- Amended Annual and Transition Report (foreign private issuer) (20-F/A)

Share Name	Share Symbol	Market	Type
Telkom SA Ltd Ads	NYSE:TKG	NYSE	Ordinary Share

As filed with the Securities and Exchange Commission on October 22, 2008

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F/A

Amendment No. 1

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2008

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring the shell company report

Commission File Number: 001 31609

TELKOM SA LIMITED

(Exact name of Registrant as specified in its charter)

THE REPUBLIC OF SOUTH AFRICA

(Jurisdiction of incorporation or organization)

Telkom Towers North,152 Proes Street, Pretoria 0002, The Republic of South Africa

(27)(12) 311-3566

(Address of principal executive offices)

Company Secretary: Sandi Linford; (T) (27)(12) 311-7743; (F) (27)(12) 311-4777; Telkom SA Limited, Private Bag X881, Pretoria 0001

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to section 12(b) of the Act.

Title of each class

Name of each exchange on which registered

American Depositary Shares, each representing four (4)

New York Stock Exchange, Inc.

Ordinary Shares, par value R10 per share

New York Stock Exchange, Inc.*

*Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange
Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

NONE

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

NONE

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Ordinary Shares, par value R10 per share

499,441,985

Class A Ordinary Share, par value RIO per share

Class B Ordinary Share, par value RIO per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934.

Yes

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing

requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer

and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S.

GAAP

International Financing Standards as issued

Other

by the International Accounting Standards Board

If “other” has been checked in response to this previous question indicate by check mark which financial statement item the registrant has elected to follow.

Item 17

Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

EXPLANATORY NOTE

Telkom SA Limited (“Telkom”) is filing this Amendment No. 1 to its Annual Report on Form 20-F/A (the
“Form 20-F/A”) for its fiscal year ended March 31, 2008, in order to (i) include a revised audit report of Ernst &
Young Inc., Registered Auditors, Chartered Accountants (SA), and the related consolidated financial statements of
the Telkom Group as of and for each of the years ended March 31, 2008, 2007 and 2006, to state in the audit
report that the financial statements are in conformity with International Financial Reporting Standards as issued by
the International Accounting Standards Board, which statement was inadvertently omitted in the original Annual
Report on Form 20-F for the fiscal year ended March 31, 2008, filed with the Securities and Exchange Commission
on July 21, 2008 (the “Original 20-F”) and (ii) include revised consolidated financial statements of Vodacom Group
(Proprietary) Limited (“Vodacom”) as of and for each of the years ended March 31, 2008, 2007 and 2006, together
with the audit report of Deloitte & Touche, Registered Auditors, Chartered Accountants (SA), to state in the notes to
Vodacom’s consolidated annual financial statements that the consolidated annual financial statements have been
prepared in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board, which statement was inadvertently omitted in the Original 20-F. In addition, Exhibits 12.1,
12.2 and 13.1 are being revised and resubmitted to reflect the change from Form 20-F to Form 20-F/A.

Except as described herein, the Original Form 20-F is not being amended in any other manner. As a result, this
Form 20-F/A does not reflect events occurring after the filing of the Original 20-F, and does not modify or update
the disclosures therein in any way other than as required to reflect the amendments described herein. The filing of
this Form 20-F/A should not be understood to mean that any statements contained in this document are true or
complete as of any date subsequent to July 21, 2008 or earlier. You should not consider this amendment to be a
reaffirmation or reiteration of any forward looking statements from the Original Form 20-F that may be reproduced
in this Form 20-F/A.

Item 18.

Consolidated financial statements

See Index to Consolidated Annual Financial Statements beginning on page F-1 for a list of all financial

statements filed as a part of this Form 20-F/A.

Item 19.

Exhibits

The following exhibits are filed as part of this Amendment No. 1 to the Annual Report on Form 20-F/A:

12.1

Certification of chief executive officer pursuant to 17 CFR 240.13a 14(a), promulgated under
Section 302 of the Sarbanes-Oxley Act of 2002

(1)

12.2

Certification of chief financial officer pursuant to 17 CFR 240.13a 14(a), promulgated under
Section 302 of the Sarbanes-Oxley Act of 2002

(1)

13.1

Certification of chief executive officer and chief financial officer pursuant to Rule 13a 14(b) (17 CFR
240.13a 14(b)), or Rule 15d 14(b) (17 CFR 240.15d 14(b)), and Section 1350 or Chapter 63 of Title 18
of the United States Code (18 U.S.C. 1350), promulgated under Section 906 of the Sarbanes-Oxley Act
of 2002

(1)

Filed herewith.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has

duly caused and authorized the undersigned to sign this Annual Report on its behalf.

TELKOM SA LIMITED

By: /s/ Reuben Joseph September

____________________________________

Name: Reuben Joseph September

Dated: October 23, 2008

Title

Chief Executive Officer

(principal executive officer)

Telkom SA Limited

Content to the consolidated annual financial statements

for the three years ended March 31, 2008

Page

Report of the independent registered public accounting firm . . . . . . . . . . . . .

F–2

Consolidated income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F–3

Consolidated balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F–4

Consolidated statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . .

F–5

Consolidated cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F–6

Notes to the consolidated annual financial statements . . . . . . . . . . . . . . . . .

F–7

F–1

Ernst & Young Inc.
Wanderers Office Park
52 Corlett Drive, Illovo
Private Bag X14
Northlands 2116

Tel:

00 27 (0)11 772-3000

Fax:

00 27 (0)11 772-4000

Docex

123 Randburg

Website

www.ey.com/za

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TELKOM SA LIMITED

We have audited the accompanying consolidated balance sheets of Telkom SA Limited (‘Telkom’) and its
subsidiaries (together ‘the Group’) as of March 31, 2008, 2007 and 2006, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended set out on pages F3 to F98. These financial statements are the responsibility of the Group’s directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

We did not audit the financial statements of Vodacom Group (Proprietary) Limited, a 50% joint venture proportionally consolidated, which statements reflect total assets constituting 24%, 24% and 22% at March 31, 2008, 2007 and 2006, respectively, and total revenues constituting 43%, 32% and 36% for the years ended March 31, 2008, 2007 and 2006, respectively of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Vodacom Group (Proprietary) Limited, is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits, and the report of the other auditors, provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Telkom SA Limited and its subsidiaries at March 31, 2008, 2007 and 2006, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

As described in Note 2 to the consolidated annual financial statements, in 2008 the Group adopted new and amended accounting standards, IAS 1 Presentation of Financial Statements (Revised) and IFRS 7 Financial Instruments: Disclosures

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Telkom SA Limited’s internal control over financial reporting as of March 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated July 11, 2008 expressed an unqualified opinion thereon.

ERNST & YOUNG Inc.
Pretoria
Republic of South Africa
July 11, 2008

F-2

Consolidated income statement

for the three years ended March 31, 2008

Total revenue

3.1

48,260

52,157

56,865

Operating revenue

3.2

47,625

51,619

56,285

Other income

480

384

534

Operating expenses

33,428

37,533

42,337

Employee expenses

5.1

7,489

8,454

9,220

Payments to other operators

5.2

6,826

7,590

9,169

Selling, general and administrative expenses

5.3

10,273

12,902

14,409

Service fees

5.4

2,114

2,291

2,571

Operating leases

5.5

850

981

838

Depreciation, amortisation, impairment and write-offs

5.6

5,876

5,315

6,130

Operating profit

14,677

14,470

14,482

Investment income

397

235

197

Finance charges and fair value movements

1,223

1,125

1,803

Interest

1,346

1,327

1,885

Foreign exchange and fair value movement

(123)

(202)

(82)

Profit before taxation

13,851

13,580

12,876

Taxation

4,523

4,731

4,704

Profit for the year

9,328

8,849

8,172

Attributable to:

Equity holders of Telkom

9,189

8,646

7,975

Minority interest

139

203

197

9,328

8,849

8,172

Basic earnings per share (cents)

1,746.1

1,681.0

1,565.0

Diluted earnings per share (cents)

1,736.6

1,676.3

1,546.9

Dividend per share (cents)

900.0

1,100.0

2006

2007

2008

Notes

F-3

Consolidated balance sheet

at March 31, 2008

Assets
Non-current assets

44,813

48,770

57,763

Property, plant and equipment

37,274

41,254

46,815

Intangible assets

3,910

5,111

8,468

Investments

2,894

1,384

1,448

Deferred expenses

254

270

221

Finance lease receivables

–

158

206

Deferred taxation

481

593

605

Current assets

12,731

10,376

12,609

Short-term investments

Inventories

814

1,093

1,287

Income tax receivable

–

520

Current portion of deferred expenses

226

287

362

Current portion of finance lease receivables

–

166

Trade and other receivables

6,399

7,303

8,986

Other financial assets

275

259

614

Cash and cash equivalents

4,948

749

1,134

Total assets

57,544

59,146

70,372

Equity and liabilities
Equity attributable to equity holders of Telkom

29,165

31,724

32,815

Share capital and premium

6,791

5,329

5,208

Treasury shares

(1,809)

(1,774)

(1,638)

Share-based compensation reserve

151

257

643

Non-distributable reserves

1,128

1,413

1,292

Retained earnings

22,904

26,499

27,310

Minority interest

301

284

522

Total equity

29,466

32,008

33,337

Non-current liabilities

12,391

8,554

15,104

Interest-bearing debt

7,655

4,338

9,403

Other financial liabilities

–

919

Provisions

2,677

1,443

1,675

Deferred revenue

991

1,021

1,128

Deferred taxation

1,068

1,716

1,979

Current liabilities

15,687

18,584

21,931

Trade and other payables

6,103

7,237

8,771

F-4

Shareholders for dividend

Current portion of interest-bearing debt

3,468

6,026

6,330

Current portion of provisions

1,660

2,095

2,181

Current portion of deferred revenue

1,975

1,983

2,593

Income tax payable

1,549

594

323

Other financial liabilities

235

193

371

Credit facilities utilised

693

441

1,342

Total liabilities

28,078

27,138

37,035

Total equity and liabilities

57,544

59,146

70,372

2006

2007

2008

Notes

Consolidated statement of changes in equity

for the three years ended March 31, 2008

Balance at April 1, 2005

5,570

2,723

(1,812)

360 19,232 26,141

220 26,361

Total income and expense for the year

9,189

9,241

132

9,373

Profit for the year

9,189

139

9,328

Foreign currency translation reserve (net of
tax of RNil) (refer to note 24)

(7)

Dividend declared (refer to note 34)

(4,801) (4,801)

(78) (4,879)

Transfer to non-distributable reserves
(refer to note 24)

716

(716)

–

Shares vested and re-issued (refer to note 23)

(3)

–

Increase in share-based compensation reserve
(refer to note 23)

Acquisition of subsidiaries and minorities
(refer to note 35)

–

Shares bought back and cancelled (refer to note 21)

(121) (1,381)

(1,502)

Balance at March 31, 2006

5,449

1,342

(1,809)

151

1,128 22,904 29,165

301 29,466

Total income and expense for the year

8,646

8,692

217

8,909

Profit for the year

8,646

203

8,849

Foreign currency translation reserve (net of tax
of R4 million) (refer to note 24)

Dividend declared (refer to note 34)

(4,678) (4,678)

(166) (4,844)

Transfer to non-distributable reserves
(refer to note 24)

239

(239)

–

Increase in share-based compensation reserve
(refer to note 23)

141

Shares vested and re-issued (refer to note 23)

(35)

–

Acquisition of subsidiaries and minorities
(refer to note 35)

–

(68)

Shares bought back and cancelled (refer to note 21)

(120) (1,342)

(134) (1,596)

(1,596)

Balance at March 31, 2007

5,329

–

(1,774)

257

1,413 26,499 31,724

284 32,008

Total income and expense for the year

529

7,975

8,504

226

8,730

Profit for the year

7,975

197

8,172

Revaluation of available-for-sale investment
(net of tax of R1 million)

Foreign currency translation reserve (net of
tax of R6 million) (refer to note 24)

521

550

Dividend declared (refer to note 34)

(5,627) (5,627)

(65) (5,692)

Transfer to non-distributable reserves
(refer to note 24)

(11)

–

Increase in share-based compensation reserve
(refer to note 23)

522

Shares vested and re-issued (refer to note 23)

136

(136)

–

Acquisition of subsidiaries and minorities
(refer to note 35)

–

Shares bought back and cancelled (refer to note 21)

(121)

(1,526) (1,647)

(1,647)

Minority put option (refer to notes 19 and 24)

(661)

Balance at March 31, 2008

5,208

–

(1,638)

643

1,292 27,310 32,815

522 33,337

F-5

Attributable to equity holders of Telkom

Share-

based

Non-

compen-

distri-

Share Treasury

sation

butable Retained

Minority

Total

capital premium

reserve reserves earnings

Total

interest

equity

Consolidated cash flow statement

for the three years ended March 31, 2008

Cash flows from operating activities

9,506

9,356

10,603

Cash receipts from customers

46,958

50,979

55,627

Cash paid to suppliers and employees

(27,234)

(30,459)

(34,371)

Cash generated from operations

19,724

20,520

21,256

Interest received

482

422

433

Dividends received

–

Finance charges paid

(1,316)

(1,115)

(1,077)

Taxation paid

(4,550)

(5,690)

(4,277)

Cash generated from operations before dividend paid

14,390

14,140

16,335

Dividend paid

(4,884)

(4,784)

(5,732)

Cash flows from investing activities

(7,286)

(10,412)

(14,106)

Proceeds on disposal of property, plant and equipment and intangible assets

169

Proceeds on disposal of investments

493

Additions to property, plant and equipment and intangible assets

(7,396)

(10,037)

(11,657)

Acquisition of subsidiaries and minorities

–

(445)

(2,462)

Additions to other investments

(475)

(61)

(164)

Cash flows from financing activities

(258)

(2,920)

2,943

Loans raised

4,123

5,624

23,877

Loans repaid

(7,399)

