blue label 2009 fy afs

Annual Report 2009

When you keep looking forward, you’ll leave a lasting legacy behind

Annual Report 2009

It’s our time...

This Annual Report can be viewed on our website under the Investor Relations link.

www.bluelabeltelecoms.com

Blue Label Telecoms Limited

(Incorporated in the Republic of South Africa)

Registration number 2006/022679/06

JSE Code BLU

ISIN Code ZAE000109088

75 Grayston Drive

Cnr Benmore Road

Morningside Ext 5

Sandton

2196

(PO Box 652261, Benmore, 2010)

GROWTH

REPORT CONTENTS

Our group in brief 01 Nature of business

01 Corporate thumbnail

02 Vision, mission and values

03 Our markets and brands

10 Strategic and operational highlights

11 Financial highlights

12 Group structure

14 Board of directors

19 Segment heads

20 Chairman’s report

24 Joint chief executive officers’ report

28 Segmental reviews

Governance & sustainability 50 Corporate governance

60 Remuneration report

62 Sustainability report

Financial statements 86 Chief financial officer’s report

95 Directors’ responsibility

95 Declaration by company secretary

96 Independent auditors’ report

97 Directors’ report

100 Group balance sheet

101 Group income statement

102 Group statement of changes in equity

103 Group cash flow statement

104 Notes to the group annual financial statements

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

164 Notice of annual general meeting

168 Explanatory notes to resolutions for consideration at the annual general meeting

169 Proxy form

170 Notes to the proxy form

CORPORATE PROFILE

Nature of businessBlue 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

CORPORATE THUMBNAIL continued

VISION, MISSION AND VALUES

ENDURING RELATIONSHIPS

• Valuing our customers as partners

• Empowering people

ENTREPRENEURSHIP

• Embracing opportunities

• Walking the talk

INNOVATION

• Moving forward with lessons learnt

• Forward thinking

RESPECT

• A member of the Blue Label family

• Interacting with mutual respect

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 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.

OUR MARKETS AND BRANDS...

PRIME

Distribution of prepaid secure electronic tokens of value (e-tokens) to the South African wholesale and retail consumer markets.

page 4

START-UP

page 5

Our proven business model and bouquet of product and technology offerings, enables customers to purchase prepaid airtime via multiple devices.

page 6

AIR

page 7

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 8

PLAY

page 9

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 10

18%Revenues*

16%Net profit after tax*

19% Headline earnings per share*

31%Operating profit*

16% Core earnings per share*

R667 million Cash generated from operating

activities

*When compared to core pro forma earnings.

GROWTH TIME

FINANCIAL HIGHLIGHTS

R15,3 billion

RevenueR billion

Actual2008

12,5 12,9

15,3

Proforma 2008

Actual2009

Core net profitR million

R427 million

270

371

427

Actual2008

Proforma 2008

Actual2009

Actual2008

Proforma 2008

Actual2009

55,93 cents

Core earnings per sharecents

45,8148,40

55,93

GROUP STRUCTURE

South African distribution

• The Prepaid Company

• Crown Cellular

• Ventury

• Cigicell

• Matragon

• Comm Express

• Kwikpay

• Virtual Voucher

• The Post Paid Company

See page 28

Value-added services

• Datacel

• Velociti

• CNS

• Cellfind

• Content Connect Africa

See page 46

BLUE LABEL TELECOMS

See page 40 Technology

• Activi Technology Services

• Transaction Junction – 60%

• Activi Development Services

• Blue Label One Trading as Mobile Services Company (MSC)

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%

* 100% owned by Blue Label Telecoms unless otherwise stated

Global presence

Bricks and mortar

Technology offerings

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 14

BOARD OF DIRECTORS continued

Laurence (Larry) Nestadt

Independent non-executive chairman (Born: 1950)

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 (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 Non-Listed 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.

Mark Levy

Joint chief executive officer (Born: 1971) 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).

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).

Joe Mthimunye

Independent non-executive director (Born: 1965) BCom (Zululand), BCompt Hons/CTA (UNISA), CA(SA)

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.

Lucy (Pani) Manage Tyalimpi

Independent non-executive director (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.

Gary Harlow

Independent non-executive director (Born: 1957) BBusSci (Hons) (UCT), FCMA, 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.

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.

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.

BOARD OF DIRECTORS continued

Neil Lazarus SC

Non-executive director (Born: 1958) 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)

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.

Sidney Ellerine**

Non-executive director (Born: 1936)

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.

** Deceased.

SEGMENT HEADS

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 officerBSc (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 IP-based 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.

Panagiotis (Pedro) Christofides

Chief operating officer: South African distributionBCom, 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 TurkingtonChief operating officer: International distributionBSoc 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 officerBSc(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 know-how 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

CHAIRMAN’S REPORT

Larry Nestadt

Larry NestadtChairman

Blue Label Telecoms continues to be well-positioned to exploit the growth in the use of mobile phones in the developing world.

Larry NestadtChairman

DEAR STAKEHOLDERS

I am pleased to report on the performance of

Blue Label Telecoms Limited for the year ended

31 May 2009.

Despite operating in a very difficult global

economic environment for much of the financial

year, the group’s product and service offerings

showed resilience to these adverse conditions,

which is reflected in the strong growth that was

achieved.

Revenue of R15,2 billion (representing a

growth of 18%), increased margins and cash

flow generation resulted in core net profit of

R427 million (representing a growth of 15%).

Core earnings per share increased from

48,40 cents to 55,93 cents. Headline earnings

increased by 19%. Net cash flow generated of

R429 million resulted in accumulated cash-on-

hand at year-end of R1,7 billion. This is a strong

foundation for the servicing of working capital

requirements and investment opportunities in

the year ahead.

Further details of the company’s financial

performance is to be found in the chief financial

officer’s report on page 86.

A special report in The Economist magazine

recently noted that in the year 2000 developing

countries accounted for one quarter of the

world’s 700 million mobile phones users. By

the beginning of 2009 developing countries

had grown this share to three-quarters of the

total, which by then had risen to over four billion

phones. The Economist further reports that with

developed markets now saturated the developing

world will account for most of the growth in

mobile penetration in the coming years and

predicts the number of mobile phones to reach

six billion by 2013.

The company aims to deliver prepaid products

and services to the unbanked and badly banked.

Accordingly, it remains focused on growing its

points-of-presence (touch-points) and expanding

its product offerings.

Blue Label Telecoms continues to be well-

positioned to exploit the growth in the use of

mobile phones in the developing world.

In furtherance of the objectives set out in the

collaboration agreement between Blue Label

Telecoms and Microsoft, we were pleased to

announce the development and launch of mibli™

powered by Microsoft OneApp™. The Microsoft

application was launched in South Africa as a

global first and is in the process of being used

as the forerunner for Microsoft’s international

rollout. The group’s proprietary services and

transactional technology have been integrated

into Microsoft OneApp™. Microsoft intends to

partner with Blue Label Telecoms in the rollout of

the initiative in other territories.

Development of in-country money transfer

technology has been completed. The company is

currently exploring the regulatory and technology

requirements to extend this initiative to cross-

border money remittances.

During the year the company made a number of

strategic acquisitions and investments.

The group also concentrated on consolidating its

operations. A concerted effort has been made

to achieve group-wide synergies, specifically in

terms of new product development, innovation,

technology and footprint growth. As a result

there have been improvements in efficiency,

cost-effectiveness and coordination. This process

is likely to continue for some time as the four

segments of the group are aligned through more

effective consolidation and integration.

EMPLOYEE SHARE SCHEME

The Forfeitable Share Plan was introduced

in November 2008 and will result in

over 400 company employees becoming

shareholders. In this regard 5,2 million shares

were purchased by the company during the

financial year under review and a further

4,5 million were purchased subsequent to the

year-end, for allocation to employees in the

current financial year.

Further share allocations are discretionary and

performance-related.

TRANSFORMATION AND BBBEE

The board continues to embrace South Africa’s

codes on transformation and BBBEE. Framework

policies and guidelines have been developed with

the objective of enhancing these credentials

across the group companies.

Blue Label Telecoms is in the process of

launching a number of group-wide training

initiatives aimed at enhancing and developing

priority skills among junior and middle

management bands.

CORPORATE CITIZENSHIP

The Chairman’s Fund remains a major

contributor to the company’s goodwill projects.

The group invested in a Legacy Park, which is

focused on providing supervised recreational

facilities for young people with a view to

developing skills and leadership qualities.

The group remains actively involved in the

Nomonde Children’s Home and provides funding

on a monthly basis.

Other beneficiaries include The Trust, Feed SA

and Malamulele Onward, a programme to

support caregivers of children with cerebral

palsy. The sustainability report contains more

detailed information on our corporate social

investment initiatives.

PROSPECTS

The group is poised for further growth and is in

a position to fund its growth both organically and

acquisitively as a result of its cash resources and

its ability to distribute additional products and

services through its distribution network.

CHAIRMAN’S REPORT continued

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

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 LevyJoint CEOs

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.

MICROSOFTOur 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.

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 DEVELOPMENTThe 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 NigeriaIn 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 MexicoBlue Label Mexico commenced trading operations in May 2009. The company is growing the number of points-of-presence and transactions per site.

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, 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.

UkashThe 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 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.

JOINT CHIEF EXECUTIVE OFFICERS’ REPORT continued

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.

PROSPECTSWe 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 Nigerian distribution initiative is expected to contribute to the growth of our international segment.

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 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

• 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.

APPRECIATIONWe thank the members of our board for their guidance and leadership.

We also express our sincere gratitude to our executive team and employees for their invaluable contribution to the success of Blue Label Telecoms.

Mark Levy and Brett LevyJoint chief executive officers

SEGMENTAL REVIEWS


The subsidiaries encompassing this segment all fulfil specific roles while simultaneously benefiting from the purchasing power and vertical integration of the group.

SEGMENTAL REVIEWS continued

South African distribution continued

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.

Pedro Christofides Chief operating officer:South African distribution

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.

92,9% 109,9%

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.

97,8%94,3%

Revenue EBITDARevenue* EBITDA*2008 20082009 2009

*When compared to core pro forma earnings


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.

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-of-

presence 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.


International distribution

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.


International distribution continued

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.

Bradley Turkington Chief operating officer:International distribution

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.

5,2% 1,1%3,9% 4,8%




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.

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.

PROSPECTSAfrica 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.


Technology

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.


Technology continued

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.

Angelo Roussos Chief information officer

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.

(8,5%)0,1% (2,28%)0,2%


Activi remains focused on the development and support of commercially viable and functionally rich transaction engines that provide robust and stable platforms.



Technology continued

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.

Dr David Fraser Chief technology officer

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.

Specialises in telemarketing of cellular products and various financial services instruments and provides inbound customer care and technical support.


Value-added services continued

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.

Craig Ireland Chief operating officer:Value-added services (Datacel)

Cellfind remains focused on delivering annuity income-driven 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.

13,2%2,2% 10,75%1,6%



INTRODUCTIONThe 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 COMPLIANCEBlue 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 COMMITTEESBoard 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 non-

executive 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.

CORPORATE GOVERNANCE

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.

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 October² Alternate director to Peter Mansour attended in person³ 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,

CORPORATE GOVERNANCE continued

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 board-

appointed 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 non-

executive 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.

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 non-

audit 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


financial officer of Blue Label Telecoms, possesses

the appropriate expertise and experience to meet

his responsibilities in that position.


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


^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.


Members (and invitees) Jun Aug Sept

NN Lazarus SC (Chairman) P P P

S Ellerine P P P

GD Harlow P P P

RJ Huntley P P P

BM Levy^ A A A

MS Levy^ A A A

DB Rivkind^ P A A


^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 non-

executive 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 non-

executive, 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.


Members (and invitees) Jun¹ Jun¹ Sept² Sept² Nov

GD Harlow

(Chairman) P P P P P

S Ellerine P P P P P

D Hilewitz P P P P P

NN Lazarus SC P A P P P

BM Levy A P P P P

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


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.


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.


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


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 SECRETARYAll 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

recorded as per the requirements of section 242 of the Act. The removal of the group company secretary is a board decision.

RISK MANAGEMENTThe 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 CONTROLThe 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


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 DEALINGSBlue 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 CONCERNThe 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 CONDUCTThe 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

• 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.

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.

CODE OF BUSINESS CONDUCT

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,

rel igion, gender or sexual orientation.

INTRODUCTIONThis 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 non-executive directors of the company.

REMUNERATION PHILOSOPHYBlue 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.

GOVERNANCEThe 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. COMPOSITION AND ROLE OF THE RNCThe 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 non-executive 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.

ADVISORSIn determining the remuneration of executive and non-executive directors and certain senior executives the RNC obtains information on remuneration trends and seeks advice from external independent remuneration consultants.

REMUNERATION POLICY 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.

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.

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 CONTRACTSThe 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.

REMUNERATION REPORT

NON-EXECUTIVE DIRECTORS’ REMUNERATIONNon-executive directors receive fees for service on the board and board committees, dependent on attendance. Non-executive 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:

Current fee per

meeting

Proposed fee per

meeting *

Proposed capped fee per annum **

Services as directors• chairman of the board ¹ — — R700 000• board members R30 000 R32 550 R162 750

Audit, risk and compliance committee • chairman R41 666 R45 208 R180 832• member R25 000 R27 125 R108 500

Remuneration committee• chairman R33 333 R36 166 R144 664• member R20 000 R21 700 R86 800

Investment committee• chairman R25 000 R27 125 R217 000• member R15 000 R16 275 R130 200

Transformation committee• chairman R25 000 R27 125 R108 500• member R15 000 R16 275 R65 100

Ad hoc committee• chairman R25 000 R27 125 R108 500• member R15 000 R16 275 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 PLANThe 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

Balance1 June 2008 Issue date

Forfeitable shares

awardedBalance

31 May 2009 Vesting date

BM Levy 0 26/02/2009 369 936 369 936 01/09/2010

MS Levy 0 26/02/2009 369 936 369 936 01/09/2010

MV Pamensky 0 26/02/2009 269 745 269 745 01/09/2010

DB Rivkind 0 26/02/2009 138 726 138 726 01/09/2010

SUSTAINABILITY REPORT

Our responsibility

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.

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 STANDARDSBlue 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.

