BLT should continue to improve its reporting according to international best practice, including the principles of inclusiveness, materiality, and responsiveness, as guided by AA 1000AS (2008), ultimately seeking an AA1000AS form of assurance in future reports. • Having addressed the requirements of GRI G3 Application Level C, it is our recommendation that BLT review the process followed in compiling the report and, while making further improvements on the quality of data required for Application Level C, begin addressing the requirements of Application Level B. CONCLUSIONS Based on the information reviewed, and citing BLT’s status as a recently listed company (second year of JSE Limited listing), SustainabilityAssurance.co.za is satisfied that this report provides a reasonably comprehensive and balanced account of the environmental, safety and social performance of BLT during the period under review. The data presented is based on policies and procedures that are, in many cases, still in the process of further development and/or implementation, and we are satisfied that the reported performance data reasonably represents the current environmental, safety and social performance of BLT. Moreover, and although the quality or quantity of data of many GRI G3 indicators can yet be improved, this report appears to meet the GRI G3’s requirements for Application Level C (C+ with this assurance engagement). SustainabilityAssurance.co.za 22 October 2009 page 83 GRI G3 APPLICATION LEVEL REQUIREMENTS This is BLT’s first attempt at ensuring compliance to the Global Reporting Initiative (GRI) G3 sustainability reporting requirements, as recommended by King II. As such, we have opted to seek C+ Level of GRI G3 compliance. The following tables provide a summary of the GRI’s requirements, as well as a quick reference to our self-assessment of compliance. Standard Disclosures Not Required G3 Management Approach Disclosures G3 Performance Indicators & Sector Supplement Performance Indicators Report on a minimum of 10 Performance Indicators, including at least one from each of: social, economic, and environment B B+ A Report on all criteria listed for Level C plus: 1.2 3.9, 3.13 4.5 – 4.13, 4.16 – 4.17 Same as requirement for Level B Management Approach Disclosures for each Indicator Category Management Approach Disclosures for each Indicator Category Report on a minimum of 20 Performance Indicators, at least one from each of: economic, environment, human rights, labour, society, product responsibility Respond on each core G3 and Sector Supplement* indicator with due regard to the Materiality Principal by either: a) reporting on the indicator or b) explaining the reason for its omission A+ Report Externally Assured Report on: 1.1 2.1 – 2.10 3.1 – 3.8, 3.10 – 3.12 4.1 – 4.4, 4.14 – 4.15 C+ Report Externally Assured G3 Profile Disclosures C Report Assured by SustainabilityServices.co.za Report Application Level REQUEST FOR FEEDBACK Because this is only our first attempt at producing a sustainability report, we are mindful of the possibility that we could fall short of the reporting expectations of at least some of our key stakeholders. As such, we are hopeful that you, the reader of this report, will contact us and offer us your views on the quality and usefulness of this document. Should you have any questions about our company, or comments about anything contained within this report, please contact Elizna Viljoen via e-mail at [email protected]. page 84 GRI CONTENT TABLE ECONOMIC VISION & STRATEGY Strategy and analysis 1.1 21–23 1.2 10–11, 28–49 Organisational profile 2.1 FC 2.2 1–9, 28–49 2.3 1–9, 28–49 2.4 IFC 2.5 12–13, 28–49 2.6 IFC 2.7 12–13, 28–49 2.8 1–13, 28–49 2.9 21–49 2.10 32, 85 Report profile 64 3.1 3.2 64, 101 3.3 64 3.4 32, 85 Report scope and boundary 3.5 64 3.6 64 3.7 64 3.8 28–49, 64 3.9 79 3.10 64 3.11 64 GRI content index 3.12 85 Assurance 3.13 81–82 Governance, commitments and engagement 14–18, 50–59 4.1 4.2 14–18, 50–59 4.3 14–18, 50–59 4.4 66–67 4.5 50–61 4.6 66–67 4.7 50–61 4.8 1–2, 59, 69, 79–80 4.9 50–61 4.10 50–61 Commitment to external initiatives 50–61 4.11 4.12 50–61, 64, 69, 79–80 4.13 66–67 Stakeholder engagement 66–67 4.14 4.15 66–67 4.16 66–67 4.17 66–67 Core SOCIAL Additional Economic performance EC1 65 EC3 76–78, 113–114 Market presence EC6 73–76 EC7 71–77 78–79 LA8 78–79 LA13 SO1 EN2 80 77–78 SO3 LA12 77–78 SO7 67 PR5 67 71–76 59, 76 Public policy 80 EN5 79–80 EN7 79–80 Anti-competitive behaviour Products and services EN11 80 EN13 79–80 EN12 80 EN14 80 Emissions, effluents and waste EN18 79–80 79–80 Products and services 79–80 Compliance EN28 77–78 14–18, 50–59, 77–78 SO5 67 Biodiversity EN26 LA11 Corruption Energy EN22 N/A Community Materials 79–80 LA9 Diversity and opportunity ENVIRONMENTAL EN3 LA7 LA10 71–76 EN1 Additional Training and education Indirect economic impacts EC8 Core Health and safety 80 SOCIAL Core Additional Employment LA1 76–77 LA2 76–77 Labour/management relations LA4 N/A LA5 N/A Key Included Included, but requires future improvement page 85 Awards page 86 CHIEF FINANCIAL OFFICER’S REPORT David Rivkind Core net profit after tax of R427 million increased by R56 million (15%), equating to core earnings per share of 55,93c. David Rivkind Chief Financial Officer page 87 The financial results of the group for the year ended 31 May 2009 demonstrated the resilience of its product offerings to negative changes in economic conditions. An increase in demand for prepaid electronic tokens of value has resulted in a sound performance by the group. Organic growth contributed significantly to the increase in core earnings of 15%. The above growth, together with the company’s continued focus on stringent asset management, resulted in a substantial increase in cash generation. OVERVIEW Group income statement 2009 Actual R’000 Revenue Cost of inventories sold Gross profit Other income Employee compensation and benefit expense Other expenses 2008 Core pro forma R’000 2008 Actual R’000 15 281 449 12 930 609 12 545 471 (14 215 840) (12 211 507) (11 875 606) 1 065 609 22 368 (278 970) (240 940) 719 102 68 142 (195 629) (155 686) 669 865 69 545 (265 003) (146 240) EBITDA Depreciation, amortisation and impairment charges 568 067 (93 220) 435 929 (73 675) 328 167 (58 670) Operating profit Finance expense Finance income Share of losses from associates 474 847 (112 699) 205 046 (27 445) 362 254 (106 604) 239 470 (19 661) 269 497 (147 704) 193 281 (17 441) Net profit before taxation Taxation 539 749 (174 784) 475 459 (138 929) 297 633 (89 841) Net profit for the year Minority interest 364 965 25 582 336 530 (507) 207 792 (26 901) Basic earnings Once-off employee compensation and benefit expense net of tax 390 547 — 336 023 — 180 891 57 600 36 653 — 34 919 — 22 937 9 000 Core net profit for the year 427 200 370 942 270 428 Earnings per share (cents) – Basic – Headline – Core earnings 51,13 51,63 55,93 43,85 43,55 48,40 30,65 30,26 45,81 Amortisation on intangibles raised through business combinations net of tax Cancellation of onerous contract Although net attributable earnings of R391 million exceeded the earnings for the 2008 relative period by R210 million, equating to a growth in basic earnings per share from 30,65c to 51,13c (66,82%), the board of directors believes it is more prudent to compare actual earnings to historical core pro forma earnings in order to evaluate the real growth of the group. page 88 CHIEF FINANCIAL OFFICER’S REPORT continued Core pro forma earnings are adjusted for nonrecurring and non-operational items that applied during the comparative period and assume that the listing and restructuring of the group took place on 1 June 2007. The salient comparisons of the performance for the year against historical core pro forma results were as follows: Revenue Revenues increased by R2,4 billion to R15,3 billion (18%) which was predominantly volume related. Gross profit Gross profit increased from R719 million to R1,065 billion (48%). This growth was attributable to a combination of the above turnover growth and an increase in margin from 5,56% to 6,97%. The group’s trading environment is characterised by high volumes and relatively low margins. The increase in GP margins by 1,41% resulted from the increased purchasing power of the South African distribution division and the growth in value added services. Employee costs The increase in employee costs from R195 million to R278 million (42,60%) was attributable to the following: – Acquisitions and start-ups during the year 11,6% – Additional headcount and salary increases 28% – Forfeitable share plan expense 3% Other expenses Other expenses increased from R156 million to R241 million (54,48%). Acquisitions and start-ups accounted for R47 million. The balance of R38 million related to a growth in expenditure in the remaining group companies, equating to 24,35%. EBITDA EBITDA of R568 million increased by R132 million (30%) and the EBITDA margin increased from 3,37% to 3,72%. Finance expense Of the finance expense of R113 million, R108 million related to imputed interest payable on creditor balances in terms of IFRS requirements. Finance income Finance income of R205 million was earned by the group. Of this amount R47 million related to imputed interest receivable on debtor balances in terms of IFRS requirements and R158 million yielded from liquid working capital. Finance income earned in the comparative pro forma period amounted to R239 million of which R16 million applied to imputed interest receivable on debtor balances in terms of IFRS requirements. The above equated to a net decline of R65 million in finance income earned on cash resources mainly due to the application of an element of cash in order to gain early settlement discounts, the investment of R134 million on acquisitions and the incremental decline in interest rates by 3,5% during the year. Depreciation The increase in depreciation of R20 million was largely due to capital expenditure of R103 million. page 89 Share of losses from associates and joint ventures % holding 2009 R’000 2008 R’000 % growth Oxigen Services India Pvt Limited 37,22 (25 940) (19 661) (31,9) Smart Voucher Limited (Ukash) 16,90 (2 286) — — 781 — — Associates and joint ventures Other Total Oxigen Services India Although Oxigen Services India continued to incur losses as anticipated, an improvement in the company’s performance in the last quarter of the financial year was evident. Revenue for the year ended 31 March 2009 (year-end pertaining to Oxigen Services India Pvt Limited) increased from R1,02 billion to R1,34 billion (30,83%) in line with the continued rollout of point-of-sale devices. Smart Voucher Limited t/a Ukash The minority stake that was acquired in October 2008 was primarily for strategic reasons. Ukash’s technology offering of electronic pins, enabling the redemption of online products and services, is in line with the group’s objective to increase its bouquet of value-added services across its global footprint. Core net profit after tax Core net profit after tax of R427 million increased by R56 million (15%), equating to core earnings per share of 55,93c (27 445) (19 661) (39,6) Segmental report The following are the divisional segments that constitute the group profile: South African distribution • Distribution of secure electronic tokens of value encompassing prepaid airtime and starter packs, bill payments, prepaid electricity, prepaid insurance and redeemable prepaid vouchers for online products and services. International distribution • Replication of the South African distribution model internationally, currently in operation in Mexico, Australia, Mozambique, Democratic Republic of the Congo, Nigeria, Europe, United Kingdom and India. Value-added services • Telemarketing of cellular and financial services products, inbound customer care and technical support via the group’s call centres. • Marketing of the location-based products of “Look4Me” and “Look4Help” (Vodacom) “Where are U” and “2MyAid” (MTN), “miTraffic” and “Look4Music”. • Aggregation of localised content for mobile operators and third-party clients. Technology • Development, integration and management of the group’s IT systems and technologies. page 90 CHIEF FINANCIAL OFFICER’S REPORT continued Revenue Segments South African distribution 2009 2008 % of total R’000 R’000 2009 2008 % growth 14 199 031 12 194 815 92,9 94,3 16,4 International distribution 724 163 500 268 4,8 3,9 44,8 Value-added services 335 743 207 676 2,2 1,6 61,7 22 512 27 850 0,1 0,2 (19,2) 15 281 449 12 930 609 100 100 18,2 Technology Total South African distribution The growth of 16,4% was entirely volume related. The South African distribution continues to be the major contributor to group revenue. Value-added services Total growth in this segment was R128 million (61,7%) of which R48 million (23,2%) was acquisitive and R80 million (38,5%) organic. International distribution The revenue reflected is in respect of subsidiaries only and does not include turnover from associate companies, namely, Ukash (United Kingdom and Europe) and Oxigen Services India. Technology The focus on in-house technological support and product development and enhancement has resulted in a conscious decision to reduce service and support to third parties. This has resulted in a decline in revenue from third parties by R5 million. A hybrid of organic growth and contributions by start-up operations resulted in an increase in revenue of R224 million (44,8%). EBITDA Segments South African distribution International distribution Value-added services Total trading operations 2009 R’000 2008 R’000 % growth 624 346 426 245 46,5 6 144 21 873 (71,9) 75 239 46 866 60,5 705 729 494 984 42,6 Technology (48 502) (9 929) Corporate (89 160) (49 126) Total support (137 662) (59 055) Net total 568 067 South African distribution The growth in EBITDA of R198 million (46,5%), largely due to the increase in revenue, gross profit percentage margins and containment of expenditure, equated to an increase in EBITDA margin from 3,50% to 4,40%. 435 929 30,3 International distribution There was a decline in EBITDA of R19 million comprising R4 million from Polsa Holdings’ trading operations, which was disposed of in March 2009, the loss on disposal thereof of R4 million and R11 million from start-up operations in the USA, Mexico and Australia. page 91 This decline was set-off by a growth in EBITDA of R5 million from R16 million to R21 million (25%) by the remaining companies encompassing this segment. Value-added services Acquisitive contributions of R9 million (19,2%) and organic growth of R19 million (41,3%) equated to a growth of R28 million (60,5%) in EBITDA. The marginal decline in EBITDA percentage to revenue from 22,6% to 22,4% was in line with the decision to incur additional expenditure on infrastructure costs in order to enhance the platform for growth in the future. Technology and corporate The growth in EBITDA generated by the trading operations from R495 million to R705 million (42,6%) could not have been achieved without skilled technological, administrative and managerial support. The increase in negative earnings by these segments of R79 million is in line with the need to invest in skills and product development in order to strengthen the foundation for future expansion both locally and internationally. The very nature of international expansion requires extensive overseas travel and professional support delivered by both the technology and corporate divisions of the group. Core net profit 2009 R’000 2008 R’000 Growth R’000 South African distribution 537 815 407 320 130 495 International distribution (10 947) (9 060) (1 887) Value-added services 49 497 33 450 16 047 576 365 431 710 144 655 Segments Total trading operations Technology (55 250) (11 339) (43 911) Corporate (93 915) (49 429) (44 486) Total support (149 165) (60 768) (88 397) Net total 427 200 370 942 56 258 The growth in core earnings of operational companies was 34% and net growth after technology and corporate expenses of 15%. Balance sheet Assets Total assets increased by R658 million (20,4%) to R3,9 billion primarily as a result of an increase in current assets, of which R432 million related to a growth in cash resources. • • Non-current assets The net increase in non-current assets was R24 million. • This was attributable to: • Capital expenditure net of disposals and depreciation on property, plant and equipment of R42 million, predominantly applied to expenditure • on point-of-sale devices required in both the South African and international distribution segments. Disposal of property, plant and equipment of subsidiaries previously owned totalling R6 million. A decrease in intangible assets, comprising goodwill and intangibles of R29 million, net of acquisitions, disposals and amortisation. Investments in associates of R28 million comprising acquisitions of R55 million less share of losses of R27 million. A net decrease in unactivated starter packs of R18 million. Financial assets at amortised cost relate to starter packs which have been sold but not yet activated. page 92 CHIEF FINANCIAL OFFICER’S REPORT continued Current assets Current assets increased by R634 million. The increase was mainly due to the growth in cash and cash equivalents of R432 million, trade and other receivables of R268 million less a reduction in inventories of R100 million. The stock turn averaged three times per month and debtor’s collections were 21 days. The trade creditor payment terms equated to 40 days. Capital and reserves The share capital and share premium declined by R26 million due to the purchase of shares for the group’s staff share incentive scheme. Net interest received of R154 million compounded this cash generation to R900 million. Of these funds generated R233 million was applied to taxation paid, resulting in net cash flows from operating activities of R667 million. Goodwill arising on transactions with minorities of R914 million is recognised against reserves on the balance sheet, as minority shareholders are treated as equity participants. This is in accordance with the economic entity method which was adopted by the group in the prior year. Liabilities Total liabilities increased by R331 million, the material items being an increase in minority shareholders’ loans to subsidiaries of R28 million and an increase in trade creditors of R366 million. These amounts are set off against a reduction in tax liabilities of R43 million. Cash flow Growth in profitability and the benefits of stringent working capital management have resulted in the positive cash generated from trading operations of R746 million. Against the above, R207 million was applied to investing activities and R10 million was applied to financing activities. The resultant increase in net cash generation resulted in funds on hand accumulating to R1,76 billion at year-end. Dividends In line with the group’s current dividend policy, no dividends have been declared. Directors’ dealings in securities post year-end Further to the disclosure of directors’ interests on page 98, the interests of the directors changed as follows from the end of the financial year to the most recent information available at the date of publishing this report: Director Nature of change No of shares Nature of interest NN Lazarus SC Shares disposed 3 401 249 Direct beneficial GD Harlow Shares disposed 277 871 Indirect beneficial APPRECIATION I wish to acknowledge and express my appreciation to the staff of the group, in particular the finance team for their concerted efforts and high-quality performance. David Rivkind Chief financial officer page 93 Annual financial statements page 94 FINANCIAL STATEMENTS Annual financial statements contents 95 95 96 97 100 101 102 103 104 148 149 150 151 152 Directors’ responsibility Declaration by company secretary Independent auditors’ report Directors’ report Group balance sheet Group income statement Group statement of changes in equity Group cash flow statement Notes to the group annual financial statements Company balance sheet Company income statement Company statement of changes in equity Company cash flow statement Notes to the company annual financial statements page 95 DIRECTORS’ RESPONSIBILITY The directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the financial statements and the related information including pro forma information. The auditors are responsible for reporting on the fair presentation of the financial statements. The financial statements have been prepared in accordance with International Financial Reporting Standards and in the manner required by the Companies Act, 1973. The directors are also responsible for the company’s system of internal financial control. These are designed to provide reasonable, but not absolute, assurance as to the reliability of the financial statements, and to adequately safeguard, verify and maintain accountability of the assets, and to prevent and detect misstatement and loss. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. The financial statements have been prepared on the going-concern basis, since the directors have every reason to believe that the company has adequate resources in place to continue in operation for the foreseeable future. The financial statements have been audited by the independent auditors, PricewaterhouseCoopers Incorporated, which was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors and committees of the board. The directors believe that all representations made to the independent auditors during their audit are valid and appropriate. Approval of the financial statements The financial statements which appear on pages 97 to 163 were approved by the directors on 25 August 2009 and are signed on its behalf. LM Nestadt Non-executive chairman DB Rivkind Chief financial officer BM Levy Joint chief executive officer MS Levy Joint chief executive officer DECLARATION BY COMPANY SECRETARY In terms of section 268G(d) of the South African Companies Act, 1973, as amended (Act), I certify that Blue Label Telecoms Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Act. Further, that such returns are true, correct and up to date. E Viljoen Company secretary Sandton 25 August 2009 page 96 INDEPENDENT AUDITORS’ REPORT for the year ended 31 May 2009 To the members of Blue Label Telecoms Limited We have audited the group annual financial statements and annual financial statements of Blue Label Telecoms Limited, which comprise the consolidated and separate balance sheets as at 31 May 2009, and the consolidated and separate income statements, the consolidated and separate statements of changes in equity and consolidated and separate cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes, and the directors’ report, as set out on pages 97 to 163. Directors’ responsibility for the financial statements The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the consolidated and separate financial position of Blue Label Telecoms Limited as at 31 May 2009, 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 in the manner required by the Companies Act of South Africa. PricewaterhouseCoopers Inc Director: EJ Gerryts Registered Auditor Johannesburg 25 August 2009 National executive: SP Kana (Chief Executive Officer), TP Blandin de Chalain, DJ Fölscher, GM Khumalo, IS Sehoole, S Subramoney, F Tonelli. Resident director in charge: ER Mackeown The Company’s principal place of business is at 2 Eglin Road, Sunninghill where a list of directors’ names is available for inspection. PricewaterhouseCoopers Inc is an authorised financial services provider. VAT reg.no. 4950174682 page 97 DIRECTORS’ REPORT The directors have pleasure in presenting the annual financial statements of Blue Label Telecoms Limited (Blue Label Telecoms or the company) and its subsidiary, associate and joint venture companies (the group) for the year ended 31 May 2009. Principal activities and strategy Blue Label Telecoms is a leading distributor of prepaid secure electronic tokens of value and transactional services within emerging and developing economies across its global footprint of touch points. The group’s stated strategy is to extend its international footprint of touch points, both organically and acquisitively, to meet the significant demand for the delivery of multiple prepaid products and services through a single distributor, across various delivery mechanisms and via numerous merchants or vendors. Financial results The financial statements have been prepared on the goingconcern basis, since the directors have every reason to believe that Blue Label Telecoms and the group have adequate resources in place to continue in operation for the foreseeable future. The annual financial statements for the year ended 31 May 2009 were approved by the board and signed on its behalf on 25 August 2009. Full details of the financial position and results of the company, the group and its segments are set out in the annual financial