(6,922)

(19,315)

Shares bought back and cancelled

(1,502)

(1,596)

(1,647)

Finance lease obligation repaid

(24)

(37)

(61)

Decrease in net financial assets

4,544

Net increase/(decrease) in cash and cash equivalents

1,962

(3,976)

(560)

Net cash and cash equivalents at beginning of the year

2,301

4,255

308

Effect of foreign exchange rate differences

(8)

Net cash and cash equivalents at end of the year

4,255

308

(208)

2006

2007

2008

Notes

F-6

Notes to the consolidated annual financial statements

for the three years ended March 31, 2008

Corporate information

Telkom SA Limited (‘Telkom’) is a company incorporated and
domiciled in the Republic of South Africa (‘South Africa’) whose
shares are publicly traded. The main objective of Telkom, its
subsidiaries and joint ventures (‘the Group’) is to supply
telecommunication, broadcasting, multimedia, technology,
information and other related information technology services to
the general public, as well as mobile communication services
through the Vodacom Group (Proprietary) Limited (‘Vodacom’) in
South Africa and certain other African countries. The Group’s
services and products include:

• fixed-line subscription and connection services to postpaid,
    prepaid and private payphone customers using PSTN lines,
    including ISDN lines, and the sale of subscription based value-
    added voice services and customer premises equipment rental
    and sales;

• fixed-line traffic services to postpaid, prepaid and payphone

customers, including local, long distance, fixed-to-mobile,
international outgoing and international voice-over-internet
protocol traffic services;

• interconnection services, including terminating and transiting

traffic from South African mobile operators, as well as from
international operators and transiting traffic from mobile to
international destinations;

• fixed-line data services, including domestic and international

data transmission services, such as point-to-point leased lines,
ADSL services, packet-based services, managed data
networking services and internet access and related information
technology services;

• e-commerce, including internet access service provider,

application service provider, hosting, data storage, e-mail and
security services;

• mobile communications services, including voice services, data

services, value-added services and handset sales through
Vodacom; and

• other services including directory services, through our TDS

Directory Operations Group, wireless data services, through our
Swiftnet (Proprietary) Limited subsidiary, television media
services through our Telkom Media Group, internet services
outside South Africa, through our Africa Online Limited
subsidiary and information, communication and
telecommunication operating services in Nigeria, through our
newly acquired Multi-Links Telecommunications Limited subsidiary.

Significant accounting policies
Basis of preparation

The consolidated annual financial statements comply with
International Financial Reporting Standards (‘IFRS’) as issued by the
International Accounting Standards Board (‘IASB’) and the
Companies Act of South Africa, 1973.

The financial statements are prepared on the historical cost basis,
with the exception of certain financial instruments and share-based
payments which are measured at grant date fair value.

Details of the Group’s significant accounting policies are set out
below, and are consistent with those applied in the previous
financial year except for the following:

• adoption of amendment to IAS1;

• adoption of IFRS7, IFRIC8, IFRIC9, IFRIC10, IFRIC11 and

Circular 8/2007; and

• identification of a new segment.

The principal effects of these changes are discussed below.

Adoption of amendments to standards and new
interpretations

The following revised standards and interpretations have been
adopted during the year under review:

Amendment to IAS1 Presentation of Financial Statements

This amendment is effective for annual periods beginning on or
after January 1, 2007. As a result of the pronouncement of IFRS7
Financial Instruments: Disclosures, IAS1 has been amended to
require the disclosure of the entity’s objective, policies and
processes for managing capital, quantitative data about what the
entity regards as capital, whether the entity has complied with
any capital requirements and if it has not complied, the
consequences of such non-compliance. The impact of this
amendment has been disclosed under note 12.

IFRS7 Financial Instruments: Disclosures

This standard is effective for annual periods beginning on or after
January 1, 2007. IFRS7 supersedes disclosure in IAS32. All
financial instruments disclosures will now be provided in terms of
IFRS7. One of the main disclosure requirements added by IFRS7
is that an entity must group its financial instruments into classes
of similar instruments, and when disclosures are required, make
disclosures by class. IFRS7 also requires information about the
significance of financial instruments and information about the
nature and extent of risks arising from financial instruments. The
impact of this standard is to expand on certain disclosures relating
to financial instruments and requires certain additional disclosures
(refer to note 12).

IFRIC8 Scope of IFRS2

The interpretation is effective for annual periods beginning on or
after May 1, 2006. The interpretation clarifies that IFRS2 applies
to transactions in which an entity receives goods or services as
consideration for equity instruments of the entity. This includes
transactions in which the entity cannot identify specifically some or
all of the goods or services received. The impact of the interpretation
on the consolidated annual financial statements is not material
since the Group has not transacted with other parties using equity
as a purchase consideration for the transaction, other than those
paid to employees in share-based payment transactions.

IFRIC9 Reassessment of Embedded Derivatives

The interpretation is effective for annual periods beginning on or
after June 1, 2006. The interpretation clarifies that an entity
should assess whether an embedded derivative is required to be
separated from the host contract and accounted for as a derivative
when the entity first becomes a party to the contract. It further
clarifies that reassessment is only allowed when there is a change
in the terms of the contract which significantly modifies the cash
flows that would otherwise be required under the contract. The
interpretation does not have a material impact on the consolidated
annual financial statements.

F-7

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

F-8

Significant accounting policies

(continued)

Adoption of amendments to standards and
new interpretations (continued)

IFRIC10 Interim Financial Reporting and Impairment

The interpretation is effective for annual periods beginning on or
after November 1, 2006. The interpretation clarifies that an entity
should not reverse an impairment loss recognised in a previous
interim period in respect of goodwill or an investment in either
an equity instrument classified as available-for-sale or financial
asset carried at cost. The interpretation does not have a material
impact on the consolidated annual financial statements.

IFRIC11 IFRS2 – Group and Treasury Share Transactions

The interpretation is effective for annual periods beginning on or
after March 1, 2007. The interpretation clarifies that regardless
of whether the entity chooses or is required to buy equity
instruments from another party to satisfy its obligations to its
employees under the share-based payment arrangement by
delivery of its own shares, the transaction should be accounted for
as equity settled. This interpretation also applies regardless of
whether the employee’s rights to the equity instruments were
granted by the entity itself or by its shareholders or was settled
by the entity itself or its shareholders. Share-based payments
involving the Group’s own equity instruments in which the Group
chooses or is required to buy its own equity instruments to settle
the share-based payment obligation are currently accounted for as
equity-settled share-based payment transactions under IFRS2. The
interpretation has had no impact on the consolidated annual
financial statements.

Circular 8/2007 Headline earnings

The circular was issued by the South African Institute of Chartered
Accountants (SAICA) and is applicable for financial periods ending
on or after August 31, 2007. Circular 8/2007 supersedes Circular
7/2002 and it defines rules for calculating headline earnings per
share, which is an additional per share measure permitted by
IAS33 Earnings per Share. It further requires a disclosure of a
detailed reconciliation of headline earnings to the earnings
numbers used in the calculation of basic earnings per share in
accordance with the requirements of IAS33. The Group adopted
the provisions of Circular 8/2007 in the reporting period
beginning on April 1, 2007 and the adoption has had no impact
other than additional disclosure as required by the Circular.

Accounting pronouncements not yet adopted

The Group has not early adopted the following standards,
interpretations and amendments that have been issued and are
not yet effective:

IFRS2 Vesting Conditions and Cancellations.

This amendment is effective for annual periods beginning on or
after January 1, 2009. The amendments to IFRS2 Share-based
Payment clarifies the definition of vesting conditions and the
accounting treatment of cancellations by the counterparty to a
share-based arrangement. All features of a share-based payment

arrangement other than service conditions and performance
conditions will be considered to be non-vesting conditions. IFRS2
(as revised) specifies that, when estimating the fair value of equity
instruments granted, an entity shall take into account all non-vesting
conditions (i.e. all conditions other than service and performance
conditions) and vesting conditions that are market conditions (i.e.
conditions that are related to the market price of the entity’s equity
instruments – for example, attaining a specified share price). The
impact of this amendment is currently being evaluated.

IFRS3 Business Combinations-comprehensive revision on
applying the acquisition method

The revised standard is effective for annual periods beginning on
or after July 1, 2009. The revised IFRS3 requires the consideration
for the acquisition, including the fair value of any contingent
consideration payable to be measured at fair value at the
acquisition date. The revised standard only permits subsequent
changes to the measurement of contingent consideration as a
result of additional information about facts and circumstances that
existed at the acquisition date. All other changes (e.g. changes
resulting from events after the acquisition date such as the
acquiree meeting an earnings target, reaching a specified share
price, or meeting a milestone on a research and development
project) are recognised in profit or loss.

Acquisition-related costs are now required to be expensed.

Business combinations involving only mutual entities and business
combinations achieved by contract alone have also been included
in IFRS3.

Consequential amendments arising from revisions to IFRS3
on IAS27 Consolidated and separate financial statements

The revised IAS27 specifies that changes in a parent’s ownership
interest in a subsidiary that do not result in the loss of control
must be accounted for as equity transactions. No gain or loss is
recognised on such transactions and goodwill is not re-
measured. Any difference between the change in the Non
Controlling Interest and the fair value of the consideration paid
or received is recognised directly in equity and attributed to the
owners of the parent.

Consequential amendments arising from revisions to IFRS3
on IAS28 Investments in Associates; IAS31 Interests in
Joint Ventures

Amendments to IAS28 and IAS31 extend the treatment required
for loss of control to these standards. For partial disposals of
associates and joint ventures, the amended standards stipulate
that if an investor loses significant influence over an associate, it
derecognises that associate and recognises in profit or loss the
difference between the sum of the proceeds received and any
retained interest, and the carrying amount of the investment in the
associate at the date significant influence is lost. A similar
treatment is required when an investor loses joint control over a
jointly controlled entity. The possible impact of this standard is
currently being evaluated.

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Significant accounting policies (continued)

Accounting pronouncements not yet adopted (continued)

IFRS8 Operating Segments

This standard is effective for annual periods beginning on or after
January 1, 2009. The significant change to the standard is that
it requires segments to be disclosed based on the information that
management uses to make decisions about operating matters.
IFRS8 sets out the requirements for disclosure of information
about an entity’s operating segments and also about the entity’s
products and services, the geographical areas in which it operates,
and its major customers. IFRS8 further requires the entity to
disclose factors used to identify the entity’s operating segments
and type of products and services from which each operating
segment derives its revenues. The impact of this standard is
currently being evaluated.

IAS1 Presentation of Financial Statements (revised)

The revised standard is effective for annual periods beginning on
or after January 1, 2009. The changes made to IAS1 require
information in financial statements to be aggregated on the basis
of shared characteristics and to introduce a statement of
comprehensive income. This will enable users to analyse changes
in a Group’s equity resulting from transactions with owners in their
capacity as owners (such as dividends and share repurchases)
separately from ‘non-owner’ changes (such as transactions with
third parties). The revised standard gives preparers of financial
statements the option of presenting items of income and expense
and components of other comprehensive income either in a single
statement of comprehensive income with subtotals, or in two
separate statements.

The revisions include changes in the titles of some of the financial
statements to reflect their function more clearly. The new titles
will be used in accounting standards, but are not mandatory for
use in financial statements. The impact of this standard will be that
the presentation of the financial statements will change.

IAS23 Borrowing Costs

The revised standard requires all borrowing costs that are directly
attributable to the acquisition, construction or production of a
qualifying asset to be capitalised. The revised Standard applies to
borrowing costs relating to qualifying assets for which the
commencement date for capitalisation is on or after January 1,
2009. The Group does not expect the adoption of the standard
to have a material impact since the Group has always applied the
allowed alternative of capitalising borrowing costs under the
current standard.

Amendment to IAS32 Financial Instruments Presentation
and IAS1 Presentation of Financial Statements, puttable
financial instruments

The amendment is effective for annual periods beginning on or
after January 1, 2009. In January 2008, the IASB amended
IAS32 and IAS1 Presentation of Financial Statements with respect
to the balance sheet classification of puttable financial instruments
and obligations arising only on liquidation. As a result of the
amendments, some financial instruments that currently meet the
definition of a financial liability will be classified as equity because
they represent the residual interest in the net assets of the entity.
The impact of this amended standard is currently being evaluated.

IFRIC12 Service Concession Arrangements

The interpretation is effective for annual periods beginning on or
after January 1, 2008. The interpretation clarifies that contractual
service arrangements do not convey the right to control the use
of the public service infrastructure to the operator, instead the
operator acts as a service provider. The infrastructure under these
arrangements shall therefore not be recognised as the property,
plant and equipment of the operator. The operator shall recognise
and measure revenue in accordance with IAS11 and IAS18 for the
services it performs. The operator should recognise the asset as
an intangible asset for the right (or licence) it receives to charge
the users of the public service or as a financial asset when it has
the right to receive cash from the grantor for construction services.
The interpretation provides guidance on the recognition and
measurement of the various aspects of service concession
arrangements from an operator’s perspective. The impact of this
interpretation is currently being evaluated.

IFRIC13 Customer Loyalty Programmes

The interpretation is effective for annual periods beginning on or
after July 1, 2008. The interpretation addresses accounting by
entities that grant loyalty award credits (such as ‘points’ or travel
miles) to customers who buy other goods or services. It specifically
requires these entities to recognise the obligation to provide free
or discounted goods or services (‘awards’) to customers who
redeem award credits. The interpretation requires companies to
estimate the value of the points to the customer and defer this
amount of revenue and recognise a liability until they have fulfilled
their obligations to supply awards. In effect, the award is
accounted for as a separate component of the sale transaction. The
possible impact of this interpretation is currently being evaluated.