SUSTAINABILITY REPORT continued

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

2009 2009 2008 2008 R’000 % R’000 %

VALUE-ADDEDValue-added by operating activities 847 005 84,2 594 545 77,2

Revenue 15 281 449 12 545 471

Net operating expenses (14 434 444) (11 950 926)

Value added by investing activities 158 539 15,8 176 002 22,8

Fair value movement on financial assets at fair value through profit or loss 32 (1 375)

Interest income 158 507 177 377

1 005 544 100 770 547 100

VALUE DISTRIBUTED

Distributed to employees 278 970 27,7 265 003 34,4

Salaries, wages, medical and other benefits 278 970 265 003

Distributed to providers of finance 4 891 0,5 46 575 6,0

Finance costs 4 891 46 575

Distributed to the state 190 144 18.9 102 009 13,2

Income tax 190 144 101 759

STC – 250

Value reinvested 166 574 16,6 149 168 19,4

Depreciation, amortisation and impairment 93 220 58 670

Net discounting finance cost 61 269 85 225

Share of losses of associates 27 445 17 441

Deferred taxation (15 360) (12 168)

Value retained 364 965 36,3 207 792 27,0

Retained profit 390 547 180 891

Minority shareholders’ interest (25 582) 26 901

1 005 544 100 770 547 100

2008

34,4%

27,0%

6,0%

13,2%

19,4%

2009

27,7%

36,3%

18,9%

0,5%

16,6%

■ Distributed to employees

■ Distributed to providers of finance

■ Distributed to the state

■ Value reinvested

■ Value retained


STAKEHOLDER RELATIONSThe 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.

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.


SHAREHOLDER ANALYSISBelow 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 ofshareholdings % No of shares %

Shareholder spread1 – 1 000 shares 626 24,85 361 248 0,051 001 – 10 000 shares 1 251 49,66 4 669 913 0,6110 001 – 100 000 shares 479 19,02 14 680 162 1,92100 001 – 1 000 000 shares 107 4,25 33 434 847 4,361 000 001 shares and over 56 2,22 713 214 724 93,06

Total 2 519 100,00 766 360 894 100,00

Distribution of shareholdersBanks 24 0,95 77 433 972 10,10Close corporations 61 2,42 1 380 644 0,18Empowerment 1 0,04 76 441 268 9,97Endowment funds 13 0,52 536 704 0,07Individuals 1 982 78,68 202 910 208 26,48Insurance companies 11 0,44 7 973 414 1,04Investment companies 18 0,71 31 397 804 4,09Medical schemes 2 0,08 19 000 0,00Mutual funds 41 1,63 36 289 943 4,74Nominees and trusts 216 8,58 57 454 925 7,50Other corporations 28 1,11 197 226 0,03Retirement funds 28 1,11 16 300 887 2,13Private companies 85 3,37 157 553 936 20,56Public companies 8 0,32 95 269 250 12,43Treasury stock 1 0,04 5 201 713 0,68

Totals 2 519 100,00 766 360 894 100,00

Public/non-public shareholdersNon-public shareholders 20 0,79 346 066 942 45,16 Directors and associates 18 0,71 249 013 377 32,49

Strategic holdings (more than 10%) 1 0,04 91 851 852 11,99

Treasury stock 1 0,04 5 201 713 0,68

Public shareholders 2 499 99,21 420 293 952 54,84

Total 2 519 100,00 766 360 894 100,00

Beneficial shareholders holding 3% or more No of shares %

Shotput Investments (Proprietary) Limited 116 736 000 15,23Microsoft Corporation 91 851 852 11,99Levy, BM 82 613 331 10,78Nthwese Investment Holdings Consortium (Proprietary) Limited 76 441 268 9,97Levy, MS 75 205 922 9,81Investec Asset Management 43 667 468 5,70

Total 486 515 841 63,48

ETHICAL PRACTICESBlue 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 risksThe 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.

Furthermore, all historically active users of cell phones will have to be registered within eighteen months from that date.

Registration is administratively complex and leads to a delay in the ultimate activation of starter packs.

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.

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.

Key impacts and risks (continued)


Reduction of inter-connect fees

Parliamentary intervention to reduce cellular inter-connect fees in the immediate future appears likely.

This, in turn, is likely to lead to lower cellular airtime prices. Lower pricing may lead to margin compression by the networks.

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.

For these reasons management believes that the group’s business will not be materially affected by the reduction in inter-connect fees.

Inability to attract and retain key personnel and qualified employees, in whom intellectual capital resides.

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.

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.

Non-exclusivity of various supply, distribution and WASP agreements

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.

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 conducts the majority of its existing business in South Africa and is subject to certain political, social, environmental and economic conditions in South Africa

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.

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.


Key impacts and risks (continued)


Rapid growth of off-shore operations in territories far removed from head office.

As the group diversifies its operations to earn income from off-shore 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

In most industries a wholesaler is at risk of being eliminated from the supply chain if the supplier elects to supply the customer directly.

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.

No single network can offer this complete solution.

SOCIAL PRACTICESTransformation 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 BBBEE status

Demtrade 11 (Proprietary) Limited trading as Blue Label Procurement

Level 2 contributor

Cigicell (Proprietary) Limited Level 4 contributor

Activi Technology Services (Proprietary) Limited

Level 5 contributor

Comm Express Services SA (Proprietary) Limited

Level 6 contributor

Velociti (Proprietary) Limited 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.


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 PARKSThe 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 ONWARDMalamulele 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

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.

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.

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.

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.

Going forward, the group will be utilising the training

services offered by Training @ Work, in particular,

sales and call centre training.

PRESS RELEASE BY ZOK CELLULAR CIRCULATED TO MEDIA ATTENDING THE LAUNCHZOK 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.


Gifts were handed out to the invited guests, students and community at the launch event:

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.


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.

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.

The table below depicts the demographics of the employee base in the group:

Male FemaleForeign

nationals 2009 2008African Coloured Indian White African Coloured Indian White Male Female Total Total

Top management 2 0 0 44 0 1 0 6 0 0 53 45Senior management 1 2 6 26 1 0 2 10 0 0 48 50Professionally qualified, experienced specialists and mid-management 10 3 15 71 5 6 3 45 3 1 162 75Skilled technical and academically qualified workers, junior management, supervisors, foremen, and superintendents 68 22 39 96 11 11 24 43 3 0 317 146Semi-skilled and discretionary decision-making 206 39 22 14 293 85 38 80 6 3 786 654Unskilled and defined decision-making 35 3 4 5 15 1 1 1 2 0 67 88

Total permanent 322 69 86 256 325 104 68 185 14 4 1 433 1 058

Non-permanent employees 76 25 109 13 133 36 148 6 0 0 546 558

Grand total 398 94 195 269 458 140 216 191 14 4 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.


LEADERSHIP DEVELOPMENT SKILLSA 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 LEADERSHIPVelociti (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.

SAFETY AND HEALTH PRACTICESA 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.

TRAINING AND SKILLS DEVELOPMENTDetailed 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.

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 bench-

marking and the like. It is anticipated that this will only

be in place in the early part of the next financial year.

The group has planned and implemented new

training and development initiatives during the year

as follows:

LEARNERSHIP INITIATIVESCigicell (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 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.

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.

ENVIRONMENTAL PRACTICESGiven 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.

Long-termcost

Watersaving

Process

Energysaving

90%

80%

70%

60%

50%

40%

30%

20%

10%

■ Sensor taps ■ Normal taps


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.

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.

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.

FINDINGSIn 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.

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.

INDEPENDENCESA 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.

INDEPENDENT ASSURANCE STATEMENT

CONCLUSIONSBased 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

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.

RECOMMENDATIONSWhile 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.

INDEPENDENT ASSURANCE STATEMENT continued

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.

REQUEST FOR FEEDBACKBecause 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].

GRI G3 APPLICATION LEVEL REQUIREMENTS

Report Application Level C C+ B B+ A A+

Sta

ndar

d D

iscl

osur

es

G3 Profile Disclosures

Report on:1.12.1 – 2.103.1 – 3.8, 3.10 – 3.124.1 – 4.4, 4.14 – 4.15

Rep

ort

Ass

ured

by

Sus

tain

abili

tyS

ervi

ces.

co.z

a

Report on all criteria listed for Level C plus:1.23.9, 3.134.5 – 4.13, 4.16 – 4.17

Rep

ort

Exte

rnal

ly A

ssur

ed

Same as requirement for Level B

Rep

ort

Exte

rnal

ly A

ssur

ed

G3 Management Approach Disclosures

Not Required Management Approach Disclosures for each Indicator Category

Management Approach Disclosures for each Indicator Category

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

Report on a minimum of 20 Performance Indicators, at least one from each of: economic, environ-ment, 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) explain-ing the reason for its omission

GRI CONTENT TABLE

Strategy and analysis1.1 21–23 1.2 10–11, 28–49

Organisational profile2.1 FC2.2 1–9, 28–49 2.3 1–9, 28–49 2.4 IFC2.5 12–13, 28–49 2.6 IFC2.7 12–13, 28–49 2.8 1–13, 28–492.9 21–492.10 32, 85

Report profile3.1 643.2 64, 1013.3 643.4 32, 85

Report scope and boundary3.5 643.6 643.7 643.8 28–49, 643.9 793.10 643.11 64

GRI content index3.12 85

Assurance3.13 81–82

Governance, commitments and engagement

4.1 14–18, 50–594.2 14–18, 50–594.3 14–18, 50–594.4 66–674.5 50–614.6 66–674.7 50–614.8 1–2, 59, 69,

79–804.9 50–614.10 50–61

Commitment to external initiatives

4.11 50–614.12 50–61, 64, 69,

79–804.13 66–67

Stakeholder engagement4.14 66–674.15 66–674.16 66–674.17 66–67

SOCIAL

Core Additional

Health and safety

LA7 78–79

LA8 78–79 LA9 N/A

Training and education

LA10 77–78 LA11 77–78

LA12 77–78

Diversity and opportunity

LA13 14–18, 50–59, 77–78

Community

SO1 71–76

Corruption

SO3 59, 76

Public policy

SO5 67

Anti-competitive behaviour

SO7 67

Products and services

PR5 67

ECONOMIC

Core Additional

Economic performance

EC1 65

EC3 76–78, 113–114

Market presence

EC6 73–76

EC7 71–77

Indirect economic impacts

EC8 71–76

ENVIRONMENTAL

Materials

EN1 79–80

EN2 80

Energy

EN3 80 EN5 79–80

EN7 79–80

Biodiversity

EN11 80 EN13 79–80

EN12 80 EN14 80

Emissions, effluents and waste

EN18 79–80

EN22 79–80

Products and services

EN26 79–80

Compliance

EN28 80

SOCIAL

Core Additional

Employment

LA1 76–77

LA2 76–77

Labour/management relations

LA4 N/A

LA5 N/A

VISION & STRATEGY

Included

Included, but requires future improvement

Key

Awards

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 RivkindChief Financial Officer

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

2008 Core

pro forma R’000

2008

ActualR’000

Revenue 15 281 449 12 930 609 12 545 471

Cost of inventories sold (14 215 840) (12 211 507) (11 875 606)

Gross profit 1 065 609 719 102 669 865 Other income 22 368 68 142 69 545

Employee compensation and benefit expense (278 970) (195 629) (265 003)

Other expenses (240 940) (155 686) (146 240)

EBITDA 568 067 435 929 328 167Depreciation, amortisation and impairment charges (93 220) (73 675) (58 670)

Operating profit 474 847 362 254 269 497 Finance expense (112 699) (106 604) (147 704)

Finance income 205 046 239 470 193 281

Share of losses from associates (27 445) (19 661) (17 441)

Net profit before taxation 539 749 475 459 297 633 Taxation (174 784) (138 929) (89 841)

Net profit for the year 364 965 336 530 207 792 Minority interest 25 582 (507) (26 901)

Basic earnings 390 547 336 023 180 891 Once-off employee compensation and benefit expense net of tax — — 57 600

Amortisation on intangibles raised through business

combinations net of tax 36 653 34 919 22 937

Cancellation of onerous contract — — 9 000

Core net profit for the year 427 200 370 942 270 428

Earnings per share (cents)– Basic 51,13 43,85 30,65

– Headline 51,63 43,55 30,26

– Core earnings 55,93 48,40 45,81

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.

Core pro forma earnings are adjusted for non-

recurring 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.

CHIEF FINANCIAL OFFICER’S REPORT continued

Share of losses from associates and joint ventures

Associates and joint ventures % holding2009R’000

2008R’000 % growth

Oxigen Services India Pvt Limited 37,22 (25 940) (19 661) (31,9)

Smart Voucher Limited (Ukash) 16,90 (2 286) — —

Other 781 — —

Total (27 445) (19 661) (39,6)

Segmental report

The following are the divisional segments that

constitute the group profile:


• 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.


• 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.


• 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.

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


The growth of 16,4% was entirely volume related.

The South African distribution continues to be the

major contributor to group revenue.


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.

A hybrid of organic growth and contributions by

start-up operations resulted in an increase in

revenue of R224 million (44,8%).


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%.


Total growth in this segment was R128 million

(61,7%) of which R48 million (23,2%) was acquisitive

and R80 million (38,5%) organic.

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.


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.


Revenue

Segments

2009 2008 % of total

% growthR’000 R’000 2009 2008

South African distribution 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

Technology 22 512 27 850 0,1 0,2 (19,2)

Total 15 281 449 12 930 609 100 100 18,2

EBITDA

Segments2009R’000

2008R’000 % growth

South African distribution 624 346 426 245 46,5

International distribution 6 144 21 873 (71,9)

Value-added services 75 239 46 866 60,5

Total trading operations 705 729 494 984 42,6

Technology (48 502) (9 929)

Corporate (89 160) (49 126)

Total support (137 662) (59 055)

Net total 568 067 435 929 30,3

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.


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

Segments2009

R’000 2008

R’000 GrowthR’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

Total trading operations 576 365 431 710 144 655

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.

APPRECIATIONI 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

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.

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.

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.

The trade creditor payment terms equated to 40 days.

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.

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.

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

Annual financial statements

Annual financial statements contents 95 Directors’ responsibility

95 Declaration by company secretary

96 Independent auditors’ report

97 Directors’ report

100 Group balance sheet

101 Group income statement

102 Group statement of changes in equity

103 Group cash flow statement

104 Notes to the group annual financial statements






FINANCIAL STATEMENTS

DIRECTORS’ RESPONSIBILITY

DECLARATION BY COMPANY SECRETARY

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 statementsThe 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 DB RivkindNon-executive chairman Chief financial officer

BM Levy MS LevyJoint chief executive officer Joint chief executive officer

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 ViljoenCompany secretary

Sandton25 August 2009

INDEPENDENT AUDITORS’ REPORTfor 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 statementsThe 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’ responsibilityOur 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.