statements, and group annual financial statements. Sidney Ellerine It is with sadness that the directors note the passing away of Sidney Ellerine on 17 July 2009. Mr Ellerine was involved with the group from its inception and was both a mentor and a partner to the group’s executive management. He provided great leadership and direction to the board as well as to executive management and always conducted himself with the utmost integrity and highest regard for the interests of the company. Subsidiaries, associates and other investments Particulars of the principal subsidiaries, joint ventures and associates of the Blue Label Telecoms group are provided in note 31 to the annual financial statements. Acquisitions and disposals In August 2008 Datacel Direct (Proprietary) Limited (Datacel), established Datacel Data Services (Proprietary) Limited (DDS) as an 81% held subsidiary. DDS is a database accumulator, generating its income from the sale of its data to companies within the group, as well as to outside companies. In addition, Datacel purchased the remaining 20% of the shares in CNS Call Centre (Proprietary) Limited in October 2008. Ventury Group (Proprietary) Limited disposed of its 51% (fifty-one percent) interest in Iveri Payment Technologies (Proprietary) Limited to ADC IT and Payment Solutions in October 2008. Blue Label Telecoms disposed of its 51% (fifty-one percent) interest in E-Voucha (Proprietary) Limited in November 2008, as well as its 50% interest in Polsa Holdings Limited in March 2009. Africa Prepaid Services (Proprietary) Limited (APS) (a 72% held subsidiary of the company) entered into an agreement to establish Africa Prepaid Services Nigeria Limited as a 51% held subsidiary in Nigeria in December 2008 . The balance of the shares in the company are held by local Nigerian partners. The company was established to distribute prepaid cellular products including prepaid airtime, starter packs and data cards on behalf of Multilinks Telecommunications Limited, a wholly owned subsidiary of Telkom SA Limited. Blue Label formed a wholly owned subsidiary in the United States of America (BLT USA Incorporated) in December 2008 as an investment vehicle into VPN (Virtual Prepaid Network). BLT USA Inc acquired 50,01% of VPN for an initial amount of $1 000 and subsequently injected US$5 million into a capital account in its name. The balance of the shares in VPN were held by the KAP Holdings group, its local partner. VPN was established to assist KAP Holdings in converting its physical distribution business of international calling cards into a virtual distribution model through the rollout of point-of-sale devices. Subsequent to year-end, BLT USA terminated its equity investments in VPN by mutual consent and entered into a technology licence arrangement with the KAP Holdings group. VPN repaid the US$5 million capital invested in the business to BLT USA. The licence agreement allows Blue Label to pursue its efforts to grow a distribution footprint in the USA. The Prepaid Company (Proprietary) Limited disposed of its 40% interest in The Hub Pretalk (Proprietary) Limited in May 2009. For further details of acquisitions and disposals during the year, refer to notes 24 and 25 to the annual financial statements. Share capital Full details of the authorised, issued and unissued capital of the company at 31 May 2009 are contained in note 14 to the financial statements. There were no shares issued during the financial year ended 31 May 2009. Forfeitable share plan (share plan) The group implemented the share plan as approved by the shareholders at the annual general meeting held on 12 November 2008. Particulars relating to the share plan are set out in note 30 to the financial statements. Dividends Blue Label Telecoms expects to initiate a dividend policy from the financial year commencing 1 June 2010. It is anticipated that interim dividends will be paid in February and final dividends will be paid in August of each financial year, in the approximate proportion of onethird and two-thirds of the annual dividend, respectively. page 98 DIRECTORS’ REPORT continued Directorate The following were directors of the company for the year under review: Name Office Appointment date Larry M Nestadt Independent non-executive chairman 5 October 2007 Brett M Levy Joint chief executive officer 1 February 2007 Mark S Levy Joint chief executive officer 1 February 2007 Sidney Ellerine* Non-executive director 5 October 2007 Gary D Harlow Independent non-executive director 5 October 2007 Reitumetse J Huntley Independent non-executive director 5 October 2007 Neil N Lazarus SC Non-executive director 5 October 2007 Peter Mansour Non-executive director 21 May 2008 Joe S Mthimunye Independent non-executive director 5 October 2007 Mark V Pamensky Chief operating officer 5 October 2007 David B Rivkind Chief financial officer 5 October 2007 Herbert C Theledi Non-executive director 5 October 2007 Lucy (Pani) M Tyalimpi Independent non-executive director 5 October 2007 Directors’ interests The individual interests declared by directors and officers in the company’s share capital as at 31 May 2009, held directly or indirectly were as follows: Nature of interest Direct beneficial Indirect beneficial Direct non-beneficial Indirect non-beneficial Director 2009 2008 2009 2008 2009 2008 2009 2008 BM Levy 74 340 553 73 290 553 8 272 778 7 272 778 — — — — MS Levy 66 933 145 65 883 145 8 272 777 7 272 777 — — — — S Ellerine* — — 15 409 152 15 409 152 — — 2 222 222 2 222 222 HC Theledi — — 42 959 992 44 992 807 — — — — MV Pamensky — — 7 565 738 6 565 738 — — — — LM Nestadt — — 8 204 674 8 204 674 — — — — GD Harlow — — 3 277 871 3 277 871 — — 14 815 14 815 8 204 673 8 204 673 — — — — 177 779 177 779 RJ Huntley — — 2 140 355 2 241 634 — — — — DB Rivkind — — 3 431 669 — — — — — NN Lazarus *Mr Ellerine passed away on 17 July 2009. His shares are owned by several trusts. page 99 The aggregate interest of the current directors in the capital of the company was as follows: Number of shares Beneficial Non-beneficial The beneficial interest held by directors and officers of the company constitutes 32,71% of the issued share capital of the company and the non-beneficial interest represents 0,32% of the issued share capital. Resolutions The company passed and registered a special resolution in November 2008, approving the acquisition of the company’s shares by the company or any of its subsidiaries. Except for the aforementioned, no other special resolutions, the nature of which might be significant to shareholders in their 2009 2008 249 013 377 242 615 802 2 414 816 2 414 816 appreciation of the state of affairs of the group, were passed by the company or its subsidiaries during the period covered by this annual report. Secretary The company secretary is E Viljoen. The business and postal address of the company secretary appear on page 167. Auditors PricewaterhouseCoopers Incorporated will continue in office in accordance with section 270 (2) of the Companies Act. page 100 GROUP BALANCE SHEET as at 31 May 2009 ASSETS Non-current assets Property, plant and equipment Intangible assets Goodwill Investment in associates and joint ventures Financial asset at amortised cost Deferred taxation assets Current assets Financial assets at fair value through profit and loss Financial assets at amortised cost Inventories Loans receivable Trade and other receivables Current tax assets Cash and cash equivalents Note 2009 R’000 2008 R’000 4 5 5 6 7 8 736 634 105 011 202 830 257 495 109 837 54 096 7 365 712 759 69 484 223 544 266 242 81 356 72 133 — 3 143 109 10 67 449 384 361 29 920 898 571 2 101 1 760 697 2 509 470 5 672 53 163 484 501 7 103 630 687 — 1 328 344 3 879 743 3 222 229 2 244 120 * 4 404 737 (25 562) (1 843 912) (13 399) (914 399) 9 371 1 231 635 305 2 253 372 (9 252) 1 917 944 * 4 404 737 — (1 843 912) 2 552 (898 564) — — 244 758 1 909 571 8 373 9 7 10 11 12 13 Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Share premium Treasury shares Restructuring reserve Foreign currency translation reserve Transaction with minority reserve Equity compensation benefit reserve Share-based payment reserve Retained earnings 14 Minorities interest Non-current liabilities Deferred taxation Interest bearing borrowings Current liabilities Trade and other payables Non-interest bearing borrowings Current tax liabilities Bank overdraft Current portion of interest bearing borrowings Total equity and liabilities *Less than R1 000. 8 15 16 17 13 15 69 664 49 544 20 120 58 056 55 111 2 945 1 565 959 1 518 853 — 28 039 3 891 15 176 1 246 229 1 152 969 9 041 71 146 50 13 023 3 879 743 3 222 229 page 101 GROUP INCOME STATEMENT for the year ended 31 May 2009 Note Revenue Other income Changes in inventories of finished goods Employee compensation and benefit expense Depreciation, amortisation and impairment charges Other expenses 2009 R’000 2008 R’000 15 281 449 22 368 (14 215 840) (278 970) (93 220) (240 940) 12 545 471 69 545 (11 875 606) (265 003) (58 670) (146 240) Operating profit Finance costs Finance income Share of losses from associates 18 19 19 6 474 847 (112 699) 205 046 (27 445) 269 497 (147 704) 193 281 (17 441) Net profit before taxation Taxation 20 539 749 (174 784) 297 633 (89 841) 364 965 207 792 390 547 (25 582) 180 891 26 901 Net profit for the year Attributable to: Equity holders of the parent Minorities interest Earnings per share for profit attributable to equity holders (cents) – Basic 21 51,13 30,65 page 102 GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 May 2009 Restructuring reserve1 R’000 Transaction with minority reserve2 R’000 Employee compensation benefit reserve R’000 63 867 (1 843 912) — — — — 180 891 — — — 4 188 — — — — (14 893) — — — — — — — — — — 288 783 — 2 364 928 — (39 724) — 180 891 — — 129 238 418 021 — 2 364 928 — (39 724) 26 901 207 792 (998) (998) (883 671) — — (883 671) (146 294) (1 029 965) (1 636) Share premium R’000 Treasury shares R’000 * 2 079 533 * 2 364 928 — (39 724) — — — — — — — — — — — — Exchange losses on translation of foreign operations — — — Balance as at 31 May 2008 * 4 404 737 — Net profit for the year — — — 390 547 Treasury shares purchased — — (25 562) — Asset acquired for shares — — — Equity compensation benefit movement — — Minorities acquired/(disposed of) during the year — Exchange losses on translation of equity loans Exchange losses on translation of foreign operations Balance as at 31 May 2009 Note Balance as at 1 June 2007 Shares issued during the year Share issue costs Net profit for the year Dividends Minorities disposed of during the year 13 Share capital R’000 Foreign currency translation reserve R’000 Retained earnings R’000 Sharebased payment reserve R’000 Total ordinary shareholders equity R’000 Minority interest R’000 Total equity R’000 — — — — — (1 636) — — — 244 758 (1 843 912) 2 552 (898 564) — — 1 909 571 — — — — — 390 547 (25 582) 364 965 — — — — — (25 562) — (25 562) — — — — — 1 231 1 231 — 1 231 — — — — — 9 371 — 9 371 195 9 566 — — — — — (15 835) — — (15 835) 3 458 (12 377) — — — — — (15 107) — — — (15 107) — (15 107) — — — — — (844) — — — (844) 4 304 3 460 * 4 404 737 (25 562) (13 399) (914 399) 9 371 635 305 (1 843 912) 1 231 2 253 372 (474) (2 110) 8 373 1 917 944 (9 252) 2 244 120 * Less than R1 000. 1 The restructuring reserve arose as a result of the restatement of group comparatives, as required in terms of the principles of predecessor accounting. This reserve represents the difference between the fair value of the entities under the group’s control and their respective net asset values, as at the assumed restructure date of 1 June 2006. 2 The transaction with minority reserve relates to the excess payments over the carrying amounts arising on transactions with minority shareholders as these are treated as equity participants. (Refer to note 6 and 24) page 103 GROUP CASH FLOW STATEMENT for the year ended 31 May 2009 Note Cash flows from operating activities Cash received from customers Cash paid to suppliers and employees 2009 R’000 2008 R’000 15 013 566 (14 267 551) 12 193 526 (12 272 774) 746 015 158 507 (4 891) (232 637) (79 248) 177 377 (46 575) (71 350) Net cash flows from operating activities 666 994 (19 796) Cash flows from investing activities Proceeds on disposal of intangible assets Acquisition of intangible assets Acquisition of financial assets at fair value through profit or loss Proceeds on disposal of financial assets at fair value through profit or loss Acquisition of associates Exercise of share warrants in associate Acquisition of business combinations net of cash acquired Disposal of subsidiaries net of cash acquired Loans advanced to associates Dividends received Proceeds on disposal of property, plant and equipment Acquisition of property, plant and equipment — (28 716) (10) 5 428 (52 264) — (50 098) (9 523) (2 321) — 5 553 (74 780) 889 (22 898) (1 391) 11 722 — (7 021) (313 364) — (38 618) 120 12 642 (47 238) (206 731) (405 157) Cash flows from financing activities Proceeds from/(repayment of) interest bearing borrowings Proceeds from/(repayment of) non-interest bearing borrowings Proceeds from issue of shares Share issue costs Acquisition of treasury shares 6 583 8 355 — — (25 562) (590 076) (28 031) 1 319 613 (39 724) — Net cash flows from financing activities (10 624) 661 782 449 639 1 328 294 (21 127) 236 829 1 090 044 1 421 1 756 806 1 328 294 Cash generated/(utilised) by operations Interest received Interest paid Taxation paid 22 19 19 23.1 23.2 6 24 25 Net cash flows from investing activities Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Translation difference Cash and cash equivalents at the end of the year 13 page 104 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS as at 31 May 2009 Blue Label Telecoms Limited (the company) and its subsidiaries (together referred to as the group) is involved in the procurement, selling and distribution of prepaid products for inter alia fixed and mobile networks and all business ancillary thereto. The annual financial statements comprise the consolidated financial statements of the group and the stand-alone financial statements of the company and were authorised by the board of directors, as indicated on page 95. 1. Significant accounting policies Statement of compliance The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB) and the Companies Act, No. 61 of 1973, as amended. These financial statements are prepared in accordance with IFRS, issued and effective as at 31 May 2009. The group has early adopted IFRS 8 – Operating Segments. Basis of preparation The annual financial statements and group financial statements are prepared under the historical cost convention, as modified by the revaluation of certain financial instruments. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 2. Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the financial year commencing 1 June 2009, but which the group has not early adopted, are as follows: Standards, amendments and interpretations not yet effective The group has evaluated the effect of all new standards, amendments and interpretations that have been issued but which are not yet effective. Based on the evaluation, management does not expect these standards, amendments and interpretations to have a significant impact on the group’s results and disclosures. The expected implications of applicable standards, amendments and interpretations are dealt with below. IAS 1 (Revised) Presentation of Financial Statements The revised IAS 1 requires information in financial statements to be aggregated on the basis of shared characteristics and to introduce a statement of comprehensive income. This will enable readers to analyse changes in a company’s equity resulting from transactions with owners in their capacity as owners separately from ‘non-owner’ changes. The revisions include changes in the titles of some of the financial statements to reflect their function more clearly (for example, the balance sheet is renamed a statement of financial position). The new titles are not mandatory for use in financial statements. The changes relate to disclosure in the financial statements and are unlikely to have a significant impact on the group’s financial statements. These changes are effective for the financial year commencing on 1 June 2009. IAS 23 (Revised) Borrowing Costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset and may no longer be expensed. Other borrowing costs are recognised as an expense. The group has not previously capitalised borrowing costs and furthermore does not have any qualifying projects, therefore no impact is expected. IAS 27 (Revised) Consolidated and Separate Financial Statements This standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. They will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value and a gain or loss is recognised in profit or loss. The group already applies the economic entity model in their financial statements and therefore management believe their will be limited effects from the application of IAS 27R. page 105 IAS 27R and IFRS 3R Business Combinations have to be adopted in the same period. Both these standards are effective for the period commencing on 1 July 2009. IFRS 2 Amended Share-based Payments Vesting Conditions and Cancellations IFRS 2 was amended to provide more clarity on vesting conditions and cancellations. There will be no impact to the group. IFRS 3 (Revised) Business Combinations The new standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently re-measured at fair value through income. Goodwill may be calculated based on the parent’s share of net assets or it may include goodwill related to the minority interest. All transaction costs will be expensed. As the standard will only be applicable to acquisitions on or after 1 July 2009, no effect has yet been considered. IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of financial statements – Puttable Financial Instruments and Obligations Arising on Liquidation The amendments to these standards require entities to classify the following types of financial instruments as equity, provided they have particular features and meet specific conditions: a) puttable financial instruments; b) instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation. Additional disclosures are required about the instruments affected by the amendments. These changes are effective for the financial year commencing on 1 June 2009 and will not have an impact on the group’s financial statements. Amendments to IFRS 1 First-Time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate The amendment allows first-time adopters to use a deemed cost of either fair value, or the carrying amount under previous accounting practice to measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in the separate financial statements. The amendment also removes the definition of the cost method from IAS 27 and replaces it with a requirement to present dividends as income in the separate financial statements of the investor. These changes are not applicable to the group as the group reports in terms of IFRS. Amendments to IAS 39 Financial Instruments: Recognition and Measurement Exposures Qualifying for Hedge Accounting The amendment makes two significant changes. It prohibits designating inflation as a hedgeable component of a fixed rate debt. It also prohibits including time value in the onesided hedged risk when designating options as hedges. These changes are effective for the financial year commencing on 1 June 2009 and will not have an impact on the group’s financial statements. IFRIC 13 Customer Loyalty Programme This interpretation addresses how companies that grant their customers loyalty awards credits when buying goods or services, should account for their obligation to provide free or discounted goods, or services, if and when customers redeem the points. This interpretation will not have a material effect on the group. IFRIC 15 Agreements for the Construction of Real Estate The interpretation will standardise accounting practice across jurisdictions for the recognition of revenue among real estate developers for sales of units, such as apartments or houses, “off plan”, ie before construction is complete. The interpretation provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue and when revenue from the construction should be recognised. The main expected change in practice is a shift for some entities from recognising revenue using the percentage of completion method (ie as construction progresses, by reference to the stage of completion of the development) to recognising revenue at a single time (ie at completion upon or after delivery). This interpretation is not applicable to the group. IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 16 applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with IAS 39. For convenience the interpretation refers to such an entity as a parent entity, however, all references to a parent entity apply equally to an entity that has a net investment in a foreign operation that is a joint venture, an associate or a branch. The Interpretation does not apply to other types of hedge accounting; it should not be applied by analogy. This interpretation is not applicable to the group. page 106 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 1. Significant accounting policies (continued) Standards, amendments and interpretations not yet effective (continued) IFRIC 17: Distributions of Non-cash Assets to Owners IFRIC 17 applies to the accounting for distributions of noncash assets (commonly referred to as dividends in specie) to the owners of the entity. The interpretation clarifies that: a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity; an entity should measure the dividend payable at the fair value of the net assets to be distributed; and an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss. This interpretation is not applicable to the group. IFRIC 18: Transfers of assets from customers IFRIC 18 clarifies the accounting treatment for transfers of property, plant and equipment received from customers. This interpretation applies to agreements with customers in which the entity receives cash from a customer when that amount of cash must be used only to construct or acquire an item of property, plant and equipment and the entity must then use the item of property, plant and equipment either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods and services, or to do both. This interpretation is not applicable to the group. Annual Improvements Project The IASB decided to initiate an annual improvements project in 2007 as a method of making necessary, but nonurgent, amendments to IFRS that will not be included as part of another major project. The IASB’s objective was to ease the burden for all concerned. Unless otherwise specified the amendments are effective for annual periods beginning on or after 1 January 2009, although entities are permitted to adopt them earlier. The following standards have been effected by the project: t IFRS 5 Non-current Assets Held for Sale t IAS 1 Presentation of Financial Statements t IAS 16 Property, Plant and Equipment t IAS 19 Employee Benefits t IAS 20 Accounting for Government Grants t IAS 23 Borrowing Costs t IAS 27 Consolidated and Separate Financial Statements t IAS 28 Investments in Associates t IAS 31 Interests in Joint Ventures t IAS 29 Financial Reporting in Hyperinflationary Environment t IAS 36 Impairment of Assets t IAS 38 Intangible Assets t IAS 39 Financial Instruments: Recognition and Measurement t IAS 40 Investment Property t IAS 41 Agriculture Management are currently considering the effect of the changes. The group has early adopted IFRS 8 – Operating Segments. The standard requires the segmental disclosures to be reported based on the “management approach”. The reporting would be based on the information that management uses internally for evaluating segment performance and when deciding to allocate resources to operating segments. IFRS 8 will supersede the current standard dealing with segmental reporting, IAS 14. The group had not previously applied the requirements of IAS 14. Refer to note 28. Basis of consolidation Subsidiaries Subsidiaries are all entities (including special purpose entities) in which the group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued, or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Transactions in which combining entities are controlled by the same party or parties before and after the transaction, and that control is not transitory, are referred to as common control transactions. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless costs cannot be recovered. The interests of minority shareholders in the consolidated equity and results of the group are shown separately in the consolidated balance sheet and income statement, respectively. Where the losses attributable to the minority shareholders in a consolidated subsidiary exceed their interest in that subsidiary, the excess, and any further losses attributable to them, are recognised by the group and allocated to those minority interests only to the extent that the minority shareholders have a binding obligation and are able to fund the losses. Where the group previously did not recognise the minority shareholders’ portion of losses and the subsidiary subsequently turns profitable, the group recognises all the profits until the minority shareholders’ share of losses previously absorbed by the group has been recovered. page 107 A listing of the group’s principal subsidiaries and associates is set out in note 29 to the financial statements. The financial effects of the acquisition and disposal of the subsidiaries and associates are disclosed separately in the notes to the financial statements. Minority interest is stated at the minority’s proportion of the fair values of the identifiable assets and liabilities recognised. The group applies the economic entity method in accounting for transactions with minority shareholders. Minority shareholders are treated as equity participants. Acquisitions of minorities or disposals by the group of its minority interests in subsidiary companies where control is maintained subsequent to the disposal are accounted for as equity transactions with minorities. Consequently, the difference between the purchase price and the book value of a minority interest purchased is recorded in equity. All profits and losses arising as a result of the disposal of interests in subsidiaries to minorities where control is maintained subsequent to the disposal, are also recorded in equity. Joint ventures A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial operating decisions relating to the activity require the unanimous consent of the parties sharing control (venturers). The group’s interest in its joint venture is accounted for under the equity method of accounting whereby an interest in jointly controlled entities is initially recorded at cost and adjusted thereafter for post-acquisition changes in the group’s share of net assets of the joint venture. The income statement reflects the group’s share of the results of operations of the joint venture. When necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the group. The company financial statements account for subsidiaries at cost less any accumulated impairment. Associates Associates are all entities over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payment on behalf of the associate. Unrealised gains on transactions between the group and its associates are eliminated to the extent of the group’s interest in the associate. Unrealised losses are also eliminated to the extent of the group’s interest in the associate unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group. The company financial statements account for associates at cost less any accumulated impairment. Dilution gains and losses arising in investments in associates are recognised in the income statement. The company financial statements account for joint ventures at cost less any accumulated impairment. Options to acquire control are not accounted for as derivatives in terms of IAS 39 Financial Instruments. (a) (b) Foreign currencies Functional and presentation currency Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in rand, which is the company’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Changes in the fair value of monetary securities denominated in foreign currency classified as available-forsale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount are recognised in equity. page 108 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 1. (b) (c) The purchases and sales of financial assets that require delivery are recognised on trade date, being the date on which the group commits to purchase or sell the asset. Significant accounting policies (continued) Foreign currencies (continued) Transactions and balances (continued) Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the available-for-sale equity reserve. Group companies The results and financial position of associates (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities are translated at the closing rate at the date of that balance sheet; and • income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • all resulting exchange differences are recognised as a separate component of equity. The group recognises a financial asset or a financial liability on its balance sheet when, and only when, the group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the rights to receive cash flows from the financial asset have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Financial liabilities (or a part of a financial liability) are removed from its balance sheet when, and only when, they are extinguished – ie when the obligation specified in the contract is discharged or cancelled or expires. Financial assets The group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its investments at initial recognition. (a) On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Financial assets at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the income statement. These assets are subsequently measured at fair value. All related realised and unrealised gains and losses arising from changes in fair value are recognised in the income statement. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the foreign entity’s assets and liabilities and are translated at the closing rate. Financial instruments Financial instruments carried on the balance sheet include: • financial assets at fair value through profit or loss; • financial assets at amortised cost; • loans receivable; • trade and other receivables; • cash and cash equivalents; • borrowings; • trade and other payables; and • bank overdraft. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held-fortrading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held-for-trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held-for-trading or are expected to be realised within 12 months of the balance sheet date. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. This category does not include those loans and receivables that the group intends to sell in the short term or that it has designated as at fair value through profit or loss or available-for-sale. These assets are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Financial assets classified as loans and receivables are initially recognised at fair value plus transaction costs. Subsequent page 109 • it becoming probable that the debtor will enter bankruptcy or other financial reorganisation. to initial recognition, loans and receivables are carried at amortised cost using the effective interest rate method, less any provision for impairment. Loans and receivables comprise loans receivable (including loans to associates), trade and other receivables (excluding prepayments and VAT), cash and cash equivalents as well as starter pack assets. The amount of the provision is the difference between the carrying amount and the recoverable amount of the assets being the present value of expected cash flows discounted at the original effective interest rate. The amount of the provision is recognised as a charge in the income statement. A starter pack is a tool which enables the connection of a mobile device to a mobile network operator, also known as SIM (subscriber identity module) card. When a receivable is uncollectible, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited to the income statement. Starter pack assets that have been sold and not yet activated are accounted for as financial assets as they represent a contractual right for the group to receive cash. (c) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in noncurrent assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Financial assets classified as available-for-sale are initially recognised at fair value plus transaction costs. Subsequent to initial recognition, available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from the change in fair value are recognised directly in equity until the financial asset is derecognised or impaired, at which time the cumulative gain or loss previously recognised in equity is recognised in the income statement. Interest and dividend income received on available-for-sale financial assets are recognised in the income statement. The group did not hold any available-for-sale financial assets at balance sheet date. Impairment of financial assets A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. (a) Loans and receivables The group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A provision for impairment is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Objective evidence that receivables are impaired includes observable data that comes to the attention of the company about the following events: • significant financial difficulty of the debtor • a breach of contract, such as default or delinquency in payments (b) Available-for-sale financial assets The group assesses whether there is objective evidence that a financial asset carried at fair value is impaired at each balance sheet date. If any objective evidence of impairment exists for available-for-sale financial assets (for example, a significant or prolonged decline in the fair value of a security below its cost), the cumulative loss, measured as the difference between the acquisition cost and current fair value, less any impairment loss on the financial asset previously recognised in profit or loss, is removed from equity and recognised in the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the income statement. Financial liabilities and equity Financial liability and equity instruments issued by the group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Refer to accounting policies on borrowings and trade and other payables for financial liabilities (which exclude employee related liabilities and VAT), and share capital for equity instruments issued by the group. Fair value estimation The best evidence of fair value on initial recognition is the transaction price, unless the fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on discounted cash flow models and option pricing valuation techniques whose variables include only data from observable markets. Subsequent to initial recognition, the fair values of quoted financial assets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the group establishes fair value by using valuation techniques. page 110 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 1. Major leasehold improvements are amortised over the shorter of their respective lease periods and estimated useful life. Significant accounting policies (continued) Fair value estimation (continued) These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are not capitalised as part of the cost of those assets. All borrowing costs are expensed under the benchmark treatment, in the period in which they are incurred. No such qualifying assets exist at balance sheet date. Derivative financial instruments Derivatives are recognised initially at fair value on the date the derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate at each balance sheet date. Gains and losses on disposal of property, plant and equipment are determined as the difference between the carrying amount and the fair value of the sale proceeds, and are included in operating profit. Certain derivative instruments do not qualify for hedge accounting and are accounted for at fair value through profit or loss. Changes in the fair value of these derivative instruments that do not qualify are recognised immediately in the income statement. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. The group did not hold any derivative instruments at balance sheet date. Property, plant and equipment Property, plant and equipment are initially recorded at cost, being the purchase cost plus any cost to prepare the assets for their intended use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. (a) Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Costs associated with the maintenance of existing computer software programmes are expensed as incurred. Property, plant and equipment are subsequently carried at cost less accumulated depreciation and any accumulated impairment losses. Property, plant and equipment, with the exception of land, are depreciated on the straight-line basis over each asset’s estimated useful life. Land is not depreciated as it is deemed to have an indefinite life. Computer software development costs recognised as assets are amortised over their estimated useful lives. Depreciation is calculated on the straight-line basis to write off the cost of the assets to their residual values over their estimated useful lives as follows: Motor vehicles Furniture and fittings Office equipment Computer equipment Electronic terminals Security equipment Vending machines Media equipment Plant and machinery Buildings 20% – 25% 16,67% – 25% 25% 25% – 33,33% 16,67% 20% – 33,33% 16,67% 33,33% 2% 8,33% Intangible assets Computer software development Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three years). Costs associated with research activities and the maintenance of existing computer software programmes are expensed as incurred. (b) Trademarks and licences Trademarks and licences are shown at historical cost. Trademarks and licences have a finite useful life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licences over their estimated useful lives (10 years). page 111 (c) (d) Databases, customer listings and distribution agreements Databases, customer listings and distribution agreements acquired through business combinations are initially shown at fair value as determined in accordance with IFRS 3 – Business combinations, and are subsequently carried at the initially determined fair value less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the value of these assets over their estimated useful lives (three – five years). Research and development Costs incurred on development projects are recognised as intangible assets when the following criteria are fulfilled: • it is technically feasible to complete the intangible asset and that it will be available for use or sale • management intend to complete the intangible asset and use or sell it • there is an ability to use or sell the intangible asset • it can be demonstrated how the intangible asset will generate probable future economic benefits • adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available • the expenditure attributable to the intangible asset during its development can be reliably measured. Research expenditure is recognised as an expense as incurred. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is available for use (ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management) on a straight-line basis over its useful life (10 years). Direct costs include the product development employee costs and an appropriate portion of relevant overheads. Costs associated with the maintenance of existing products are expensed as incurred. (e) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net identifiable assets of the acquired subsidiary, associate or jointly controlled entity at the date of acquisition. If the cost of acquisition is less than the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Goodwill on the acquisition of subsidiaries is included in “goodwill” in the balance sheet. Goodwill on acquisitions of associates and joint ventures is included in “investments in associates”, and “investments in joint ventures” respectively. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Impairment is determined by assessing the recoverable amount of the cashgenerating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment is recognised. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Impairment of non-financial assets The group evaluates the carrying value of assets with finite useful lives when events and circumstances indicate that the carrying value may not be recoverable. Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Intangible assets not yet available for use are tested annually for impairment. An impairment loss is recognised in the income statement when the carrying amount of an asset exceeds its recoverable amount. An asset’s recoverable amount is the higher of the fair value less cost to sell (the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable willing parties), or its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. An impairment loss recognised for an asset, other than goodwill, in prior years is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised and the recoverable amount exceeds the new carrying amount. The reversal of the impairment is limited to the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised in prior years. The reversal of such an impairment loss is recognised in the income statement in the same line item as the original impairment charge. page 112 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 1. Significant accounting policies (continued) Fair value estimation (continued) Leased assets Finance leases Lease agreements that transfer substantially all the risks and rewards of ownership are classified as finance leases at inception of the lease. The asset is capitalised at the lower of the fair value of the asset or the present value of the minimum lease payments at inception of the lease, with an equivalent amount being stated as a finance lease liability. Finance lease liabilities are classified as non-current or current liabilities, as appropriate. Each lease payment is allocated between the liability and finance charges using the effective interest rate. Finance costs are charged to the income statement over the lease period. The capitalised asset is depreciated over the shorter of the useful life of the asset or the lease term to its residual value. Operating leases Leases in which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments under operating leases, net of incentives, are charged to the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. Inventories Inventories are stated at the lower of cost or estimated net realisable value. Cost comprises direct materials and, where applicable, overheads that have been incurred in bringing the inventories to their present location and condition, excluding borrowing costs. The cost of the inventory is determined by means of the weighted average cost basis. Net realisable value is the estimate of the selling price in the ordinary course of business, less selling expenses. Provisions are made for obsolete, unusable and unsaleable inventory and for latent damage first revealed when inventory items are taken into use or offered for sale. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is recognised in the income statement. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Share capital Ordinary shares are classified as equity and the shares are fully paid up. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are shown as a deduction from equity. Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are not recognised for future operating expenses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred when the relevant contracts are entered into. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Normal taxation The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. page 113 Deferred taxation Deferred taxation is provided using the liability method for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Revenue from the sale of goods and the rendering of services is recognised when it is probable that the economic benefits associated with a transaction will flow to the group and the amount of revenue, and associated costs incurred or to be incurred, can be measured reliably. The main categories of revenue and the bases of recognition are as follows: (a) Sale of starter packs Activation bonuses received from the networks are recognised when the SIM-card is activated on the relevant cellular phone network. Ongoing rebates and other incentives are recognised once certain criteria have been met and the significant act has been completed. (b) Sales of prepaid airtime Sales of prepaid airtime are recognised when the group sells the airtime to the customer. Sales are recorded based on the price specified in the sales contracts, net of discounts at the time of sale. (c) Sales of services Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. (d) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. (e) Dividend income Dividend income is recognised when the right to receive payment is established. Secondary tax on companies (STC) South African companies are subject to a dual corporate tax system, one part of the tax being levied on the taxable income and the other, a secondary tax (STC) on distributed income. STC is not a withholding tax on shareholders but a tax on companies. The STC tax consequence of dividends is recognised when a liability to pay the dividend is recognised. The STC liability is reduced by dividends received during the dividend cycle, and where dividends received exceed dividends declared within a cycle, there is no liability to pay STC. The potential tax benefit related to excess dividends received is carried forward to the next dividend cycle. Deferred tax assets are recognised on unutilised STC credits to the extent that it is probable that the group will declare future dividends to utilise such STC credits. Where dividends declared exceed the dividends received during a cycle, STC is payable at the current STC rate. STC is a charge against income, and is recognised in the taxation charge in the income statement in the same period as the related dividend is accrued as a liability. Trade and other payables Trade payables are measured initially at fair value and are subsequently measured at amortised cost, using the effective interest rate method. Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the group’s activities. Revenue is shown net of indirect taxes, estimated returns, rebates and discounts and after eliminated sales within the group. (a) Employee benefits Equity compensation benefit The group operates an equity settled forfeitable share incentive plan, under which the entity receives services from employees as consideration for equity instruments of the group. The fair value of the services received in exchange for the grant of forfeitable shares is recognised as an expense. The total amount to be expensed is determined by the fair value of the forfeitable shares granted. The total amount expensed is recognised over the vesting period, which is the period over which all of the vesting conditions are to be satisfied. At each balance sheet date, the entity recognises the impact of any shares that have been forfeited prior to the end of the vesting period, if any, in the income statement with a corresponding adjustment to equity. page 114 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 1. (a) Significant accounting policies (continued) Employee benefits (continued) Equity compensation benefit (continued) The group views Blue Label Telecoms Limited to be the grantor of the award and therefore in terms of IFRIC 11 – “IFRS 2 Group and treasury share transactions” the awards are also accounted for as equity-settled in the subsidiary financial statements. An expense is recognised in the company’s income statement with a corresponding increase in equity as a contribution from the parent. 