IFRIC14 The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction

The interpretation is effective for annual periods beginning on or
after January 1, 2008. The interpretation addresses the interaction
between a minimum funding requirement and the limit placed by
paragraph 58 of IAS19 on the measurement of the defined
benefit asset. When determining the limit on a defined benefit
asset in accordance with IAS19.58, IFRIC14 requires an entity to
measure any economic benefits available to them in the form of
refunds or reductions in future contributions at the maximum
amount that is consistent with the terms and conditions of the
plan and any statutory requirements in the jurisdiction of the plan.
The interpretation states that the employer only needs to have
an unconditional right to use the surplus at some point during the
life of the plan or on its wind up in order for a surplus to be
recognised. The Group is currently evaluating the potential impact
that the interpretation will have on the financial position or results
of operations.

Significant accounting judgements and estimates

The preparation of financial statements requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods.
Although these estimates are based on management’s best
knowledge of current events and actions that the Group may
undertake in the future, actual results may ultimately differ from
those estimates.

F-9

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

F-10

Significant accounting policies (continued)

Significant accounting judgements and
estimates (continued)

The presentation of the results of operations, financial position
and cash flows in the financial statements of the Group is
dependent upon and sensitive to the accounting policies,
assumptions and estimates that are used as a basis for the
preparation of these financial statements. Management has made
certain judgements in the process of applying the Group’s
accounting policies. These, together with the key assumptions
concerning the future, and other key sources of estimation
uncertainty at the balance sheet date, are as follows:

Revenue recognition

To reflect the substance of each transaction, revenue recognition
criteria are applied to each separately identifiable component of
a transaction. In order to account for multiple-element revenue
arrangements in developing its accounting policies, the Group
considered the guidance contained in the United States Financial
Accounting Standards Board (‘FASB’) Emerging Issues Task Force
No 00-21 Revenue Arrangements with Multiple Deliverables.
Judgement is required to separate those revenue arrangements
that contain the delivery of bundled products or services into
individual units of accounting, each with its own earnings process,
when the delivered item has stand-alone value and the undelivered
item has fair value. Further judgement is required to determine the
relative fair values of each separate unit of accounting to be
allocated to the total arrangement consideration. Changes in the
relative fair values could affect the allocation of arrangement
consideration between the various revenue streams.

Judgement is also required to determine the expected customer
relationship period. Any changes in these assessments may have
a significant impact on revenue and deferred revenue.

Property, plant and equipment and intangible assets

The useful lives of assets are based on management’s estimation.
Management considers the impact of changes in technology,
customer service requirements, availability of capital funding and
required return on assets and equity to determine the optimum
useful life expectation for each of the individual categories of
property, plant, equipment and intangible assets. Due to the rapid
technological advancement in the telecommunications industry as
well as Telkom’s plan to migrate to a next generation network
over the next few years, the estimation of useful lives could differ
significantly on an annual basis due to unexpected changes in the
roll-out strategy. The impact of the change in the expected useful
life of property, plant and equipment is described more fully in
note 5.6. The estimation of residual values of assets is also based
on management’s judgement whether the assets will be sold or
used to the end of their useful lives and what their condition will
be like at that time.

For intangible assets that incorporate both a tangible and
intangible portion, management uses judgement to assess which
element is more significant to determine whether it should be
treated as property, plant and equipment or intangible assets.

Asset retirement obligations

Management judgement is exercised when determining whether
an asset retirement obligation exists, and in determining the
present value of expected future cash flows and discount rate
when the obligation to dismantle or restore the site arises, as well
as the estimated useful life of the related asset.

Impairments of property, plant and equipment and
intangible assets

Management is required to make judgements concerning the
cause, timing and amount of impairment. In the identification of
impairment indicators, management considers the impact of
changes in current competitive conditions, cost of capital,
availability of funding, technological obsolescence, discontinuance
of services and other circumstances that could indicate that an
impairment exists. The Group applies the impairment assessment
to its separate cash-generating units. This requires management
to make significant judgements concerning the existence of
impairment indicators, identification of separate cash-generating
units, remaining useful lives of assets and estimates of projected
cash flows and fair value less costs to sell. Management
judgement is also required when assessing whether a previously
recognised impairment loss should be reversed.

Where impairment indicators exist, the determination of the
recoverable amount of a cash-generating unit requires management
to make assumptions to determine the fair value less costs to sell
and value in use. Key assumptions on which management has
based its determination of fair value less costs to sell include the
existence of binding sale agreements, and for the determination
of value in use include projected revenues, gross margins, average
revenue per asset component, capital expenditure, expected
customer bases and market share. The judgements, assumptions
and methodologies used can have a material impact on the fair
value and ultimately the amount of any impairment.

Impairment of other financial assets

At each balance sheet date management assesses whether there
are indicators of impairment of financial assets, including equity
investments. If such evidence exists, the estimated present value
of the future cash flows of that asset is determined. Management
judgement is required when determining the expected future cash
flows. To determine whether the decline in fair value is prolonged,
reliance is placed on an assessment by management regarding the
future prospects of the investee. In measuring impairments,
quoted market prices are used, if available, or projected business
plan information from the investee is used for those financial
assets not carried at fair value.

Impairment of receivables

An impairment is recognised on trade receivables that are assessed
to be impaired. The impairment is based on an assessment of the
extent to which customers have defaulted on payments already
due and an assessment on their ability to make payments based
on their credit worthiness and historical write-offs experience.
Should the assumptions regarding the financial condition of the
customer change, actual write-offs could differ significantly from
the impaired amount.

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Significant accounting policies (continued)

Significant accounting judgements and
estimates (continued)

Leases

The determination of whether an arrangement is, or contains a
lease is based on whether, at the date of inception, the fulfilment
of the arrangement is dependent on the use of a specific asset or
assets or the arrangement conveys a right to use the asset.

Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease. A
lease is classified as a finance lease if it transfers substantially all
the risks and rewards incident to ownership.

Deferred taxation asset

Management judgement is exercised when determining the
probability of future taxable profits which will determine whether
deferred tax assets should be recognised or derecognised. The
realisation of deferred tax assets will depend on whether it is
possible to generate sufficient taxable income, taking into account
any legal restrictions on the length and nature of the taxation
asset. When deciding whether to recognise unutilised taxation
credits, management needs to determine the extent that future
payments are likely to be available for set-off. In the event that
the assessment of future payments and future utilisation changes,
the change in the recognised deferred tax asset must be
recognised in profit or loss.

Taxation

The tax rules and regulations in South Africa as well as the other
African countries within which the Group operates are highly
complex and subject to interpretation. Additionally, for the
foreseeable future, management expects South African tax laws
to further develop through changes in South Africa’s existing tax
structure as well as clarification of the existing tax laws through
published interpretations and the resolution of actual tax cases.

Management has made a judgement that all outstanding tax
credits will be available for utilisation before the tax regime change
is effective, despite the change of “secondary tax on companies”
to withholding tax.

The growth of the Group, following its geographical expansion
into other African countries over the past few years, has made
the estimation and judgement required in recognising and
measuring deferred taxation balances more challenging. The
resolution of taxation issues is not always within the control of the
Group and it is often dependent on the efficiency of the legal
processes in the relevant taxation jurisdictions in which the Group
operates. Issues can, and often do, take many years to resolve.
Payments in respect of taxation liabilities for an accounting period
result from payments on account and on the final resolution of
open items. As a result there can be substantial differences
between the taxation charge in the consolidated income statement
and the current taxation payments.

Group entities are regularly subject to evaluation, by the relevant
tax authorities, of its historical tax filings and in connection with
such reviews, disputes can arise with the taxing authorities over
the interpretation or application of certain tax rules to the
business of the relevant Group entities. These disputes may not
necessarily be resolved in a manner that is favourable for the
Group. Additionally the resolution of the disputes could result in
an obligation for the Group that exceeds management’s estimate.
The Group has historically filed, and continues to file, all required
income tax returns. Management believes that the principles
applied in determining the Group’s tax obligations are consistent
with the principles and interpretations of the relevant countries’
tax laws.

Deferred taxation rate

Management makes judgements on the tax rate applicable based
on the Group’s expectations at balance sheet date on how the asset
is expected to be recovered or the liability is expected to be settled.

Employee benefits

The Group provides defined benefit plans for certain post-
employment benefits. The Group’s net obligation in respect of
defined benefits is calculated separately for each plan by estimating
the amount of future benefits earned in return for services rendered.
The obligation and assets related to each of the post-retirement
benefits are determined through an actuarial valuation. The
actuarial valuation relies heavily on assumptions as disclosed in
note 29. The assumptions determined by management make use
of information obtained from the Group’s employment agreements
with staff and pensioners, market related returns on similar
investments, market related discount rates and other available
information. The assumptions concerning the expected return on
assets and expected change in liabilities are determined on a
uniform basis, considering long-term historical returns and future
estimates of returns and medical inflation expectations. In the event
that further changes in assumptions are required, the future
amounts of post-retirement benefits may be affected materially.

The discount rate reflects the average timing of the estimated defined benefit payments. The discount rate is based on long term South African government bonds with the longest maturity period as reported by the Bond Exchange of South Africa. The discount rate is expected to follow the trend of inflation.

The overall expected rate of return on assets is determined based
on the market prices prevailing at that date, applicable to the
period over which the obligation is to be settled.

Telkom provides equity compensation in the form of the Telkom
Conditional Share Plan to its employees. The related expense and
reserve are determined through an actuarial valuation which relies
heavily on assumptions. The assumptions include employee
turnover percentages and whether specified performance criteria
will be met. Changes to these assumptions could affect the amount
of expense ultimately recognised in the financial statements.

F-11

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

F-12

Significant accounting policies (continued)

Significant accounting judgements and
estimates (continued)

Provisions and Contingent liabilities

Management judgement is required when recognising and
measuring provisions and when measuring contingent liabilities
as set out in notes 28 and 38 respectively. The probability that
an outflow of economic resources will be required to settle the
obligation must be assessed and a reliable estimate must be made
of the amount of the obligation. Provisions are discounted where
the effect of discounting is material based on management’s
judgement. The discount rate used is the rate that reflects current
market assessments of the time value of money and, where
appropriate, the risks specific to the liability, all of which requires
management judgement. The Group is required to recognise
provisions for claims arising from litigation when the occurrence
of the claim is probable and the amount of the loss can be
reasonably estimated. Liabilities provided for legal matters require
judgements regarding projected outcomes and ranges of losses
based on historical experience and recommendations of legal
counsel. Litigation is however unpredictable and actual costs
incurred could differ materially from those estimated at the
balance sheet date.

Held-to-maturity financial assets

Management have reviewed the Group’s held-to-maturity financial
assets in the light of its capital management and liquidity
requirements and have confirmed the Group’s positive intention
and ability to hold those assets to maturity.

Summary of significant accounting policies

Basis of consolidation

The consolidated financial statements include those of Telkom, its
foreign and domestic subsidiaries and joint ventures. Subsidiaries
are those entities over which financial and operating policies the
Group has the ability to exercise control, so as to obtain majority
of the benefits from their activities. Joint ventures are those
enterprises over which the group exercises joint control in terms
of a contractual agreement. Joint ventures are accounted for using
the proportionate consolidation method on a line by line basis.
Intra-group balances and transactions, and any unrealised gains
and losses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements. Transactions with
jointly controlled entities together with related unrealised gains
and losses and resulting balances are eliminated to the extent of
the Group’s interest in the entities. Consolidation commences from
the date that effective control passes to the Group.

Business combinations

On acquisition of a subsidiary or joint venture, any excess of the
purchase price over the fair value of the Group’s interest in the net
assets is recognised as goodwill. Minority interests are calculated
on the fair value of assets and liabilities. Where there is loss of
control of a subsidiary, the consolidated financial statements
include the results for the part of the reporting year during which
the Group has control.

Minority shareholders are treated as equity participants and,
therefore, all acquisitions of minority interest by the Group in
subsidiary companies are accounted for using the parent entity
extension method. Under this method, the assets and liabilities of
the subsidiary are not restated to reflect their fair values at the
date of the acquisition. The difference between the purchase price
and the minority interest’s share of the assets and liabilities
reflected within the consolidated balance sheet at the date of the
acquisition is therefore reflected as goodwill. Minority interests
are separately presented in the consolidated financial statements.

Operating revenue

The Group provides fixed-line communication services, mobile
communication services and other services. Other includes data
services, directory services and communication related products.
The Group provides such services to business, residential,
payphone and mobile customers. Revenue represents the fair
value of fixed or determinable consideration that has been
received or is receivable.

Revenue for services is measured at amounts invoiced to
customers and excludes Value Added Tax.

Revenue is recognised when there is evidence of an arrangement,
collectability is reasonably assured, and the delivery of the product
or service has occurred. In certain circumstances revenue is split
into separately identifiable components and recognised when the
related components are delivered in order to reflect the substance
of the transaction. The value of components is determined using
verifiable objective evidence. The Group does not provide
customers with the right to a refund.

Fixed-line and Other

Subscriptions, connections and other usage

The Group provides telephone and data communication services
under post paid and prepaid payment arrangements. Revenue
includes fees for installation and activation, which are deferred
over the expected customer relationship period. Costs incurred on
first time installations that form an integral part of the network are
capitalised and depreciated over the expected average customer
relationship period. All other installation and activation costs are
expensed as incurred.

Post paid and prepaid service arrangements include subscription
fees, typically monthly fees, which are recognised over the
subscription period.

Revenue related to sale of communication equipment, products
and value-added services is recognised upon delivery and
acceptance of the product or service by the customer.

Traffic (Domestic, Fixed-to-mobile and International)

Prepaid

Prepaid traffic service revenue collected in advance is deferred
and recognised based on actual usage or upon expiration of the
usage period, whichever comes first. The terms and conditions of
certain prepaid products allow the carry over of unused minutes.
Revenue related to the carry over of unused minutes is deferred
until usage or expiration.

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Significant accounting policies (continued)

Operating revenue (continued)

Fixed-line and Other (continued)

Traffic (Domestic, Fixed-to-mobile and
International) (continued)

Payphones

Payphone service coin revenue is recognised when the service
is provided.

Payphone service card revenue collected in advance is deferred
and recognised based on actual usage or upon expiration of the
usage period, whichever comes first.