OpinionIn 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 GerrytsRegistered 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

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 strategyBlue 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 resultsThe financial statements have been prepared on the going-concern 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 EllerineIt 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 investmentsParticulars 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 disposalsIn 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 pre-paid 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.

DividendsBlue 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 one-third and two-thirds of the annual dividend, respectively.

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’ interestsThe 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

NN Lazarus 8 204 673 8 204 673 — — — — 177 779 177 779

RJ Huntley — — 2 140 355 2 241 634 — — — —

DB Rivkind — — 3 431 669 — — — — —

*Mr Ellerine passed away on 17 July 2009. His shares are owned by several trusts.

The aggregate interest of the current directors in the capital of the company was as follows:

Number of shares

2009 2008

Beneficial 249 013 377 242 615 802

Non-beneficial 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.

SecretaryThe company secretary is E Viljoen. The business and postal address of the company secretary appear on page 167.

AuditorsPricewaterhouseCoopers Incorporated will continue in office in accordance with section 270 (2) of the Companies Act.

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.

ResolutionsThe 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

GROUP BALANCE SHEETas at 31 May 2009

Note2009R’000

2008R’000

ASSETS

Non-current assets 736 634 712 759

Property, plant and equipment 4 105 011 69 484

Intangible assets 5 202 830 223 544

Goodwill 5 257 495 266 242

Investment in associates and joint ventures 6 109 837 81 356

Financial asset at amortised cost 7 54 096 72 133

Deferred taxation assets 8 7 365 —

Current assets 3 143 109 2 509 470

Financial assets at fair value through profit and loss 9 10 5 672

Financial assets at amortised cost 7 67 449 53 163

Inventories 10 384 361 484 501

Loans receivable 11 29 920 7 103

Trade and other receivables 12 898 571 630 687

Current tax assets 2 101 —

Cash and cash equivalents 13 1 760 697 1 328 344

Total assets 3 879 743 3 222 229

EQUITY AND LIABILITIES

Capital and reserves 2 244 120 1 917 944

Share capital 14 * *

Share premium 4 404 737 4 404 737

Treasury shares (25 562) —

Restructuring reserve (1 843 912) (1 843 912)

Foreign currency translation reserve (13 399) 2 552

Transaction with minority reserve (914 399) (898 564)

Equity compensation benefit reserve 9 371 —

Share-based payment reserve 1 231 —

Retained earnings 635 305 244 758

2 253 372 1 909 571

Minorities interest (9 252) 8 373

Non-current liabilities 69 664 58 056

Deferred taxation 8 49 544 55 111

Interest bearing borrowings 15 20 120 2 945

Current liabilities 1 565 959 1 246 229

Trade and other payables 16 1 518 853 1 152 969

Non-interest bearing borrowings 17 — 9 041

Current tax liabilities 28 039 71 146

Bank overdraft 13 3 891 50

Current portion of interest bearing borrowings 15 15 176 13 023

Total equity and liabilities 3 879 743 3 222 229

*Less than R1 000.

GROUP INCOME STATEMENTfor the year ended 31 May 2009

Note2009R’000

2008R’000

Revenue 15 281 449 12 545 471

Other income 22 368 69 545

Changes in inventories of finished goods (14 215 840) (11 875 606)

Employee compensation and benefit expense (278 970) (265 003)

Depreciation, amortisation and impairment charges (93 220) (58 670)

Other expenses (240 940) (146 240)

Operating profit 18 474 847 269 497

Finance costs 19 (112 699) (147 704)

Finance income 19 205 046 193 281

Share of losses from associates 6 (27 445) (17 441)

Net profit before taxation 539 749 297 633

Taxation 20 (174 784) (89 841)

Net profit for the year 364 965 207 792

Attributable to:

Equity holders of the parent 390 547 180 891

Minorities interest (25 582) 26 901

Earnings per share for profit attributable to equity holders (cents)

– Basic 21 51,13 30,65

GROUP STATEMENT OF CHANGES IN EQUITYfor the year ended 31 May 2009

Note

Share capitalR’000

Share premium

R’000

TreasurysharesR’000

Retainedearnings

R’000

Restruc-turing

reserve1

R’000

Foreigncurrency

trans-lation

reserveR’000

Trans-action

with minorityreserve2

R’000

Employeecompen-

sation benefit

reserveR’000

Share- based

payment reserve

R’000

Totalordinary

share-holders

equityR’000

Minority interest

R’000

Totalequity

R’000

Balance as at 1 June 2007 * 2 079 533 — 63 867 (1 843 912) 4 188 (14 893) — — 288 783 129 238 418 021

Shares issued during the year 13 * 2 364 928 — — — — — — — 2 364 928 — 2 364 928

Share issue costs — (39 724) — — — — — — — (39 724) — (39 724)

Net profit for the year — — — 180 891 — — — — — 180 891 26 901 207 792

Dividends — — — — — — — — — — (998) (998)

Minorities disposed of during the year — — — — — — (883 671) — — (883 671) (146 294) (1 029 965)

Exchange losses on translation of foreign operations — — — — — (1 636) — — — (1 636) (474) (2 110)

Balance as at 31 May 2008 * 4 404 737 — 244 758 (1 843 912) 2 552 (898 564) — — 1 909 571 8 373 1 917 944

Net profit for the year — — — 390 547 — — — — — 390 547 (25 582) 364 965

Treasury shares purchased — — (25 562) — — — — — — (25 562) — (25 562)

Asset acquired for shares — — — — — — — — 1 231 1 231 — 1 231

Equity compensation benefit movement — — — — — — — 9 371 — 9 371 195 9 566

Minorities acquired/(disposed of) during the year — — — — — — (15 835) — — (15 835) 3 458 (12 377)

Exchange losses on translation of equity loans — — — — — (15 107) — — — (15 107) — (15 107)

Exchange losses on translation of foreign operations — — — — — (844) — — — (844) 4 304 3 460

Balance as at 31 May 2009 * 4 404 737 (25 562) 635 305 (1 843 912) (13 399) (914 399) 9 371 1 231 2 253 372 (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)

GROUP CASH FLOW STATEMENTfor the year ended 31 May 2009

Note2009R’000

2008R’000

Cash flows from operating activities

Cash received from customers 15 013 566 12 193 526

Cash paid to suppliers and employees (14 267 551) (12 272 774)

Cash generated/(utilised) by operations 22 746 015 (79 248)

Interest received 19 158 507 177 377

Interest paid 19 (4 891) (46 575)

Taxation paid 23.1 (232 637) (71 350)

Net cash flows from operating activities 666 994 (19 796)

Cash flows from investing activities

Proceeds on disposal of intangible assets — 889

Acquisition of intangible assets (28 716) (22 898)

Acquisition of financial assets at fair value through profit or loss (10) (1 391)

Proceeds on disposal of financial assets at fair value through profit or loss 5 428 11 722

Acquisition of associates 23.2 (52 264) —

Exercise of share warrants in associate 6 — (7 021)

Acquisition of business combinations net of cash acquired 24 (50 098) (313 364)

Disposal of subsidiaries net of cash acquired 25 (9 523) —

Loans advanced to associates (2 321) (38 618)

Dividends received — 120

Proceeds on disposal of property, plant and equipment 5 553 12 642

Acquisition of property, plant and equipment (74 780) (47 238)

Net cash flows from investing activities (206 731) (405 157)

Cash flows from financing activities

Proceeds from/(repayment of) interest bearing borrowings 6 583 (590 076)

Proceeds from/(repayment of) non-interest bearing borrowings 8 355 (28 031)

Proceeds from issue of shares — 1 319 613

Share issue costs — (39 724)

Acquisition of treasury shares (25 562) —

Net cash flows from financing activities (10 624) 661 782

Increase in cash and cash equivalents 449 639 236 829

Cash and cash equivalents at the beginning of the year 1 328 294 1 090 044

Translation difference (21 127) 1 421

Cash and cash equivalents at the end of the year 13 1 756 806 1 328 294

NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTSas 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 effectiveThe 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 StatementsThe 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 CostsBorrowing 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 StatementsThis 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.

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 CancellationsIFRS 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 LiquidationThe 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 AssociateThe 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 AccountingThe 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 one-sided 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 ProgrammeThis 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 EstateThe 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 OperationIFRIC 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.


NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS continuedas at 31 May 2009

page 106

1. Significant accounting policies (continued)

Standards, amendments and interpretations not yet effective (continued)

IFRIC 17: Distributions of Non-cash Assets to OwnersIFRIC 17 applies to the accounting for distributions of non-cash 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.


IFRIC 18: Transfers of assets from customersIFRIC 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.


Annual Improvements ProjectThe IASB decided to initiate an annual improvements project in 2007 as a method of making necessary, but non-urgent, 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: IFRS 5 Non-current Assets Held for Sale IAS 1 Presentation of Financial Statements IAS 16 Property, Plant and Equipment IAS 19 Employee Benefits IAS 20 Accounting for Government Grants IAS 23 Borrowing Costs I AS 27 Consolidated and Separate Financial Statements IAS 28 Investments in Associates IAS 31 Interests in Joint Ventures IAS 29 Financial Reporting in Hyperinflationary Environment IAS 36 Impairment of Assets IAS 38 Intangible Assets IAS 39 Financial Instruments: Recognition and Measurement

IAS 40 Investment Property 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.

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.

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.

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.

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.

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.

Foreign currencies(a) 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.

(b) 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-for-sale 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


Foreign currencies (continued)

(b) 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.

(c) 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.

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.

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.

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.

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) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held-for-

trading, 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.

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.

(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

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.

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.

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 non-current 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

• it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

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.

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.

(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.


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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.

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.

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.

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.

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.

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 20% – 25%Furniture and fittings 16,67% – 25%Office equipment 25%Computer equipment 25% – 33,33%Electronic terminals 16,67%Security equipment 20% – 33,33%Vending machines 16,67%Media equipment 33,33%Plant and machinery 2%Buildings 8,33%

Major leasehold improvements are amortised over the shorter of their respective lease periods and estimated useful life.

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.

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.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

Intangible assets(a) 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 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.

Computer software development costs recognised as assets are amortised over their estimated useful lives.

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).

(c) 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).

(d) 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 cash-generating 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.


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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.

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.

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.

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.

Employee benefits(a) 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.


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Employee benefits (continued)

(a) 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.

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) 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.

(c) 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.

(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.

2. Critical accounting estimates and assumptions 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) 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-in-use 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.

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.

(d) 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.

(e) 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) 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.

Changes in the estimates of the consideration could result in the recognition of material adjustments in future periods.

(g) 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.

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.

Loans are only granted to holders with an appropriate credit history, taking into account the holder’s financial position and past experience.

The group places cash and cash equivalents with major banking groups and quality institutions that have high credit ratings.

The group has no significant concentrations of credit risk.

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.


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3. Financial risks (continued)

Maturity of financial liabilities

Payable in:

Less than 1 month or on

demand R’000

More than 1 month but

not exceeding 1 yearR’000

More than 1 year but not

exceeding 2 yearsR’000

More than 2 years but

not exceeding 5 yearsR’000

More than 5 yearsR’000

2009

Interest bearing borrowings 10 434 4 742 4 631 16 755 —

Non-interest bearing borrowings — — — — —

Trade and other payables* 596 783 871 029 — — —

Bank overdraft 3 891 — — — —

Total 611 108 875 771 4 631 16 755 —

2008

Interest bearing borrowings 11 285 1 738 1 608 1 337 —

Non-interest bearing borrowings 8 539 502 — — —

Trade and other payables* 171 637 925 978 — — —

Bank overdraft 50 — — — —

Total 191 511 928 218 1 608 1 337 —

*Trade and other payables exclude non-financial instruments.

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 riskThe 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).

3. Financial risks (continued)


Financial instruments by currency

2009ZAR

R’000USD

R’000AUD

R’000MxM

R’000NgN

R’000MZN

R’000Total

R’000

Financial assetsCash and cash equivalents 1 625 586 57 959 95 650 71 932 4 475 1 760 697Trade and other receivables* 725 645 68 835 18 1 23 022 3 231 820 752Loans receivable (including loans to associates) 34 421 19 710 — — — — 54 131Financial assets at fair value through profit or loss 10 — — — — — 10Financial assets at amortised cost 117 546 2 419 — — — 1 580 121 545

2 503 208 148 923 113 651 94 954 9 286 2 757 135

Financial liabilitiesInterest bearing borrowings 18 364 18 198 — — — — 36 562Trade and other payables* 1 128 684 84 323 128 160 232 752 21 765 1 467 812Bank overdraft 3 891 — — — — — 3 891

1 150 939 102 521 128 160 232 752 21 765 1 508 265

Net financial position 1 352 269 46 402 (15) 491 (137 798) (12 479) 1 248 870

2008ZAR

R’000USD

R’000EUR

R’000CDF

R’000MZN

R’000Total

R’000

Financial assetsCash and cash equivalents 1 313 550 5 933 8 456 1 404 1 328 344Trade and other receivables* 553 859 20 550 2 686 — 9 525 586 620Loans receivable (including loans to associates) 5 788 20 149 830 — — 26 777Financial assets at fair value through profit or loss 5 320 — 352 — — 5 672Financial assets at amortised cost 119 134 3 227 — — 2 935 125 296

1 997 661 49 859 12 324 1 12 864 2 072 709

Financial liabilitiesInterest bearing borrowings 15 968 — — — — 15 968Non-interest bearing borrowings 544 — 8 497 — — 9 041Trade and other payables* 1 052 172 16 886 10 020 — 18 538 1 097 616Bank overdraft 50 — — — — 50

1 068 734 16 886 18 517 — 18 538 1 122 675

Net financial position 928 927 32 973 (6 193) 1 (5 674) 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 riskThe 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 measurementFor 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 onprevailing market interest rates.


page 118

Computerequipment

R’000

Furniture and fittings

R’000

Motor vehicles

R’000

Officeequipment

R’000 Terminals

R’000

4. Property, plant and equipmentYear ended 31 May 2009

Opening carrying amount 12 088 7 377 9 658 2 622 7 896

Additions 13 855 4 373 10 580 2 436 6 313

Disposals (6 094) (748) (2 574) (283) (438)

Depreciation charge (6 471) (2 081) (3 941) (1 113) (2 603)

Translation differences 129 131 (277) 35 —

Closing carrying amount 13 507 9 052 13 446 3 697 11 168

At 31 May 2009

Cost 29 544 12 590 19 389 5 584 21 870

Accumulated depreciation (16 037) (3 538) (5 943) (1 887) (10 702)

Carrying amount 13 507 9 052 13 446 3 697 11 168

Year ended 31 May 2008

Opening carrying amount 5 748 3 150 6 918 1 339 5 879

Additions 12 189 6 148 7 251 2 027 3 048

Disposals (762) (583) (1 862) (172) (306)

Depreciation charge (5 494) (1 393) (2 899) (605) (1 067)

Translation differences 407 55 250 33 342

Closing carrying amount 12 088 7 377 9 658 2 622 7 896

At 31 May 2008

Cost 20 744 10 365 14 309 3 919 9 940

Accumulated depreciation (8 656) (2 988) (4 651) (1 297) (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:

2009R’000

2008R’000

Motor vehicles

Cost 2 579 1 601

Accumulated depreciation (696) (657)

Carrying value at 31 May 1 883 944

These assets have been pledged as surety against the liability.