2. The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) The company has procured the shares in order to settle the award but these are accounted for as a purchase of shares in the holding company and only once the shares vest as the performance conditions are met would the share be derecognised. When shares are derecognised the investment in shares in Blue Label Telecoms Limited will be credited and equity will be debited as a contribution to the shareholder. (b) (c) (d) Leave pay accrual The group recognises a liability and an expense for leave. The accrued liability is determined by valuing all future leave expected to be taken and payments expected to be made in respect of benefits. Dividend distribution Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in which they are approved by the shareholders. Assessment of goodwill for impairment The group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing. The recoverable amount of CGUs has been determined based on value-inuse calculations, which is the higher of fair value less cost to sell and value in use. These calculations use 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. Defined contribution plans A defined contribution plan is one under which the group pays a fixed percentage of employees’ remuneration as contributions into a separate entity (a fund), and will have no further legal or constructive obligations to pay additional contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Contributions to defined contribution plans in respect of services rendered during a period are recognised as an employee benefit expense when they are due. The group does not have any defined benefit plans. Profit sharing and bonus plans The group recognises a liability and an expense for bonuses and profit sharing which is determined based on a formula that takes into consideration the profit attributable to the shareholders after certain adjustments. A provision is recognised where the group is contractually obliged or where there is a past practice that has created a constructive obligation. Critical accounting estimates and assumptions The average growth rates applied were between 3% and 5,3%. The weighted average cost of capital used to discount these cash flows ranged between 16% and 36%. The discount rates used are pre-tax and reflect specific risks relating to the relevant companies. The valuation of the goodwill balances resulted in no goodwill impairment charges for the year (2008: Rnil). (b) Classification of financial assets at amortised cost The group assesses at each balance sheet date the classification of financial assets carried at amortised cost between current and non-current. This assessment takes into consideration historical trends and an analysis of the expected period to receipt of the cash. These calculations require the use of estimates and assumptions. (c) Capitalisation of development cost The group capitalises development relating to software development. Costs incurred on development projects of identifiable and unique products which are controlled by the group are recognised as intangible assets when it is probable that the project will be profitable considering its commercial and technical feasibility, and its costs can be measured reliably. Management makes some estimates on the technical feasibility of project and, based on the estimates and the recognition criteria, cost are capitalised. page 115 (d) (e) Contingent consideration for acquisitions Contingent payments for business acquisitions are generally conditional on the future revenue and/or profits achieved by the acquired business. On acquisition date, estimates are made of the expected future revenue and profit based on forecasts made by management. These estimates are reassessed at each reporting date and adjustments are made to the deferred consideration and related goodwill balances, where necessary. Amounts of deferred consideration payable after one year are discounted using discount rates that reflect the current market assessment of the time value of money and, where appropriate, the risks specific to the acquired business. Equity compensation benefit In determining the number of forfeitable shares that will vest due to performance conditions being met, management assesses the attrition rates of staff based on the grades of staff that have been granted awards as well as the historic staff turnover. All decisions relating to the forfeitable share scheme are made by the group’s Remuneration Committee. Accordingly, BLT is considered to be the grantor of these awards. (f) (g) 3. Financial risks In the course of its business, the group is exposed to a number of financial risks: credit risk, liquidity risk and market risk (including foreign currency, interest rate and other price risks). This note presents the group’s objectives, policies and processes for managing its financial risk and capital. Credit risk Credit risk arises because a counterparty may fail to meet its obligations to the group. The group is exposed to credit risk on financial assets mainly in respect of trade receivables, loans receivable and cash and cash equivalents. Trade receivables consist primarily of invoiced amounts from normal trading activities. The group has a diversified customer base and policies are in place to ensure sales are made to customers with an appropriate credit history. Individual credit limits are set for each customer and the utilisation of these credit limits is monitored regularly. Where necessary, a provision for impairment is made. A significant portion of the group’s customer base is made up of major retailers, with the balance of the customer base being widely dispersed. Deferred tax assets Deferred tax assets are recognised to the extent that it is probable that taxable income will be available in the future against which these can be utilised. Future taxable profits are estimated based on business plans which include estimates and assumptions regarding economic growth, interest rates, inflation and competitive forces. Loans are only granted to holders with an appropriate credit history, taking into account the holder’s financial position and past experience. Changes in the estimates of the consideration could result in the recognition of material adjustments in future periods. The group has no significant concentrations of credit risk. Valuation of intangible assets acquired as part of a business combination The fair values of all of the identifiable intangible assets acquired as part of a business combination are determined using recognised valuation techniques. Such techniques often rely on forecasts of future cash flows and the use of appropriate discount rates that reflect the risk factors associated with the cash flows. These valuations are based on information at the time of the acquisition and the expectations and assumptions that have been deemed reasonable by the group’s management. The risk exists that the underlying assumptions or events associated with such assets will not occur as projected. For these reasons, among others, the actual cash flows may vary from forecasts of future cash flows. The group places cash and cash equivalents with major banking groups and quality institutions that have high credit ratings. The group’s maximum credit risk exposure is the carrying amount of all financial assets on the balance sheet and guarantees provided with the maximum amount the group could have to pay if the guarantees are called on, amounting to R11,8 million (2008: R6,5 million). Liquidity risk Liquidity risk arises when a company encounters difficulties in meeting commitments associated with liabilities and other payment obligations. The group’s objective is to maintain prudent liquidity risk management by maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the company aims to maintain flexibility in funding by keeping committed credit lines available. page 116 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 3. Financial risks (continued) Maturity of financial liabilities Less than 1 month or on demand R’000 More than 1 month but not exceeding 1 year R’000 Payable in: More than 1 year but not exceeding 2 years R’000 More than 2 years but not exceeding 5 years R’000 More than 5 years R’000 10 434 — 596 783 3 891 611 108 4 742 — 871 029 — 875 771 4 631 — — — 4 631 16 755 — — — 16 755 — — — — — 2008 Interest bearing borrowings 11 285 Non-interest bearing borrowings 8 539 Trade and other payables* 171 637 Bank overdraft 50 Total 191 511 *Trade and other payables exclude non-financial instruments. 1 738 502 925 978 — 928 218 1 608 — — — 1 608 1 337 — — — 1 337 — — — — — 2009 Interest bearing borrowings Non-interest bearing borrowings Trade and other payables* Bank overdraft Total Market risk The group is exposed to risks from movements in foreign exchange rates and interest rates that affect its assets, liabilities and anticipated future transactions. Cash flow and fair value interest rate risk The group’s cash flow interest rate risk arises from loans receivable, cash and cash equivalents and borrowings carrying interest at variable rates. The group is not exposed to fair value interest rate risk as the group does not have any fixed interest bearing instruments carried at fair value. The group’s exposure to interest rate risk is reflected under the respective borrowings, loans receivable and cash and cash equivalents notes (notes 15, 11 and 13). As part of the process of managing the group’s exposure to interest rate risk, interest rate characteristics of new borrowings and the refinancing of existing borrowings are positioned according to expected movements in interest rates. Foreign currency risk The group is exposed to foreign currency risk from transactions and translation. Transaction exposure arises because affiliated companies undertake transactions in currencies other than their functional currency. Translation exposure arises from the consolidation of subsidiaries with a functional currency other than the group’s reporting currency (rand). The group manages its exposure to foreign currency risk by ensuring that the net foreign currency exposure remains within acceptable levels. Hedging instruments are used in certain instances to reduce risks arising from foreign currency fluctuations. The group did not enter into any forward exchange contracts during the period under review. IFRS 7 Sensitivity analysis The group has used a sensitivity analysis technique that measures the estimated change to the income statement of either an instantaneous increase or decrease of 1% (100 basis points) in market interest rates or a 10% strengthening or weakening of the rand against all other currencies, from the rates applicable at 31 May 2009, for each class of financial instrument with all other variables remaining constant. This analysis is for illustrative purposes only, as in practice market rates rarely change in isolation. Interest rate risk The interest rate sensitivity analysis is based on the following assumptions: • Changes in market interest rates affect the interest income or expense of variable interest financial instruments • Changes in market interest rates only affect interest income or expense in relation to financial instruments with fixed interest rates if these are recognised at fair value. Under these assumptions, a 1% increase or decrease in market interest rates at 31 May 2009 would increase or decrease profit before tax by R17,4 million (2008: R13,2 million). page 117 3. Financial risks (continued) Foreign currency risk Financial instruments by currency 2009 Financial assets Cash and cash equivalents Trade and other receivables* Loans receivable (including loans to associates) Financial assets at fair value through profit or loss Financial assets at amortised cost Financial liabilities Interest bearing borrowings Trade and other payables* Bank overdraft Net financial position 2008 Financial assets Cash and cash equivalents Trade and other receivables* Loans receivable (including loans to associates) Financial assets at fair value through profit or loss Financial assets at amortised cost Financial liabilities Interest bearing borrowings Non-interest bearing borrowings Trade and other payables* Bank overdraft Net financial position ZAR R’000 USD R’000 AUD R’000 MxM R’000 NgN R’000 MZN R’000 Total R’000 1 625 586 725 645 57 959 68 835 95 18 650 1 71 932 23 022 4 475 3 231 1 760 697 820 752 34 421 19 710 — — — — 54 131 10 — — — — — 10 117 546 2 503 208 2 419 148 923 — 113 — 651 — 94 954 1 580 9 286 121 545 2 757 135 18 364 1 128 684 3 891 1 150 939 1 352 269 18 198 84 323 — 102 521 46 402 — 128 — 128 (15) — 160 — 160 491 — 232 752 — 232 752 (137 798) — 36 562 21 765 1 467 812 — 3 891 21 765 1 508 265 (12 479) 1 248 870 ZAR R’000 USD R’000 EUR R’000 CDF R’000 MZN R’000 Total R’000 1 313 550 553 859 5 933 20 550 8 456 2 686 1 — 404 9 525 1 328 344 586 620 5 788 20 149 830 — — 26 777 5 320 — 352 — — 5 672 119 134 1 997 661 3 227 49 859 — 12 324 — 1 2 935 12 864 125 296 2 072 709 15 968 — — — — 15 968 544 1 052 172 50 1 068 734 928 927 — 16 886 — 16 886 32 973 8 497 10 020 — 18 517 (6 193) — — — — 1 — 18 538 — 18 538 (5 674) 9 041 1 097 616 50 1 122 675 950 034 *Trade and other receivables, and trade and other payables exclude non-financial instruments. With a 10% strengthening or weakening in the rand against all other currencies, profit before tax would have decreased or increased by R10,3 million respectively (2008: R2,1 million). Capital risk The company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust this capital structure, the company may issue new shares, adjust the amount of dividends paid to shareholders, return capital to shareholders or sell assets to reduce debt. The group defines capital as capital and reserves and non-current borrowings. The company is not subject to externally imposed capital requirements. There were no changes to the group’s approach to capital management during the year. Fair value measurement For all short-term financial assets and liabilities, the carrying amount is regarded as an approximation of the fair value. The fair value of all non-current loans receivable and borrowings are calculated using a discounted cash flow model based on prevailing market interest rates. page 118 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 Computer equipment R’000 4. Furniture and fittings R’000 Motor vehicles R’000 Office equipment R’000 Terminals R’000 Property, plant and equipment Year ended 31 May 2009 Opening carrying amount Additions Disposals Depreciation charge Translation differences 12 088 13 855 (6 094) (6 471) 129 7 377 4 373 (748) (2 081) 131 9 658 10 580 (2 574) (3 941) (277) 2 622 2 436 (283) (1 113) 35 7 896 6 313 (438) (2 603) — Closing carrying amount 13 507 9 052 13 446 3 697 11 168 At 31 May 2009 Cost Accumulated depreciation Carrying amount 29 544 (16 037) 13 507 12 590 (3 538) 9 052 19 389 (5 943) 13 446 5 584 (1 887) 3 697 21 870 (10 702) 11 168 Year ended 31 May 2008 Opening carrying amount Additions Disposals Depreciation charge Translation differences Closing carrying amount 5 748 12 189 (762) (5 494) 407 12 088 3 150 6 148 (583) (1 393) 55 7 377 6 918 7 251 (1 862) (2 899) 250 9 658 1 339 2 027 (172) (605) 33 2 622 5 879 3 048 (306) (1 067) 342 7 896 At 31 May 2008 Cost Accumulated depreciation 20 744 (8 656) 10 365 (2 988) 14 309 (4 651) 3 919 (1 297) 9 940 (2 044) Carrying amount 12 088 7 377 9 658 2 622 7 896 Property, plant and equipment include the following amounts where the company is a lessee under a finance lease: 2009 R’000 2008 R’000 2 579 1 601 Motor vehicles Cost Accumulated depreciation Carrying value at 31 May These assets have been pledged as surety against the liability. (696) 1 883 (657) 944 page 119 Leasehold improvements R’000 Vending machines R’000 Media equipment R’000 Plant and machinery R’000 Land R’000 Buildings R’000 Total R’000 2 893 8 831 (137) (1 964) (349) 20 300 26 545 (2 475) (6 138) — 5 207 798 (202) (1 710) — 587 234 — (111) — — — — — — 856 976 — — — 69 484 74 941 (12 951) (26 132) (331) 9 274 38 232 4 093 710 — 1 832 105 011 11 253 (1 979) 9 274 50 872 (12 640) 38 232 9 083 (4 990) 4 093 812 (102) 710 — — — 1 832 — 1 832 162 829 (57 818) 105 011 358 3 055 (248) (277) 5 2 893 13 283 13 594 (2 882) (3 695) — 20 300 1 846 4 800 — (1 439) — 5 207 25 2 654 (1 996) (96) — 587 1 176 — (1 176) — — — 3 794 — (2 937) — — 856 43 516 54 766 (12 924) (16 965) 1 091 69 484 3 239 (346) 25 995 (5 695) 7 787 (2 580) 716 (129) — — 856 — 97 870 (28 386) 2 893 20 300 5 207 587 — 856 69 484 page 120 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 5. Customer Distribution listing agreement R’000 R’000 Computer software R’000 Internally generated software R’000 Franchise fees R’000 Customer relationships R’000 Supplier relationships R’000 Total R’000 Goodwill R’000 Trademarks R’000 Year ended 31 May 2009 Opening carrying amount Additions Disposals Amortisation charge Translation differences Adjustment** 266 242 2 489 (8 235) — (279) (2 722) 5 966 3 278 — (4 142) (281) — 7 721 21 087 — (6 264) (3 565) — 11 336 — (1 642) (2 174) (80) — 49 961 14 817 (1 345) (9 497) (364) — 11 996 14 174 (929) (3 128) (37) — 1 901 — — (121) — — 133 607 — — (39 755) — — 1 056 — — (746) — — 489 786 55 845 (12 151) (65 827) (4 606) (2 722) Closing carrying amount 257 495 4 821 18 979 7 440 53 572 22 076 1 780 93 852 310 460 325 257 495 — 257 495 11 598 (6 777) 4 821 47 765 (28 786) 18 979 11 806 (4 366) 7 440 75 808 (22 236) 53 572 25 812 (3 736) 22 076 2 418 (638) 1 780 154 907 (61 055) 93 852 1 490 589 099 (1 180) (128 774) 310 460 325 46 907 225 828 — — — (6 493) 266 242 6 004 1 493 — (1 531) — — 5 966 17 601 924 — (10 804) — — 7 721 3 973 8 375 — (1 223) 211 — 11 336 43 278 13 259 (372) (6 208) 4 — 49 961 1 257 11 640 — (901) — — 11 996 — 2 022 — (121) — — 1 901 — 154 907 — (21 300) — — 133 607 — 1 491 — (435) — — 1 056 119 020 419 939 (372) (42 523) 215 (6 493) 489 786 266 242 — 266 242 8 206 (2 240) 5 966 29 225 (21 504) 7 721 13 102 (1 766) 11 336 59 989 (10 028) 49 961 12 960 (964) 11 996 2 022 (121) 1 901 154 907 (21 300) 133 607 1 491 (435) 1 056 548 144 (58 358) 489 786 Intangible assets At 31 May 2009 Cost Accumulated amortisation Carrying amount Year ended 31 May 2008 Opening carrying amount Additions Disposals Amortisation charge Translation differences Adjustment* Closing carrying amount At 31 May 2008 Cost Accumulated amortisation Carrying amount * This adjustment arose due to a reversal of the present value of a contingent purchase price liability that is no longer applicable due to the restructuring of the group. ** Goodwill in respect of Content Connect Africa has been reduced as a result of warranty claims that have materialised. page 121 2009 R’000 2008 R’000 81 356 61 804 122 357 (27 445) (26 105) (1 882) 527 15 — (7 297) 3 544 (8 949) — — * — (17 441) (17 426) (21) 6 — (120) (336) — — 7 021 (9 043) — 82 210 (19 919) Movement in loans Loans granted to associates and joint ventures Loans repaid by associates Loans received from associates and joint ventures Prepayment in prior period for additional interest purchased Unrealised foreign exchange gains on loans to associates 4 501 (914) (1 266) (57 000) 950 50 724 (12 106) — — 853 (53 729) 39 471 Closing net book value 109 837 81 356 Note 6. Investment in associates and joint ventures Opening net book value Acquisition of associates and joint ventures Movements through net profit Share of results after tax Amortisation of intangible asset Deferred tax on intangible assets amortisation Profit on dilution Dividends received Foreign currency translation reserve Share scheme reserve Transaction with minority reserve Exercise of share warrants in associate Associates converted to subsidiaries Disposal of associate and joint ventures 24 The directors believe that the carrying value of the shares approximates their fair value. The loans are neither past due nor impaired with a low risk of default. * Less than R1 000. Associates 2009 Shares in associates acquired during the year: Oxigen Services India (Private) Limited Smart Voucher Limited Dual Data (Proprietary) Limited BLK (Proprietary) Limited Date acquired 1 June 2008 1 October 2008 1 October 2008 17 December 2008 Effective percentage acquired 3,85 17,25 50 25 page 122 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 6. Investment in associates and joint ventures (continued) The group’s interest in its principal associates, which are unlisted, is as follows: Name India United Smart Voucher Limited Kingdom Dual Data (Proprietary) Limited South Africa BLK Risk Services (Proprietary) Limited South Africa 2008 Oxigen Services India (Private) Limited India Net book value R’000 Assets R’000 Liabilities R’000 Revenues R’000 167 511 92 610 1 434 602 (64 078) 37,22 61 920 122 343 1 341 110 888 1 340 45 112 3 954 (12 009) — 16,9 50 40 851 — 1 324 429 1 247 893 25 220 208 093 128 070 1 057 732 (56 175) 35 81 356 Country of incorporation 2009 Oxigen Services India (Private) Limited Effective percentage interest held Profit/ (loss) R’000 There are no contingent liabilities relating to the group’s interest in associates. For details on related party transactions refer to note 29. On 14 November 2007, the group increased its shareholding in the following associates to obtain a controlling interest: • House of Business Solutions (Proprietary) Limited • Cellfind (Proprietary) Limited • Africa Prepaid Services (Proprietary) Limited • Virtual Voucher (Proprietary) Limited • Datacel Direct (Proprietary) Limited Refer to note 24 for details of these acquisitions. Joint ventures Shares in joint ventures acquired during the year: Date acquired 1 June 2008 Demtrade 11 (Proprietary) Limited Effective percentage acquired 50 The group disposed of the following interests in joint ventures: Date disposed 25 May 2009 The Hub Pretalk (Proprietary) Limited Effective percentage disposed 40 Set out below is the summarised financial information of joint ventures: Profit/ (loss) R’000 Effective percentage interest held Net book value R’000 Country of incorporation Assets R’000 Liabilities R’000 Revenues R’000 2009 Premet Cellular (Proprietary) Limited SA 1 026 6 998 14 731 (1 061) 40 * Demtrade 11 (Proprietary) Limited SA 7 554 6 382 9 086 1 121 50 6 846 SA 2 585 5 523 19 651 (1 774) 40 * SA 2 303 7 214 297 945 (2 602) 40 * 2008 The Hub Pretalk (Proprietary) Limited Premet Cellular (Proprietary) Limited There are no contingent liabilities relating to the group’s interest in joint ventures. * Less than R1 000. page 123 2009 R’000 7. 2008 R’000 Financial assets at amortised cost Starter packs Balance at the beginning of year Additions Disposals Translation differences At the end of year Less: Current portion 125 296 45 266 (49 399) 382 121 545 (67 449) 84 383 114 855 (74 412) 470 125 296 (53 163) 54 096 72 133 The credit risk in respect of the balance at the end of the year is considered low. This is based on the historical trends of connections of starter packs in the market. Capital allowances R’000 8. Fair value gains R’000 Provisions R’000 Tax losses R’000 Prepayments R’000 Other R’000 Total R’000 Deferred taxation At 31 May 2007 Charge/(credited) to income statement Tax rate change Acquisition of subsidiary (note 24) At 31 May 2008 Charge/(credited) to income statement Disposal of subsidiary (note 25) Foreign currency translations (93) 951 (9) 337 1 186 1 677 — — 18 442 (9 915) (467) 46 951 55 011 (14 544) — — (1 435) (1 128) (244) (541) (3 348) (427) 68 (99) (18) (1 162) 1 (553) (1 732) (9 334) — 77 86 27 38 — 151 1 238 — — 4 103 234 (494) — 3 843 6 030 384 1 998 At 31 May 2009 2 863 40 467 (3 806) (10 989) 1 389 12 255 2009 R’000 Deferred tax asset comprises: Capital allowances Fair value gains Provisions Tax losses Prepayments Other 21 085 (10 993) (1 175) 46 194 55 111 (15 360) 452 1 976 42 179 2008 R’000 1 080 1 996 (2 164) (10 488) (328) 2 539 — — — — — Total deferred tax asset (7 365) — Deferred tax liability comprises: Capital allowances Fair value gains Provisions Tax losses Prepayments Other 1 784 38 472 (1 642) (502) 1 716 9 716 1 186 55 011 (3 348) (1 732) 151 3 843 Total deferred tax liability 49 544 55 111 Net deferred taxation 42 179 55 111 Deferred tax assets are recognised for tax loss carry forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable. The group did not recognise deferred income tax assets of R17,1 million (2008: R5,9 million) in respect of losses amounting to R55 million (2008: R20,5 million) that can be carried forward against future taxable income. Deferred income tax liabilities of R2,1 million (2008: R2,3 million) have not been recognised. page 124 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 Note 9. 2008 R’000 5 672 10 (5 427) 32 28 (305) 16 183 1 391 (10 527) (1 375) — — Financial assets at fair value through profit or loss Balance at beginning of year Additions Disposals Fair value movements Translation differences Disposal of subsidiary 25 10 5 672 384 361 484 501 384 361 484 501 29 120 800 3 593 3 510 29 920 7 103 At the end of year Changes in the fair value of these assets are recorded in other income. The fair value of financial assets is based on quoted market prices as at 31 May. 10. 2009 R’000 Inventories Airtime and related products A general notarial bond is held by Investec Bank Limited over airtime up to R550 million (2008: R250 million). 11. Loans receivable Interest free Bearing interest at the prime linked interest rates Loans are unsecured and have no fixed terms of repayment. Included in interest-free loans is an amount of R28 million to ZOK Cellular (Proprietary) Limited (ZOK). The loan to ZOK in the prior year of R27 million was included in trade receivables. 12. Trade and other receivables Trade receivables Less: Provision for impairment Sundry debtors and prepayments VAT The ageing of trade receivables at the reporting date was: 31 May 2009 Fully performing Past due by 1 to 30 days Past due by 31 to 60 days Past due by 61 to 90 days Past due by more than 90 days 31 May 2008 Fully performing Past due by 1 to 30 days Past due by 31 to 60 days Past due by 61 to 90 days Past due by more than 90 days 726 862 (3 192) 723 670 169 456 5 445 556 974 (5 299) 551 675 55 703 23 309 898 571 630 687 Gross R’000 Impairment R’000 682 922 15 101 8 479 2 679 18 650 727 831 3 17 1 717 12 1 443 3 192 527 010 10 123 12 668 4 498 11 413 25 53 622 — 4 599 565 712 5 299 Receivables in respect of starter packs are included in fully performing debtors above. Ongoing activation revenue due to these debtors is set off against the receivable balance as and when it is earned by them. The effect of discounting of the trade receivables balance is not taken into account in the above table. The trade receivables that are neither past due nor impaired are considered to have a low risk of default. page 125 12. 