Telkom provides incentives to its retail payphone card distributors
as trade discounts. Revenue for retail payphone cards is recorded
as traffic revenue, net of these discounts as the cards are used.

Postpaid

Revenue related to local, long distance, network-to-network,
roaming and international call connection services is recognised
when the call is placed or the connection provided.

Interconnection

Interconnection revenue for call termination, call transit, and
network usage is recognised as the traffic flow occurs.

Data

The Group provides data communication services under post paid
and prepaid payment arrangements. Revenue includes fees for
installation and activation, which are deferred over the expected
average customer relationship period. Costs incurred on first time
installations that form an integral part of the network are
capitalised and depreciated over the life of the expected average
customer relationship period. All other installation and activation
costs are expensed as incurred. Post paid and prepaid service
arrangements include subscription fees, typically monthly fees,
which are recognised over the subscription period.

Directory services

Included in other are directory services. Revenue is recognised
when paper directories are released for distribution, as the
significant risks and rewards of ownership have been transferred
to the buyer. Electronic directories’ revenue is recognised on a
monthly basis, as earned.

Sundry revenue

Sundry revenue is recognised when the economic benefit flows to
the Group and the earnings process is complete.

Dealer incentives

Telkom provides incentives to its retail payphone card distributors
as trade discounts. Incentives are based on sales volume and
value. Revenue for retail payphone cards is recorded as traffic
revenue, net of these discounts as the cards are used.

Mobile

The Vodacom Group invoices its independent service providers for
the revenue billed by them on behalf of the Group. The Group,
within its contractual arrangements with its agents, pays them

administrative fees. The Group receives in cash, the net amount
equal to the gross revenue earned less the administrative fees
payable to the agents.

Contract products

Contract products that may include deliverables such as a handset
and 24-month service are defined as arrangements with multiple
deliverables. The arrangement consideration is allocated to each
deliverable, based on the fair value of each deliverable on a stand
alone basis as a percentage of the aggregated fair value of the
individual deliverables. Revenue allocated to the identified
deliverables in each revenue arrangement and the cost applicable
to these identified deliverables are recognised based on the same
recognition criteria of the individual deliverable at the time the
product or service is delivered.

Vodacom revenue from the handset is recognised when the
product is delivered limited to the amount of cash received.
Monthly service revenue received from the customer is recognised
in the period in which the service is delivered. Airtime revenue is
recognised on the usage basis. The terms and conditions of the
bundled airtime products, where applicable, allow the carry over
of unused airtime. The unused airtime is deferred in full. Deferred
revenue related to unused airtime is recognised when utilised by
the customer. Upon termination of the customer contract, all
deferred revenue for unused airtime is recognised in revenue.

Prepaid products

Prepaid products that may include deliverables such as a SIM-card
and airtime are defined as arrangements with multiple
deliverables. The arrangement consideration is allocated to each
deliverable, based on the fair value of each deliverable on a stand
alone basis as a percentage of the aggregated fair value of the
individual deliverables. Revenue allocated to the identified
deliverables in each revenue arrangement and the cost applicable
to these identified deliverables are recognised based on the same
recognition criteria of the individual deliverable at the time the
product or service is delivered.

• Revenue from the SIM-card representing activation fees is

recognised over the average useful life of a prepaid customer.

• Airtime revenue is recognised on the usage basis. Unused

airtime is deferred in full.

• Deferred revenue related to unused airtime is recognised when
   utilised by the customer. Upon termination of the customer
   relationship, all deferred revenue for unused airtime is
   recognised in revenue.

Upon purchase of an airtime voucher the customer receives the
right to make outgoing voice and data calls to the value of the
airtime voucher. Revenue is recognised as the customer utilises the
voucher.

Deferred revenue and costs related to unactivated starter packs
which do not contain any expiry date, is recognised in the period
when the probability of these starter packs being activated by a
customer becomes remote. In this regard the Group applies a
period of 36 months before these revenue and costs are released
to the consolidated income statement.

F-13

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

F-14

Significant accounting policies (continued)

Operating revenue (continued)

Mobile (continued)

Data

Revenue, net of discounts, from data services is recognised when
the Group has performed the related service and depending on the
nature of the service, is recognised either at the gross amounts
billed to the customer or the amount receivable by the Group as
commission for facilitating the service.

Equipment sales

All equipment sales are recognised only when delivery and
acceptance has taken place. Equipment sales to third party service
providers are recognised when delivery is accepted. No rights of
return exist on sales to third party service providers.

Mobile number portability

Revenue transactions from mobile number portability are
accounted for in terms of current business rules and revenue
recognition policies above.

Interest on debtors’ accounts

Interest is raised on overdue accounts on an effective interest rate
method and recognised in the income statement.

Marketing

Marketing costs are recognised as an expense as incurred.

Incentives

Incentives paid to service providers and dealers for products
delivered to the customer are expensed as incurred. Incentives
paid to service providers and dealers for services delivered are
expensed in the period that the related revenue is recognised.

Distribution incentives paid to service providers and dealers for
exclusivity are deferred and expensed over the contractual
relationship period.

Investment income

Dividends from investments are recognised on the date that the
Group is entitled to the dividend. Interest is recognised on a time
proportionate basis taking into account the principal amount
outstanding and the effective interest rate.

Taxation

Current taxation

The charge for current taxation is based on the results for the year
and is adjusted for non-taxable income and non-deductible
expenditure. Current taxation is measured at the amount expected
to be paid to the taxation authorities, using taxation rates and
laws that have been enacted or substantively enacted by the
balance sheet date.

Deferred taxation

Deferred taxation is accounted for using the balance sheet liability
method on all temporary differences at the balance sheet date
between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.

Deferred tax is not provided on the initial recognition of goodwill
or initial recognition of assets or liabilities which is not a business

combination and at the time of the transaction affects neither
accounting nor taxable profit or loss.

A deferred tax asset is recognised to the extent that it is probable
that future taxable profits will be available against which the
associated unused tax losses, unused tax credits and deductible
temporary differences can be utilised. The carrying amount of
deferred tax assets is reviewed at each balance sheet date and is
reduced to the extent that it is no longer probable that the related
tax benefit will be realised, except in respect of deductible
temporary differences associated with investments in subsidiaries,
associates and interest in joint ventures. Deferred income tax
assets are recognised only to the extent that it is probable that
temporary differences will reverse in the foreseeable future and
taxable profit will be available against which temporary differences
can be utilised.

Deferred tax relating to items recognised directly in equity are
recognised in equity and not in the income statement.

Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply to the period when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted by the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset, if a
legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.

Exchange differences arising from the translation of foreign
deferred taxation assets and liabilities of foreign entities where the
functional currency is different to the local currency, are classified
as a deferred taxation expense or income.

Secondary taxation on companies

Secondary taxation on companies (‘STC’) is provided for at a rate
of 10% (12.5% before October 1, 2007) on the amount by
which dividends declared by the Group exceeds dividends received.
Deferred tax on unutilised STC credits is recognised to the extent
that STC payable on future dividend payments is likely to be
available for set-off.

Property, plant and equipment

At initial recognition acquired property, plant and equipment are
recognised at their purchase price, including import duties and
non-refundable purchase taxes, after deducting trade discounts
and rebates. The recognised cost includes any directly attributable
costs for preparing the asset for its intended use. The cost of an
item of property, plant and equipment is recognised as an asset
if it is probable that the future economic benefits associated with
the item will flow to the Group and the cost of the item can be
measured reliably.

Property, plant and equipment is stated at historical cost less
accumulated depreciation and any accumulated impairment losses.
Each component of an item of property, plant and equipment with
a cost that is significant in relation to the total cost of the item is
depreciated separately. Depreciation is charged from the date the
asset is available for use on a straight-line basis over the estimated
useful life and ceases at the earlier of the date that the asset is
classified as held for sale and the date the asset is derecognised.
Idle assets continue to attract depreciation.

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Significant accounting policies (continued)

Property, plant and equipment (continued)

The estimated useful life of individual assets and the depreciation
method thereof are reviewed on an annual basis at balance sheet
date. The depreciable amount is determined after taking into
account the residual value of the asset. The residual value is the
estimated amount that the Group would currently obtain from the
disposal of the asset, after deducting the estimated cost of
disposal, if the asset were already of the age and in the condition
expected at the end of its useful life. The residual values of assets
are reviewed on an annual basis at balance sheet date.

Assets under construction represents freehold buildings, integral
operating software, network and support equipment and includes
all direct expenditure as well as related borrowing costs capitalised,
but excludes the costs of abnormal amounts of waste material,
labour, or other resources incurred in the production of self-
constructed assets.

Freehold land is stated at cost and is not depreciated. Amounts
paid by the Group on improvements to assets which are held in
terms of operating lease agreements are depreciated on a straight-
line basis over the shorter of the remaining useful life of the
applicable asset or the remainder of the lease period. Where it is
reasonably certain that the lease agreement will be renewed, the
lease period equals the period of the initial agreement plus the
renewal periods.

The estimated useful lives assigned to groups of property, plant
and equipment are:

Years

Freehold buildings

15 to 40

Leasehold buildings

7 to 25

Network equipment

Cables

20 to 40

Switching equipment

2 to 18

Transmission equipment

5 to 18

Other

1 to 20

Support equipment

5 to 13

Furniture and office equipment

2 to 15

Data processing equipment and software

3 to 10

Other

2 to 15

An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of
the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the
income statement in the year the asset is derecognised.

Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or, where
shorter, the term of the relevant lease if there is no reasonable
certainty that the Group will obtain ownership by the end of the
lease term.

Intangible assets

Goodwill

Goodwill on acquisition is initially measured as being the excess
of the cost of the business combination over the Group’s interest
in the net fair value of the identifiable assets, liabilities and
contingent liabilities, allocated to cash-generating units where
relevant. Goodwill on the acquisition of subsidiaries and joint
ventures is included in intangible assets. Following initial
recognition, goodwill is measured at cost less any accumulated
impairment losses, once the impairment is recognised it is not
reversed. Goodwill is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the
carrying value may be impaired. Gains and losses on the disposal
of an entity include the carrying amount of goodwill relating to the
entity sold.

Licences, software, trademarks, copyrights and other

At initial recognition acquired intangible assets are recognised at
their purchase price, including import duties and non-refundable
purchase taxes, after deducting trade discounts and rebates. The
recognised cost includes any directly attributable costs for preparing
the asset for its intended use. Internally generated intangible assets
are recognised at cost comprising all directly attributable costs
necessary to create and prepare the asset to be capable of operating
in the manner intended by management. Licences, software,
trademarks, copyrights and other intangible assets are carried at
cost less accumulated amortisation and any accumulated impairmentlosses. Amortisation commences when the intangible assets are available for their intended use and is recognised on a straight-line
basis over the assets’ expected useful lives. Amortisation ceases at
the earlier of the date that the asset is classified as held for sale and
the date that the asset is derecognised.

The residual value of intangible assets is the estimated amount
that the Group would currently obtain from the disposal of the
asset, after deducting the estimated cost of disposal, if the asset
were already of the age and in the condition expected at the end
of its useful life. Due to the nature of the asset the residual value
is assumed to be zero unless there is a commitment by a third
party to purchase the asset at the end of its useful life or when
there is an active market that is likely to exist at the end of the
asset’s useful life, which can be used to estimate the residual
values. The residual values of intangible assets, amortisation
methods and their useful lives are reviewed on an annual basis at
balance sheet date.

Intangible assets with indefinite useful lives and intangible assets
not yet available for use, are tested for impairment annually either
individually or at the cash-generating unit level. Such intangible
assets are not amortised. The useful life of an intangible asset
with an indefinite life is reviewed annually to determine whether
indefinite life assessment continues to be supportable. If not, the
change in the useful life assessment from indefinite to finite is
made on a prospective basis.

F-15

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

F-16

Significant accounting policies (continued)

Intangible assets (continued)

Licences, software, trademarks, copyrights and
other (continued)

Assets under construction represent application and other non
integral software and includes all direct expenditure as well as
related borrowing costs capitalised, but excludes the costs of
abnormal amounts of waste material, labour, or other resources
incurred in the production of self-constructed assets.

Intangible assets are derecognised when they have been disposed
of or when the asset is permanently withdrawn from use and no
future economic benefit is expected from its disposal. Any gains
or losses on the retirement or disposal of assets are recognised in
the income statement in the year in which they arise.

The expected useful lives assigned to intangible assets are:

Years

Licences

5 to 30

Software

2 to 10

Trademarks, copyrights and other

3 to 15

Asset retirement obligations

Asset retirement obligations related to property, plant and
equipment and intangible assets are recognised at the present
value of expected future cash flows when the obligation to
dismantle or restore the site arises. The increase in the related
asset’s carrying value is depreciated over its estimated useful life.
The unwinding of the discount is included in finance charges and
fair value movements. Changes in the measurement of an existing
liability that result from changes in the estimated timing or amount
of the outflow of resources required to settle the liability, or a
change in the discount rate are accounted for as increases or
decreases to the original cost of the recognised assets. If the
amount deducted exceeds the carrying amount of the asset, the
excess is recognised immediately in profit or loss.

Non-current assets held for sale

Non-current assets and disposal groups are classified as held for
sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the
asset (or disposal group) is available for immediate sale in its
present condition. Management must be committed to the sale,
which should be expected to qualify for recognition as a complete
sale within one year from the date of classification. Assets are no
longer depreciated when they are classified into the category.

Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of the assets’ previous carrying
amount and fair value less cost to sell.

Impairment of property, plant and equipment and
intangible assets

The Group regularly reviews its assets, other than financial
instruments, and cash-generating units for any indication of
impairment. When indicators, including changes in technology,

market, economic, legal and operating environments occur and
could result in changes of the asset’s or cash-generating unit’s
estimated recoverable amount, an impairment test is performed.