Leaseholdimprovements

R’000

Vending machines

R’000

Media equipment

R’000

Plant andmachinery

R’000Land

R’000Buildings

R’000 Total

R’000

2 893 20 300 5 207 587 — 856 69 484

8 831 26 545 798 234 — 976 74 941

(137) (2 475) (202) — — — (12 951)

(1 964) (6 138) (1 710) (111) — — (26 132)

(349) — — — — — (331)

9 274 38 232 4 093 710 — 1 832 105 011

11 253 50 872 9 083 812 — 1 832 162 829

(1 979) (12 640) (4 990) (102) — — (57 818)

9 274 38 232 4 093 710 — 1 832 105 011

358 13 283 1 846 25 1 176 3 794 43 516

3 055 13 594 4 800 2 654 — — 54 766

(248) (2 882) — (1 996) (1 176) (2 937) (12 924)

(277) (3 695) (1 439) (96) — — (16 965)

5 — — — — — 1 091

2 893 20 300 5 207 587 — 856 69 484

3 239 25 995 7 787 716 — 856 97 870

(346) (5 695) (2 580) (129) — — (28 386)

2 893 20 300 5 207 587 — 856 69 484


page 120

Goodwill R’000

Trade-marksR’000

Customerlisting

R’000

Distributionagreement

R’000

Computersoftware

R’000

Internallygenerated

software R’000

Franchisefees

R’000

Customerrelation-

ships R’000

Supplierrelation-

ships R’000

Total R’000

5. Intangible assetsYear ended 31 May 2009

Opening carrying amount 266 242 5 966 7 721 11 336 49 961 11 996 1 901 133 607 1 056 489 786

Additions 2 489 3 278 21 087 — 14 817 14 174 — — — 55 845

Disposals (8 235) — — (1 642) (1 345) (929) — — — (12 151)

Amortisation charge — (4 142) (6 264) (2 174) (9 497) (3 128) (121) (39 755) (746) (65 827)

Translation differences (279) (281) (3 565) (80) (364) (37) — — — (4 606)

Adjustment** (2 722) — — — — — — — — (2 722)

Closing carrying amount 257 495 4 821 18 979 7 440 53 572 22 076 1 780 93 852 310 460 325

At 31 May 2009

Cost 257 495 11 598 47 765 11 806 75 808 25 812 2 418 154 907 1 490 589 099

Accumulated amortisation — (6 777) (28 786) (4 366) (22 236) (3 736) (638) (61 055) (1 180) (128 774)

Carrying amount 257 495 4 821 18 979 7 440 53 572 22 076 1 780 93 852 310 460 325

Year ended 31 May 2008

Opening carrying amount 46 907 6 004 17 601 3 973 43 278 1 257 — — — 119 020

Additions 225 828 1 493 924 8 375 13 259 11 640 2 022 154 907 1 491 419 939

Disposals — — — — (372) — — — — (372)

Amortisation charge — (1 531) (10 804) (1 223) (6 208) (901) (121) (21 300) (435) (42 523)

Translation differences — — — 211 4 — — — — 215

Adjustment* (6 493) — — — — — — — — (6 493)

Closing carrying amount 266 242 5 966 7 721 11 336 49 961 11 996 1 901 133 607 1 056 489 786

At 31 May 2008

Cost 266 242 8 206 29 225 13 102 59 989 12 960 2 022 154 907 1 491 548 144

Accumulated amortisation — (2 240) (21 504) (1 766) (10 028) (964) (121) (21 300) (435) (58 358)

Carrying amount 266 242 5 966 7 721 11 336 49 961 11 996 1 901 133 607 1 056 489 786* 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.

Note2009R’000

2008R’000

6. Investment in associates and joint venturesOpening net book value 81 356 61 804

Acquisition of associates and joint ventures 122 357 —

Movements through net profit (27 445) (17 441)

Share of results after tax (26 105) (17 426)

Amortisation of intangible asset (1 882) (21)

Deferred tax on intangible assets amortisation 527 6

Profit on dilution 15 —

Dividends received — (120)

Foreign currency translation reserve (7 297) (336)

Share scheme reserve 3 544 —

Transaction with minority reserve (8 949) —

Exercise of share warrants in associate — 7 021

Associates converted to subsidiaries 24 — (9 043)

Disposal of associate and joint ventures * —

82 210 (19 919)

Movement in loans

Loans granted to associates and joint ventures 4 501 50 724

Loans repaid by associates (914) (12 106)

Loans received from associates and joint ventures (1 266) —

Prepayment in prior period for additional interest purchased (57 000) —

Unrealised foreign exchange gains on loans to associates 950 853

(53 729) 39 471

Closing net book value 109 837 81 356

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:

Dateacquired

Effectivepercentage

acquired

Oxigen Services India (Private) Limited 1 June 2008 3,85

Smart Voucher Limited 1 October 2008 17,25

Dual Data (Proprietary) Limited 1 October 2008 50

BLK (Proprietary) Limited 17 December 2008 25


page 122

6. Investment in associates and joint ventures (continued)

The group’s interest in its principal associates, which are unlisted, is as follows:

NameCountry of incorporation

AssetsR’000

LiabilitiesR’000

RevenuesR’000

Profit/(loss)

R’000

Effectivepercentage

interestheld

Net bookvalue

R’000

2009Oxigen Services India (Private) Limited India 167 511 92 610 1 434 602 (64 078) 37,22 61 920

Smart Voucher LimitedUnited Kingdom 122 343 110 888 45 112 (12 009) 16,9 40 851

Dual Data (Proprietary) Limited South Africa 1 341 1 340 3 954 — 50 —BLK Risk Services (Proprietary) Limited South Africa 1 324 429 1 247 893 25 220

2008Oxigen Services India (Private) Limited India 208 093 128 070 1 057 732 (56 175) 35 81 356

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:

Dateacquired

Effectivepercentage

acquired

Demtrade 11 (Proprietary) Limited 1 June 2008 50

The group disposed of the following interests in joint ventures:

Datedisposed

Effectivepercentage

disposed

The Hub Pretalk (Proprietary) Limited 25 May 2009 40

Set out below is the summarised financial information of joint ventures:

Country of incorporation

AssetsR’000

LiabilitiesR’000

RevenuesR’000

Profit/(loss)

R’000

Effectivepercentage

interestheld

Net bookvalue

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

2008

The Hub Pretalk (Proprietary) Limited SA 2 585 5 523 19 651 (1 774) 40 *

Premet Cellular (Proprietary) Limited SA 2 303 7 214 297 945 (2 602) 40 *

There are no contingent liabilities relating to the group’s interest in joint ventures.

* Less than R1 000.

2009R’000

2008R’000

7. Financial assets at amortised costStarter packsBalance at the beginning of year 125 296 84 383Additions 45 266 114 855Disposals (49 399) (74 412)Translation differences 382 470

At the end of year 121 545 125 296

Less: Current portion (67 449) (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.

Capitalallowances

R’000

Fair value gains

R’000Provisions

R’000

TaxlossesR’000

Pre-payments

R’000Other

R’000Total

R’000

8. Deferred taxationAt 31 May 2007 (93) 18 442 (1 435) (18) 86 4 103 21 085Charge/(credited) to income statement 951 (9 915) (1 128) (1 162) 27 234 (10 993)Tax rate change (9) (467) (244) 1 38 (494) (1 175)Acquisition of subsidiary (note 24) 337 46 951 (541) (553) — — 46 194At 31 May 2008 1 186 55 011 (3 348) (1 732) 151 3 843 55 111 Charge/(credited) to income statement 1 677 (14 544) (427) (9 334) 1 238 6 030 (15 360)Disposal of subsidiary (note 25) — — 68 — — 384 452 Foreign currency translations — — (99) 77 — 1 998 1 976

At 31 May 2009 2 863 40 467 (3 806) (10 989) 1 389 12 255 42 179

2009R’000

2008R’000

Deferred tax asset comprises:Capital allowances 1 080 —Fair value gains 1 996 —Provisions (2 164) —Tax losses (10 488) —Prepayments (328) —Other 2 539

Total deferred tax asset (7 365) —

Deferred tax liability comprises:Capital allowances 1 784 1 186Fair value gains 38 472 55 011Provisions (1 642) (3 348)Tax losses (502) (1 732)Prepayments 1 716 151Other 9 716 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

Note2009R’000

2008R’000

9. Financial assets at fair value through profit or lossBalance at beginning of year 5 672 16 183 Additions 10 1 391Disposals (5 427) (10 527)Fair value movements 32 (1 375)Translation differences 28 —Disposal of subsidiary 25 (305) —

At the end of year 10 5 672

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. InventoriesAirtime and related products 384 361 484 501

384 361 484 501

A general notarial bond is held by Investec Bank Limited over airtime up to R550 million (2008: R250 million).

11. Loans receivableInterest free 29 120 3 593Bearing interest at the prime linked interest rates 800 3 510

29 920 7 103

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 receivablesTrade receivables 726 862 556 974Less: Provision for impairment (3 192) (5 299)

723 670 551 675Sundry debtors and prepayments 169 456 55 703VAT 5 445 23 309

898 571 630 687

GrossR’000

ImpairmentR’000

The ageing of trade receivables at the reporting date was:31 May 2009Fully performing 682 922 3 Past due by 1 to 30 days 15 101 17 Past due by 31 to 60 days 8 479 1 717 Past due by 61 to 90 days 2 679 12 Past due by more than 90 days 18 650 1 443

727 831 3 192

31 May 2008Fully performing 527 010 25Past due by 1 to 30 days 10 123 53Past due by 31 to 60 days 12 668 622Past due by 61 to 90 days 4 498 —Past due by more than 90 days 11 413 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.

2009R’000

2008R’000

12. Trade and other receivables (continued)

Provision for impairment of receivablesAt 1 June 5 299 1 071 Acquisition of subsidiaries — 613 Allowances made during the year 2 876 3 815 Amounts used and reversal of unused amounts (4 983) (200)

At 31 May 3 192 5 299

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

Cash at bank 1 751 775 1 317 963Cash on hand 8 922 10 381

Favourable balances 1 760 697 1 328 344 Bank overdraft (3 891) (50)

1 756 806 1 328 294

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.

2009Number

of shares

2008Number

of shares2009R’000

2008R’000

14. Share capitalAuthorisedTotal authorised share capital of ordinary shares (par value of R0,000001 each) 1 000 000 000 1 000 000 000 1 1IssuedBalance at the beginning of the year 766 360 894 378 097 993 * *Shares issued during the year — 388 262 901 — *Shares acquired during the year (5 201 713) — * —

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. 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

Number

Issue price

per shareR


Share premium

R’000

14. Share capital (continued)

Shares issued in the prior yearShares issued to buy out minority shareholders on restructuring1 190 131 616 5,50 * 1 045 724Shares issued to Brett Levy and Mark Levy to terminate the management bonus agreement2 14 545 455 5,50 * 80 000Shares issued as part of the preferential allocation in the private placement 148 148 148 6,75 * 1 000 000Shares issued to Microsoft Corporation 35 437 682 6,75 * 239 204

388 262 901 * 2 364 928

*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).

2009R’000

2008R’000

15. Interest bearing borrowingsLiabilities under non-cancellable finance leases 206 794Instalment sale liabilities 608 3 918 Bank borrowings 2 221 —Other borrowings 32 261 11 256

35 296 15 968Less: Amounts included in current portion of borrowings (15 176) (13 023)

20 120 2 945

Finance lease liabilities – minimum lease payments due: Not later that one year 101 427Later than one year and not later than five years 134 514

235 941

Future finance charges on finance leases (29) (147)

Present value of finance lease liabilities 206 794

Instalment sale liabilities – minimum payments due: Not later than one year 380 1 855 Later than one year and not later than five years 306 2 918

686 4 773 Future finance charges on finance leases (78) (855)

Present value of finance lease liabilities 608 3 918

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 leasesLiabilities 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 borrowingsThe 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.

2009R’000

2008R’000

16. Trade and other payablesTrade payables 1 362 803 1 072 565

Accruals 58 655 45 670

Sundry creditors 67 628 23 694

VAT 29 767 11 040

1 518 853 1 152 969

17. Non-interest bearing borrowingsBank borrowings — 300

The loan is unsecured. The bank has the right to request full payment in cash unless otherwise negotiated.

Other borrowings — 8 741

— 9 041

The loans are unsecured and have no fixed terms of repayment.

18. Operating profitThe following items have been charged/(credited) in arriving at operating profit:

Audit fees – services as auditors 11 951 7 590

Audit fees – other 4 434 —

Consulting fees 14 008 2 383

Courier and postage 7 027 4 599

Excess of acquirers’ interest in the net fair value over cost — (2 585)

Fair value movements on financial assets at fair value through profit or loss (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 —

Gain on derecognition of financial asset — (43 000)

Impairment of loans 1 261 —

Impairment of trade receivables 6 090 3 244

Insurance 12 833 5 189

Legal fees 6 261 1 978

Loan release — (2 335)

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

Management fees received (4 089) (8 157)

Operating lease rentals – equipment 6 146 2 356

Operating lease rentals – premises 24 831 12 140

Overseas travel 15 761 7 861

Profit on disposal of subsidiaries (352) —

Rent received — (244)

Rent and security 3 883 711

Repairs and maintenance 3 996 1 927


page 128

2009R’000

2008R’000

19. Finance (income)/costsInterest received

• Bank (157 759) (175 496)

• Loans (333) (959)

• Other (415) (922)

• Discounting of receivables (46 539) (15 904)

(205 046) (193 281)

Interest paid

• Bank 1 477 34 194

• Loans 2 231 9 596

• Finance leases 576 645

• Other 607 2 140

• Discounting of payables 107 808 101 129

112 699 147 704

Net finance income (92 347) (45 577)

20. TaxationCurrent tax 190 144 101 759

current year 190 406 101 759

prior year adjustment (262) —

Deferred tax (15 360) (12 168)

current year (15 360) (12 168)

STC — 250

174 784 89 841

Profit before tax 539 749 297 633

Tax at 28% 151 130 83 337

Income not subject to tax (1 457) (3 504)

Expenses not deductable for tax purposes 7 293 8 187

Secondary tax on companies — 250

Capital gains (174) (1 453)

Effect of tax rate changes — (1 175)

Utilisation of previously unrecognised tax losses (1 468) (3 532)

Tax effect of assessed losses not recognised 12 944 3 391

Share of losses from associates 7 685 4 883

Prior year adjustment (262) —

Effect of different tax dispensations (907) (543)

Tax charge 174 784 89 841

21. Earnings per sharea) BasicBasic 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) 390 547 180 891

Weighted average number of ordinary shares in issue (thousands) 763 834 590 264

Basic earnings per share (cents per share) 51,13 30,65

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.