2009 R’000 2008 R’000 5 299 — 2 876 (4 983) 1 071 613 3 815 (200) 3 192 5 299 Cash at bank Cash on hand 1 751 775 8 922 1 317 963 10 381 Favourable balances Bank overdraft 1 760 697 (3 891) 1 328 344 (50) 1 756 806 1 328 294 Trade and other receivables (continued) Provision for impairment of receivables At 1 June Acquisition of subsidiaries Allowances made during the year Amounts used and reversal of unused amounts At 31 May Impairment of receivables is determined after assessing the nature of the customer, their geographic location and specific circumstances. Based on historic trend of the customers performance, the group believes that the above provision for impairment of receivables sufficiently covers the risk of default. There is a cession of trade receivables of R462,1 million (2008: R391,8 million) in favour of Investec Bank Limited. 13. Cash and cash equivalents The PACS facility granted by First National Bank is secured by a cession of cash to the value of R1,2 million. Cash and cash equivalents of R1 282 million (2008: R1 055 million) are restricted. 14. 2009 Number of shares 2008 Number of shares 2009 R’000 2008 R’000 1 000 000 000 1 000 000 000 1 1 766 360 894 — (5 201 713) 378 097 993 388 262 901 — * — * * * — 761 159 181 766 360 894 * * Share capital Authorised Total authorised share capital of ordinary shares (par value of R0,000001 each) Issued Balance at the beginning of the year Shares issued during the year Shares acquired during the year Balance at the end of the year The company acquired 5 201 713 shares on the Johannesburg stock exchange in order to grant forfeitable shares to employees and directors. The amount paid to acquire these shares was R25 710 333. An amount of R25 561 982 has been deducted from shareholders equity. These shares are held as ‘treasury shares’. (The difference of R148 351 relates to shares held by equity accounted group companies.) See note 30 for details on the forfeitable shares. The directors of the company have unrestricted authority until the following annual general meeting to allot up to 3% of the number of ordinary shares issued in the company as at 31 May 2008, subject to the provisions of section 221 of the Companies Act, 1973, and the JSE Listings Requirements. page 126 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 14. Number Issue price per share R Share capital R’000 Share premium R’000 190 131 616 5,50 * 1 045 724 14 545 455 5,50 * 80 000 148 148 148 35 437 682 6,75 6,75 * * 1 000 000 239 204 * 2 364 928 Share capital (continued) Shares issued in the prior year Shares issued to buy out minority shareholders on restructuring1 Shares issued to Brett Levy and Mark Levy to terminate the management bonus agreement2 Shares issued as part of the preferential allocation in the private placement Shares issued to Microsoft Corporation 388 262 901 *Less than R1 000. 1 Please refer to pre-listing statement for details of the minority shareholders who received shares as part of the restructuring (Step 4 –13 in the overview of the restructuring). 2 Please refer to pre-listing statement for details of the management bonus settlement agreement (Section 20.1). 15. 2009 R’000 2008 R’000 206 608 2 221 32 261 35 296 (15 176) 794 3 918 — 11 256 15 968 (13 023) Interest bearing borrowings Liabilities under non-cancellable finance leases Instalment sale liabilities Bank borrowings Other borrowings Less: Amounts included in current portion of borrowings 20 120 2 945 Finance lease liabilities – minimum lease payments due: Not later that one year Later than one year and not later than five years 101 134 427 514 Future finance charges on finance leases 235 (29) 941 (147) 206 794 380 306 1 855 2 918 Future finance charges on finance leases 686 (78) 4 773 (855) Present value of finance lease liabilities 608 3 918 Present value of finance lease liabilities Instalment sale liabilities – minimum payments due: Not later than one year Later than one year and not later than five years The group did not default on any loans or finance lease liabilities, or breach any terms of the underlying agreements during the period. Liabilities under non-cancellable finance leases Liabilities under capitalised finance leases are payable over periods of one to five years at effective interest rates linked to the prime interest rate per annum. They are secured by the motor vehicles to which they relate. Instalment sale liabilities All instalment sale liabilities are secured over the plant and equipment to which they relate, are repayable in monthly instalments and are subject to interest at prime linked rates. Bank borrowings The bank borrowings are repayable in 24 fixed monthly instalments. The loan bears interest at 12% per annum. Other borrowings Other borrowings are unsecured and have no fixed terms of repayment. These borrowings bear interest at prime linked rates. page 127 16. 2008 R’000 1 362 803 1 072 565 Trade and other payables Trade payables 17. 2009 R’000 Accruals 58 655 45 670 Sundry creditors 67 628 23 694 VAT 29 767 11 040 1 518 853 1 152 969 Bank borrowings The loan is unsecured. The bank has the right to request full payment in cash unless otherwise negotiated. — 300 Other borrowings — 8 741 — 9 041 11 951 7 590 4 434 — Non-interest bearing borrowings The loans are unsecured and have no fixed terms of repayment. 18. Operating profit The following items have been charged/(credited) in arriving at operating profit: Audit fees – services as auditors Audit fees – other Consulting fees Courier and postage Excess of acquirers’ interest in the net fair value over cost Fair value movements on financial assets at fair value through profit or loss 14 008 2 383 7 027 4 599 — (2 585) (32) 1 375 Foreign exchange profit – realised (7 851) (520) Foreign exchange profit – unrealised (1 970) (1 969) Foreign exchange loss – realised 6 432 Foreign exchange loss – unrealised 9 312 — — (43 000) Gain on derecognition of financial asset — Impairment of loans 1 261 — Impairment of trade receivables 6 090 3 244 Insurance 12 833 5 189 Legal fees 6 261 1 978 — (2 335) Loan release Loss on disposal of intangible asset 967 — Loss on disposal of property, plant and equipment 640 422 Loss on disposal of subsidiaries 4 933 — Management fees paid 4 614 1 468 (4 089) (8 157) Management fees received 6 146 2 356 Operating lease rentals – premises 24 831 12 140 Overseas travel 15 761 7 861 Operating lease rentals – equipment Profit on disposal of subsidiaries Rent received (352) — — (244) Rent and security 3 883 711 Repairs and maintenance 3 996 1 927 page 128 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 2009 R’000 19. Finance (income)/costs Interest received • Bank • Loans • Other • Discounting of receivables Interest paid • Bank • Loans • Finance leases • Other • Discounting of payables Net finance income 20. (157 759) (333) (415) (46 539) (175 496) (959) (922) (15 904) (205 046) (193 281) 1 477 2 231 576 607 107 808 34 194 9 596 645 2 140 101 129 112 699 147 704 (92 347) (45 577) 190 144 101 759 190 406 (262) 101 759 — (15 360) (12 168) (15 360) (12 168) Taxation Current tax current year prior year adjustment Deferred tax current year — 250 174 784 89 841 Profit before tax 539 749 297 633 Tax at 28% Income not subject to tax Expenses not deductable for tax purposes Secondary tax on companies Capital gains Effect of tax rate changes Utilisation of previously unrecognised tax losses Tax effect of assessed losses not recognised Share of losses from associates Prior year adjustment Effect of different tax dispensations 151 130 (1 457) 7 293 — (174) — (1 468) 12 944 7 685 (262) (907) 83 337 (3 504) 8 187 250 (1 453) (1 175) (3 532) 3 391 4 883 — (543) Tax charge 174 784 89 841 390 547 763 834 51,13 180 891 590 264 30,65 STC 21. 2008 R’000 Earnings per share a) Basic Basic earnings per share are calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year. Profit attributable to equity holders of the company (R’000) Weighted average number of ordinary shares in issue (thousands) Basic earnings per share (cents per share) b) Headline Headline earnings are calculated applying the principles contained in SAICA circular 8/2007. The weighted average number of shares used is as for the basic earnings per share figure discussed above. page 129 21. Earnings per share (continued) 2009 audited Profit before tax and minorities R’000 Profit attributable to equity holders of the company Loss on disposal of property, plant and equipment Loss on disposal of subsidiaries Profit on disposal of subsidiaries Headline earnings Weighted average number of ordinary shares in issue (thousands) Headline earnings per share (cents per share) 539 749 640 4 933 (352) Tax R’000 (174 784) (179) (1 237) — Minorities R’000 25 582 (5) — — Headline earnings R’000 390 547 456 3 696 (352) 394 347 763 834 51,63 2008 audited Profit attributable to equity holders of the company Loss on disposal of property, plant and equipment Excess of acquirers’ interest in the net fair value over cost Headline earnings Weighted average number of ordinary shares in issue (thousands) Headline earnings per share (cents per share) Profit before tax and minorities R’000 297 633 422 Tax R’000 (89 841) (118) Minorities R’000 (26 901) — (2 585) — — Headline earnings R’000 180 891 304 (2 585) 178 610 590 264 30,26 c) Diluted – basic and headline Diluted earnings per share are calculated by adjusting the number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The only dilutive potential ordinary shares that the company has is the forfeitable shares granted. For this calculation an adjustment is made for the number of shares that would be issued on vesting under the forfeitable share plan. 2009 Basic earnings (R’000) Issued number of ordinary shares in issue (thousands) Adjusted for forfeitable shares (thousands) Weighted average number of ordinary shares for dilutive earnings (thousands) Dilutive basic earnings per share (cents) 390 547 761 159 5 152 766 361 50,96 Headline earnings (R’000) Weighted average number of ordinary shares for dilutive headline earnings (thousands) Dilutive headline earnings per share (cents) 394 347 766 361 51,46 In 2008 there were no potentially dilutive instruments page 130 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 21. 2009 unaudited R’000 2008 unaudited R’000 d) Core (unaudited) Core earnings per share is calculated after adding back the amortisation of intangible assets as a consequence of the purchase price allocations exercised in terms of IFRS 3: Business Combinations, the costs incurred in terms of the Management Bonus Settlement Agreement and the termination of the Otter Mist Trading cc consulting agreement, as explained in the pre-listing statement. Reconciliation between net profit for the period and core net profit for the period: Net profit for the period Management bonus settlement net of tax Amortisation on intangibles raised through business combinations net of tax Cancellation of onerous contract 390 547 — 36 653 — 180 891 57 600 22 937 9 000 Core net profit for the period 427 200 270 428 Earnings per share (continued) Core net profit for the year attributable to: Equity holders of parent Minority interest Weighted average number of ordinary shares in issue Core earnings per share (cents per share) 22. 403 782 427 200 (23 418) 763 833 909 55,93 301 409 270 428 30 981 590 263 513 45,81 2009 R’000 2008 R’000 474 847 269 497 26 132 65 827 — — 46 539 (107 808) 1 261 640 967 4 581 — (32) 6 022 7 342 16 965 42 523 53 (43 000) 15 904 (101 129) — 422 — — (2 585) 1 375 65 851 (307 977) 454 907 3 844 3 072 (194 417) (252 084) 205 078 5 032 (40 913) Cash generated by operations Reconciliation of operating profit to cash generated by operating activities: Operating profit Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Loss on disposal of investments Gain on derecognition of financial asset Discounting of receivables Discounting of payables Impairment of loan Loss on disposal of property, plant and equipment Loss on disposal of intangible assets Net loss on disposal of subsidiaries Excess of acquirers’ interest in the net fair value over cost Fair value movements on investments Share incentive scheme expense Net unrealised forex loss/(gains) Changes in working capital (excluding the effects of acquisitions and disposals): Decrease/(increase) in inventories Increase in trade and other receivables Increase in trade and other payables Decrease in loans receivable Decrease/(increase) in financial assets at amortised cost 746 015 (1 969) (79 248) page 131 2009 R’000 23. 23.1 Taxation paid Balance outstanding at beginning of year Translation differences Taxation charge Acquisition of subsidiaries Disposal of subsidiaries Net payable outstanding at end of year 23.2 71 146 (2 096) 190 144 — (619) (25 938) 31 617 50 102 009 8 820 — (71 146) 232 637 71 350 Acquisition of associates Acquisition of associates and joint ventures Cash advanced in the prior year Cash paid in current year 24. 24.1 2008 R’000 122 357 (70 093) — — 52 264 — Business combinations Acquisition of subsidiaries and start-up operations 31 May 2009 Initial acquisition Date acquired Blue Label** Data Solutions Celebia** Holdings Blue Label** Telecoms Blue Label** USA Inc USA, LLC Blue Label** Blue Label Mexico Australasia Answers Direct Distributor of Company prepaid distributes cellular Blue Label airtime in products Mexico and services in the Australasian markets Call centre operation Provider of data for use in call centres Investment holding company situated in Cyprus Investment holding company situated in the USA Africa Prepaid Services Nigeria** Limited Distributor of Distributor of prepaid prepaid calling cards cellular in the USA airtime and starter packs in Nigeria % acquired 18 July 2008 70 19 August 2008 50,5 1 August 2008 80 1 August 2008 81 1 July 2008 100 2 December 2008 100 2 December 2008 50,01 1 December 2008 51 Assets Liabilities R’000 20 534 1 358 R’000 119 3 209 R’000 2 120 1 478 R’000 3 595 709 R’000 35 1 386 R’000 39 947 50 948 R’000 119 481 90 679 R’000 224 401 233 430 Revenue Profit/(loss) after tax since acquisition 292 (6 098) — (3 637) 7 037 460 3 004 1 625 — (101) — (1 559) 134 263 (12 022) 110 713 (15 972) Had these acquisitions of subsidiaries been made at the beginning of the financial year they would have contributed R7,037 million to revenue and (R5,036) million loss to net profit after tax. The actual contribution to revenue and net profit after tax for the year was R7,037 million and (R3,177) million loss. (This excludes the effect of start-up operations). ** These represent start-up operations. page 132 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 24. Business combinations (continued) 24.1 Acquisition of subsidiaries and start-up operations (continued) 31 May 2009 The fair value of the net assets approximated the assets acquired Blue Label** Blue Label Mexico Australasia R’000 R’000 Cash and cash equivalents Property, plant and equipment Intangible assets Goodwill Inventories Receivables Borrowings Payables Fair value of subsidiaries acquired Minority interests Fair value of net assets acquired Goodwill Transaction with minorities reserve Total purchase consideration Subsequent capital contribution Still to be settled Settled in cash Less cash and cash equivalents in subsidiary Cash flow on acquisition * Less than R1 000 . ** These represent start-up operations. Answers Direct R’000 Blue Label** Data Solutions R’000 Celebia** Holdings R’000 Blue Label** Telecoms Blue Label** USA Inc USA, LLC R’000 R’000 Africa Prepaid Services Nigeria** Limited R’000 Total R’000 30 404 1 109 — — 1 — 149 — 31 663 — — — — — — — 30 404 (9 121) 21 283 — 11 1 964 — — 24 (2 511) (68) 529 (261) 268 1 659 150 — 800 — — (800) — 150 (30) 120 30 — — — — * — — * * * — — — — — — — — 1 — 1 — — — — — * — — * — * — — 19 856 — 54 910 (19 856) (1 234) (121) — (121) — — — — — 814 — — 814 (399) 415 — 161 21 820 800 54 1 748 (23 167) (1 302) 31 777 (9 811) 21 966 1 689 5 861 27 144 — — 27 144 — 1 927 — — 1 927 — 150 — — 150 — * — — * — 1 — — 1 — * — — * 130 9 49 630 — 49 639 — 415 — (415) — 5 991 29 646 49 630 (415) 78 861 (30 404) (3 260) (1 109) 818 — 150 — * (1) — — * (149) 49 490 — — (31 663) 47 198 page 133 24. Business combinations (continued) 24.1 Acquisition of subsidiaries and start-up operations (continued) 31 May 2008 Virtual Voucher Africa Prepaid Services House of Business Solutions Group Provider of a Distributor of Holding company fully integrated prepaid cellular of Datacel prepaid voucher airtime and Direct group. management Vodacom starter The group is system packs in Africa, a provider of operating in excluding direct marketing over 500 Engen South Africa of short-term petroleum insurance forecourts products to various databases Cellfind Provider of location-based services CNS Call Centre Call centre operations specialising in insurance policy sales Content Connect Africa Provider of content for mobile devices Little River Trading 181 The procurement, selling and distribution of prepaid products for inter alia fixed and mobile networks and all business ancillary thereto POS Control Services Assembles and sells point-ofsale devices Initial acquisition Date acquired % acquired 1 June 2006 15% 1 June 2006 28% 1 June 2006 33,3% 1 June 2006 42,7% 14 November 2007 85% R’000 32 538 15 556 365 015 14 November 2007 44% R’000 49 243 61 374 212 471 14 November 2007 66,7% R’000 303 42 — 14 November 2007 57,3% R’000 25 131 5 122 45 039 1 January 2008 80% 23 January 2008 100% 1 March 2008 100% 1 March 2008 52% Further acquisition Date acquired % acquired Assets Liabilities Revenue Profit/(loss) after tax since acquisition 4 327 220 8 231 18 453 R’000 10 523 2 341 11 044 R’000 7 595 3 685 4 500 R’000 56 254 54 165 342 271 R’000 651 719 609 1 062 (32) 2 089 (68) page 134 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 24. Business combinations (continued) 24.1 Acquisition of subsidiaries and start-up operations (continued) 31 May 2008 The fair value of the net assets approximated the assets acquired House of Africa Business Virtual Prepaid Solutions Voucher Services Group Cellfind R’000 R’000 R’000 R’000 Cash and cash equivalents Property, plant and equipment Intangible assets Intangible assets – revalued Goodwill Investments Inventories Receivables Loan receivable Deferred tax Deferred tax – revalued Borrowings Payables Fair value of subsidiaries acquired Minority interests Investments in associates cost as at restructure date Fair value of net assets acquired Amounts transferred to transactions with minority reserve Goodwill Total purchase consideration Settled in shares Settled in cash Less cash and cash equivalents in subsidiary Cash flow on acquisition CNS Call Centre R’000 Content Connect Africa R’000 Little River Trading 181 R’000 POS Control R’000 Total R’000 (5 296) 2 973 2 920 4 614 — 6 145 — — 11 356 183 35 2 774 1 366 3 069 669 117 2 002 718 248 667 — — — — — 7 528 4 320 — — — 13 043 15 069 — — — (1 644) (8 735) 29 875 1 127 — 10 265 20 741 — 553 (8 365) (17 924) (31 904) 28 289 3 319 1 209 — 4 428 5 313 (134) (7 921) (16 344) (5 332) 62 686 — — — 9 664 — 128 (17 564) — (14 967) 924 5 488 — — — — — (259) — — 6 387 — — — 2 983 — — (1 788) (37) (5 817) 38 732 — — — — — — (10 845) — — — — — — * — — — — — 166 893 9 934 1 209 23 308 52 885 5 313 547 (46 742) (35 949) (66 755) 12 655 — 11 481 (2 365) 19 485 — 46 680 — 7 119 (1 424) 8 540 — 27 887 — * — 133 847 (3 789) (2 703) 2 478 (5 651) (3 167) — — — — (9 043) 9 952 11 594 13 834 43 513 5 695 8 540 27 887 * 121 015 16 354 11 728 12 705 13 296 44 876 79 897 101 251 21 406 — 5 660 — 21 460 — 62 113 — — 175 186 215 560 38 034 (19 125) 18 909 37 595 (23 925) 13 670 138 607 (68 821) 69 786 166 170 (137 170) 29 000 11 355 — 11 355 30 000 — 30 000 90 000 — 90 000 * — * 511 761 (249 041) 262 720 5 296 (2 973) (2 920) (4 614) — (6 145) — — (11 356) 24 205 10 697 66 866 24 386 11 355 23 855 90 000 * 251 364 * Less than R1 000. 24.2 Acquisition of minorities’ shareholdings 31 May 2009 CNS Call Centre Call centre operations specialising in insurance policy sales Initial acquisition Date acquired % acquired Assets Liabilities Revenue Profit/(loss) after tax since acquisition 1 October 2008 20 R’000 13 615 2 019 26 916 1 507 page 135 24. Business combinations (continued) 24.2 Acquisition of minorities’ shareholdings (continued) 31 May 2009 The fair value of the net assets approximated the assets acquired Minority interests Fair value of net assets acquired Amounts transferred to transactions with minority reserve Total purchase consideration Settled in cash Cash outflow on acquisition CNS Call Centre R’000 2 005 2 005 895 2 900 2 900 2 900 Total R’000 2 005 2 005 895 2 900 2 900 2 900 Budding Trade 1170 Ventury Group 31 May 2008 The Prepaid Company Initial acquisition Date acquired % acquired Further acquisition Date acquired % acquired Date acquired % acquired Date acquired % acquired Assets Liabilities Revenue Profit/(loss) after tax since acquisition Matragon Kwikpay SA The Matragon is procurement, the holding selling, company of distribution Comm of prepaid Express products for Services SA inter alia fixed which is a and mobile distributor networks and of prepaid all business airtime and ancillary other prepaid thereto products and starter packs. Distribution channels include terminals, vending machines and software embedded on POS devices Supply of electronic vouchers and related services 1 June 2006 69,6% 1 June 2006 50% 1 June 2006 60% Velociti Blue Label One Call centre Focus on Company Group operations technology holds Telkom company specialising strategy and licence consisting of: in insurance new product 1. Ventury policy sales development Group and cellular 2. Cigicell contract 3. iVeri sales Distributor of prepaid airtime through own terminals. Multi-channel payment and transaction processing group 1 June 2006 51% 1 June 2006 75% 1 June 2006 50% 1 June 2006 90% 14 November 14 November 14 September 14 November 14 November 14 November 2007 2007 2006 2007 2007 2007 30,4% 50% 15% 49% 25% 50% 1 March 2007 20% 14 November 2007 5% 22 April 2008 10% R’000 R’000 R’000 R’000 R’000 R’000 R’000 2 311 711 1 973 312 10 342 528 100 264 378 312 331 916 4 132 280 23 579 107 615 88 048 630 302 7 121 13 086 14 058 32 569 2 736 9 685 17 611 — (3 596) — — — — 137 184 41 454 1 638 497 5 476 page 136 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 24. Business combinations (continued) 24.2 Acquisition of minorities’ shareholdings 31 May 2008 The fair value of the net assets approximated the assets acquired Velociti R’000 Blue Label One R’000 Budding Trade 1170 R’000 Ventury Group R’000 Total R’000 791 791 — — (1 556) (1 556) * * 10 992 10 992 150 083 150 083 71 265 — 7 185 11 556 3 000 — 708 485 — 97 000 (48 500) 48 500 48 500 334 1 125 (1 125) — — — 7 185 (3 592) 3 593 3 593 — 10 000 (10 000) — — — 3 000 (1 500) 1 500 1 500 (2 585) 8 407 — 8 407 8 407 (2 251) 856 317 (794 317) 62 000 62 000 E-Voucha 30 November 2008 51 E-Voucha R’000 iVeri 31 October 2008 51 iVeri R’000 Polsa 31 March 2009 50 Polsa R’000 Total R’000 4 535 1 140 2 500 — 83 13 145 384 (205) (1 923) — (16 352) (689) 338 2 499 2 148 352 2 500 1 777 635 50 — — — 132 68 — (300) (42) (861) 1 459 (687) 2 835 3 607 (607) 3 000 12 376 4 611 1 759 — 305 12 035 11 886 — — (20 228) (577) (14 161) 8 006 (3 999) 400 4 407 (4 326) 81 14 157 5 781 2 949 2 500 305 12 118 25 163 452 (205) (22 451) (619) (31 374) 8 776 (4 348) 5 734 10 162 (4 581) 5 581 To be settled Received in cash Less: Cash and cash equivalents in subsidiary (1 071) 1 429 201 — 3 000 (1 777) (81) — (12 376) (1 152) 4 429 (13 952) Cash outflow on disposal 1 630 1 223 (12 376) (9 523) Minority interests Fair value of net assets acquired Amounts transferred to transactions with minority reserve Goodwill/(excess of acquirers’ interest in the net fair value over cost) Total purchase consideration Settled in shares Settled in cash Cash flow on acquisition The Prepaid Company R’000 Matragon R’000 Kwikpay SA R’000 114 121 114 121 25 735 25 735 615 479 — 729 600 (729 600) — — * Less than R1 000. 25. Disposal of subsidiaries 31 May 2009 Date disposed % disposed The fair value of the net assets disposed of: Cash and cash equivalents Property, plant and equipment Intangible assets Goodwill Investments Inventories Receivables Deferred tax Bank overdraft Borrowings Current tax liabilities Payables Fair value of subsidiaries disposed of Minority interests Goodwill Fair value of net assets disposed of Profit/(loss) on disposal of subsidiary Total proceeds on disposal page 137 26. 