The recoverable amount of assets or cash-generating units is
measured using the higher of the fair value less costs to sell and
its value in use, which is the present value of projected cash flows
covering the remaining useful lives of the assets. Impairment
losses are recognised when the asset’s carrying value exceeds its
estimated recoverable amount. Where applicable, the recoverable
amount is determined for the cash-generating unit to which the
asset belongs.

Previously recognised impairment losses, other than goodwill, are
reviewed annually for any indication that it may no longer exist
or may have decreased. If any such indication exists, the
recoverable amount of the asset is estimated. Such impairment
losses are reversed through the income statement if the
recoverable amount has increased as a result of a change in the
estimates used to determine the recoverable amount, but not to
an amount higher than the carrying amount that would have been
determined (net of depreciation or amortisation) had no
impairment loss been recognised in prior years. Impairment on
goodwill is not reversed.

Repairs and maintenance

The Group expenses all costs associated with repairs and
maintenance, unless it is probable that such costs would result in
increased future economic benefits flowing to the Group, and the
costs can be reliably measured.

Borrowing costs

Financing costs directly associated with the acquisition or construction
of assets that require more than three months to complete and place
in service are capitalised at interest rates relating to loans specifically
raised for that purpose, or at the weighted average borrowing rate
where the general pool of Group borrowings was utilised. Other
borrowing costs are expensed as incurred.

Deferred revenue and expenses

Activation revenue and costs are recognised in accordance with
the principles contained in Emerging Issues Task Force Issue No
00-21, Revenue Arrangements with Multiple Deliverables (‘EITF
00-21’), issued in the United States. This results in activation
revenue and costs up to the amount of the deferred revenue being
deferred and recognised systematically over the expected duration
of the customer relationship because it is considered to be part of
the customers’ ongoing rights to telecommunication services and
the operator’s continuing involvement. The excess of the costs
over revenues is expensed immediately.

Inventories

Installation material, maintenance and network equipment
inventories are stated at the lower of cost, determined on a
weighted average basis, or estimated net realisable value.
Merchandise inventories are stated at the lower of cost,
determined on a first-in first-out (‘FIFO’) basis, or estimated net
realisable value. Write-down of inventories arises when, for
example, goods are damaged or when net realisable value is
lower than carrying value.

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Significant accounting policies (continued)

Financial instruments

Recognition and initial measurement

All financial instruments are initially recognised at fair value, plus,
in the case of financial assets and liabilities not at fair value
through profit or loss, transaction costs that are directly attributable
to the acquisition or issue. Financial instruments are recognised
when the Group becomes a party to their contractual arrangements.
All regular way transactions are accounted for on settlement date.
Regular way purchases or sales are purchases or sales of financial
assets that require delivery of assets within the period generally
established by regulation or convention in the marketplace.

Subsequent measurement

Subsequent to initial recognition, the Group classifies financial
assets as ‘at fair value through profit or loss’, ‘held-to-maturity
investments’, ‘loans and receivables’, or ‘available-for-sale’. The
measurement of each is set out below and presented in a table
in note 12.

The fair value of financial assets and liabilities that are actively
traded in financial markets is determined by reference to quoted
market prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using
valuation techniques such as discounted cash flow analysis.

Financial assets at fair value through profit or loss

The Group classifies financial assets that are held for trading in
the category ‘financial assets at fair value through profit or loss’.
This category includes bills of exchange and promissory notes.
Financial assets are classified as held for trading if they are
acquired for the purpose of selling in the future. Derivatives not
designated as hedges are also classified as held for trading. On
remeasurement to fair value the gains or losses on held for trading
financial assets are recognised in net finance charges and fair
value movements for the year.

Gains and losses arising from changes in the fair value of the
‘financial assets at fair value through profit or loss’ category are
presented in the income statement within ‘finance charges and fair
value movements’ in the period which they arise. Dividend income
from financial assets at fair value through profit or loss is
recognised in the income statement as part of other income when
the Group’s right to receive payment is established.

Held-to-maturity financial assets

The Group classifies non-derivative financial assets with fixed or
determinable payments and fixed maturity dates as held-to-
maturity when the Group has the positive intention and ability to
hold to maturity. This category includes bills of exchange and
promissory notes. These assets are subsequently measured at
amortised cost. Amortised cost is computed as the amount initially
recognised minus principal repayments, plus or minus the
cumulative amortisation using the effective interest rate method.
This calculation includes all fees paid or received between parties
to the contract. For investments carried at amortised cost, gains
and losses are recognised in net profit or loss when the
investments are sold or impaired.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
Such assets are carried at amortised cost using the effective
interest rate method. Trade receivables are subsequently measured
at the original invoice amount where the effect of discounting is
not material.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative assets
that are designated as available-for-sale, or are not classified in any
of the three preceding categories. Equity instruments are all
treated as available-for-sale financial instruments. After initial
recognition, available-for-sale financial assets are measured at fair
value, with gains and losses being recognised as a separate
component of equity.

Changes in the fair value of monetary securities denominated in
a foreign currency and classified as available-for-sale are analysed
between translation differences resulting from changes in
amortised cost of the security and other changes in carrying
amount of the security. The translation differences on monetary
securities are recognised in profit or loss, while translation
differences on non-monetary securities are recognised in equity.
Changes in the fair value of monetary and non-monetary securities
classified as available-for-sale are recognised directly in equity.
When an investment is derecognised or determined to be
impaired, the cumulative gain or loss previously recorded in equity
is recognised in profit or loss.

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or
loss (‘FVTPL’) where the financial liability is either held for trading
or it is designated as at FVTPL.

A financial liability is classified as held for trading:

• if it is acquired for the purpose of settling in the near term; or

• if it is a derivative that is not designated and effective as a

hedging instrument.

Financial liabilities at a FVTPL are stated at fair value, with any
resultant gains or losses recognised in profit or loss. The net gain
or loss recognised in profit or loss incorporates any interest paid
on the financial liability.

Other financial liabilities

Other financial liabilities are subsequently measured at amortised
cost using the effective interest rate method, with interest expense
recognised in finance charges and fair value movements, on an
effective yield basis.

The effective interest rate is the rate that accurately discounts
estimated future cash payments through the expected life of the
financial liability, or, where appropriate, a shorter period.

Financial guarantee contracts

Financial guarantee contracts are subsequently measured at the
higher of the amount determined in accordance with IAS37
Provisions, Contingent Liabilities and Contingent Assets or the
amount initially recognised less, when appropriate, cumulative
amortisation, recognised in accordance with IAS18 Revenue.

F-17

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

F-18

Significant accounting policies (continued)

Financial instruments (continued)

Put option

A contract that contains an obligation for the Group to purchase
its own equity instruments for cash or another financial asset gives
rise to a financial liability and is accounted for at the present value
of the redemption amount. On initial recognition its fair value is
reclassified directly from equity. Subsequent changes in the liability
are included in profit or loss. On expiry or exercise of the option
the carrying value of the liability is reclassified directly to equity.

Cash and cash equivalents

Cash and cash equivalents are measured at amortised cost. This
comprise cash on hand, deposits held on call and term deposits with
an initial maturity of less than three months when entered into.

For the purpose of the cash flow statement, cash and cash
equivalents consist of cash and cash equivalents defined above,
net of credit facilities utilised.

Capital and money market transactions

New bonds and commercial paper bills issued are subsequently
measured at amortised cost using the effective interest rate method.

Bonds issued where Telkom is a buyer and seller of last resort are
carried at fair value. The Group does not actively trade in bonds.

Derecognition

A financial instrument or a portion of a financial instrument will be
derecognised and a gain or loss recognised when the Group’s
contractual rights expire, financial assets are transferred or
financial liabilities are extinguished. On derecognition of a financial
asset or liability, the difference between the consideration and the
carrying amount on the settlement date is included in finance
charges and fair value movements for the year. For available-for-
sale assets, the fair value adjustment relating to prior revaluations
of assets is transferred from equity and recognised in finance
charges and fair value movements for the year.

Bonds and commercial paper bills are derecognised when the
obligation specified in the contract is discharged. The difference
between the carrying value of the bond and the amount paid to
extinguish the obligation is included in finance charges and fair
value movements for the year.

Impairment of financial assets

At each balance sheet date an assessment is made of whether
there are any indicators of impairment of a financial asset or a
group of financial assets based on observable data about one or
more loss events that occurred after the initial recognition of the
asset or the group of assets. In the case of equity securities
classified as available-for-sale, a significant or prolonged decline
in the fair value of the security below its cost is considered as an
indicator that the securities are impaired. If any such evidence
exists for available-for-sale assets, the cumulative loss – measured
as the difference between the acquisition cost and the current fair
value, less any impairment loss on that financial asset previously
recognised in profit or loss – is removed from equity and
recognised in the income statement. Impairment losses recognised
in the income statement on equity instruments are not reversed

through the income statement. The recoverable amount of
financial assets carries at amortised cost is calculated as the
present value of expected future cash flows discounted at the
original effective interest rate of the asset.

If, in a subsequent period, the amount of the impairment loss for
financial assets decreases and the decrease can be related
objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is reversed
except for those financial assets classified as available-for-sale and
carried at cost that are not reversed. Any subsequent reversal of
an impairment loss is recognised in the income statement, to the
extent that the carrying value of the asset does not exceed its
amortised cost at the reversal date. Reversals in respect of equity
instruments classified as available-for-sale are not recognised.
Reversals of impairment losses on debt instruments classified as
available-for-sale are reversed through the income statement, if the
increase in fair value of the instrument can be objectively related
to an event occurring after the impairment loss was recognised
through the income statement.

Foreign currencies

Each entity within the Group determines its functional currency. The
Group’s presentation currency is the South African Rand (‘ZAR’).

Transactions denominated in foreign currencies are measured at
the rate of exchange at transaction date. Monetary items
denominated in foreign currencies are remeasured at the rate of
exchange at settlement date or balance sheet date whichever
occurs first. Exchange differences on the settlement or translation
of monetary assets and liabilities are included in finance charges
and fair value movements in the period in which they arise.

The annual financial statements of foreign operations are translated
into South African Rand, the Group’s presentation currency, for
incorporation into the consolidated annual financial statements.
Assets and liabilities are translated at the foreign exchange rates
ruling at the balance sheet date. Income, expenditure and cash
flow items are measured at the actual foreign exchange rate or
average foreign exchange rates for the period. All resulting unrealised
exchange differences are classified as equity. On disposal, the
cumulative amounts of unrealised exchange differences that have
been deferred are recognised in the consolidated income statement
as part of the gain or loss on disposal.

All gains and losses on the translation of equity loans to foreign
operations that are intended to be permanent whether they are
denominated in one of the entities functional currencies or in a
third currency, are recognised in equity.

Goodwill and intangible assets arising on the acquisition of a foreign
operation are treated as assets of the foreign operation and
translated at the foreign exchange rates ruling at balance sheet date.

Treasury shares

Where the Group acquires, or in substance acquires, Telkom
shares, such shares are measured at cost and disclosed as a
reduction of equity. No gain or loss is recognised in profit or loss
on the purchase, sale, issue or cancellation of the Group’s own
equity instruments. Such shares are not remeasured for changes
in fair value.

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Significant accounting policies (continued)

Insurance contracts

Premiums written comprise the premiums on insurance contracts
entered into during the year, irrespective of whether they relate
in whole or in part to a later accounting period. Premiums are
disclosed gross of commission to intermediaries and exclude Value
Added Tax. Premiums written include adjustments to premiums
written in prior accounting periods. Outward reinsurance premiums
are accounted for in the same accounting period as the premiums
for the related direct insurance business assumed. The net earned
portion of premiums received is recognised as revenue. Premiums
are earned from the date of attachment of risk, over the indemnity
period, based on the pattern of risks underwritten. Outward
reinsurance premiums are recognised as an expense in accordance
with the pattern of indemnity received.

The provision for unearned premiums comprises the proportion of
premiums written which is estimated to be earned in subsequent
financial years, computed separately for each insurance contract
using a time proportionate basis or another suitable basis for
uneven risk contracts.

Claims incurred consist of claims and claims handling expenses
paid during the financial year together with the movement in the
provision for outstanding claims. Claims outstanding comprise
provisions for the Group’s estimate of the ultimate cost of settling
all claims incurred but unpaid at the balance sheet date whether
reported or not, and an appropriate risk margin.

A reserve in equity is made for the full amount of the contingency
reserve as required by the regulatory authorities in South Africa.
Transfers to and from this reserve are treated as appropriations of
retained earnings.

Leases

A lease is classified as a finance lease if it transfers substantially
all the risks and rewards incidental to ownership. All other leases
are classified as operating leases.

Where the Group enters into a service agreement as a supplier or
a customer that depends on the use of a specific asset, and conveys
the right to control the use of the specific asset, the arrangement
is assessed to determine whether it contains a lease. Once it has
been concluded that an arrangement contains a lease, it is assessed
against the criteria in IAS17 to determine if the arrangement should
be recognised as a finance lease or operating lease.

The land and buildings elements of a lease of land and buildings
are considered separately for the purposes of lease classification
unless it is impracticable to do so.

Lessee

Operating lease payments are recognised in the income statement
on a straight-line basis over the lease term.

Assets acquired in terms of finance leases are capitalised at the
lower of fair value or the present value of the minimum lease
payments at inception of the lease and depreciated over the lesser
of the useful life of the asset or the lease term. The capital element
of future obligations under the leases is included as a liability in
the balance sheet. Lease finance costs are amortised in the income
statement over the lease term using a constant periodic rate of interest.
Where a sale and leaseback transaction results in a

finance lease, any excess of sale proceeds over the carrying
amount is deferred and recognised in the income statement over
the term of the lease.

Lessor

Operating lease revenue is recognised in the income statement on
a straight-line basis over the lease term.

Assets held under a finance lease are recognised in the balance
sheet and presented as a receivable at an amount equal to the net
investment in the lease. The recognition of finance income is based
on a pattern reflecting a constant periodic rate of return on the net
investment in the finance lease.