21. Earnings per share (continued)

2009audited

Profit beforetax and

minoritiesR’000

TaxR’000

MinoritiesR’000

Headlineearnings

R’000

Profit attributable to equity holders of the company 539 749 (174 784) 25 582 390 547

Loss on disposal of property, plant and equipment 640 (179) (5) 456

Loss on disposal of subsidiaries 4 933 (1 237) — 3 696

Profit on disposal of subsidiaries (352) — — (352)

Headline earnings 394 347

Weighted average number of ordinary shares in issue (thousands) 763 834

Headline earnings per share (cents per share) 51,63

2008audited

Profit beforetax and

minoritiesR’000

TaxR’000

MinoritiesR’000

Headlineearnings

R’000

Profit attributable to equity holders of the company 297 633 (89 841) (26 901) 180 891

Loss on disposal of property, plant and equipment 422 (118) — 304

Excess of acquirers’ interest in the net fair value over cost (2 585) — — (2 585)

Headline earnings 178 610

Weighted average number of ordinary shares in issue (thousands) 590 264

Headline earnings per share (cents per share) 30,26

c) Diluted – basic and headlineDiluted 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) 390 547

Issued number of ordinary shares in issue (thousands) 761 159

Adjusted for forfeitable shares (thousands) 5 152

Weighted average number of ordinary shares for dilutive earnings (thousands) 766 361

Dilutive basic earnings per share (cents) 50,96

Headline earnings (R’000) 394 347

Weighted average number of ordinary shares for dilutive headline earnings (thousands) 766 361

Dilutive headline earnings per share (cents) 51,46

In 2008 there were no potentially dilutive instruments


page 130

2009unaudited

R’000

2008unaudited

R’000

21. Earnings per share (continued)

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 390 547 180 891

Management bonus settlement net of tax — 57 600

Amortisation on intangibles raised through business combinations net of tax 36 653 22 937

Cancellation of onerous contract — 9 000

Core net profit for the period 427 200 270 428

Core net profit for the year attributable to: 403 782 301 409

Equity holders of parent 427 200 270 428

Minority interest (23 418) 30 981

Weighted average number of ordinary shares in issue 763 833 909 590 263 513Core earnings per share (cents per share) 55,93 45,81

2009R’000

2008 R’000

22. Cash generated by operationsReconciliation of operating profit to cash generated by operating activities:

Operating profit 474 847 269 497

Adjustments for:

Depreciation of property, plant and equipment 26 132 16 965

Amortisation of intangible assets 65 827 42 523

Loss on disposal of investments — 53

Gain on derecognition of financial asset — (43 000)

Discounting of receivables 46 539 15 904

Discounting of payables (107 808) (101 129)

Impairment of loan 1 261 —

Loss on disposal of property, plant and equipment 640 422

Loss on disposal of intangible assets 967 —

Net loss on disposal of subsidiaries 4 581 —

Excess of acquirers’ interest in the net fair value over cost — (2 585)

Fair value movements on investments (32) 1 375

Share incentive scheme expense 6 022 Net unrealised forex loss/(gains) 7 342 (1 969)

Changes in working capital (excluding the effects of acquisitions and disposals):Decrease/(increase) in inventories 65 851 (194 417)

Increase in trade and other receivables (307 977) (252 084)

Increase in trade and other payables 454 907 205 078

Decrease in loans receivable 3 844 5 032

Decrease/(increase) in financial assets at amortised cost 3 072 (40 913)

746 015 (79 248)

2009R’000

2008R’000

23.23.1 Taxation paid

Balance outstanding at beginning of year 71 146 31 617Translation differences (2 096) 50Taxation charge 190 144 102 009Acquisition of subsidiaries — 8 820Disposal of subsidiaries (619) —Net payable outstanding at end of year (25 938) (71 146)

232 637 71 350

23.2 Acquisition of associatesAcquisition of associates and joint ventures 122 357 —Cash advanced in the prior year (70 093) —

Cash paid in current year 52 264 —

24. Business combinations24.1 Acquisition of subsidiaries and start-up operations

31 May 2009

Blue Label**Mexico

Blue LabelAustralasia

Answers Direct

Blue Label**Data

SolutionsCelebia**

Holdings

Blue Label**Telecoms

USA IncBlue Label**

USA, LLC

Africa Prepaid

ServicesNigeria** Limited

Distributor ofprepaid cellular

airtime inMexico

CompanydistributesBlue Label

productsand services

in theAustralasian

markets

Call centreoperation

Provider ofdata for

use in call centres

Investmentholding

companysituated in

Cyprus

Investmentholding

companysituated in

the USA

Distributor ofprepaid

calling cards in the USA


airtime andstarter

packs in Nigeria

Initial acquisition

Date acquired 18 July2008

19 August2008

1 August2008

1 August2008

1 July2008

2 December2008

2 December2008

1 December2008

% acquired 70 50,5 80 81 100 100 50,01 51

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

Assets 20 534 119 2 120 3 595 35 39 947 119 481 224 401

Liabilities 1 358 3 209 1 478 709 1 386 50 948 90 679 233 430

Revenue 292 — 7 037 3 004 — — 134 263 110 713

Profit/(loss) after tax since acquisition (6 098) (3 637) 460 1 625 (101) (1 559) (12 022) (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

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**MexicoR’000

Blue LabelAustralasia

R’000

Answers DirectR’000

Blue Label**Data

SolutionsR’000

Celebia**Holdings

R’000

Blue Label**Telecoms

USA IncR’000

Blue Label**USA, LLC

R’000

Africa Prepaid

ServicesNigeria** LimitedR’000

TotalR’000

Cash and cash equivalents 30 404 1 109 — — 1 — 149 — 31 663

Property, plant and equipment — 11 150 — — — — — 161

Intangible assets — 1 964 — — — — 19 856 — 21 820

Goodwill — — 800 — — — — — 800

Inventories — — — — — — 54 — 54

Receivables — 24 — * — * 910 814 1 748

Borrowings — (2 511) (800) — — — (19 856) — (23 167)

Payables — (68) — — — — (1 234) — (1 302)

Fair value of subsidiaries acquired 30 404 529 150 * 1 * (121) 814 31 777

Minority interests (9 121) (261) (30) * — — — (399) (9 811)

Fair value of net assets acquired 21 283 268 120 * 1 * (121) 415 21 966

Goodwill — 1 659 30 — — — — — 1 689

Transaction with minorities reserve 5 861 — — — — — 130 — 5 991

Total purchase consideration 27 144 1 927 150 * 1 * 9 415 29 646

Subsequent capital contribution — — — — — — 49 630 — 49 630

Still to be settled — — — — — — — (415) (415)

Settled in cash 27 144 1 927 150 * 1 * 49 639 — 78 861

Less cash and cash equivalents in subsidiary (30 404) (1 109) — — (1) — (149) — (31 663)

Cash flow on acquisition (3 260) 818 150 * — * 49 490 — 47 198* Less than R1 000 .

** These represent start-up operations.


24.1 Acquisition of subsidiaries and start-up operations (continued)31 May 2008

VirtualVoucher

AfricaPrepaid

Services

House of Business Solutions

Group CellfindCNS

Call Centre

ContentConnect

AfricaLittle River

Trading 181

POSControl

Services

Provider of afully integrated

prepaid vouchermanagement

system operating in

over 500 Engenpetroleumforecourts


airtime andVodacom starter

packs in Africa,excluding

South Africa

Holding companyof Datacel

Direct group. The group isa provider of

direct marketingof short-term

insuranceproducts to

various databases

Provider of location-based

services

Call centreoperations

specialising ininsurance policy

sales

Provider of content for

mobile devices

The procure-ment, selling

and distribution of prepaid

products forinter alia fixed

and mobilenetworks and all

business ancillary thereto

Assembles andsells point-of-sale devices

Initial acquisition

Date acquired1 June2006

1 June2006

1 June2006

1 June2006

1 January2008

23 January2008

1 March2008

1 March2008

% acquired 15% 28% 33,3% 42,7% 80% 100% 100% 52%

Further acquisition

Date acquired14 November

200714 November

200714 November

200714 November

2007

% acquired 85% 44% 66,7% 57,3%

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

Assets 32 538 49 243 303 25 131 10 523 7 595 56 254 651

Liabilities 15 556 61 374 42 5 122 2 341 3 685 54 165 719

Revenue 365 015 212 471 — 45 039 11 044 4 500 342 271 609

Profit/(loss) after tax since acquisition 4 327 220 8 231 18 453 1 062 (32) 2 089 (68)


page 134


24.1 Acquisition of subsidiaries and start-up operations (continued)

31 May 2008


VirtualVoucher

R’000

AfricaPrepaid

ServicesR’000

House of Business Solutions

GroupR’000

CellfindR’000

CNSCall Centre

R’000

ContentConnect

AfricaR’000

Little RiverTrading 181

R’000

POSControlR’000

TotalR’000

Cash and cash equivalents (5 296) 2 973 2 920 4 614 — 6 145 — — 11 356Property, plant and equipment 183 2 774 3 069 117 718 667 — — 7 528 Intangible assets 35 1 366 669 2 002 248 — — — 4 320 Intangible assets – revalued — 29 875 28 289 62 686 924 6 387 38 732 — 166 893Goodwill — 1 127 3 319 — 5 488 — — — 9 934 Investments — — 1 209 — — — — — 1 209 Inventories 13 043 10 265 — — — — — — 23 308 Receivables 15 069 20 741 4 428 9 664 — 2 983 — * 52 885 Loan receivable — — 5 313 — — — — — 5 313 Deferred tax — 553 (134) 128 — — — — 547Deferred tax – revalued — (8 365) (7 921) (17 564) (259) (1 788) (10 845) — (46 742) Borrowings (1 644) (17 924) (16 344) — — (37) — — (35 949) Payables (8 735) (31 904) (5 332) (14 967) — (5 817) — — (66 755)

Fair value of subsidiaries acquired 12 655 11 481 19 485 46 680 7 119 8 540 27 887 * 133 847Minority interests — (2 365) — — (1 424) — — — (3 789) Investments in associates cost as at restructure date (2 703) 2 478 (5 651) (3 167) — — — — (9 043)

Fair value of net assets acquired 9 952 11 594 13 834 43 513 5 695 8 540 27 887 * 121 015Amounts transferred to transactions with minority reserve 16 354 12 705 44 876 101 251 — — — — 175 186 Goodwill 11 728 13 296 79 897 21 406 5 660 21 460 62 113 — 215 560

Total purchase consideration 38 034 37 595 138 607 166 170 11 355 30 000 90 000 * 511 761 Settled in shares (19 125) (23 925) (68 821) (137 170) — — — — (249 041) Settled in cash 18 909 13 670 69 786 29 000 11 355 30 000 90 000 * 262 720 Less cash and cash equivalents in subsidiary 5 296 (2 973) (2 920) (4 614) — (6 145) — — (11 356)

Cash flow on acquisition 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’ shareholdings31 May 2009

CNSCall Centre


specialisingin insurancepolicy sales

Initial acquisitionDate acquired 1 October 2008% acquired 20

R’000

Assets 13 615Liabilities 2 019Revenue 26 916Profit/(loss) after tax since acquisition 1 507


24.2 Acquisition of minorities’ shareholdings (continued)

31 May 2009


CNSCall Centre

R’000Total

R’000

Minority interests 2 005 2 005

Fair value of net assets acquired 2 005 2 005

Amounts transferred to transactions with minority reserve 895 895

Total purchase consideration 2 900 2 900

Settled in cash 2 900 2 900

Cash outflow on acquisition 2 900 2 900

31 May 2008

The PrepaidCompany Matragon Kwikpay SA Velociti

Blue LabelOne

BuddingTrade1170

VenturyGroup

Theprocurement,

selling,distributionof prepaid

products forinter alia fixed

and mobilenetworks and

all businessancillarythereto

Matragon isthe holdingcompany of

Comm Express

Services SAwhich is a

distributorof prepaid

airtime andother prepaidproducts andstarter packs.

Distributionchannels

includeterminals,

vendingmachines

and softwareembedded on

POS devices

Supply ofelectronicvouchers

and relatedservices


specialisingin insurancepolicy salesand cellular

contract sales

Focus ontechnology

strategy andnew productdevelopment

Company holds Telkom

licence

Group company

consisting of:1. Ventury

Group2. Cigicell

3. iVeriDistributor of prepaid

airtime through own

terminals.Multi-channelpayment and

transactionprocessing

group

Initial acquisitionDate acquired 1 June

20061 June2006

1 June2006

1 June2006

1 June2006

1 June2006

1 June2006

% acquired 69,6% 50% 60% 51% 75% 50% 90%Further acquisitionDate acquired 14 November

200714 November

200714 September

200614 November

200714 November

200714 November

200722 April

2008% acquired 30,4% 50% 15% 49% 25% 50% 10%Date acquired 1 March

2007% acquired 20%Date acquired 14 November

2007% acquired 5%

R’000 R’000 R’000 R’000 R’000 R’000 R’000

Assets 2 311 711 378 312 107 615 13 086 9 685 — 137 184 Liabilities 1 973 312 331 916 88 048 14 058 17 611 — 41 454 Revenue 10 342 528 4 132 280 630 302 32 569 — — 1 638 497 Profit/(loss) after tax since acquisition

100 264 23 579 7 121 2 736 (3 596) — 5 476


page 136


24.2 Acquisition of minorities’ shareholdings31 May 2008The fair value of the net assets approximated the assets acquired

The PrepaidCompany

R’000 Matragon

R’000Kwikpay SA

R’000VelocitiR’000

Blue LabelOne

R’000

BuddingTrade1170

R’000

VenturyGroupR’000

TotalR’000

Minority interests 114 121 25 735 791 — (1 556) * 10 992 150 083

Fair value of net assets acquired 114 121 25 735 791 — (1 556) * 10 992 150 083 Amounts transferred to transactions with minority reserve 615 479 71 265 — 7 185 11 556 3 000 — 708 485

Goodwill/(excess of acquirers’ interest in the net fair value over cost) — — 334 — — — (2 585) (2 251)

Total purchase consideration 729 600 97 000 1 125 7 185 10 000 3 000 8 407 856 317 Settled in shares (729 600) (48 500) (1 125) (3 592) (10 000) (1 500) — (794 317) Settled in cash — 48 500 — 3 593 — 1 500 8 407 62 000

Cash flow on acquisition — 48 500 — 3 593 — 1 500 8 407 62 000

* Less than R1 000.