2009 R’000 2008 R’000 23 859 61 399 11 175 16 589 57 555 7 818 10 670 13 158 15 120 276 6 321 10 586 46 98 915 Commitments Future operating lease commitments: The group leases various offices and warehouses under non-cancellable operating lease agreements. The lease terms are between 1 and 5 years, and the majority of lease agreements are renewable at the end of the lease period at market rate. The group also leases various plant and machinery under cancellable operating lease agreements. The group is required to give a six-month notice for the termination of the majority of these agreements. The lease expenditure charged to the income statement during the year is disclosed in note 18. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Premises Payable within one year Payable in two to five years Payable in greater than five years Equipment Payable within one year Payable in two to five years Payable in greater than five years 27. Related party transactions For details of subsidiaries, associates and joint ventures refer to note 31. For details of the company’s directors, refer to the Directors’ report. ZOK Cellular (Proprietary) Limited, BSC Technologies (Proprietary) Limited, Moneyline 311 (Proprietary) Limited, PLL Investments (Proprietary) Limited, Friedshelf 669 (Proprietary) Limited, WBS Holdings (Proprietary) Limited, and Ellerine Bros. (Proprietary) Limited are a related parties due to the companies having certain common directorships. For details of the shareholdings in the company, refer to the Directors’ report. page 138 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 27. 2009 R’000 2008 R’000 2 475 — 6 601 965 6 493 280 386 15 594 1 650 — 74 875 1 104 91 105 3 356 18 2 796 204 103 19 911 4 996 1 519 2 550 — — — — — — 54 — — 3 002 41 180 160 414 — 146 — — — 249 401 469 — — — 3 210 1 954 119 108 4 449 — 1 200 — — 101 Related party transactions (continued) The following transactions were carried out with related parties Directors’ emoluments (refer to note 28) Sales to related parties ZOK Cellular (Proprietary) Limited Premet Cellular (Proprietary) Limited The Hub (Proprietary) Limited BSC Technologies (Proprietary) Limited Dual Data (Proprietary) Limited Purchases from related parties ZOK Cellular (Proprietary) Limited Premet Cellular (Proprietary) Limited The Hub (Proprietary) Limited BSC Technologies (Proprietary) Limited Demtrade 11 (Proprietary) Limited WBS Holdings (Proprietary) Limited Dual Data (Proprietary) Limited Smart Voucher Limited Moneyline 311 (Proprietary) Limited Cost recoveries from related parties Premet Cellular (Proprietary) Limited The Hub (Proprietary) Limited BSC Technologies (Proprietary) Limited ZOK Cellular (Proprietary) Limited Moneyline 311 (Proprietary) Limited Interest paid to related parties Demtrade 11 (Proprietary) Limited Interest received from related parties House of Business Solutions (Proprietary) Limited Africa Prepaid Services (Proprietary) Limited Demtrade 11 (Proprietary) Limited Management fees received from related parties Cellfind (Proprietary) Limited Africa Prepaid Services (Proprietary) Limited ZOK Cellular (Proprietary) Limited Smart Voucher Limited Management fees paid to related parties Demtrade 11 (Proprietary) Limited Rent received from related parties House of Business Solutions (Proprietary) Limited page 139 27. 2009 R’000 2008 R’000 — — 56 69 3 664 1 810 194 1 947 1 880 828 240 1 767 19 710 4 353 27 866 19 673 — 27 271 1 266 — 118 282 159 1 105 4 147 — — — 3 476 — — 44 64 310 1 272 2 850 188 16 113 — — — Related party transactions (continued) Africa Prepaid Services (Proprietary) Limited Datacel Direct (Proprietary) Limited Rent paid to related parties Moneyline 311 (Proprietary) Limited PLL Investments (Proprietary) Limited Friedshelf 669 (Proprietary) Limited Ellerine Bros. (Proprietary) Limited Loans to related parties Oxigen Services (India) Pvt Limited Demtrade 11 (Proprietary) Limited ZOK Cellular (Proprietary) Limited Loans from related parties Demtrade 11 (Proprietary) Limited Amounts due from related parties The Hub (Proprietary) Limited Moneyline 311 (Proprietary) Limited Smart Voucher Limited PLL Investments (Proprietary) Limited Amounts due to related parties Premet Cellular (Proprietary) Limited The Hub (Proprietary) Limited ZOK Cellular (Proprietary) Limited Moneyline 311 (Proprietary) Limited Smart Voucher Limited Demtrade 11 (Proprietary) Limited Dual Data (Proprietary) Limited Basis of transactions All transactions with related parties are conducted on an arm’s length basis page 140 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 28. Services as directors of Blue Label Telecoms Limited R’000 Salary and allowances R’000 Bonuses and performance related payments R’000 Other benefits R’000 Subtotal R’000 — — — — — 5 210 5 215 3 824 1 953 16 202 — — — 1 387 1 387 75 69 29 29 202 5 285 5 284 3 853 3 369 17 791 600 300 465 315 340 — 362 195 230 2 807 2 807 — — — — — — — — — — 16 202 — — — — — — — — — — 1 387 — — — — — — — — — — 202 600 300 465 315 340 — 362 195 230 2 807 20 598 — — — — — 2 763 2 763 2 026 1 034 8 586 3 360 3 360 1 429 735 8 884 37 37 16 16 106 6 160 6 160 3 471 1 785 17 576 325 230 330 205 228 — 233 150 115 1 816 1 816 — — — — — — — — — — 8 586 — — — — — — — — — — 8 884 — — — — — — — — — — 106 325 230 330 205 228 — 233 150 115 1 816 19 392 Directors’ emoluments For the year ended 31 May 2009 Executive directors Levy, BM Levy, MS Pamensky, MV Rivkind, DB Non-executive directors Nestadt, LM Ellerine, S Harlow, GD Huntley, RJ Lazarus, NN Mansour, P Mthimunye, J Theledi, HC Tyalimpi, LM For the year ended 31 May 2008 Executive directors Levy, BM Levy, MS Pamensky, MV Rivkind, DB Non-executive directors Nestadt, LM Ellerine, S Harlow, GD Huntley, RJ Lazarus, NN Mansour, P Mthimunye, J Theledi, HC Tyalimpi, LM *The sum of R80 million was paid to Brett and Mark Levy in lieu of their pre-listing contractual bonus entitlements. The R80 million was used to acquire BLT shares. page 141 Cancellation of pre-listing management bonus participation agreement* R’000 Other benefits from subsidiaries R’000 Corporate finance and legal fees for services rendered to Blue Label Telecoms Limited subsidiaries R’000 — — — — — — — — — — — — — — — — — — — — — — — — — 5 285 5 284 3 853 3 369 17 791 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1 330 — — — — 1 330 1 330 — — — — — — — — — — — 600 300 465 315 1 670 — 362 195 230 4 137 21 928 40 000 40 000 — — 80 000 23 25 10 8 66 — — — — — 200 201 200 101 702 50 384 49 484 6 454 2 822 109 144 — — — — — — — — — — 80 000 — — — — — — — — — — 66 — — 600 — 1 219 — — — — 1 819 1 819 — — — — — — — — — — 702 325 230 930 235 1 447 — 278 150 140 3 735 112 879 Bonuses and performancerelated payments from subsidiaries R’000 Services as directors of subsidiaries of Blue Label Telecoms Limited R’000 Salary and allowances from subsidiaries R’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 4 001 3 098 1 752 403 9 254 — — 1 021 525 1 546 — — — 30 — — 45 — 25 100 100 — — — — — — — — — — 9 254 — — — — — — — — — — 1 546 Retirement and related benefits from subsidiaries R’000 Total R’000 page 142 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 29. Segmental summary The group’s segment reporting follows the organisational structure as reflected in its internal management reporting systems, which are the basis for assessing the financial performance of the business segments and for allocating resources to the business segments. Management’s assessment of the group’s organisational structure takes the geographical location of the segments into account. All reporting segments located outside of South Africa are included in the International distribution segment. Operations included in all other segments are located within South Africa. At 31 May 2009, the group is managed on the basis of five main business segments: • South African distribution, which includes the distribution of physical and virtual prepaid airtime of the South African mobile network operators and Telkom, and the distribution of starter packs in South Africa. • International distribution, which includes international distribution of physical and virtual prepaid airtime in India and Africa, and the distribution of starter packs in Africa. • Technology, which includes technological innovation, development and support for the operations of the group. • Value-added services, which includes other value-added services of the group, leveraging off its existing products and distribution network as well as the development of new mobile services to take to market. • Corporate, which includes head office administration. Transactions between reportable segments are conducted at arm’s length. Total 2009 R’000 South African distribution** 2008 R’000 2009 R’000 2008 R’000 The segment results for the year ended 31 May are as follows: Total segment revenue Inter-segment revenue 25 198 131 (9 916 682) 18 044 759 (5 499 288) 24 038 712 (9 839 681) 17 451 794 (5 490 224) Revenue 15 281 449 12 545 471 14 199 031 11 961 570 Segment result Operating profit before depreciation, amortisation and impairment charges Depreciation and amortisation and impairment charges Finance costs Finance income Share of (losses)/profits from associates Taxation 568 067 (93 220) (112 699) 205 046 (27 445) (174 784) 328 167 (58 670) (147 704) 193 281 (17 441) (89 841) 624 346 (31 897) (98 916) 195 779 — (163 379) 339 352 (28 376) (144 769) 188 797 545 (84 431) Net profit for the year 364 965 207 792 525 933 271 118 Non-cash items Excess of acquirers’ interest in the net fair value over cost Net (loss)/profit on sale of subsidiaries Fair value adjustment The segment assets and liabilities at 31 May are as follows: Assets excluding investments in associates and joint ventures Investment in associates and joint ventures 3 769 906 109 837 3 140 873 81 356 2 227 849 1 2 687 522 1 Total assets 3 879 743 3 222 229 2 227 850 2 687 523 74 941 55 845 119 327 3 030 54 766 419 939 — — 40 936 4 331 — — 31 046 119 630 — * 1 635 623 1 304 285 1 159 605 1 125 116 Additions to non-current assets Property, plant and equipment Intangible assets Investment in associates Investment in joint ventures Total liabilities 1 689 (4 581) 32 2 585 — (1 375) * Less than R1 000. ** Although segment names have changed, the composition of the underlying segments remained the same. — (607) 32 2 585 — (1 375) page 143 International distribution** 2009 R’000 2008 R’000 Technology** Value-added services** 2009 R’000 2008 R’000 2009 R’000 Corporate 2008 R’000 2009 R’000 2008 R’000 725 288 (1 125) 383 749 (344) 94 793 (72 281) 35 594 (7 713) 339 338 (3 595) 173 622 (1 007) — — — — 724 163 383 405 22 512 27 881 335 743 172 615 — — 6 144 (16 915) (12 569) 7 486 (28 226) 3 789 17 968 (7 891) (888) 51 (19 176) (2 093) (48 502) (8 452) (658) 147 — (657) (9 796) (4 079) (528) 93 — 1 428 75 239 (33 601) (349) 1 371 781 (12 081) 42 247 (17 473) (1 030) 976 1 190 (3 369) (89 160) (2 355) (207) 263 — (2 456) (61 604) (851) (489) 3 364 _ (1 376) (40 291) (12 029) (58 122) (12 882) 31 360 22 541 (93 915) (60 956) 1 659 (4 326) — — — — — — — — — — 30 352 — — — — — — — — — — 507 285 102 770 157 451 81 355 60 630 — 40 543 — 254 522 7 066 282 567 — 719 620 — (27 210) — 610 055 238 806 60 630 40 543 261 588 282 567 719 620 (27 210) 14 049 24 557 119 327 — 5 038 46 523 — — 9 340 14 112 — — 7 883 9 231 — — 6 652 8 554 — 3 030 9 966 242 904 — — 3 964 4 291 — — 832 1 651 — — 373 191 80 654 22 692 9 737 41 861 63 547 38 274 25 230 page 144 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 30. Equity compensation benefit Forfeitable shares During the year, forfeitable shares were granted to executive directors and qualifying employees. The participant will forfeit the forfeitable shares if he/she ceases to be an employee of an employer company before the vesting date or if the specified performance condition has not been met, unless otherwise specified by the rules or determined by the board. In the event that the participant is not in the employ of the group, or the performance conditions are not met, then the shares allocated to the participant will be forfeited and will be sold on the open market by the escrow agent. The proceeds will be returned to the participating employer. Dividends declared in respect of these forfeitable shares are held in escrow until such time as the performance conditions are met and the shares have vested. Shares forfeited during the vesting period will forfeit any dividends pertaining to such shares. No dividends have been declared during the year. The release of forfeitable shares will be subject to the achievement of a specified performance condition. The performance condition for the first award grant of forfeitable shares is: • 30% of shares will vest when the company core HEPS at the end of the performance period, being May 2010, exceeds the core HEPS per ordinary share as at the beginning of the performance period, being May 2008, by the percentage change in the CPI index over the performance period, plus 20% (threshold performance criteria); • 100% of shares will vest when the core HEPS at the end of the performance period, being May 2010, exceeds the core HEPS per ordinary share as at the beginning of the performance period, being May 2008, by the percentage change in the CPI index over the performance period, plus 30% (target performance criteria); • Performance below the threshold performance criteria will result in the forfeitable award not vesting, unless otherwise determined by the board; • Linear vesting of the forfeitable award will occur between threshold performance and target performance stated above. Movements in the number of forfeitable shares outstanding during the year are as follows: Grant date At beginning of the year Granted during the year Granted during the year Shares forfeited during the year Shares vested during the year Vesting date Number of shares Fair value of grant 28 November 2008 1 September 2010 26 February 2009 1 September 2010 2 882 000 2 269 814 — — 14 409 999 11 349 073 5 151 814 25 759 072 At end of year The fair value of the shares is based on the value paid for the shares on the open market at grant date. The total number of forfeitable shares issued to executive directors during the period is 1 148 343. page 145 Number of issued ordinary Country shares 31. Percentage held Interest in subsidiaries, associates and joint ventures 2009 Subsidiaries Directly held: Subsidiaries of Blue Label Telecoms Limited: Activi Technology Services (Proprietary) Limited Africa Prepaid Services (Proprietary) Limited Blue Label Australasia (Proprietary) Limited Blue Label One (Proprietary) Limited Blue Label Investments (Proprietary) Limited Blue Label Mexico S.A. de C.V. Blue Label Telecoms USA Incorporated Budding Trade 1170 (Proprietary) Limited Celebia Holdings Limited Cellfind (Proprietary) Limited Content Connect Africa (Proprietary) Limited Datacel Direct (Proprietary) Limited House of Business Solutions (Proprietary) Limited Kwikpay SA (Proprietary) Limited Matragon (Proprietary) Limited Matrix Investments No 4 (Proprietary) Limited SharedPhone International (Proprietary) Limited The Prepaid Company (Proprietary) Limited The Post Paid Company (Proprietary) Limited Uninex (Proprietary) Limited Ventury Group (Proprietary) Limited Virtual Voucher (Proprietary) Limited Indirectly held: Subsidiaries of Blue Label Investments (Proprietary) Limited: Gold Label Investments (Proprietary) Limited Subsidiary of The Prepaid Company (Proprietary) Limited: Little River Trading 181 (Proprietary) Limited (trading as Crown Cellular) Subsidiaries of Ventury Group (Proprietary) Limited: Cigicell (Proprietary) Limited Subsidiaries of Matragon (Proprietary) Limited: Airtime Xpress (Proprietary) Limited Comm Express Services SA (Proprietary) Limited POS Control Services (Proprietary) Limited Subsidiaries of Activi Technology Services (Proprietary) Limited: Activi Deployment Services (Proprietary) Limited IT Experts (Proprietary) Limited Transaction Junction (Proprietary) Limited Subsidiaries of Africa Prepaid Services (Proprietary) Limited: Africa Prepaid Services (Mozambique) Limitada Africa Prepaid Services – RDC SPRL Africa Prepaid Services Nigeria Limited Subsidiaries of Blue Label Telecoms USA Incorporated Blue Label USA, LLC Subsidiaries of Datacel Direct (Proprietary) Limited: Blue Label Call Centre (Proprietary) Limited CNS Call Centre (Proprietary) Limited Velociti (Proprietary) Limited Answers Direct (Proprietary) Limited Blue Label Data Solutions (Proprietary) Limited Associate Indirectly held: Associate of Gold Label (Proprietary) Limited: Oxigen Services India (Private) Limited Smart Voucher Limited (trading as Ukash) Associates of Datacel Direct (Proprietary) Limited: Dual Data (Proprietary) Limited BLK Risk Services (Proprietary) Limited Associate of Demtrade 11 (Proprietary) Limited: Phutuma Procurement (Proprietary) Limited Joint ventures Joint ventures of Blue Label Telecoms Limited: Demtrade 11 (Proprietary) Limited Joint ventures of The Prepaid Company (Proprietary) Limited: Premet Cellular (Proprietary) Limited RSA RSA Australia RSA RSA Mexico USA RSA Cyprus RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA 300 150 201 300 1 200 000 1 100 100 100 100 1 000 100 100 1 000 100 100 100 500 000 10 000 200 100 2 000 200 100 72 50,5 100 100 70 100 100 100 100 100 100 100 100 100 100 50,1 100 51 100 100 100 RSA 1 000 100 RSA 100 100 RSA 100 100 RSA RSA RSA 200 100 100 100 100 52 RSA RSA RSA 100 300 120 100 100 60 Mozambique DRC Nigeria 300 10 000 000 90 80 51 USA 50,01 RSA RSA RSA RSA RSA 300 1 000 1 000 1 000 100 India United Kingdom 14 244 294 46 353 933 37,22 16,9* RSA RSA 100 100 50* 25 RSA 200 39 RSA 160 50 RSA 100 40 *Significant influence is demonstrated by the company as a result of representation on the board of directors. 100 100 100 80 81 page 146 NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 Number of issued ordinary shares Country 31. Percentage held Interest in subsidiaries, associates and joint ventures (continued) 2008 Subsidiaries Directly held: Subsidiaries of Blue Label Telecoms Limited: Activi Technology Services (Proprietary) Limited Africa Prepaid Services (Proprietary) Limited Blue Label One (Proprietary) Limited Blue Label Investments (Proprietary) Limited Budding Trade 1170 (Proprietary) Limited Cellfind (Proprietary) Limited Content Connect Africa (Proprietary) Limited Datacel Direct (Proprietary) Limited E-Voucha (Proprietary) Limited House of Business Solutions (Proprietary) Limited Kwikpay SA (Proprietary) Limited Matragon (Proprietary) Limited Matrix Investments No 4 (Proprietary) Limited SharedPhone International (Proprietary) Limited The Prepaid Company (Proprietary) Limited The Post Paid Company (Proprietary) Limited Ventury Group (Proprietary) Limited Virtual Voucher (Proprietary) Limited Indirectly held: Subsidiaries of Blue Label Investments (Proprietary) Limited: Gold Label Investments (Proprietary) Limited Polsa Holdings Limited Subsidiary of The Prepaid Company (Proprietary) Limited: Little River Trading 181 (Proprietary) Limited (trading as Crown Cellular) Subsidiaries of Ventury Group (Proprietary) Limited: Cigicell (Proprietary) Limited iVeri Payment Technologies (Proprietary) Limited Subsidiaries of Matragon (Proprietary) Limited: Airtime Xpress (Proprietary) Limited Comm Express Services SA (Proprietary) Limited POS Control Services (Proprietary) Limited Subsidiaries of Activi Technology Services (Proprietary) Limited: Activi Deployment Services (Proprietary) Limited IT Experts (Proprietary) Limited Transaction Junction (Proprietary) Limited Subsidiaries of Africa Prepaid Services (Proprietary) Limited: Africa Prepaid Services (Mozambique) Limitada Africa Prepaid Services RDC SPRL Subsidiaries of Datacel Direct (Proprietary) Limited: Blue Label Call Centre (Proprietary) Limited CNS Call Centre (Proprietary) Limited Velociti (Proprietary) Limited Associate Indirectly held: Associate of Gold Label (Proprietary) Limited: Oxigen Services India (Private) Limited Joint ventures Joint ventures of The Prepaid Company (Proprietary) Limited: The Hub Pretalk (Proprietary) Limited Premet Cellular (Proprietary) Limited RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA RSA 300 150 300 100 100 1 000 100 100 1 000 1 000 100 100 100 500 000 10 000 200 2 000 200 100 72 100 100 100 100 100 100 51 100 100 100 100 50,1 100 51** 100 100 RSA Cyprus 1 000 17 600 100 50* RSA 100 100 RSA RSA 100 1 000 100 51 RSA RSA RSA 200 100 100 100 100 52 RSA RSA RSA 100 300 120 100 100 60 Mozambique DRC 300 90 80 RSA RSA RSA 300 1 000 1 000 100 80 100 India 12 502 110 35 RSA RSA 300 100 40 40 **49% was disposed of on 1 April 2008 for a nominal amount. No further disclosure has been made as the effect of this transaction is below R1 000. 32. Post balance sheet events Refer to the directors’ report for details on the disposal of VPN. page 147 COMPANY ANNUAL FINANCIAL STATEMENTS CONTENTS 148 Company balance sheet 149 Company income statement 150 Company statement of changes in equity 151 Company cash flow statement 152 Notes to the company annual financial statements page 148 COMPANY BALANCE SHEET as at 31 May 2009 Note ASSETS Non-current assets Property, plant and equipment Intangible assets Deferred taxation asset Investment in subsidiaries Investment in joint venture Current assets Loans receivable Loans to subsidiaries Receivables Current tax assets Cash and cash equivalents Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Share premium Treasury shares Equity compensation benefit Accumulated loss Non-current liabilities Deferred taxation liability Current liabilities Trade and other payables Loans from subsidiaries Current tax liabilities Bank overdraft Total equity and liabilities *Less than R1 000. 3 4 5 6.1 6.2 7 6.1 8 9 10 10 5 12 6.1 9 2009 R’000 2008 R’000 3 298 627 3 064 5 222 — 3 287 162 3 179 1 160 702 875 1 151 391 6 927 800 709 4 459 329 3 267 104 1 212 1 671 136 3 264 085 — 1 210 276 476 1 174 310 34 878 — 612 4 477 380 4 393 111 * 4 404 737 (9 567) 4 395 170 1 939 (3 998) 2 826 2 826 63 392 14 388 48 000 — 1 004 4 403 436 * 4 404 737 — 4 404 737 — (1 301) 4 459 329 4 447 380 — 73 944 23 815 48 866 1 214 49 page 149 COMPANY INCOME STATEMENT for the year ended 31 May 2009 Note Other income Employee compensation and benefit expense Depreciation, amortisation and impairment charges Other expenses 2009 R’000 2008 R’000 89 035 (51 049) (2 355) (40 805) 43 516 (29 478) (3 444) (14 513) Operating loss Finance costs Finance income 13 14 14 (5 174) (120) 5 559 (3 919) (11) 3 706 Net profit/(loss) before taxation Taxation 15 265 (2 962) (224) (1 077) (2 697) (1 301) Net loss for the year page 150 COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 May 2009 Note Balance as at 31 May 2007 Shares issued during the year Share issue costs Net loss for the year Balance as at 31 May 2008 Shares purchased during the year Equity based compensation movements 10 Share capital R’000 Share premium R’000 Treasury shares R’000 Equity based compensation reserve R’000 * * — — * — 4 444 461 (39 724) — 4 404 737 — — — — — — — — — — — — (9 567) — Accumulated loss R’000 — — — (1 301) (1 301) — — — — 1 939 Net loss for the year — — — — (2 697) Balance as at 31 May 2009 — 4 404 737 1 939 (3 998) * Less than R1 000. 11 (9 567) — Total equity R’000 — 4 444 461 (39 724) (1 301) 4 403 436 (9 567) 1 939 (2 697) 4 393 111 page 151 COMPANY CASH FLOW STATEMENT for the year ended 31 May 2009 Note Cash flows from operating activities Finance income Finance costs Taxation paid 16 14 14 17 Net cash flows from operating activities Cash flows from investing activities Acquisition of property, plant and equipment Disposal of property, plant and equipment Acquisition of intangible assets Acquisition of investment in subsidiaries Disposal of investment in subsidiaries Loans repaid by/(advanced to) subsidiaries Acquisition of investment in joint venture Loans advanced to joint venture 2009 R’000 2008 R’000 20 796 5 559 (120) (2 014) (12 015) 3 706 (11) — 24 221 (8 320) (2 988) 40 (4 290) (28 577) 1 429 22 053 (3 030) (149) (1 244) — (1 719) (180 203) — (1 128 806) — — (15 512) (1 311 972) Cash flows from financing activities Proceeds from issue of shares Treasury shares acquired Share issue costs — (9 567) — 1 360 579 — (39 724) Net cash flows from financing activities (9 567) 1 320 855 (858) 563 563 * (295) 563 6 Net cash flows from investing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period * Less than R1 000. 9 page 152 NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS as at 31 May 2009 1. The company places cash and cash equivalents with major banking companies and quality institutions that have high credit ratings. Accounting policies The accounting policies applied to the company annual financial statements are consistent with the group accounting policies as detailed on pages 104 to 114. 