Employee benefits

Post-employment benefits

The Group provides defined benefit and defined contribution plans
for the benefit of employees. These plans are funded by the
employees and the Group, taking into account recommendations
of the independent actuaries. The post-retirement telephone rebate
liability is unfunded.

Defined contribution plans

The Group’s funding of the defined contribution plans is charged
to employee expenses in the same year as the related service
is provided.

Defined benefit plans

The Group provides defined benefit plans for pension, retirement,
post-retirement medical aid benefits and telephone rebates to
qualifying employees. The Group’s net obligation in respect of
defined benefits is calculated separately for each plan by
estimating the amount of future benefits earned in return for
services rendered.

The amount recognised in the balance sheet represents the present
value of the defined benefit obligations, calculated by using the
projected unit credit method, as adjusted for unrecognised actuarial
gains and losses, unrecognised past service costs and reduced by
the fair value of the related plan assets. The amount of any surplus
recognised and reflected as deferred expenses is limited to
unrecognised actuarial losses and past service costs plus the present
value of available refunds and reductions in future contributions to
the plan. To the extent that there is uncertainty as to the
entitlement to the surplus, no asset is recognised. No gain is
recognised solely as a result of an actuarial loss or past service cost
in the current period and no loss is recognised solely as a result of
an actuarial gain or past service cost in the current period.

Actuarial gains and losses are recognised as employee expenses
when the cumulative unrecognised gains and losses for each
individual plan exceed 10% of the greater of the present value of
the Group’s obligation and the fair value of plan assets at the
beginning of the year. These gains or losses are amortised on a
straight-line basis over ten years for all the defined benefit plans,
except gains or losses related to the pensioners in the Telkom
Retirement Fund or unless the standard required faster recognition.
For the Telkom Retirement Fund pensioners, the cumulative
unrecognised actuarial gains and losses in excess of the 10%
corridor at the beginning of the year are recognised immediately.

F-19

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

F-20

Significant accounting policies (continued)

Employee benefits (continued)

Defined benefit plans (continued)

Past service costs are recognised immediately to the extent that the
benefits are vested, otherwise they are recognised on a straight-line
basis over the average period the benefits become vested.

Leave benefits

Annual leave is provided for over the period that the leave accrues
and is subject to a cap of 22 days.

Workforce reduction

Workforce reduction expenses are payable when employment is
terminated before the normal retirement age or when an
employee accepts voluntary redundancy in exchange for benefits.
Workforce reduction benefits are recognised when the entity is
demonstrably committed and it is probable that the expenses will
be incurred. In the case of an offer made to encourage voluntary
redundancy, the measurement of termination benefits is based
on the number of employees expected to accept the offer.

Deferred bonus incentives

Employees of the wholly owned subsidiaries of Vodacom, including
executive directors, are eligible for compensation benefits in the
form of a Deferred Bonus Incentive Scheme. The benefit is
recorded at the present value of the expected future cash outflows.

Share-based compensation

The grants of equity instruments, made to employees in terms of
the Telkom Conditional Share Plan, are classified as equity-settled
share-based payment transactions. The expense relating to the
services rendered by the employees, and the corresponding
increase in equity, is measured at the fair value of the equity
instruments at their date of grant based on the market price at
grant date, adjusted for the lack of entitlement to dividends during
the vesting period. This compensation cost is recognised over the
vesting period, based on the best available estimate at each
balance sheet date of the number of equity instruments that are
expected to vest.

Short-term employee benefits

The cost of all short-term employee benefits is recognised during
the year the employees render services, unless the Group uses
the services of employees in the construction of an asset and the
benefits received meet the recognition criteria of an asset, at which
stage it is included as part of the related property, plant and
equipment or intangible asset item.

Long-term incentive provision

The Vodacom Group provides long-term incentives to eligible
employees payable on termination or retirement. The Group’s
liability is based on an actuarial valuation. Actuarial gains and
losses are recognised as employee expenses.

Provisions

Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable
that an outflow of resources will be required to settle the
obligation, and a reliable estimate can be made of the amount of
the obligation. Provisions are reviewed at each balance sheet date
and adjusted to reflect the current best estimate. Where the effect
of the time value of money is material, the amount of the
provision is the present value of the expenditures expected to be
required to settle the obligation.

Segmental reporting

As of the beginning of the year the Group identified a new
segment called ‘Other’, and is now managed in three business
segments, which form the primary segment reporting basis: Fixed-
line, Mobile and Other. The Other business segment includes newly
acquired Multi-Links Telecommunications Limited and Africa Online
Limited, as well as the Telkom Media Group. It also includes
TDS Directory Operations Group and Swiftnet (Proprietary)
Limited, which were previously included in the Fixed-line segment.
The corporate information has also been updated to reflect the
above changes.

The Group’s three segments operate in South Africa, and other
African countries. The geographical location of the Group’s customers
has been identified as the secondary basis for segment reporting.

The Fixed-line business segment provides local telephony and
data, domestic and international long-distance services as well as
leased lines, data transmission and internet access.

The Mobile business segment provides mobile telephony services
as well as the sale of mobile equipment.

The Other business segment provides directory services, fixed,
mobile, data and international telecommunication services
throughout other African countries.

Inter-segment transactions are accounted for in the same way as
transactions to third parties at current market prices.

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Revenue

3.1 Total revenue

48,260

52,157

56,865

Operating revenue

47,625

51,619

56,285

Other income (excluding profit on disposal of property, plant and
equipment, intangible assets and investments, refer to note 4)

238

303

383

Investment income (refer to note 6)

397

235

197

3.2 Operating revenue

47,625

51,619

56,285

Fixed-line

31,832

32,345

32,572

Mobile

17,021

20,573

24,089

Other

952

979

1,993

Eliminations

(2,180)

(2,278)

(2,369)

Fixed-line

31,832

32,345

32,572

Subscriptions, connections and other usage

5,803

6,286

6,330

Traffic

17,563

16,740

15,950

Domestic (local and long distance)

8,915

7,563

6,328

Fixed-to-mobile

7,647

7,646

7,557

International (outgoing)

1,001

988

986

Subscription based calling plans *

–

543

1,079

Interconnection

1,654

1,639

1,757

Data

6,674

7,489

8,308

Sundry revenue

138

191

227

Mobile

17,021

20,573

24,089

Airtime and access

10,043

11,854

13,548

Data revenue

1,019

1,671

2,501

Interconnect revenue

3,348

3,918

4,443

Equipment sales

1,993

2,350

2,526

International airtime

486

653

918

Other

132

127

153

*The Group has reclassified calling plans from domestic traffic into a separate

revenue line item to disclose revenue earned from subscription based calling
plans. Amounts for the year ended March 31, 2006 were not restated as they
were considered to be immaterial.

Fixed-line revenue has been restated as a result of changes in the segment structure.

Other income

480

384

534

Other income (included in Total revenue, refer to note 3)

238

303

383

Interest received from trade receivables

136

190

257

Sundry income

102

113

126

Profit on disposal of property, plant and equipment and intangible assets

147

Profit on disposal of investment and subsidiary

163

The increase in profit on disposal of property, plant and equipment and intangible assets is due to the increased volumes and values on the
sale of Telkom properties in alignment with Telkom’s strategy of disposing of non-core assets.

2006

2007

2008

F-21

Operating expenses

Operating expenses comprise:

5.1 Employee expenses

7,489

8,454

9,220

Salaries and wages

5,566

6,362

7,144

Medical aid contributions

371

385

417

Retirement contributions

435

496

598

Post-retirement pension and retirement fund (refer to note 29)

(58)

Current service cost

Interest cost

364

329

509

Expected return on plan assets

(454)

(508)

(713)

Actuarial loss/(gain)

(136)

(16)

Settlement loss

–

(2)

Asset limitation

(50)

322

222

Post-retirement medical aid (refer to note 28 and 29)

361

330

278

Current service cost

Interest cost

249

286

322

Expected return on plan asset

–

(188)

(257)

Actuarial loss

149

129

Settlement loss

–

Curtailment gain

(6)

–

Telephone rebates (refer to note 28 and 29)

104

Current service cost

Interest cost

Past service cost

–

Actuarial loss

–

Share-based compensation expense (refer to note 23)

127

141

522

Other benefits*

1,288

1,299

1,015

Employee expenses capitalised

(620)

(696)

(786)

*Other benefits
Other benefits include skills development, annual leave, performance incentive
and service bonuses.

5.2 Payments to other operators

6,826

7,590

9,169

Payments to other network operators consist of expenses in respect of
interconnection with other network operators.

5.3 Selling, general and administrative expenses

10,273

12,902

14,409

Selling and administrative expenses

7,240

9,248

10,352

Maintenance

1,928

2,286

2,508

Marketing

899

1,215

1,249

Bad debts (refer to note 18)

206

153

300

2006

2007

2008

F-22

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Operating expenses (continued)

5.4 Service fees

2,114

2,291

2,571

Facilities and property management

1,110

1,142

1,228

Consultancy services

182

266

291

Security and other

772

821

982

Auditors’ remuneration

Audit services

Company auditors

Current year

Prior year underprovision

Other auditors – current year

Audit related services

–

Company auditors – current year

–

Other auditors

–

Other services

–

The increase in security costs is mainly attributable to Telkom’s drive to
minimise cable theft.

5.5 Operating leases

850

981

838

Land and buildings

221

284

170

Transmission and data lines

187

Equipment

Vehicles

509

554

431

5.6 Depreciation, amortisation, impairment and write-offs

5,876

5,315

6,130

Depreciation of property, plant and equipment (refer to note 10)

5,154

4,483

4,855

Amortisation of intangible assets (refer to note 11)

560

536

746

Impairment of property, plant and equipment and intangible assets
(refer to note 10 and 11)

–

244

Reversal of impairment of property, plant and equipment (refer to
note 10)

(26)

–

Write-offs of property, plant and equipment and intangible assets (refer

to note 10 and 11)

188

284

285

In recognition of the changed usage patterns of certain items of property, plant and equipment and intangible assets, the Group reviewed their
remaining useful lives as at March 31. The assets affected were certain items included in Network equipment, Support equipment, Furniture
and office equipment, Data processing equipment and software and Intangible assets. The revised estimated useful lives of these assets as set
out below, resulted in a decrease of the current year depreciation and amortisation charges of R198 million (2007: R983 million).

2006

2007

2008

F-23

Operating expenses (continued)

5.6 Depreciation, amortisation, impairment and write-offs (continued)

Property, plant and equipment

Network equipment

Switching equipment

5 – 18

2 – 18

Other

2 – 20

1 – 20

Support equipment

8 – 13

5 – 13

Furniture and office equipment

4 – 15

2 – 15

Data processing equipment and software

5 – 10

3 – 10

Intangible assets

Subscriber bases

3 – 8

4 – 10

Software

5 –10

2 – 10

2006

2007

2008

Investment income

397

235

197

Interest received

347

232

197

Dividends received from investments

–

Included in investment income is an amount of R169 million (2007:
R222 million; 2006: R347 million) which relates to interest earned from
financial assets not measured at fair value through profit or loss.

Finance charges and fair value movements

1,223

1,125

1,803

Finance charges on interest-bearing debt

1,346

1,327

1,885

Local debt

1,506

1,488

2,041

Foreign debt

–

Less: Finance costs capitalised

(169)

(161)

(175)

Foreign exchange gains and losses and fair value movement

(123)

(202)

(82)

Foreign exchange losses

246

114

Fair value adjustments on derivative instruments

(170)

(448)

(196)

Capitalisation rate

13.91%

14.77%

12.60%

During the year gains of R8 million (2007: RNil; 2006: RNil) from available-for-sale instruments were recognised directly in equity.

Included in finance charges is an amount of R1,831 million (2007: R1,321 million; 2006: R1,341 million) which relates to interest paid on
financial liabilities not measured at fair value through profit or loss.

Previous life

Revised life

Years

F-24

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Taxation

4,523

4,731

4,704

South African normal company taxation

3,763

3,528

3,756

Current tax

3,754

3,564

3,764

Underprovision/(overprovision) for prior year

(36)

(8)

Deferred taxation

173

516

219

Temporary differences – normal company taxation

229

584

141

Temporary difference – Secondary Taxation on Companies (‘STC’) tax
credits utilised/(raised)

(69)

190

Change in tax rate

–

(59)

(Overprovision)/underprovision for prior year

(107)

(53)

Secondary Taxation on Companies

585

670

678

Foreign taxation

The net deferred taxation expense results mainly from the extension of
useful lives, offset slightly by an increase in the STC tax credits.

The STC expense was provided for at a rate of 10% (12.5% before
October 1, 2007) on the amount by which dividends declared exceeded
dividends received. Deferred tax expense relating to STC credits are
provided for at a rate of 10%.

% % %

Reconciliation of taxation rate

Effective rate

32.7

34.9

36.5

South African normal rate of taxation

29.0

Adjusted for:

3.7

5.8

7.5

Change in tax rate

–

(0.5)

Exempt income

(1.3)

(0.2)

(0.5)

Disallowable expenditure

0.9

1.2

2.9

Tax losses not utilised

0.6

–

(0.7)

STC tax credits utilised/(raised)

0.4

(0.3)

1.5

STC tax charge

4.2

4.9

5.3

Capital gains tax

–

0.8

–

Net overprovision for prior year

(1.1)

(0.5)

Utilisation of assessed loss

–

(0.1)

–

Where required, provisions have been made or adjusted for anticipated obligations related to various ongoing investigations by tax authorities
on indirect taxes. The provisions made include estimates of anticipated interest and penalties where appropriate. As of March 31, 2008, the
Group has accrued for tax obligations in the amount of RNil million (2007: RNil; 2006: R199 million). These amounts represent what
management believes will be the probable outcome of such disputes for all tax years for which additional taxes can be assessed.