25. Disposal of subsidiaries31 May 2009 E-Voucha iVeri Polsa

Date disposed 30 November2008

31 October2008

31 March2009

% disposed 51 51 50

E-VouchaR’000

iVeriR’000

PolsaR’000

TotalR’000

The fair value of the net assets disposed of:Cash and cash equivalents 4 1 777 12 376 14 157 Property, plant and equipment 535 635 4 611 5 781 Intangible assets 1 140 50 1 759 2 949 Goodwill 2 500 — — 2 500 Investments — — 305 305 Inventories 83 — 12 035 12 118 Receivables 13 145 132 11 886 25 163 Deferred tax 384 68 — 452 Bank overdraft (205) — — (205)Borrowings (1 923) (300) (20 228) (22 451)Current tax liabilities — (42) (577) (619)Payables (16 352) (861) (14 161) (31 374)

Fair value of subsidiaries disposed of (689) 1 459 8 006 8 776 Minority interests 338 (687) (3 999) (4 348)Goodwill 2 499 2 835 400 5 734 Fair value of net assets disposed of 2 148 3 607 4 407 10 162 Profit/(loss) on disposal of subsidiary 352 (607) (4 326) (4 581)

Total proceeds on disposal 2 500 3 000 81 5 581

To be settled (1 071) — (81) (1 152)

Received in cash 1 429 3 000 — 4 429 Less: Cash and cash equivalents in subsidiary 201 (1 777) (12 376) (13 952)

Cash outflow on disposal 1 630 1 223 (12 376) (9 523)

2009R’000

2008R’000

26. CommitmentsFuture 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 23 859 16 589

Payable in two to five years 61 399 57 555

Payable in greater than five years 11 175 7 818

Equipment


Payable in two to five years 13 158 10 586

Payable in greater than five years 15 46

120 276 98 915

27. Related party transactionsFor 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

2009R’000

2008R’000

27. 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 2 475 493

Premet Cellular (Proprietary) Limited — 280 386

The Hub (Proprietary) Limited 6 601 15 594

BSC Technologies (Proprietary) Limited 965 1 650

Dual Data (Proprietary) Limited 6 —

Purchases from related parties

ZOK Cellular (Proprietary) Limited 74 875 19 911

Premet Cellular (Proprietary) Limited 1 104 4 996

The Hub (Proprietary) Limited 91 1 519

BSC Technologies (Proprietary) Limited 105 2 550

Demtrade 11 (Proprietary) Limited 3 356 —

WBS Holdings (Proprietary) Limited 18 —

Dual Data (Proprietary) Limited 2 796 —

Smart Voucher Limited 204 —

Moneyline 311 (Proprietary) Limited 103 —

Cost recoveries from related parties

Premet Cellular (Proprietary) Limited — 41

The Hub (Proprietary) Limited 54 180

BSC Technologies (Proprietary) Limited — 160

ZOK Cellular (Proprietary) Limited — 414

Moneyline 311 (Proprietary) Limited 3 002 —

Interest paid to related parties

Demtrade 11 (Proprietary) Limited 146 —

Interest received from related parties

House of Business Solutions (Proprietary) Limited — 401

Africa Prepaid Services (Proprietary) Limited — 469


Management fees received from related parties

Cellfind (Proprietary) Limited — 119



Smart Voucher Limited 1 954 —

Management fees paid to related parties


Rent received from related parties

House of Business Solutions (Proprietary) Limited — 101

2009R’000

2008R’000



Datacel Direct (Proprietary) Limited — 69

Rent paid to related parties

Moneyline 311 (Proprietary) Limited 3 664 1 880

PLL Investments (Proprietary) Limited 1 810 828

Friedshelf 669 (Proprietary) Limited 194 240

Ellerine Bros. (Proprietary) Limited 1 947 1 767

Loans to related parties

Oxigen Services (India) Pvt Limited 19 710 19 673



Loans from related parties


Amounts due from related parties

The Hub (Proprietary) Limited 118 4 147

Moneyline 311 (Proprietary) Limited 282 —


PLL Investments (Proprietary) Limited 1 105 —

Amounts due to related parties

Premet Cellular (Proprietary) Limited 3 476 2 850

The Hub (Proprietary) Limited — 188

ZOK Cellular (Proprietary) Limited — 16

Moneyline 311 (Proprietary) Limited 44 113



Dual Data (Proprietary) Limited 1 272 —

Basis of transactions

All transactions with related parties are conducted on an arm’s length basis


page 140

Services asdirectors of

Blue LabelTelecoms

LimitedR’000

Salary andallowances

R’000

Bonuses andperformance

relatedpayments

R’000

Otherbenefits

R’000

Sub-total

R’000

28. Directors’ emolumentsFor the year ended 31 May 2009

Executive directors

Levy, BM — 5 210 — 75 5 285

Levy, MS — 5 215 — 69 5 284

Pamensky, MV — 3 824 — 29 3 853

Rivkind, DB — 1 953 1 387 29 3 369

— 16 202 1 387 202 17 791

Non-executive directors

Nestadt, LM 600 — — — 600

Ellerine, S 300 — — — 300

Harlow, GD 465 — — — 465

Huntley, RJ 315 — — — 315

Lazarus, NN 340 — — — 340

Mansour, P — — — — —

Mthimunye, J 362 — — — 362

Theledi, HC 195 — — — 195

Tyalimpi, LM 230 — — — 230

2 807 — — — 2 807

2 807 16 202 1 387 202 20 598

For the year ended 31 May 2008

Executive directors

Levy, BM — 2 763 3 360 37 6 160

Levy, MS — 2 763 3 360 37 6 160

Pamensky, MV — 2 026 1 429 16 3 471

Rivkind, DB — 1 034 735 16 1 785

— 8 586 8 884 106 17 576

Non-executive directors

Nestadt, LM 325 — — — 325

Ellerine, S 230 — — — 230

Harlow, GD 330 — — — 330

Huntley, RJ 205 — — — 205

Lazarus, NN 228 — — — 228

Mansour, P — — — — —

Mthimunye, J 233 — — — 233

Theledi, HC 150 — — — 150

Tyalimpi, LM 115 — — — 115

1 816 — — — 1 816

1 816 8 586 8 884 106 19 392

* 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.

Services asdirectors ofsubsidiaries

of Blue LabelTelecoms

LimitedR’000

Salary andallowances

fromsubsidiaries

R’000

Bonuses andperformance-

relatedpayments

fromsubsidiaries

R’000

Cancellationof pre-listing

managementbonus

participationagreement*

R’000

Otherbenefits

fromsubsidiaries

R’000

Corporate finance and

legal fees for services

rendered to Blue Label Telecoms

Limited subsidiaries

R’000

Retirementand related

benefitsfrom

subsidiariesR’000

TotalR’000

— — — — — — — 5 285

— — — — — — — 5 284

— — — — — — — 3 853

— — — — — — — 3 369

— — — — — — — 17 791

— — — — — — — 600

— — — — — — — 300

— — — — — — — 465

— — — — — — — 315

— — — — — 1 330 — 1 670

— — — — — — — —

— — — — — — — 362

— — — — — — — 195

— — — — — — — 230

— — — — — 1 330 — 4 137

— — — — — 1 330 — 21 928

— 4 001 — 40 000 23 — 200 50 384

— 3 098 — 40 000 25 — 201 49 484

— 1 752 1 021 — 10 — 200 6 454

— 403 525 — 8 — 101 2 822

— 9 254 1 546 80 000 66 — 702 109 144

— — — — — — — 325

— — — — — — — 230

— — — — — 600 — 930

30 — — — — — — 235

— — — — — 1 219 — 1 447

— — — — — — — —

45 — — — — — — 278

— — — — — — — 150

25 — — — — — — 140

100 — — — — 1 819 — 3 735

100 9 254 1 546 80 000 66 1 819 702 112 879


page 142

29. Segmental summaryThe 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 South African distribution**

2009R’000

2008R’000

2009R’000

2008R’000

The segment results for the year ended 31 May are as follows:

Total segment revenue 25 198 131 18 044 759 24 038 712 17 451 794

Inter-segment revenue (9 916 682) (5 499 288) (9 839 681) (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 568 067 328 167 624 346 339 352

Depreciation and amortisation and impairment charges (93 220) (58 670) (31 897) (28 376)

Finance costs (112 699) (147 704) (98 916) (144 769)

Finance income 205 046 193 281 195 779 188 797

Share of (losses)/profits from associates (27 445) (17 441) — 545

Taxation (174 784) (89 841) (163 379) (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 1 689 2 585 — 2 585

Net (loss)/profit on sale of subsidiaries (4 581) — (607) —

Fair value adjustment 32 (1 375) 32 (1 375)

The segment assets and liabilities at 31 May are as follows:

Assets excluding investments in associates and joint ventures 3 769 906 3 140 873 2 227 849 2 687 522

Investment in associates and joint ventures 109 837 81 356 1 1

Total assets 3 879 743 3 222 229 2 227 850 2 687 523

Additions to non-current assets

Property, plant and equipment 74 941 54 766 40 936 31 046

Intangible assets 55 845 419 939 4 331 119 630

Investment in associates 119 327 — — —

Investment in joint ventures 3 030 — — *

Total liabilities 1 635 623 1 304 285 1 159 605 1 125 116

* Less than R1 000.** Although segment names have changed, the composition of the underlying segments remained the same.

International distribution** Technology** Value-added services** Corporate

2009R’000

2008R’000

2009R’000

2008R’000

2009R’000

2008R’000

2009R’000

2008R’000

725 288 383 749 94 793 35 594 339 338 173 622 — —

(1 125) (344) (72 281) (7 713) (3 595) (1 007) — —

724 163 383 405 22 512 27 881 335 743 172 615 — —

6 144 17 968 (48 502) (9 796) 75 239 42 247 (89 160) (61 604)

(16 915) (7 891) (8 452) (4 079) (33 601) (17 473) (2 355) (851)

(12 569) (888) (658) (528) (349) (1 030) (207) (489)

7 486 51 147 93 1 371 976 263 3 364

(28 226) (19 176) — — 781 1 190 — _

3 789 (2 093) (657) 1 428 (12 081) (3 369) (2 456) (1 376)

(40 291) (12 029) (58 122) (12 882) 31 360 22 541 (93 915) (60 956)

1 659 — — — 30 — — —

(4 326) — — — 352 — — —

— — — — — — — —

507 285 157 451 60 630 40 543 254 522 282 567 719 620 (27 210)

102 770 81 355 — — 7 066 — — —

610 055 238 806 60 630 40 543 261 588 282 567 719 620 (27 210)

14 049 5 038 9 340 7 883 6 652 9 966 3 964 832

24 557 46 523 14 112 9 231 8 554 242 904 4 291 1 651

119 327 — — — — — — —

— — — — 3 030 — — —

373 191 80 654 22 692 9 737 41 861 63 547 38 274 25 230


page 144

30. Equity compensation benefitForfeitable 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 Vesting date Number of shares Fair value of grant

At beginning of the year

Granted during the year 28 November 2008 1 September 2010 2 882 000 14 409 999

Granted during the year 26 February 2009 1 September 2010 2 269 814 11 349 073

Shares forfeited during the year —

Shares vested during the year —

At end of year 5 151 814 25 759 072

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.

Country

Number ofissued ordinary

sharesPercentage

held

31. Interest in subsidiaries, associates and joint ventures2009SubsidiariesDirectly held:Subsidiaries of Blue Label Telecoms Limited:Activi Technology Services (Proprietary) Limited RSA 300 100Africa Prepaid Services (Proprietary) Limited RSA 150 72Blue Label Australasia (Proprietary) Limited Australia 201 50,5Blue Label One (Proprietary) Limited RSA 300 100Blue Label Investments (Proprietary) Limited RSA 1 200 000 100Blue Label Mexico S.A. de C.V. Mexico 1 100 70Blue Label Telecoms USA Incorporated USA 100 100Budding Trade 1170 (Proprietary) Limited RSA 100 100Celebia Holdings Limited Cyprus 100 100Cellfind (Proprietary) Limited RSA 1 000 100Content Connect Africa (Proprietary) Limited RSA 100 100Datacel Direct (Proprietary) Limited RSA 100 100House of Business Solutions (Proprietary) Limited RSA 1 000 100Kwikpay SA (Proprietary) Limited RSA 100 100Matragon (Proprietary) Limited RSA 100 100Matrix Investments No 4 (Proprietary) Limited RSA 100 100SharedPhone International (Proprietary) Limited RSA 500 000 50,1The Prepaid Company (Proprietary) Limited RSA 10 000 100The Post Paid Company (Proprietary) Limited RSA 200 51Uninex (Proprietary) Limited RSA 100 100Ventury Group (Proprietary) Limited RSA 2 000 100Virtual Voucher (Proprietary) Limited RSA 200 100Indirectly held:Subsidiaries of Blue Label Investments (Proprietary) Limited:Gold Label Investments (Proprietary) Limited RSA 1 000 100Subsidiary of The Prepaid Company (Proprietary) Limited:Little River Trading 181 (Proprietary) Limited (trading as Crown Cellular) RSA 100 100Subsidiaries of Ventury Group (Proprietary) Limited:Cigicell (Proprietary) Limited RSA 100 100Subsidiaries of Matragon (Proprietary) Limited:Airtime Xpress (Proprietary) Limited RSA 200 100Comm Express Services SA (Proprietary) Limited RSA 100 100POS Control Services (Proprietary) Limited RSA 100 52Subsidiaries of Activi Technology Services (Proprietary) Limited:Activi Deployment Services (Proprietary) Limited RSA 100 100IT Experts (Proprietary) Limited RSA 300 100Transaction Junction (Proprietary) Limited RSA 120 60Subsidiaries of Africa Prepaid Services (Proprietary) Limited:Africa Prepaid Services (Mozambique) Limitada Mozambique 90Africa Prepaid Services – RDC SPRL DRC 300 80Africa Prepaid Services Nigeria Limited Nigeria 10 000 000 51Subsidiaries of Blue Label Telecoms USA IncorporatedBlue Label USA, LLC USA 50,01Subsidiaries of Datacel Direct (Proprietary) Limited:Blue Label Call Centre (Proprietary) Limited RSA 300 100CNS Call Centre (Proprietary) Limited RSA 1 000 100Velociti (Proprietary) Limited RSA 1 000 100Answers Direct (Proprietary) Limited RSA 1 000 80Blue Label Data Solutions (Proprietary) Limited RSA 100 81AssociateIndirectly held:Associate of Gold Label (Proprietary) Limited:Oxigen Services India (Private) Limited India 14 244 294 37,22Smart Voucher Limited (trading as Ukash) United Kingdom 46 353 933 16,9*Associates of Datacel Direct (Proprietary) Limited:Dual Data (Proprietary) Limited RSA 100 50*BLK Risk Services (Proprietary) Limited RSA 100 25Associate of Demtrade 11 (Proprietary) Limited:Phutuma Procurement (Proprietary) Limited RSA 200 39Joint venturesJoint ventures of Blue Label Telecoms Limited:Demtrade 11 (Proprietary) Limited RSA 160 50Joint ventures of The Prepaid Company (Proprietary) Limited:Premet Cellular (Proprietary) Limited RSA 100 40*Significant influence is demonstrated by the company as a result of representation on the board of directors.