2. Financial risks In the course of its business, the company is exposed to a number of financial risks: credit risk, liquidity risk and market risk (including foreign currency and other price risk). This note presents the company’s objectives, policies and processes for managing its financial risk and capital. Credit risk Credit risk arises because a counterparty may fail to meet its obligations to the company. The company is exposed to credit risks on financial instruments such as receivables, loans receivable and cash. Receivables consist primarily of invoiced amounts from normal trading activities. The company has a diversified customer base and policies are in place to ensure sales are made to customers with an appropriate credit history. Individual credit limits are set for each customer and the utilisation of these credit limits is regularly monitored. Where necessary, a provision for impairment is made. Loans are only granted to holders with an appropriate credit history, taking into account the holder’s financial position and past experience. The company has no significant concentrations of credit risk. The company’s maximum credit risk exposure is the carrying amount of all financial assets on the balance sheet and guarantees provided with the maximum amount the company could have to pay if the guarantees are called on amounting to R554,7 million. Liquidity risk Liquidity risk arises when a company encounters difficulties to meet commitments associated with liabilities and other payment obligations. The company’s objective is to maintain prudent liquidity risk management by maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the company aims to maintain flexibility in funding by keeping committed credit lines available. Maturity of financial liabilities Payable in: Less than 1 month or on demand (R’000) More than 1 month but not exceeding 1 year (R’000) More than 1 year but not exceeding 2 years (R’000) More than 2 years but not exceeding 5 years (R’000) More than 5 years (R’000) Loans from subsidiaries Trade and other payables* Bank overdraft 48 000 3 145 1 004 — — — — — — — — — — — — Total 52 149 — — — — 2008 Loans from subsidiaries Trade and other payables* Bank overdraft 48 866 13 640 49 — 4 515 —- — — — — — — — — — Total 62 555 4 515 —- — — 2009 *Trade and other payables exclude non-financial instruments. Market risk The company is exposed to risks from movements in foreign exchange rates and interest rates that affect its assets, liabilities and anticipated future transactions. Cash flow and fair value interest rate risk The company’s cash flow interest rate risk arises from loans receivable and cash and cash equivalents. The company is not exposed to fair value interest rate risk as the company does not have any fixed interest bearing instruments carried at fair value nor any interest bearing borrowings. As part of the process of managing the company’s exposure to interest rate risk, interest rate characteristics of new borrowings and the refinancing of existing borrowings are positioned according to expected movements in interest rates. page 153 Foreign currency risk The company is exposed to foreign currency risk from transactions. Transaction exposure arises due to the company granting loans to affiliated companies in foreign currencies. The sensitivity analysis is based on the following assumptions: Interest rate risks The interest rate sensitivity analysis is based on the following assumptions: • Changes in market interest rates affect the interest income or expense of variable interest financial instruments • Changes in market interest rates only affect interest income or expense in relation to financial instruments with fixed interest rates if these are recognised at fair value. The company manages its exposure to foreign currency risk by ensuring that the net foreign currency exposure remains within acceptable levels. Hedging instruments are used in certain instances to reduce risks arising from foreign currency fluctuations. The company did not enter into any forward exchange contracts during the period under review. IFRS 7 Sensitivity analysis The company has used a sensitivity analysis technique that measures the estimated change to the income statement of either an instantaneous increase or decrease of 1% (100 basis points) in market interest rates or a 10% strengthening or weakening of the rand. Under these assumptions, a 1% increase or decrease in market interest rates at 31 May 2009 would increase or decrease profit before tax by R460 195 (2008: R173 194). Foreign currency risk Financial instruments by currency Financial assets Cash Receivables* Loans receivable Financial liabilities Non-interest bearing borrowings Trade and other payables* Bank overdraft Net financial position ZAR R’000 2009 Euro R’000 Total R’000 ZAR R’000 2008 USD R’000 Total R’000 709 5 233 1 149 959 — — 2 456 709 5 233 1 152 415 612 32 084 1 174 310 — — 476 612 32 084 1 174 786 1 155 901 2 456 1 158 357 1 207 006 476 1 207 482 48 000 3 145 1 004 — — — 48 000 3 145 1 004 48 866 18 155 49 — — —- 48 866 18 155 49 52 149 — 52 149 67 070 — 67 070 1 103 752 2 456 1 106 208 1 139 936 476 1 140 412 *Receivables and trade and other payables exclude non-financial instruments. With a 10% strengthening or weakening in the rand against all other currencies, profit before tax would have decreased or increased by R245 594 (2008: R47 525) respectively. Capital risk The company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust this capital structure, the company may issue new shares, adjust the amount of dividends paid to shareholders, return capital to shareholders or sell assets to reduce debt. The company defines capital as capital and reserves and non-current borrowings. The company is not subject to externally imposed capital requirements. There were no changes to the company’s approach to capital management during the year. Fair value measurement For all short-term financial assets and liabilities, the carrying amount is regarded as an approximation of the fair value. The fair value of all non-current loans receivable and borrowings are calculated using a discounted cash flow model based on prevailing market interest rates. page 154 NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 Computer equipment R’000 3. Office equipment R’000 Leasehold improvements R’000 Total R’000 270 223 (33) (136) 324 484 564 — (265) 783 329 610 — (136) 803 129 360 — (104) 385 — 1 231 — (462) 769 1 212 2 988 (33) (1 103) 3 064 462 (138) 324 1 049 (266) 783 959 (156) 803 491 (106) 385 1 231 (462) 769 4 192 (1 128) 3 064 — 279 (9) 270 — 485 (1) 484 — 349 (20) 329 — 131 (2) 129 — — — — — 1 244 (32) 1 212 279 (9) 270 485 (1) 484 349 (20) 329 131 (2) 129 — — — 1 244 (32) 1 212 Computer software R’000 Internally developed software R’000 Total R’000 Intangible assets Year ended 31 May 2009 Opening carrying amount Additions Amortisation charge Closing carrying amount At 31 May 2009 Cost Accumulated amortisation Carrying amount Year ended 31 May 2008 Opening carrying amount Additions Amortisation charge Closing carrying amount At 31 May 2008 Cost Accumulated amortisation Carrying amount 5. Motor vehicles R’000 Property, plant and equipment Year ended 31 May 2009 Opening carrying amount Additions Disposals Depreciation charge Closing carrying amount At 31 May 2009 Cost Accumulated depreciation Carrying amount Year ended 31 May 2008 Opening carrying amount Additions Depreciation charge Closing carrying amount At 31 May 2008 Cost Accumulated depreciation Carrying amount 4. Furniture and fittings R’000 1 671 711 (739) 1 643 — 3 579 — 3 579 1 671 4 290 (739) 5 222 2 430 (787) 1 643 3 579 — 3 579 6 009 (787) 5 222 — 1 719 (48) 1 671 — — — — — 1 719 (48) 1 671 1 719 (48) 1 671 — — — 1 719 (48) 1 671 2009 R’000 2008 R’000 136 — Deferred taxation At 31 May Credited to income statement: – Provisions – Capital allowances – Tax losses – Prepayments – Other At 31 May Deferred taxation comprises: – Provisions – Capital allowances – Tax losses – Prepayments – Other 153 (1 015) 493 (474) (2 119) (2 826) 117 — — — 19 136 270 (1 015) 493 (474) (2 100) (2 826) 117 — — — 19 136 page 155 2009 R’000 6. 6.1 2008 R’000 Investments in subsidiaries and joint venture Investments in subsidiaries Shares at cost less amounts written off Loans owing by subsidiaries Loans owing to subsidiaries Shares at cost less amounts written off R’000 Details are reflected below: 2009 Africa Prepaid Services (Proprietary) Limited1 Activi Technology Services (Proprietary) Limited Blue Label Telecoms USA Incorporated Blue Label Investments (Proprietary) Limited Blue Label Mexico S.A. de C.V. Blue Label One (Proprietary) Limited Budding Trade (Proprietary) Limited Celebia Holdings Limited Cellfind SA (Proprietary) Limited Content Connect Africa (Proprietary) Limited1 Content Connect Australia (Proprietary) Limited2 Datacel Direct (Proprietary) Limited1 Gold Label Investments (Proprietary) Limited Kwikpay SA (Proprietary) Limited Matragon (Proprietary) Limited Matrix Investments No 4 (Proprietary) Limited The Postpaid Company (Proprietary) Limited1 SharedPhone International (Proprietary) Limited1 The Prepaid Company (Proprietary) Limited Uninex (Proprietary) Limited Velociti (Proprietary) Limited Ventury Group (Proprietary) Limited Virtual Voucher (Proprietary) Limited 2008 Africa Prepaid Services (Proprietary) Limited1 Activi Technology Services (Proprietary) Limited Blue Label Investments (Proprietary) Limited Blue Label One (Proprietary) Limited Budding Trade (Proprietary) Limited Cellfind SA (Proprietary) Limited Content Connect Africa (Proprietary) Limited Datacel Direct (Proprietary) Limited1 E-Voucha (Proprietary) Limited Gold Label Investments (Proprietary) Limited Kwikpay SA (Proprietary) Limited Matragon (Proprietary) Limited Matrix Investments No 4 (Proprietary) Limited The Postpaid Company (Proprietary) Limited SharedPhone International (Proprietary) Limited1 The Prepaid Company (Proprietary) Limited Velociti (Proprietary) Limited Ventury Group (Proprietary) Limited Virtual Voucher (Proprietary) Limited 61 520 5 000 * 108 416 26 650 40 000 6 000 1 290 000 27 000 1 926 150 000 29 400 22 500 194 000 4 160 * 20 000 2 150 214 * 7 185 98 406 44 784 3 287 162 1 151 391 (48 000) 3 264 085 1 174 310 (48 866) 4 390 553 4 389 529 Loans owing by subsidiaries R’000 Loans owing to subsidiaries R’000 35 112 1 962 50 540 595 — 713 — 38 739 719 2 713 6 293 149 315 735 32 996 — 942 2 745 861 277** 976 1 806 1 055 120 — — — — — — — — — — — — — — — — — — — — — (48 000) — 3 287 162 1 151 391 (48 000) 61 520 5 000 108 416 40 000 6 000 290 000 30 000 150 000 2 500 29 400 22 500 194 000 4 160 * 20 000 2 150 214 7 185 98 406 44 784 3 264 085 13 539 — — — — — — 7 120 — 100 340 — 30 377 — — 3 216 1 018 903** 815 — — 1 174 310 — — (866) — — — — — — — — — — — — — — (48 000) — (48 866) * Less than R1 000. ** R750 million (2008: R450 million) of this balance is subordinated in favour of other creditors of The Prepaid Company (Proprietary) Limited. All subsidiaries are based in the Republic of South Africa. For details on percentage held and issued shares refer to note 31 in the group notes. The directors believe that the carrying value of the shares approximate their fair value. The shares in The Prepaid Company (Proprietary) Limited are pledged to Investec Bank. 1 These loans bear interest at prime plus 2% and have no fixed terms of repayment. 2 This loan bears interest at prime plus 3% and has no fixed terms of repayment. All other loans are interest free and have no fixed terms of repayment. page 156 NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 2009 R’000 6. 6.2 Investment in subsidiaries and joint venture (continued) Investments in joint venture Shares at cost less amounts written off Loans owing by joint venture Date Country of acquired incorporation 2009 Demtrade 11 (Proprietary) Limited 7. 8. 2008 R’000 1 June 2008 South Africa 3 030 — 149 — 3 179 — Assets R’000 Liabilities R’000 Revenues R’000 Profit R’000 Percentage interest held 7 554 6 382 9 086 1 121 50 2009 R’000 2008 R’000 Loans to related parties Interest free 859 16 — 476 Loans are unsecured and have no fixed terms of repayment 875 476 1 149 5 778 32 104 2 774 6 927 34 878 Gross R’000 Impairment R’000 925 103 71 50 — — — — — — 1 149 — 31 963 67 74 — — — — — — — 32 104 — Loans receivable Trade and other receivables Trade receivables Sundry debtors and prepayments The ageing of trade receivables at the reporting date was: 31 May 2009 Fully performing Past due by 1 to 30 days Past due by 31 to 60 days Past due by 61 to 90 days Past due by more than 90 days 31 May 2008 Fully performing Past due by 1 to 30 days Past due by 31 to 60 days Past due by 61 to 90 days Past due by more than 90 days Based on the credit history of the relevant debtors, management does not consider there to be any indications of potential default in respect of the fully performing book. page 157 2009 R’000 9. 2008 R’000 Cash and cash equivalents Cash at bank Cash on hand Favourable balances Bank overdraft 697 12 709 (1 004) 611 1 612 (49) (295) 563 Cash and cash equivalents of R600 000 are restricted 10. 2009 Number of shares 2008 Number of shares 2009 R’000 2008 R’000 1 000 000 000 1 000 000 000 1 1 Share capital Authorised Total authorised share capital of ordinary shares (par value of R0,000001 each) Issued Balance at the beginning of the year Shares issued during the period Shares acquired during the period 766 360 894 — (5 201 713) 1 766 630 893 — * — * * — — Balance at the end of the year 761 159 181 766 360 894 * * The company acquired 5 201 713 shares on the Johannesburg stock exchange in order to grant forfeitable shares to employees and directors of the group. The cost to the company to acquire these shares of R9 566 822 has been deducted from shareholders equity. These shares are held as ‘treasury shares’. See note 11 for details on the forfeitable shares. Shares issued during the prior period Shares issued to buy out minority shareholders on restructuring1 Shares issued to Brett Levy and Mark Levy to terminate the management bonus agreement2 Shares issued to the previous shareholders of Blue Label Investments (Proprietary) Limited to purchase the said company3 Shares issued as part of the preferential allocation in the private placement Shares issued to Microsoft Corporation Number Issue price per share R Share capital R’000 Share premium R’000 190 131 616 5,50 * 1 045 724 14 545 455 5,50 * 80 000 378 097 993 5,50 * 2 079 533 148 148 148 35 437 682 766 360 894 6,75 6,75 * * * 1 000 000 239 204 4 444 461 * Less than R1 000. Please refer to pre-listing statement for details of the minority shareholders who received shares as part of the restructuring (Step 4 –13 in the overview of the restructuring). 2 Please refer to pre-listing statement for details of the management bonus settlement agreement (Section 20.1). 3 Please refer to pre-listing statement for details (step 3 in the overview of the restructuring). 1 page 158 NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 11. Equity compensation benefit Forfeitable shares During the year, forfeitable shares were granted to executive directors and qualifying employees. The participant will forfeit the forfeitable shares if he/she ceases to be an employee of an employer company before the vesting date or if the specified performance condition has not been met, unless otherwise specified by the rules or determined by the board. In the event that the participant is not in the employ of the group, or the performance conditions are not met, then the shares allocated to the participant will be forfeited and will be sold on the open market by the escrow agent. The proceeds will be returned to the participating employer. The release of forfeitable shares will be subject to the achievement of a specified performance condition. The performance condition for the first award grant of forfeitable shares is: • 30% of shares will vest when the company core HEPS at the end of the performance period, being May 2010, exceeds the core HEPS per ordinary share as at the beginning of the performance period, being May 2008, by the percentage change in the CPI index over the performance period, plus 20% (threshold performance criteria); • 100% of shares will vest when the core HEPS at the end of the performance period, being May 2010, exceeds the core HEPS per ordinary share as at the beginning of the performance period, being May 2008, by the percentage change in the CPI index over the performance period, plus 30% (target performance criteria); • Performance below the threshold performance criteria will result in the forfeitable award not vesting, unless otherwise determined by the board. Movements in the number of forfeitable shares outstanding during the year are as follows: At beginning of the year Granted during the year Granted during the year Shares forfeited during the year Shares vested during the year At end of year Grant date Vesting date 28 November 2008 26 February 2009 1 September 2010 1 September 2010 Number of shares — 518 630 1 404 407 — — Fair value of grant R’000 — 2 593 7 022 — — 1 923 037 9 615 The fair value of the shares is based on the value paid for the shares on the open market at grant date. The total number of forfeitable shares issued to executive directors during the period is 1 148 343. 12. 2009 R’000 2008 R’000 159 11 666 1 572 991 2 753 15 630 1 542 3 890 14 388 23 815 Trade and other payables Trade payables Accruals Sundry creditors VAT page 159 2009 R’000 13. Operating loss The following items have been charged/(credited), in arriving at operating loss: Management fees received Consulting fees Foreign exchange loss Impairment of loans Profit on disposal of property, plant and equipment Insurance Legal fees Operating lease rentals – premises Overseas travel Security Share incentive scheme expense Repairs and maintenance Audit fees 14. (88 871) 9 718 393 513 (7) 1 716 2 644 1 625 7 435 541 1 939 47 3 403 (43 268) 114 730 3 365 — 988 282 717 3 724 156 — 16 2 267 (130) (5 429) (2 631) (1 075) (5 559) (3 706) Finance (income)/costs Interest received • Bank • Loans Interest paid • Bank 120 120 Net finance income 15. 2008 R’000 11 11 (5 439) (3 695) — — 2 962 2 962 1 214 1 214 (137) (137) 2 962 1 077 265 74 (224) (62) — 2 888 (118) 1 257 2 962 1 077 Taxation Current tax current year Deferred tax current year Tax rate reconciliation Net profit/(loss) before tax Tax at 28% Adjusted for: • income not taxable • expenditure not deductible page 160 NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS continued as at 31 May 2009 16. (5 174) (3 919) 1 103 739 513 (7) 1 939 32 48 3 363 — — 32 022 (9 427) (912) (34 878) 23 815 (476) 20 796 (12 015) 1 214 — 800 — 1 214 (1 214) 2 014 — 1 392 666 1 265 2 057 2 058 3 322 Taxation paid Balance outstanding at beginning of year Taxation charge Balance due/(outstanding) at end of year 18. 2008 R’000 Cash flows from operating activities Reconciliation of operating profit to cash flows from operating activities: Operating loss Adjustments for: Depreciation of property, plant and equipment Amortisation on intangible assets Impairment of loan Profit on disposal of property, plant and equipment Share incentive scheme expense Changes in working capital Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Increase in loans receivable 17. 2009 R’000 Commitments Future operating lease charges for: Premises Payable within one year Payable in two to five years page 161 19. 2009 R’000 2008 R’000 — 27 — 28 351 — 2 987 253 392 1 261 469 68 1 060 — — — 16 — 60 324 814 436 2 160 1 395 1 540 338 600 90 — 60 1 536 580 1 954 150 75 560 60 465 540 210 20 174 720 — 330 160 350 20 195 210 — — 39 597 — 370 — 99 1 200 — 1 566 717 Related party transactions Related party relationships For details of subsidiaries, associates and joint ventures refer to note 31 in the group notes. For details of the company’s directors, refer to the Directors’ report. ZOK Cellular (Proprietary) Limited. Moneyline 311 (Proprietary) Limited are related parties due to the company having common directorships. For details of the shareholdings in the company, refer to the Directors’ report. The following transactions were carried out with related parties Sales to related parties The Prepaid Company (Proprietary) Limited Purchases from related parties The Prepaid Company (Proprietary) Limited Demtrade 11 (Proprietary) Limited Interest received from related parties Africa Prepaid Services (Proprietary) Limited Content Connect Africa (Proprietary) Limited Content Connect Australia (Proprietary) Limited Datacel Direct (Proprietary) Limited SharedPhone International (Proprietary) Limited The Postpaid Company (Proprietary) Limited Management fees received from related parties Activi Technology Services (Proprietary) Limited Africa Prepaid Services (Proprietary) Limited Blue Label Mexico S.A. de C.V. Blue Label USA, LLC Cellfind SA (Proprietary) Limited Cigicell (Proprietary) Limited Comm Express Service SA (Proprietary) Limited Content Connect Australia (Proprietary) Limited Datacel Direct (Proprietary) Limited E-Voucha (Proprietary) Limited Gold Label Investments (Proprietary) Limited IT Experts (Proprietary) Limited Kwikpay SA (Proprietary) Limited SharedPhone International (Proprietary) Limited Smart Voucher Limited The Postpaid Company (Proprietary) Limited The Prepaid Company (Proprietary) Limited Transaction Junction (Proprietary) Limited Ventury Group (Proprietary) Limited Virtual Voucher (Proprietary) Limited ZOK Cellular (Proprietary) Limited Management fees paid to related parties Demtrade 11 (Proprietary) Limited Rent paid to related parties Moneyline 311 (Proprietary) Limited 1 245 page 162 NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS continued audited results as at 31 May 2009 19. 2009 R’000 2008 R’000 1 962 35 112 120 318 108 595 713 50 540 38 739 228 719 2 713 6 293 149 149 315 735 28 32 996 2 745 861 277 942 57 976 1 806 1 055 120 — 13 539 — — — — — — — — — — — 7 120 — 100 340 — — 30 377 3 216 1 018 903 — — — 815 — — — 48 000 866 48 000 — 436 21 338 108 — 159 — — 6 — 6 — 6 11 — 31 920 113 42 — — — — 2 108 400 — 866 Related party transactions (continued) Loans to related parties Activi Technology Services (Proprietary) Limited Africa Prepaid Services (Proprietary) Limited Answers Direct (Proprietary) Limited Blue Label Call Centre (Proprietary) Limited Blue Label Data Solutions (Proprietary) Limited Blue Label Investments (Proprietary) Limited Blue Label One (Proprietary) Limited Blue Label Telecoms USA Incorporated Celebia Holdings Limited Cellfind SA (Proprietary) Limited CNS Call Centre (Proprietary) Limited Content Connect Africa (Proprietary) Limited Content Connect Australia (Proprietary) Limited Datacel Direct (Proprietary) Limited Demtrade 11 (Proprietary) Limited Gold Label Investments (Proprietary) Limited Kwikpay SA (Proprietary) Limited Little River 181 Trading (Proprietary) Limited Matragon (Proprietary) Limited SharedPhone International (Proprietary) Limited The Prepaid Company (Proprietary) Limited The Postpaid Company (Proprietary) Limited Transaction Junction (Proprietary) Limited Uninex (Proprietary) Limited Velociti (Proprietary) Limited Ventury Group (Proprietary) Limited Virtual Voucher (Proprietary) Limited Loans from related parties Blue Label Investments (Proprietary) Limited Ventury Group (Proprietary) Limited Amounts due from related parties Activi Technology Services (Proprietary) Limited Blue Label USA, LLC Comm Express Service SA (Proprietary) Limited Content Connect Australia (Proprietary) Limited Datacel Direct (Proprietary) Limited E-Voucha (Proprietary) Limited Smart Voucher Limited The Prepaid Company (Proprietary) Limited ZOK Cellular (Proprietary) Limited Amounts due to related parties Demtrade 11 (Proprietary) Limited House of Business Solutions (Proprietary) Limited Kwikpay SA (Proprietary) Limited The Prepaid Company (Proprietary) Limited Purchase of property, plant and equipment from related party Blue Label Investments (Proprietary) Limited Basis of transactions All transactions with related parties are conducted on an arm’s length basis page 163 ANNEXURE 1 Reconciliation between group net profit and group pro forma net profit: The table below sets out the unaudited pro forma information of BLT. The unaudited group pro forma income statement has been prepared for illustrative purposes only. Revenue Other income Changes in inventories of finished goods Employee compensation and benefit expense Depreciation, amortisation and impairment charges Other expenses Operating profit Finance income Finance expense Share loss of associates Profit for the period before taxation Taxation Net profit Reconciliation between net profit and core net profit attributable to equity holders: Net profit Management bonus settlement net of tax Amortisation on intangibles raised through business combinations net of tax Cancellation of onerous contract Core net profit Net profit attributable to: Equity holders of parent Minority interest Core net profit attributable to: Equity holders of parent Minority interest Earnings per share on profit attributable to equity holders (cents)* – Basic – Headline – Core Number of ordinary shares in issue Weighted average number of ordinary shares in issue 31 May 2008 Actual(1) Audited R’000 Restructuring and acquisitions(2) R’000 Cash effects(3) R’000 31 May 2008 Pro forma(4) Unaudited R’000 12 545 471 69 545 (11 875 606) (265 003) (58 670) (146 240) 269 497 193 281 (147 704) (17 441) 297 633 (89 841) 207 792 385 138 (1 403) (335 901) (10 626) (15 005) (18 446) 3 757 (215) (1 433) (2 220) (111) (1 785) (1 896) — — — — — — — 46 404 42 533 — 88 937 (24 903) 64 034 12 930 609 68 142 (12 211 507) (275 629) (73 675) (164 686) 273 254 239 470 (106 604) (19 661) 386 459 (116 529) 269 930 180 891 57 600 24 498 — 64 034 — 269 423 57 600 22 937 9 000 270 428 207 792 180 891 26 901 301 409 270 428 30 981 11 982 — 36 480 (1 896) 24 498 (26 394) 7 650 36 480 (28 830) — — 64 034 64 034 64 034 — 64 034 64 034 — 34 919 9 000 370 942 269 930 269 423 507 373 093 370 942 2 151 30,65 30,26 45,81 766 360 894 590 263 513 35,16 34,86 48,40 766 360 894 766 360 894 *There are no potentially dilutive equity instruments in issue Notes 1. Extracted from the audited group income statement of BLT for the year ended 31 May 2008. 