F-25

2006

2007

2008

Earnings per share
Basic earnings per share (cents)

1,746.1

1,681.0

1,565.0

The calculation of earnings per share is based on profit attributable to
equity holders of Telkom for the year of R7,975 million (2007: R8,646
million; 2006: R9,189 million) and 509,595,092 (2007:
514,341,284; 2006: 526,271,095) weighted average number of
ordinary shares in issue.

Diluted earnings per share (cents)

1,736.6

1,676.3

1,546.9

The calculation of diluted earnings per share is based on earnings for the
year of R7,975 million (2007: R8,646 million; 2006: R9,189 million)
and 515,541,968 diluted weighted average number of ordinary shares
(2007: 515,763,581; 2006: 529,152,320). The adjustment in the
weighted average number of shares is as a result of the expected future
vesting of shares already allocated to employees under the Telkom
Conditional Share Plan.

Headline earnings per share (cents)*

1,728.6

1,710.7

1,634.8

The calculation of headline earnings per share is based on headline
earnings of R8,331 million (2007: R8,799 million; 2006: R9,097 million)
and 509,595,092 (2007: 514,341,284; 2006: 526,271,095)
weighted average number of ordinary shares in issue.

Diluted headline earnings per share (cents)*

1,719.2

1,706.0

1,616.0

The calculation of diluted headline earnings per share is based on headline
earnings of R8,331 million (2007: R8,799 million; 2006: R9,097 million)
and 515,541,968 (2007: 515,763,581; 2006: 529,152,320)
diluted weighted average number of ordinary shares in issue. The
adjustment in the weighted average number of shares is as a result of
the expected future vesting of shares already allocated to employees
under the Telkom Conditional Share Plan.

Reconciliation of weighted average number of ordinary shares:
Ordinary shares in issue (refer to note 21)

557,031,821

544,944,901

532,855,530

Weighted average number of shares bought back

(7,211,710)

(7,442,253)

(1,594,241)

Weighted average number of treasury shares

(23,549,016)

(23,161,364)

(21,666,197)

Weighted average number of shares outstanding

526,271,095

514,341,284

509,595,092

*The disclosure of headline earnings is a requirement of the JSE Limited and is not a recognised measure under IFRS. It has been calculated in accordance with the South African Institute of Chartered Accountants’ circular issued in this regard.

The effect of the increase in the interest expense as a result of the increase in borrowings is a reduction in the basic earnings per share of 63.4 cents and a reduction in headline earnings per share of 62.7 cents.

2006

2007

2008

F-26

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Earnings per share (continued)

2008

Reconciliation between earnings and headline earnings:

Earnings as reported

7,975

Profit on disposal of investments (Available-for-sale)

(4)

(3)

Profit on disposal of property, plant and equipment and intangible assets

(147)

(104)

Impairment loss on property, plant and equipment and intangible assets

248

244

Write-offs of property, plant and equipment and intangible assets

285

219

Headline earnings

8,331

2007

Reconciliation between earnings and headline earnings:

Earnings as reported

8,646

Profit on disposal of investments (Available-for-sale)

(52)

(37)

Profit on disposal of property, plant and equipment and intangible assets

(29)

(21)

Impairment loss on property, plant and equipment and intangible assets

Write-offs of property, plant and equipment and intangible assets

284

202

Headline earnings

8,799

2006

Reconciliation between earnings and headline earnings:

Earnings as reported

9,189

Profit on disposal of investments (Available-for-sale)

(163)

(116)

Profit on disposal of property, plant and equipment and intangible assets

(79)

(56)

Reversal of impairment loss on property, plant and equipment and intangible assets

(26)

(18)

Write-offs of property, plant and equipment and intangible assets

188

133

Acquisition of subsidiary

(35)

Headline earnings

9,097

*These are the gross amounts, before deducting taxation and minority interests.

2006

2007

2008

Reconciliation of diluted weighted average number
of ordinary shares :

Weighted average number of share outstanding

526,271,095

514,341,284

509,595,092

Expected future vesting of shares

2,881,225

1,422,297

5,946,876

Dilluted weighted average number of shares outstanding

529,152,320

515,763,581

515,541,968

Dividend per share (cents)

900.0

1,100.0

The calculation of dividend per share is based on dividends of R5,627 million (2007: R4,678 million; 2006: R4,801 million) declared on
June 8, 2007 and 511,513,239 (2007: 519,711,238; 2006: 533,465,573) number of ordinary shares outstanding on the date of
dividend declaration. The reduction in the number of shares represents the number of treasury shares held on date of payment.

F-27

Gross*

Net

2006

2007

2008

Accumulated

Carrying Accumulated

Carrying

Accumulated

Carrying

Cost depreciation

value

Cost depreciation

value

Cost depreciation

value

10. Property, plant and

equipment

Freehold land and buildings

4,510

(1,811)

2,699

4,594

(1,837)

2,757

4,931

(2,010)

2,921

Leasehold buildings

940

(322)

618

926

(362)

564

1,052

(418)

634

Network equipment

59,418

(30,477) 28,941

63,003

(31,820) 31,183

69,572

(35,214) 34,358

Support equipment

3,740

(2,419)

1,321

4,045

(2,436)

1,609

4,355

(2,635)

1,720

Furniture and office
equipment

469

(335)

134

536

(366)

170

568

(377)

191

Data processing equipment
and software

5,612

(3,530)

2,082

5,836

(3,707)

2,129

6,279

(3,904)

2,375

Under construction

1,320

–

1,320

2,536

–

2,536

4,200

–

4,200

Other

552

(393)

159

860

(554)

306

1,046

(630)

416

76,561

(39,287) 37,274

82,336

(41,082) 41,254

92,003

(45,188) 46,815

A major portion of this capital expenditure relates to the expansion of existing networks and services. An extensive build program with focus
on Next Generation Network technologies has resulted in an increase in property, plant and equipment additions which is expected to continue
over the next few years.

Fully depreciated assets with a cost of R498 million (2007: R1,225 million; 2006: R3,724 million) were derecognised in the 2008 financial
year. This has reduced both the cost price and accumulated depreciation of property, plant and equipment.

Property, plant and equipment with a carrying value of R681 million (2007: R575 million; 2006: R624 million) are pledged as security. Details
of the loans are disclosed in note 27.

The carrying amounts of property, plant and equipment can be reconciled as follows:

Impair-

Carrying Foreign

ment,

Carrying

value at

Business

currency write-offs

value at

beginning combi-

trans-

and

Depre-

end

of year

Additions

nations

Transfers

lation

reversals

Disposals

ciation

year

2008

Freehold land and buildings

2,757

300

(3)

(8)

(176)

2,921

Leasehold buildings

564

136

(67)

(1)

(57)

634

Network equipment

31,183

5,167

404

1,301

272

(136)

(107)

(3,726) 34,358

Support equipment

1,609

316

116

(8)

–

(317)

1,720

Furniture and office equipment

170

(8)

(1)

(53)

191

Data processing equipment and
software

2,129

525

150

(19)

(2)

(445)

2,375

Under construction

2,536

3,416

135

(1,737)

(152)

–

4,200

Other

306

170

(2)

(3)

(81)

416

41,254

10,108

630

(99)

294

(395)

(122)

(4,855) 46,815

F-28

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

10. Property, plant and

equipment (continued)

2007

Freehold land and buildings

2,699

209

–

(1)

(169)

2,757

Leasehold buildings

618

–

(14)

(41)

564

Network equipment

28,941

5,154

849

240

(199)

(270)

(3,533) 31,183

Support equipment

1,321

442

–

109

(15)

–

(250)

1,609

Furniture and office equipment

134

–

(27)

170

Data processing equipment
and software

2,082

466

(36)

(10)

(2)

(391)

2,129

Under construction

1,320

2,165

–

(912)

–

(37)

–

2,536

Other

159

161

–

(1)

(3)

(72)

306

37,274

8,648

257

(245)

(290)

(4,483) 41,254

2006

Freehold land and buildings

2,665

105

–

174

–

(22)

(21)

(202)

2,699

Leasehold buildings

618

–

(1)

–

(74)

618

Network equipment

28,336

2,622

–

2,228

(122)

(49)

(21)

(4,053) 28,941

Support equipment

1,355

130

–

106

(1)

(6)

(5)

(258)

1,321

Furniture and office equipment

155

–

(44)

134

Data processing equipment
and software

2,035

381

153

(2)

(10)

(1)

(475)

2,082

Under construction

1,084

2,933

–

(2,622)

–

(75)

–

1,320

Other

200

–

(29)

(1)

–

(8)

(48)

159

36,448

6,310

(126)

(162)

(56)

(5,154) 37,274

Full details of land and buildings are available for inspection at the registered offices of the Group.

In March 2006 the Group started a process of determining whether an asset which incorporates both a tangible and an intangible element, should
be recognised as tangible or intangible assets, based on management judgement and on facts available and the significance of each element to
the total value of the asset. This ongoing process has resulted in further assets with a carrying value to the net amount of R99 million (2007:
R77 million ; 2006: R13 million) being reclassified between intangible assets and property, plant and equipment in the current year.

The Group does not have temporary idle property, plant and equipment.

During the current year, the Group recognised an impairment loss relating to Telkom Media assets. The recoverable amount for certain items
of property, plant and equipment and intangible assets were estimated, and an impairment loss of R217 million was recognised in order
to reduce the carrying amount of those assets to their recoverable amount. The impairment has been included in impairment, write-offs
and reversals.

Impair-

Carrying

Foreign

ment,

Carrying

value at

Business

currency write-offs

value at

beginning combi-

trans-

and

Depre-

end

of year

Additions

nations

Transfers

lation

reversals

Disposals

ciation

year

F-29

11. Intangible assets

Goodwill

305

–

305

673

–

673

3,255

–

3,255

Trademarks, copyrights
and other

685

(472)

213

761

(521)

240

1,127

(633)

494

Licences

155

(95)

222

(116)

106

311

(140)

171

Software

5,607

(3,338)

2,269

6,720

(3,737)

2,983

8,106

(4,298)

3,808

Under construction

1,063

–

1,063

1,109

–

1,109

740

–

740

7,815

(3,905)

3,910

9,485

(4,374)

5,111

13,539

(5,071)

8,468

The carrying amounts of intangible assets can be reconciled as follows:

Carrying

Foreign

Impair-

Carrying

value at

Business

currency

ment

value at

beginning combi-

trans-

and

Dis-

Amorti-

end

of year Additions

nations

Transfers

lation write-offs

posals

sation

year

2008

Goodwill

673

492

1,727

–

375

(12)

–

3,255

Trademarks, copyrights and other

240

174

165

–

(105)

494

Licences

106

–

(3)

–

(15)

171

Software

2,983

739

–

713

(10)

–

(626)

3,808

Under construction

1,109

354

–

(614)

–

(109)

–

740

5,111

1,791

1,928

419

(134)

–

(746)

8,468

2007

Goodwill

305

186

173

–

673

Trademarks, copyrights and other

213

–

(50)

240

Licences

–

(10)

106

Software

2,269

628

–

559

(4)

–

(476)

2,983

Under construction

1,063

729

–

(636)

–

(47)

–

1,109

3,910

1,598

243

(77)

(51)

–

(536)

5,111

2006

Goodwill

269

–

(1)

–

305

Trademarks, copyrights and other

199

–

(81)

213

Licences

–

(1)

–

(4)

Software

1,745

219

–

801

(2)

–

(19)

(475)

2,269

Under construction

905

974

–

(816)

–

1,063

3,182

1,196

128

(13)

(4)

–

(19)

(560)

3,910

Intangible assets that are material to the Group consist of Software and Goodwill. The average remaining amortisation period for Software is
between 2 and 10 years.

Telkom

Goodwill has been allocated for impairment testing purposes to twelve cash-generating units of which one in South Africa, one in Nigeria being
Multi-Links Telecommunications Limited and ten being Africa Online Limited in Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland,
Tanzania, Uganda, Zambia, operations (Mauritius) and Zimbabwe.

2006

2007

2008

Accumulated

Carrying Accumulated

Carrying

Accumulated

Carrying

Cost amortisation

value

Cost amortisation

value

Cost amortisation

value

F-30

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

11. Intangible assets (continued)

Nigeria

The carrying amount of goodwill is R2,072 million.

The recoverable amount for Multi-Links Telecommunications Limited ('Multi-Links') has been determined on the basis of a value in use calculation. The value in use calculation uses cash flow projections and a discount rate of 18.43%. It was concluded that Multi-Links is not impaired. The valuation was based on cash flow projections based on financial budgets approved by management covering a ten year period and a 1% terminal growth rate was used. A ten year period was used as the expected growth rates are in excess of the long-term average growth rates beyond a five year period.

Kenya

The carrying amount of goodwill is R155 million.

The recoverable amounts of goodwill relating to Africa Online Limited have been determined on the basis of value in use calculations. Goodwill
was only tested against the three cash-generating units namely; Kenya, Tanzania and Ghana, which amongst them share 82% of the total
goodwill per the allocation. The value in use calculations use cash flow projections and a discount at a rate of 11.59% in US Dollar terms. It
was determined that goodwill associated with two cash-generating units; Tanzania and Ghana was impaired. The value in use calculations use
cash flow projections based on financial budgets covering a three year period and a terminal growth rate of 0% was used.

By the Group’s 50% joint venture, Vodacom

Goodwill has been allocated for impairment testing purposes to six cash-generating units of which four are in South Africa, one in the Democratic
Republic of the Congo and one in Tanzania.

South Africa

The carrying amount of goodwill is R1,739 million (Group share: R870 million).

The recoverable amounts of goodwill relating to Vodacom Service Provider Company (Proprietary) Limited, Smartphone SP (Proprietary)
Limited, Smartcom (Proprietary) Limited and Cointel VAS (Proprietary) Limited have been determined on the basis of value in use calculations.
These companies operate in the same economic environment for which the same key assumptions were used. These value in use calculations
use cash flow projections based on financial budgets approved by management covering a ten year period and discount rates of between
12.0% and 15.0% in South African Rand terms. The terminal growth rate applicable is between 4.0% and 6.0%. Management believes that
any reasonable change in any of these key assumptions would not cause the aggregate carrying amount of these companies to exceed the
aggregate recoverable amount of these units.