Country

Number ofissued ordinary

sharesPercentage

held

31. Interest in subsidiaries, associates and joint ventures (continued)2008SubsidiariesDirectly held:Subsidiaries of Blue Label Telecoms Limited:Activi Technology Services (Proprietary) Limited RSA 300 100Africa Prepaid Services (Proprietary) Limited RSA 150 72Blue Label One (Proprietary) Limited RSA 300 100Blue Label Investments (Proprietary) Limited RSA 100 100Budding Trade 1170 (Proprietary) Limited RSA 100 100Cellfind (Proprietary) Limited RSA 1 000 100Content Connect Africa (Proprietary) Limited RSA 100 100Datacel Direct (Proprietary) Limited RSA 100 100E-Voucha (Proprietary) Limited RSA 1 000 51House of Business Solutions (Proprietary) Limited RSA 1 000 100Kwikpay SA (Proprietary) Limited RSA 100 100Matragon (Proprietary) Limited RSA 100 100Matrix Investments No 4 (Proprietary) Limited RSA 100 100SharedPhone International (Proprietary) Limited RSA 500 000 50,1The Prepaid Company (Proprietary) Limited RSA 10 000 100The Post Paid Company (Proprietary) Limited RSA 200 51**Ventury Group (Proprietary) Limited RSA 2 000 100Virtual Voucher (Proprietary) Limited RSA 200 100Indirectly held:Subsidiaries of Blue Label Investments (Proprietary) Limited:Gold Label Investments (Proprietary) Limited RSA 1 000 100Polsa Holdings Limited Cyprus 17 600 50*Subsidiary of The Prepaid Company (Proprietary) Limited:Little River Trading 181 (Proprietary) Limited (trading as Crown Cellular) RSA 100 100Subsidiaries of Ventury Group (Proprietary) Limited:Cigicell (Proprietary) Limited RSA 100 100iVeri Payment Technologies (Proprietary) Limited RSA 1 000 51Subsidiaries of Matragon (Proprietary) Limited:Airtime Xpress (Proprietary) Limited RSA 200 100Comm Express Services SA (Proprietary) Limited RSA 100 100POS Control Services (Proprietary) Limited RSA 100 52Subsidiaries of Activi Technology Services (Proprietary) Limited:Activi Deployment Services (Proprietary) Limited RSA 100 100IT Experts (Proprietary) Limited RSA 300 100Transaction Junction (Proprietary) Limited RSA 120 60Subsidiaries of Africa Prepaid Services (Proprietary) Limited:Africa Prepaid Services (Mozambique) Limitada Mozambique 90Africa Prepaid Services RDC SPRL DRC 300 80Subsidiaries of Datacel Direct (Proprietary) Limited:Blue Label Call Centre (Proprietary) Limited RSA 300 100CNS Call Centre (Proprietary) Limited RSA 1 000 80Velociti (Proprietary) Limited RSA 1 000 100AssociateIndirectly held:Associate of Gold Label (Proprietary) Limited:Oxigen Services India (Private) Limited India 12 502 110 35Joint venturesJoint ventures of The Prepaid Company (Proprietary) Limited:The Hub Pretalk (Proprietary) Limited RSA 300 40Premet Cellular (Proprietary) Limited RSA 100 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 eventsRefer to the directors’ report for details on the disposal of VPN.

COMPANY ANNUAL FINANCIAL STATEMENTS CONTENTS






COMPANY BALANCE SHEETas at 31 May 2009

Note2009R’000

2008R’000

ASSETS

Non-current assets 3 298 627 3 267 104

Property, plant and equipment 3 3 064 1 212

Intangible assets 4 5 222 1 671

Deferred taxation asset 5 — 136

Investment in subsidiaries 6.1 3 287 162 3 264 085

Investment in joint venture 6.2 3 179 —

Current assets 1 160 702 1 210 276

Loans receivable 7 875 476

Loans to subsidiaries 6.1 1 151 391 1 174 310

Receivables 8 6 927 34 878

Current tax assets 800 —

Cash and cash equivalents 9 709 612

Total assets 4 459 329 4 477 380

EQUITY AND LIABILITIES

Capital and reserves 4 393 111 4 403 436

Share capital 10 * *

Share premium 10 4 404 737 4 404 737

Treasury shares (9 567) —

4 395 170 4 404 737

Equity compensation benefit 1 939 —

Accumulated loss (3 998) (1 301)

Non-current liabilities 2 826

Deferred taxation liability 5 2 826 —

Current liabilities 63 392 73 944

Trade and other payables 12 14 388 23 815

Loans from subsidiaries 6.1 48 000 48 866

Current tax liabilities — 1 214

Bank overdraft 9 1 004 49

Total equity and liabilities 4 459 329 4 447 380

*Less than R1 000.

COMPANY INCOME STATEMENTfor the year ended 31 May 2009

Note2009R’000

2008R’000

Other income 89 035 43 516

Employee compensation and benefit expense (51 049) (29 478)

Depreciation, amortisation and impairment charges (2 355) (3 444)

Other expenses (40 805) (14 513)

Operating loss 13 (5 174) (3 919)

Finance costs 14 (120) (11)

Finance income 14 5 559 3 706

Net profit/(loss) before taxation 265 (224)

Taxation 15 (2 962) (1 077)

Net loss for the year (2 697) (1 301)

COMPANY STATEMENT OF CHANGES IN EQUITYfor the year ended 31 May 2009

Note


Share premium

R’000

TreasurysharesR’000

Equitybased

compensationreserve

R’000

Accumulated loss

R’000

TotalequityR’000

Balance as at 31 May 2007 * — — — — —

Shares issued during the year 10 * 4 444 461 — — — 4 444 461

Share issue costs — (39 724) — — — (39 724)

Net loss for the year — — — — (1 301) (1 301)

Balance as at 31 May 2008 * 4 404 737 — — (1 301) 4 403 436

Shares purchased during the year — — (9 567) — — (9 567)

Equity based compensation movements 11 — — — 1 939 — 1 939

Net loss for the year — — — — (2 697) (2 697)

Balance as at 31 May 2009 — 4 404 737 (9 567) 1 939 (3 998) 4 393 111

* Less than R1 000.

COMPANY CASH FLOW STATEMENTfor the year ended 31 May 2009

Note2009R’000

2008R’000

Cash flows from operating activities 16 20 796 (12 015)

Finance income 14 5 559 3 706

Finance costs 14 (120) (11)

Taxation paid 17 (2 014) —

Net cash flows from operating activities 24 221 (8 320)

Cash flows from investing activities

Acquisition of property, plant and equipment (2 988) (1 244)

Disposal of property, plant and equipment 40 —

Acquisition of intangible assets (4 290) (1 719)

Acquisition of investment in subsidiaries 6 (28 577) (180 203)

Disposal of investment in subsidiaries 1 429 —

Loans repaid by/(advanced to) subsidiaries 22 053 (1 128 806)

Acquisition of investment in joint venture (3 030) —

Loans advanced to joint venture (149) —

Net cash flows from investing activities (15 512) (1 311 972)

Cash flows from financing activities

Proceeds from issue of shares — 1 360 579

Treasury shares acquired (9 567) —

Share issue costs — (39 724)

Net cash flows from financing activities (9 567) 1 320 855

(Decrease)/increase in cash and cash equivalents (858) 563

Cash and cash equivalents at the beginning of the period 563 *

Cash and cash equivalents at the end of the period 9 (295) 563

* Less than R1 000.

NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTSas at 31 May 2009

1. 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.

The company places cash and cash equivalents with major banking companies and quality institutions that have high credit ratings.

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:

2009

Less than 1 month or on demand

(R’000)

More than 1 month

but notexceeding

1 year(R’000)

More than 1 year

but notexceeding

2 years(R’000)

More than 2 years but not

exceeding 5 years(R’000)

More than 5 years(R’000)

Loans from subsidiaries 48 000 — — — —Trade and other payables* 3 145 — — — —Bank overdraft 1 004 — — — —

Total 52 149 — — — —

2008Loans from subsidiaries 48 866 — — — — Trade and other payables* 13 640 4 515 — — —Bank overdraft 49 —- — — —

Total 62 555 4 515 —- — —

*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.

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 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.

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.

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).


Financial instruments by currency

2009 2008

ZAR R’000

Euro R’000

TotalR’000

ZAR R’000

USD R’000

TotalR’000

Financial assetsCash 709 — 709 612 — 612 Receivables* 5 233 — 5 233 32 084 — 32 084 Loans receivable 1 149 959 2 456 1 152 415 1 174 310 476 1 174 786

1 155 901 2 456 1 158 357 1 207 006 476 1 207 482

Financial liabilitiesNon-interest bearing borrowings 48 000 — 48 000 48 866 — 48 866 Trade and other payables* 3 145 — 3 145 18 155 — 18 155 Bank overdraft 1 004 — 1 004 49 —- 49

52 149 — 52 149 67 070 — 67 070

Net financial position 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.

NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS continuedas at 31 May 2009

Computerequipment

R’000

Furniture and fittings

R’000

Motor vehicles

R’000

Officeequipment

R’000

Leaseholdimprovements

R’000Total

R’000

3. Property, plant and equipmentYear ended 31 May 2009Opening carrying amount 270 484 329 129 — 1 212Additions 223 564 610 360 1 231 2 988Disposals (33) — — — — (33)Depreciation charge (136) (265) (136) (104) (462) (1 103)

Closing carrying amount 324 783 803 385 769 3 064At 31 May 2009Cost 462 1 049 959 491 1 231 4 192Accumulated depreciation (138) (266) (156) (106) (462) (1 128)

Carrying amount 324 783 803 385 769 3 064Year ended 31 May 2008Opening carrying amount — — — — — —Additions 279 485 349 131 — 1 244Depreciation charge (9) (1) (20) (2) — (32)

Closing carrying amount 270 484 329 129 — 1 212At 31 May 2008Cost 279 485 349 131 — 1 244Accumulated depreciation (9) (1) (20) (2) — (32)Carrying amount 270 484 329 129 — 1 212

Computersoftware

R’000

Internallydevelopedsoftware

R’000Total

R’000

4. Intangible assetsYear ended 31 May 2009Opening carrying amount 1 671 — 1 671Additions 711 3 579 4 290Amortisation charge (739) — (739)

Closing carrying amount 1 643 3 579 5 222At 31 May 2009Cost 2 430 3 579 6 009Accumulated amortisation (787) — (787)

Carrying amount 1 643 3 579 5 222Year ended 31 May 2008Opening carrying amount — — —Additions 1 719 — 1 719Amortisation charge (48) — (48)

Closing carrying amount 1 671 — 1 671

At 31 May 2008Cost 1 719 — 1 719Accumulated amortisation (48) — (48)

Carrying amount 1 671 — 1 671

2009R’000

2008R’000

5. Deferred taxationAt 31 May 136 —Credited to income statement:– Provisions 153 117– Capital allowances (1 015) —– Tax losses 493 —– Prepayments (474) —– Other (2 119) 19At 31 May (2 826) 136Deferred taxation comprises:– Provisions 270 117– Capital allowances (1 015) —– Tax losses 493 —– Prepayments (474) —– Other (2 100) 19

(2 826) 136

2009R’000

2008R’000

6. Investments in subsidiaries and joint venture6.1 Investments in subsidiaries

Shares at cost less amounts written off 3 287 162 3 264 085

Loans owing by subsidiaries 1 151 391 1 174 310

Loans owing to subsidiaries (48 000) (48 866)

4 390 553 4 389 529

Shares at cost less amounts

written offR’000

Loans owing by

subsidiariesR’000

Loans owing to

subsidiariesR’000

Details are reflected below:2009Africa Prepaid Services (Proprietary) Limited1 61 520 35 112 — Activi Technology Services (Proprietary) Limited 5 000 1 962 — Blue Label Telecoms USA Incorporated * 50 540 —Blue Label Investments (Proprietary) Limited 108 416 595 —Blue Label Mexico S.A. de C.V. 26 650 — —Blue Label One (Proprietary) Limited 40 000 713 — Budding Trade (Proprietary) Limited 6 000 — — Celebia Holdings Limited 1 38 —Cellfind SA (Proprietary) Limited 290 000 739 — Content Connect Africa (Proprietary) Limited1 27 000 719 — Content Connect Australia (Proprietary) Limited2 1 926 2 713 —Datacel Direct (Proprietary) Limited1 150 000 6 293 — Gold Label Investments (Proprietary) Limited 29 400 149 315 — Kwikpay SA (Proprietary) Limited 22 500 735 — Matragon (Proprietary) Limited 194 000 32 996 — Matrix Investments No 4 (Proprietary) Limited 4 160 — — The Postpaid Company (Proprietary) Limited1 * 942 — SharedPhone International (Proprietary) Limited1 20 000 2 745 — The Prepaid Company (Proprietary) Limited 2 150 214 861 277** —Uninex (Proprietary) Limited * 976 —Velociti (Proprietary) Limited 7 185 1 806 — Ventury Group (Proprietary) Limited 98 406 1 055 (48 000)Virtual Voucher (Proprietary) Limited 44 784 120 —

3 287 162 1 151 391 (48 000)

2008Africa Prepaid Services (Proprietary) Limited1 61 520 13 539 —Activi Technology Services (Proprietary) Limited 5 000 — —Blue Label Investments (Proprietary) Limited 108 416 — (866)Blue Label One (Proprietary) Limited 40 000 — —Budding Trade (Proprietary) Limited 6 000 — —Cellfind SA (Proprietary) Limited 290 000 — —Content Connect Africa (Proprietary) Limited 30 000 — —Datacel Direct (Proprietary) Limited1 150 000 7 120 —E-Voucha (Proprietary) Limited 2 500 — —Gold Label Investments (Proprietary) Limited 29 400 100 340 —Kwikpay SA (Proprietary) Limited 22 500 — —Matragon (Proprietary) Limited 194 000 30 377 —Matrix Investments No 4 (Proprietary) Limited 4 160 — —The Postpaid Company (Proprietary) Limited * — —SharedPhone International (Proprietary) Limited1 20 000 3 216 —The Prepaid Company (Proprietary) Limited 2 150 214 1 018 903** —Velociti (Proprietary) Limited 7 185 815 —Ventury Group (Proprietary) Limited 98 406 — (48 000)Virtual Voucher (Proprietary) Limited 44 784 — —

3 264 085 1 174 310 (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.