2. Represents the effects of the group restructure based on the assumption that minority acquisitions occurred on 1 June 2007. The following subsidiaries are therefore consolidated as wholly owned for the full year: – The Prepaid Company – Kwikpay – Matragon – Blue Label One Similarly, the following associates are consolidated as subsidiaries for the full year: – 72% Africa Prepaid Services – 100% Virtual Voucher – 100% Cellfind SA – 100% Datacel – 100% House of Business Solutions 3. Represents the positive impact on finance income and expense assuming cash raised on listing was received 1 June 2007. 4. Represents the pro forma unaudited group income statement of BLT on the assumption that the restructuring, listing and minority acquisitions were effective 1 June 2007. 5. All adjustments are expected to have a continuing effect on BLT. page 164 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the second annual general meeting of the shareholders of Blue Label Telecoms will be held in the Boardroom, Blue Label Telecoms Corporate Offices, 75 Grayston Drive, Sandton, on Wednesday, 25 November 2009 at 10:00 to conduct the following business: 1. To receive, consider and adopt the annual financial statements of the company and of the Blue Label Telecoms group for the year ended 31 May 2009, including the directors’ report and auditors’ report thereon. 2. To re-elect (by separate and stand-alone resolutions) the following directors who retire by rotation, but being eligible for re-election, have offered themselves for re-election: Mr GD Harlow, Ms RJ Huntley and Mr NN Lazarus SC. • Resolved that Mr GD Harlow who is required to retire by rotation as a director of the company at this annual general meeting and who is eligible for re-election and who has offered himself for re-election, be and is hereby reappointed as a director of the company with immediate effect. • Resolved that Ms RJ Huntley who is required to retire by rotation as a director of the company at this annual general meeting and who is eligible for re-election and who has offered herself for re-election, be and is hereby reappointed as a director of the company with immediate effect. • Resolved that Mr NN Lazarus SC who is required to retire by rotation as a director of the company at this annual general meeting and who is eligible for re-election and who has offered himself for re-election, be and is hereby reappointed as a director of the company with immediate effect. Abbreviated curriculum vitae in respect of each director offering himself/herself for re-election are contained on pages 17 and 18 of this annual report. 3. To reappoint PricewaterhouseCoopers Inc as independent registered auditors of the company for the ensuing year and to authorise the directors to determine the remuneration of the auditors for the past year’s audit as reflected in note 18 of the annual financial statements. The individual registered auditor who will undertake the audit during the financial year ending 31 May 2010 is Mr EJ Gerryts. To consider and, if deemed fit, pass with or without modification the following special resolution and ordinary resolutions. 4. Special resolution number 1 – General Authority to Repurchase Shares Resolved that the company and any of its subsidiaries be and they are hereby authorised, by way of a general approval, to acquire ordinary shares issued by the company, in terms of section 85 and 89 of the Companies Act, No 61 of 1973, as amended (the Companies Act), and in terms of the JSE Limited (the JSE) Listings Requirements, being that: • any such acquisition of ordinary shares shall be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement with the counterparty; • this general authority shall be valid until the company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date of passing of this special resolution number 1; • an announcement will be published as soon as the company or any of its subsidiaries have acquired ordinary shares constituting, on a cumulative basis, 3% of the number of ordinary shares in issue and for each 3% in aggregate of the initial number acquired thereafter, in compliance with paragraph 11.27 of the JSE Listings Requirements; • acquisition of shares in aggregate in any one financial year may not exceed 20% of the company’s ordinary issued share capital as at the date of passing of this special resolution number 1; • ordinary shares may not be acquired at a price greater than 10% above the weighted average of the market value at which such ordinary shares are traded on the JSE as determined over the five business days immediately preceding the date of repurchase of such ordinary shares; • the company has been given authority by its articles of association; • at any point in time, the company and/or its subsidiaries may only appoint one agent to effect any repurchase; • the company and/or its subsidiaries undertake that they will not enter the market to repurchase the company’s shares until the company’s sponsor has provided written confirmation to the JSE regarding the adequacy of the company’s working capital in accordance with Schedule 25 of the JSE Listings Requirements; • the company remains in compliance with the shareholder spread requirements of the JSE Listings Requirements; and • the company and/or its subsidiaries not repurchasing any shares during a prohibited period, as defined in the JSE Listings Requirements unless a repurchase programme is in place, where dates and quantities of shares to be traded during the prohibited period are fixed and full details of the programme have been disclosed in an announcement over the Securities Exchange News Service (SENS) prior to the commencement of the prohibited period. page 165 Before entering the market to effect the general repurchase, the directors, having considered the effects of the repurchase of the maximum number of ordinary shares in terms of the aforegoing general authority, will ensure that for a period of 12 (twelve) months after the date of the notice of annual general meeting: • the company and the Blue Label Telecoms group will be able, in the ordinary course of business, to pay its debts; • the consolidated assets of the company and the Blue Label Telecoms group, fairly valued in accordance with International Financial Reporting Standards, will exceed the liabilities of the company and the Blue Label Telecoms group; • the company and the Blue Label Telecoms group’s ordinary share capital, reserves and working capital will be adequate for ordinary business purposes; and • the working capital of the company and the Blue Label Telecoms group will be adequate for the purposes of the business of the company and the Blue Label Telecoms group. The following additional information, some of which may appear elsewhere in the annual report of which this notice forms part, is provided in terms of the JSE Listings Requirements for purposes of the general authority: • directors and management – pages 16 to 19 • major beneficial shareholders – page 68 • directors’ interests in shares – pages 61, 92 and 98 • share capital of the company – page 157 Litigation statement In terms of paragraph 11.26 of the JSE Listings Requirements, the directors, whose names appear on pages 16 to 19 of this annual report of which this notice forms part, are not aware of any legal or arbitration proceedings that are pending or threatened, that may have or had in the recent past, being at least the previous 12 (twelve) months, a material effect on the Blue Label Telecoms group’s financial position. Directors’ responsibility statement The directors, whose names appear on page 14 of this annual report confirm that to the best of their knowledge and belief: • the statements made in the annual report are true and correct; • there are no facts which have been omitted which would make any statements false or misleading, and that all reasonable enquiries to ascertain such facts have been made; • the annual report contains all information required by law and the JSE Listings Requirements. Material change Other than the facts and developments reported on in this annual report, there have been no material changes in the affairs or financial position of the company and its subsidiaries since the date of signature of the audit report and up to the date of this notice. The reason for and effect of this special resolution is to grant the directors of the company or its subsidiaries a general authority in terms of the Companies Act and the JSE Listings Requirements for the repurchase by the company or a subsidiary company of the company, of the company’s shares. The directors have no specific intention, at present, for the company or its subsidiaries to repurchase any of the company’s shares but consider that such a general authority should be put in place should an opportunity present itself to do so during the year. page 166 NOTICE OF ANNUAL GENERAL MEETING continued 5. Ordinary resolution number 1 – Non-executive directors’ remuneration Resolved that the fees payable to the non-executive directors for the ensuing 12-month period be set as follows: Current fee per meeting Proposed fee per meeting* Proposed capped fee per annum** — — R700 000 R30 000 R32 550 R162 750 • chairman R41 666 R45 208 R180 832 • member R25 000 R27 125 R108 500 • chairman R33 333 R36 166 R144 664 • member R20 000 R21 700 R86 800 • chairman R25 000 R27 125 R217 000 • member R15 000 R16 275 R130 200 • chairman R25 000 R27 125 R108 500 • member R15 000 R16 275 R65 100 • chairman R25 000 R27 125 R108 500 • member R15 000 R16 275 R65 100 Services as directors • chairman of the board ¹ • board members Audit, risk and compliance committee Remuneration committee Investment committee Transformation committee Ad hoc committee * In the event that there are fewer meetings as envisaged, the member shall receive the fee in respect of the number of meetings attended. ** In the event that there are more meetings per year than initially planned, directors’ fees will be paid only up to the cap. ¹ The annual fee paid to the chairman in respect of the year ended 31 May 2009 amounted to R600 000. 6. Ordinary resolution number 2 – Control of authorised but unissued shares Resolved that a general authority be granted to the directors to allot and issue the unissued ordinary shares of the company subject to the following limitations: • the authority shall be valid until the date of the next annual general meeting of the company, provided it shall not extend beyond 15 (fifteen) months from the date of this annual general meeting. • Issues in terms of this authority will not, in any financial year, in aggregate exceed 3% of the number of ordinary shares in the company’s issued share capital as at 31 May 2009. • Issues in terms of this authority shall be subject to the provisions of the Companies Act and the JSE Listings Requirements. 7. Ordinary resolution number 3 – General authority to issue shares for cash Resolved that subject to the general authority proposed in terms of ordinary resolution number 2 above and in terms of the JSE Listings Requirements, shareholders grant the directors a general authority for the allotment and issue of ordinary shares in the capital of the company for cash as and when suitable situations arise, subject to the following limitations: • any issue of shares shall be to public shareholders as defined by the JSE Listings Requirements; • this authority shall be valid until the date of the next annual general meeting of the company, provided it shall not extend beyond 15 (fifteen) months from the date of this annual general meeting; • a paid press announcement giving details, including the impact on net asset value and earnings per shares, will be published at the time of any such allotment and issue of shares representing, on a cumulative basis within one year, 3% or more of the ordinary number of issued shares prior to any such issues; page 167 • that issues in the aggregate in any one financial year shall not exceed 3% of the ordinary shares in the issued share capital of the company from time to time. • in determining the price at which an allotment and issue of shares will be made in terms of this authority, the maximum discount permitted will be 10% of the weighted average traded price of the ordinary shares over the 30 days prior to the date that the price of issue is determined or agreed by the directors of the company. In terms of the JSE Listings Requirements, the approval of 75% majority of the votes cast by shareholders present or represented by proxy at this annual general meeting will be required for ordinary resolution number 3 to become effective. 8. Ordinary resolution number 4 – Signature of documents Resolved that any one director or the secretary of the company be and is hereby authorised to do all such things and sign all documents and take all such action as they consider necessary to implement the resolutions set out in the notice convening this annual general meeting at which this ordinary resolution will be considered. By order of the board E Viljoen Group company secretary 26 October 2009 VOTING AND PROXIES Shareholders may appoint a proxy to attend, speak and, in respect of the applicable resolution(s), vote in their stead. Shareholders holding dematerialised shares but not in their own name must furnish their Central Securities Depository Participant (CSDP) or broker with their instructions for voting at the annual general meeting should they wish to vote. If your CSDP or broker, as the case may be, does not obtain instructions from you, it will be obliged to act in terms of your mandate furnished to it, or if the mandate is silent in this regard, to complete the relevant form of proxy attached. Unless you advise your CSDP or broker, in terms of the agreement between you and your CSDP or broker by the cut-off time stipulated therein, that you wish to attend the annual general meeting or send a proxy to represent you at the annual general meeting, your CSDP or broker will assume you do not wish to attend the annual general meeting or send a proxy. If you wish to attend the annual general meeting or send a proxy, you must request your CSDP or broker to issue the necessary letter of representation to you. Shareholders holding dematerialised shares in their own name, or who hold shares that are not dematerialised, and who are unable to attend the annual general meeting and wish to be represented thereat, must complete the relevant form of proxy attached in accordance with the instructions therein and lodge it with, or mail it to, the transfer secretaries. Forms of proxy should be forwarded to reach the company’s transfer secretaries at the address given below by not later than 10:00 on Tuesday, 24 November 2009. The completion of a form of proxy will not preclude a shareholder from attending the annual general meeting. Transfer secretaries Registered office Computershare Investor Services (Pty) Limited 70 Marshall Street Johannesburg 2001 (PO Box 61051, Marshalltown, 2107) 75 Grayston Drive Cnr Benmore Road Morningside Ext 5 Sandton 2196 (PO Box 652261, Benmore, 2010) page 168 EXPLANATORY NOTES TO RESOLUTIONS FOR CONSIDERATION AT THE ANNUAL GENERAL MEETING 1. Adoption of annual financial statements The directors are required to present to shareholders at the annual general meeting the annual financial statements incorporating the directors’ report and the report of the auditors, for the year ended 31 May 2009. These are contained within the annual report. 2. Re-election of directors In accordance with the articles of association of the company, one third of the directors are required to retire at each annual general meeting and may offer themselves for re-election. Messrs GD Harlow, NN Lazarus SC and Ms RJ Huntley retire by rotation at the annual general meeting in accordance with article 15.1 of the articles of association of the company, and have offered themselves for re-election. Abbreviated curriculum vitae in respect of each director offering himself/herself for re-election are contained on pages 17 and 18 of this annual report. The Blue Label Telecoms board of directors recommends to shareholders the re-election of the directors who retire by rotation. 3. Reappointment of independent auditors and determination of auditors’ fees PricewaterhouseCoopers Inc. has expressed its willingness to continue in office and resolution number 3 proposes the reappointment of that firm as the company’s auditors until the next annual general meeting. The resolution also gives authority to the directors to fix the remuneration of the auditors, which fee determination will be reviewed and recommended by the Audit, Risk and Compliance Committee. In accordance with section 270A of the Corporate Laws Amendment Bill, the Audit, Risk and Compliance Committee has satisfied itself that the proposed auditor, PricewaterhouseCoopers Inc, is independent of the company. 4. Special resolution number 1 – General authority to purchase shares The effect of this special resolution and its rationale is to grant the company and any of its subsidiaries a general authority in terms of the Companies Act 61 of 1973, as amended (the Companies Act), for the acquisition by the company and any of its subsidiaries of the company’s shares, which general approval shall be valid until the earlier of such next annual general meeting of the company or its variation or revocation by special resolution at any subsequent general meeting of the company, provided that the general authority shall not extend beyond 15 months from the date of this annual general meeting. The directors are of the opinion that the granting of this general authority is in the best interest of the company as it allows the company and any of its subsidiaries to repurchase the securities issued by the company through the order book of the JSE, should the market conditions and price justify such action. 5. Ordinary resolution number 1 – Non-executive directors’ remuneration Shareholders are requested to approve the fees payable to the company’s non-executive directors for the period 1 June 2009 to 31 May 2010. The proposed fees have been reviewed by the Remuneration and Nomination Committee and are recommended by the board of directors. Particulars of the process followed by the Remuneration and Nomination Committee are contained in the Remuneration Report on page 61 of this annual report. 6. Ordinary resolutions numbers 2 and 3 – Control of authorised but unissued shares and general authority to issue shares for cash The existing authorities granted by the shareholders at the previous annual general meeting held on 12 November 2008 expire at the following annual general meeting unless renewed. The authorities granted under these resolutions are subject to the Companies Act and the JSE Listings Requirements and will not, in any financial year, exceed in aggregate 22 990 825 ordinary shares, being 3% of the number of ordinary shares in the company’s issued share capital as at 31 May 2009. Ordinary resolution numbers 2 and 3 respectively require a 50% and 75% majority of the votes, cast by shareholders present or represented by proxy at the annual general meeting to become effective. The directors are of the opinion that the granting of this general authority is in the best interests of the company as it allows the company to take advantage of business opportunities that may arise in the future. page 169 PROXY FORM Blue Label Telecoms Limited (Incorporated in the Republic of South Africa) (Registration number 2006/022679/06) Share code: BLU ISIN: ZAE000109088 (Blue Label Telecoms or the company) TO BE COMPLETED BY CERTIFICATED SHAREHOLDERS AND DEMATERIALISED SHAREHOLDERS WITH “OWN NAME” REGISTRATION ONLY. For completion by registered members of Blue Label Telecoms unable to attend the second annual general meeting of the company to be held at 10:00 on Wednesday, 25 November 2009 at the Blue Label Telecoms Corporate Offices, 75 Grayston Drive, Sandton or at any adjournment thereof, I/We (Please print) of address Being the registered holder(s) of ordinary shares in the capital of the company do hereby appoint 1. 2. the chairman of the annual general meeting as my/our proxy to act for me/us and on my/our behalf at the second annual general meeting of the company which will be held on Wednesday, 25 November 2009 at 10:00 for the purpose of considering and, if deemed fit, passing, with or without modification, the resolutions to be proposed thereat and at any adjournment thereof, and to vote for and/or against the resolutions and/or abstain from voting in respect of the shares registered in my/our name/s, in accordance with the following instructions: For Against Abstain 1. Adoption of annual financial statements 2. Re-election of directors 2.1 GD Harlow 2.2 RJ Huntley 2.3 NN Lazarus SC 3. Reappointment of independent auditors 4. Special resolution: General authority to repurchase shares 5. Ordinary resolution number 1: Approval of non-executive director fees 6. Ordinary resolution number 2: Control of authorised but unissued shares 7. Ordinary resolution number 3: General authority to issue shares for cash 8. Ordinary resolution number 4: Signature of documents Please indicate with an “X” in the appropriate spaces provided above how you wish your vote to be cast. If no indication is given, the proxy will be entitled to vote or abstain as he/she deems fit. Signed at Signature Assisted by me (where applicable) on 2009 page 170 NOTES TO THE PROXY FORM 1. A form of proxy is only to be completed by those ordinary shareholders who are: a. holding shares in certificated form; or b. recorded on the sub-register in electronic form as “own name”. 2. Shareholders holding dematerialised shares (without “own name” registrations) who wish to attend the annual general meeting must request their Central Securities Depository Participant (CSDP) or broker to provide them with a letter of representation or, alternatively, instruct their CSDP or broker to vote by proxy on their behalf in terms of the agreement entered into with their CSDP or broker. 3. A shareholder may insert the name of a proxy or the names of two alternative proxies of the shareholder’s choice in the space provided and any such proxy need not be a shareholder of the company. Should a proxy not be specified, this will be exercised by the chairman of the annual general meeting. 4. An ordinary shareholder is entitled to one vote on a show of hands and, on a poll, one vote in respect of each ordinary share held. 5. If a shareholder does not indicate on the form of proxy that his/her proxy is to vote in favour of, against any resolution or to abstain from voting, or should any further resolution(s) or any amendment(s) which may be properly put before the annual general meeting be proposed, the proxy shall be entitled to vote as he/she thinks fit. 6. Documentary evidence establishing the authority of a person signing the proxy form in a representative capacity must be attached to this form, unless previously recorded by the company or waived by the chairman of the annual general meeting. 7. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. 8. The chairman of the annual general meeting may reject or accept a form of proxy which is completed and/or received other than in accordance with these notes. 9. This proxy form should be completed and returned to the company’s transfer secretaries, Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), so as to reach them by not later than Tuesday 24 November 2009 at 10:00. ADDITIONAL FORMS OF PROXY ARE AVAILABLE FROM THE TRANSFER SECRETARIES ON REQUEST BASTION GRAPHICS
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