2009R’000

2008R’000

6. Investment in subsidiaries and joint venture (continued)

6.2 Investments in joint ventureShares at cost less amounts written off 3 030 —

Loans owing by joint venture 149 —

3 179 —

Dateacquired

Country of incorporation

AssetsR’000

LiabilitiesR’000

RevenuesR’000

ProfitR’000

Percentageinterest held

2009

Demtrade 11 (Proprietary) Limited 1 June 2008 South Africa 7 554 6 382 9 086 1 121 50

2009R’000

2008R’000

7. Loans receivableLoans to related parties 859 —

Interest free 16 476

Loans are unsecured and have no fixed terms of repayment 875 476

8. Trade and other receivablesTrade receivables 1 149 32 104

Sundry debtors and prepayments 5 778 2 774

6 927 34 878

GrossR’000

ImpairmentR’000

The ageing of trade receivables at the reporting date was:

31 May 2009

Fully performing 925 —

Past due by 1 to 30 days 103 —



Past due by more than 90 days — —

1 149 —

31 May 2008

Fully performing 31 963 —



Past due by 61 to 90 days — —

Past due by more than 90 days — —

32 104 —

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.

2009R’000

2008R’000

9. Cash and cash equivalentsCash at bank 697 611Cash on hand 12 1

Favourable balances 709 612

Bank overdraft (1 004) (49)

(295) 563

Cash and cash equivalents of R600 000 are restricted

2009Number

of shares

2008Number

of shares2009R’000

2008R’000

10. Share capitalAuthorisedTotal authorised share capital of ordinary shares (par value of R0,000001 each) 1 000 000 000 1 000 000 000 1 1

Issued Balance at the beginning of the year 766 360 894 1 * *Shares issued during the period — 766 630 893 — —Shares acquired during the period (5 201 713) — * —

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.

Number

Issue price

per shareR

Share capital R’000

Share premium

R’000

Shares issued during the prior periodShares issued to buy out minority shareholders on restructuring1 190 131 616 5,50 * 1 045 724Shares issued to Brett Levy and Mark Levy to terminate the management bonus agreement2 14 545 455 5,50 * 80 000Shares issued to the previous shareholders of Blue Label Investments (Proprietary) Limited to purchase the said company3 378 097 993 5,50 * 2 079 533Shares issued as part of the preferential allocation in the private placement 148 148 148 6,75 * 1 000 000Shares issued to Microsoft Corporation 35 437 682 6,75 * 239 204

766 360 894 * 4 444 461 * 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).3 Please refer to pre-listing statement for details (step 3 in the overview of the restructuring).


11. Equity compensation benefitForfeitable 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:

Grant date Vesting dateNumber of

sharesFair value of grant

R’000

At beginning of the year — —

Granted during the year 28 November 2008 1 September 2010 518 630 2 593

Granted during the year 26 February 2009 1 September 2010 1 404 407 7 022

Shares forfeited during the year — —

Shares vested during the year — —

At end of year 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.

2009R’000

2008R’000

12. Trade and other payablesTrade payables 159 2 753

Accruals 11 666 15 630

Sundry creditors 1 572 1 542

VAT 991 3 890

14 388 23 815

2009R’000

2008R’000

13. Operating lossThe following items have been charged/(credited), in arriving at operating loss:

Management fees received (88 871) (43 268)

Consulting fees 9 718 114

Foreign exchange loss 393 730

Impairment of loans 513 3 365

Profit on disposal of property, plant and equipment (7) —

Insurance 1 716 988

Legal fees 2 644 282

Operating lease rentals – premises 1 625 717

Overseas travel 7 435 3 724

Security 541 156

Share incentive scheme expense 1 939 —

Repairs and maintenance 47 16

Audit fees 3 403 2 267

14. Finance (income)/costsInterest received

• Bank (130) (2 631)

• Loans (5 429) (1 075)

(5 559) (3 706)

Interest paid

• Bank 120 11

120 11

Net finance income (5 439) (3 695)

15. TaxationCurrent tax — 1 214

current year — 1 214

Deferred tax 2 962 (137)

current year 2 962 (137)

2 962 1 077

Tax rate reconciliation

Net profit/(loss) before tax 265 (224)

Tax at 28% 74 (62)

Adjusted for:

• income not taxable — (118)

• expenditure not deductible 2 888 1 257

2 962 1 077


2009R’000

2008R’000

16. Cash flows from operating activities Reconciliation of operating profit to cash flows

from operating activities:

Operating loss (5 174) (3 919)

Adjustments for:

Depreciation of property, plant and equipment 1 103 32

Amortisation on intangible assets 739 48

Impairment of loan 513 3 363

Profit on disposal of property, plant and equipment (7) —

Share incentive scheme expense 1 939 —

Changes in working capital

Decrease/(increase) in trade and other receivables 32 022 (34 878)

(Decrease)/increase in trade and other payables (9 427) 23 815

Increase in loans receivable (912) (476)

20 796 (12 015)

17. Taxation paid Balance outstanding at beginning of year 1 214 —

Taxation charge — 1 214

Balance due/(outstanding) at end of year 800 (1 214)

2 014 —

18. CommitmentsFuture operating lease charges for:

Premises


Payable in two to five years 666 2 057

2 058 3 322

2009R’000

2008R’000

19. Related party transactionsRelated party relationshipsFor 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 partiesThe Prepaid Company (Proprietary) Limited — 27

Purchases from related partiesThe Prepaid Company (Proprietary) Limited — 351


Interest received from related partiesAfrica Prepaid Services (Proprietary) Limited 2 987 1 060

Content Connect Africa (Proprietary) Limited 253 —

Content Connect Australia (Proprietary) Limited 392 —

Datacel Direct (Proprietary) Limited 1 261 —

SharedPhone International (Proprietary) Limited 469 16

The Postpaid Company (Proprietary) Limited 68 —

Management fees received from related partiesActivi Technology Services (Proprietary) Limited 60 20

Africa Prepaid Services (Proprietary) Limited 324 174

Blue Label Mexico S.A. de C.V. 814 Blue Label USA, LLC 436 Cellfind SA (Proprietary) Limited 2 160 1 245

Cigicell (Proprietary) Limited 1 395 Comm Express Service SA (Proprietary) Limited 1 540 720

Content Connect Australia (Proprietary) Limited 338 —

Datacel Direct (Proprietary) Limited 600 330

E-Voucha (Proprietary) Limited 90 160

Gold Label Investments (Proprietary) Limited — 350

IT Experts (Proprietary) Limited 60 20

Kwikpay SA (Proprietary) Limited 1 536 195

SharedPhone International (Proprietary) Limited 580 210

Smart Voucher Limited 1 954 —

The Postpaid Company (Proprietary) Limited 150 —

The Prepaid Company (Proprietary) Limited 75 560 39 597

Transaction Junction (Proprietary) Limited 60 —

Ventury Group (Proprietary) Limited 465 370

Virtual Voucher (Proprietary) Limited 540 —

ZOK Cellular (Proprietary) Limited 210 99

Management fees paid to related partiesDemtrade 11 (Proprietary) Limited 1 200 —

Rent paid to related parties

Moneyline 311 (Proprietary) Limited 1 566 717

2009R’000

2008R’000


Loans to related partiesActivi Technology Services (Proprietary) Limited 1 962 —Africa Prepaid Services (Proprietary) Limited 35 112 13 539 Answers Direct (Proprietary) Limited 120 —Blue Label Call Centre (Proprietary) Limited 318 —Blue Label Data Solutions (Proprietary) Limited 108 —Blue Label Investments (Proprietary) Limited 595 —Blue Label One (Proprietary) Limited 713 —Blue Label Telecoms USA Incorporated 50 540 —Celebia Holdings Limited 38 —Cellfind SA (Proprietary) Limited 739 —CNS Call Centre (Proprietary) Limited 228 —Content Connect Africa (Proprietary) Limited 719 —Content Connect Australia (Proprietary) Limited 2 713 —Datacel Direct (Proprietary) Limited 6 293 7 120 Demtrade 11 (Proprietary) Limited 149 —Gold Label Investments (Proprietary) Limited 149 315 100 340 Kwikpay SA (Proprietary) Limited 735 —Little River 181 Trading (Proprietary) Limited 28 —Matragon (Proprietary) Limited 32 996 30 377 SharedPhone International (Proprietary) Limited 2 745 3 216 The Prepaid Company (Proprietary) Limited 861 277 1 018 903 The Postpaid Company (Proprietary) Limited 942 —Transaction Junction (Proprietary) Limited 57 —Uninex (Proprietary) Limited 976 —Velociti (Proprietary) Limited 1 806 815 Ventury Group (Proprietary) Limited 1 055 —Virtual Voucher (Proprietary) Limited 120 —Loans from related partiesBlue Label Investments (Proprietary) Limited — 866 Ventury Group (Proprietary) Limited 48 000 48 000 Amounts due from related partiesActivi Technology Services (Proprietary) Limited — 6 Blue Label USA, LLC 436 —Comm Express Service SA (Proprietary) Limited 21 6 Content Connect Australia (Proprietary) Limited 338 —Datacel Direct (Proprietary) Limited 108 6 E-Voucha (Proprietary) Limited — 11 Smart Voucher Limited 159 —The Prepaid Company (Proprietary) Limited — 31 920 ZOK Cellular (Proprietary) Limited — 113 Amounts due to related partiesDemtrade 11 (Proprietary) Limited 42 —House of Business Solutions (Proprietary) Limited — 2 Kwikpay SA (Proprietary) Limited — 108 The Prepaid Company (Proprietary) Limited — 400 Purchase of property, plant and equipment from related party Blue Label Investments (Proprietary) Limited — 866 Basis of transactionsAll transactions with related parties are conducted on an arm’s length basis

NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS continuedaudited results as at 31 May 2009

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.

31 May 2008Actual(1)

AuditedR’000

Restructuringand

acquisitions(2)

R’000

Casheffects(3)

R’000

31 May 2008Pro forma(4)

UnauditedR’000

Revenue 12 545 471 385 138 — 12 930 609 Other income 69 545 (1 403) — 68 142 Changes in inventories of finished goods (11 875 606) (335 901) — (12 211 507)Employee compensation and benefit expense (265 003) (10 626) — (275 629)Depreciation, amortisation and impairment charges (58 670) (15 005) — (73 675)Other expenses (146 240) (18 446) — (164 686)

Operating profit 269 497 3 757 — 273 254 Finance income 193 281 (215) 46 404 239 470 Finance expense (147 704) (1 433) 42 533 (106 604)Share loss of associates (17 441) (2 220) — (19 661)

Profit for the period before taxation 297 633 (111) 88 937 386 459 Taxation (89 841) (1 785) (24 903) (116 529)

Net profit 207 792 (1 896) 64 034 269 930

Reconciliation between net profit and core net profit attributable to equity holders:Net profit 180 891 24 498 64 034 269 423 Management bonus settlement net of tax 57 600 — — 57 600 Amortisation on intangibles raised through business combinations net of tax 22 937 11 982 — 34 919 Cancellation of onerous contract 9 000 — — 9 000

Core net profit 270 428 36 480 64 034 370 942

Net profit attributable to: 207 792 (1 896) 64 034 269 930

Equity holders of parent 180 891 24 498 64 034 269 423 Minority interest 26 901 (26 394) — 507

Core net profit attributable to: 301 409 7 650 64 034 373 093

Equity holders of parent 270 428 36 480 64 034 370 942 Minority interest 30 981 (28 830) — 2 151

Earnings per share on profit attributable to equity holders (cents)*– Basic 30,65 35,16– Headline 30,26 34,86– Core 45,81 48,40Number of ordinary shares in issue 766 360 894 766 360 894 Weighted average number of ordinary shares in issue 590 263 513 766 360 894

*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.

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.

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.

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

Proposedfee per

meeting*

Proposed capped fee per annum**

Services as directors

• chairman of the board ¹ — — R700 000

• board members R30 000 R32 550 R162 750

Audit, risk and compliance committee

• chairman R41 666 R45 208 R180 832

• member R25 000 R27 125 R108 500

Remuneration committee

• chairman R33 333 R36 166 R144 664

• member R20 000 R21 700 R86 800

Investment committee

• chairman R25 000 R27 125 R217 000

• member R15 000 R16 275 R130 200

Transformation committee

• chairman R25 000 R27 125 R108 500

• member R15 000 R16 275 R65 100

Ad hoc committee

• chairman R25 000 R27 125 R108 500

• member R15 000 R16 275 R65 100

* 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;

• 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 ViljoenGroup company secretary

26 October 2009

VOTING AND PROXIESShareholders 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 secretariesComputershare Investor Services (Pty) Limited70 Marshall StreetJohannesburg2001(PO Box 61051, Marshalltown, 2107)

Registered office75 Grayston DriveCnr Benmore RoadMorningside Ext 5Sandton2196(PO Box 652261, Benmore, 2010)

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.

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 on 2009

Signature

Assisted by me (where applicable)

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

blue label 2009 fy afs

Documents

directors report

chairmans report

remuneration report

group statement of changes

group income statement

company statement of

company income statement

group cash flow statement