Democratic Republic of Congo

The carrying amount of goodwill is R148 million (Group share: R74 million).

The recoverable amount of this cash-generating unit was based on a value in use calculation for Vodacom Congo (RDC) s.p.r.l. The calculation
uses cash flow projections based on financial budgets approved by management covering a ten year period and a discount rate which ranged
between 16.0% and 19.0% in US Dollar terms. Cash flows beyond this period have been extrapolated using annual nominal growth rates which
ranged between 2.0% and 5.0%. A ten year period is used where expected growth rates are in excess of the long-term average growth rates
beyond an initial five year period, for the markets in which they operate. Management believes that any reasonable possible change in the
key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed its recoverable amount.

Key assumptions used in the testing of goodwill for impairment:

Applicable to all cash-generating units

Expected customer base: The basis for determining value(s) assigned to key assumptions is based on the closing customer base in the period
immediately preceding the budget period and increased for expected growth. The value assigned to key assumptions reflects past experience,
and has an element of potential growth. The growth is based on market assumptions.

Gross Margin: The basis for determining value(s) assigned to key assumptions is based on the average gross margin achieved in the
period immediately before the budget period and increased to expected efficiencies. The value assigned reflects past experience and
efficiency improvements.

Capital expenditure: The basis for determining value(s) assigned to key assumptions is based on the total capital expenditure achieved
in the period immediately before the budget period and adjusted for expected network coverage roll out. The value assigned is based on
management’s expected network coverage roll out.

Applicable to all cash-generating units except for the Africa Online cash-generating units

ARPU: The basis for determining value(s) assigned to key assumptions is based on past experience and expected growth which is based on
market forces and external sources of information.

Applicable to all non South African cash-generating units

Exchange rates: The basis for determining value(s) assigned to key assumptions is based on the average market forward exchange rate over
the budget period in respect of the ZAR/USD. The value assigned to the key assumption is consistent with external sources of information.

F-31

12. Financial instruments and risk management

Exposure to continuously changing market conditions has made management of financial risk critical for the Group. Treasury policies, risk limits
and control procedures are continuously monitored by the Board of Directors through its audit and risk management committee.

The Group holds or issues financial instruments to finance its operations, for the temporary investment of short-term funds and to manage currency
and interest rate risks. In addition, financial instruments for example trade receivables and payables arise directly from the Group’s operations.

The Group finances its operations primarily by a mixture of issued share capital, retained earnings, long-term and short-term loans. The Group
uses derivative financial instruments to manage its exposure to market risks from changes in interest and foreign exchange rates. The derivatives
used for this purpose are principally interest rate swaps, currency swaps and forward exchange contracts. The Group does not speculate in
derivative instruments.

The table below sets out the Group’s classification of financial assets and liabilities

At fair value

Financial

through profit

liabilities

or loss

Total

held for amortised

Held-to-

Available-

Loans and

carrying

Fair

trading

cost

maturity

for-sale receivables

value

Notes

2008

Classes of financial instruments
per Balance Sheet
Assets

1,991

–

372

9,783

12,201

Investments

1,377 – –

1,499

Trade and other receivables*

18 – – – –

8,582

Other financial assets

614

–

614

Interest rate swaps

Other financial assets 19 16 – – – – 16 16

9 – – – –

Forward exchange contracts

589 – – – –

589

Finance lease receivables

15 – –

372 – –

372

Cash and cash equivalents

20 – – – –

1,134

Liabilities

(1,290)

(25,846)

–

(27,136)

(27,672)

Interest-bearing debt

27 –

(15,733) – – –

(15,733)

(16,296)

Trade and other payables

30 –

(8,771) – – –

(8,771)

Other financial liabilities

(1,290)

–

(1,290)

Put option (Multi-Links)

(919) – – – –

(919)

Put option (Vodacom DRC)

(198) – – – –

(198)

Forward exchange contracts

(173) – – – –

(173)

Credit facilities utilised

20 –

(1,342) – – –

(1,342)

F-32

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and

risk management (continued)

2007

Classes of financial instruments
per Balance Sheet
Assets

1,608

–

246

7,861

9,762

Investments

1,349 – –

1,461

Trade and other receivables*

7,047

Other financial assets

259

–

259

Bills of exchange

98 – – – –

Interest rate swaps

16 – – – –

Forward exchange contracts

145 – – – –

145

Finance lease receivables

15 – –

246 – –

246

Cash and cash equivalents

749

Liabilities

(327)

(17,944)

–

(18,271)

(19,661)

Interest-bearing debt

(98)

(10,266) – – –

(10,364)

(11,754)

Trade and other payables

30 –

(7,237) – – –

(7,237)

Other financial liabilities

(229)

–

(229)

Put option (Vodacom DRC)

(125) – – – –

(125)

Other financial liabilities

(36) – – – –

(36)

Forward exchange contracts

(42) – – – –

(42)

Interest rate swaps

(26) – – – –

(26)

Credit facilities utilised

20 –

(441) – – –

(441)

2006

Classes of financial instruments
per Balance Sheet
Assets

3,149

–

11,269

14,418

Investments

2,874 – –

–

2,963

Trade and other receivables*

18 – – – –

6,232

Other financial assets

275

–

275

Bills of exchange

107 – – – –

107

Interest rate swaps

19 – – – –

Forward exchange contracts

149 – – – –

149

Cash and cash equivalents

20 – – – –

4,948

Liabilities

(343)

(17,811)

–

(18,154)

(20,180)

Interest-bearing debt

(108)

(11,015) – – –

(11,123)

(13,149)

Trade and other payables

30 –

(6,103) – – –

(6,103)

Other financial liabilities

(235)

–

(235)

Forward exchange contracts

(130) – – – –

(130)

Interest rate swaps

(105) – – – –

(105)

Credit facilities utilised

20 –

(693) – – ––

(693)

* Trade and other receivables are disclosed net of prepayments of R404 million (2007: R256 million; 2006: R167 million).

F-33

At fair value

Financial

through profit

liabilities

or loss

Total

held for amortised

Held-to-

Available-

Loans and

carrying

Fair

trading

cost

maturity

for-sale receivables

value

Notes

12. Financial instruments and risk management (continued)

12.1 Fair value of financial instruments

Fair value of all financial instruments noted in the balance sheet approximates carrying value except as disclosed below.

The estimated net fair values as at March 31, 2008, have been determined using available market information and appropriate valuation
methodologies as outlined below. This value is not necessarily indicative of the amounts that the Group could realise in the normal course of
business.

Derivates are recognised at fair value. The fair value of derivatives approximate their carrying amounts.

The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their carrying
amount due to the short-term maturities of these instruments.

The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future payments
discounted at market interest rates.

The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cash flow analysis is used.
These amounts reflect the approximate values of the net derivative position at the balance sheet date. The fair values of listed investments
are based on quoted market prices.

12.2 Interest rate risk management

Interest rate risk arises from the repricing of the Group’s forward cover and floating rate debt as well as incremental funding or new borrowings
and the refinancing of existing borrowings.

The Group’s policy is to manage interest cost through the utilisation of a mix of fixed and floating rate debt. In order to manage this mix in a
cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated peak
additional borrowings, the Group makes use of interest rate derivatives as approved in terms of the Group policy limits. Fixed rate debt
represents approximately 51.88% (2007: 90.37%; 2006: 92.04%) of the total debt. There were no material changes in the policies and processes
for managing and measuring interest rate risk in the 2008 financial year.

The table below summarises the interest rate swaps outstanding as at March 31:

Notional

Weighted

Average

amount

average

maturity

Currency

coupon rate

2008

Interest rate swaps outstanding
Receive fixed

<1 year

ZAR

13.62%

1-5 years

ZAR

13.30%

>5 years

ZAR

–

2007

Interest rate swaps outstanding
Pay fixed

< 1 year

ZAR

1,000

14.67%

Receive fixed

1-5 years

ZAR

11.45%

>5 years

ZAR

11.44%

2006

Interest rate swaps outstanding
Pay fixed

< 1 year

ZAR

1,000

14.67%

Receive fixed

1-5 years

ZAR

9.15%

>5 years

ZAR

9.43%

Pay fixed

The floating rate is based on the three month JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage interest
rate risk on debt instruments.

Receive fixed

The Group swapped its fixed rate for a floating rate linked to the BA (Banker’s Acceptance) rate plus a margin of between 2% and 2.25%.

F-34

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued)

12.3 Credit risk management

Credit risk arises from derivative contracts entered into with financial institutions with a range of A1 or better. The Group is not exposed to
significant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Group from counterparties
is a net favourable position of R438 million (2007:R144 million; 2006: R158 million). No collateral is required when entering into derivative
contracts. Credit limits are reviewed on an annual basis or when information becomes available in the market. The Group limits the exposure
to any counterparty and exposures are monitored daily. The Group expects that all counterparties will meet their obligations.

With respect to credit risk arising from other financial assets of the Group, which comprises held-to-maturity investments, financial assets held
at fair value through profit or loss, loans and receivables and available-for-sale assets, the Group’s exposure to credit risk arises from a potential
default by counterparty, with a maximum exposure equal to the carrying amount of these instruments.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management seeks to reduce the
risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counter party failure, limits
are set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large widespread customer
base, covering residential, business, government, wholesale, global and corporate customer profiles.

Credit checks are performed on all customers, other than prepaid customers, on application for new services on an ongoing basis where appropriate.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.
The collective loss allowance is determined based on historical data of payment statistics for similar financial assets as well as expected future
cash flows.

The Group has provided a financial guarantee to Africa Online Limited for bank loans. At March 31, 2008 there was R23 million (2007: RNil)
outstanding. For Vodacom’s exposure to guarantees refer to note 36.

Telkom guarantees a certain portion of employees’s housing loans. The amount guaranteed differs depending on facts such as employment
period and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before any
pension payout can be made to the employee. There is no provsision outstanding in respect of these contingencies. The fair value of the
guarantee at March 31, 2008 was RNil (2007: RNil; 2006: RNil).

There were no material changes in the exposure to credit risk and its objectives, policies and processes for managing and measuring the risk during the 2008 financial year.

The carrying amount of financial assets represents the maximum credit exposure.

The maximum exposure to credit risk for trade and other receivables at the reporting date by type of customer was:

* Other receivables are disclosed net of prepayments of R404 million (2007: R256 million; 2006: R167 million)

Carrying amount

2006

2007

2008

Business and residential

1,955

1,924

1,824

Global, corporate and wholesale

1,381

1,643

1,875

Government

369

318

368

Other customers

334

Fixed-line

3,740

3,926

4,401

Mobile

1,834

2,299

2,880

Other

514

567

704

Impairment of trade receivables

(290)

(235)

(290)

Subtotal for trade receivables

5,798

6,557

7,695

Other receivables*

434

490

887

Investments and loans receivable

2,963

1,461

1,499

Other financial assets

275

259

614

9,470

8,767

10,695

The ageing of trade receivables at the reporting date was:
Not past due/current

5,342

5,829

6,840

Ageing of past due but not impaired
21 to 60 days

217

331

384

61 to 90 days

110

91 to 120 days

120+ days

173

258

290

5,798

6,557

7,695

F-35

12. Financial instruments and risk management (continued)

12.3 Credit risk management (continued)

The ageing in the allowance for the impairment of trade receivables at
reporting date was:

Fixed-line and Other

Current defaulted trade

21 to 60 days

61 to 90 days

91 to 120 days

120+ days

138

118

121

248

197

249

Mobile

290

235

290

The average credit period for March 2008, 2007 and 2006 on sales of goods and services is between 30 and 60 days from date of invoice
for the South African operations and between 20 and 75 days from the date of invoice for the non-South African operations. Generally no interest
is charged on trade receivables. Mobile operations have provided fully for all receivables over 120 days due for their South African operations
and 90 days due for their non-South African operations because historical experience is such that receivables that are due beyond these days
are generally not recoverable. Trade receivables of the South African operations due between 60 and 120 days are provided for based on
estimated irrecoverable amounts, determined by reference to past default experience.

The movement in the allowance for impairment in respect of trade receivables during the year is disclosed in note 18.

Included in the allowance for doubtful debts, for fixed-line are individually impaired receivables with a balance of R32 million (2007: R49 million;
2006: R55 million) which have been identified as being unable to service their debt obligation. The impairment recognised represents the
difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group does
not hold any collateral over these balances except for Mobile which holds collateral for financial assets past due but not impared to the value
of R1,086 million (2007: R796 million; 2006: R433 million) (Group share: R543 million; 2007: R398 million; 2006: R217 million).

12.4 Liquidity risk management

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is exposed to liquidity risk
as a result of uncertain trade receivable related to cash flows as well as capital commitments of the Group. Liquidity risk is managed by the
Group’s various Corporate Finance divisions in accordance with policies and guidelines formulated by the Group’s Executive Committees. In terms
of its borrowing requirements the Group ensures that sufficient facilities exist to meet its immediate obligations. In terms of its long-term
liquidity risk, the Group maintains a reasonable balance between the period over which assets generate funds and the period over which the
respective assets are funded. Short-term liquidity gaps may be funded through repurchase agreements and commercial paper bills.

There were no material changes in the exposure to liquidity risk and its objectives, policies and processes for managing and measuring the risk
during the 2008 financial year.

2006

2007

2008

F-36

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued)

12.4 Liquidity risk management (continued)

The table below analyses the Group’s financial liabilities which will be settled on a gross basis into relevant maturity groupings based on the
remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the contractual
undiscounted cash flows.

Carrying Contractual

0 – 12

1 – 2

2 – 5

> 5

Note

amount cash flows

months

years

2008

Non-derivative financial liabilities

Finance lease liabilities*

1,167

2,198

165

294

589

1,150

Interest -bearing debt (excluding finance leases)

14,566

16,672

6,350

4,835

2,733

2,754

Trade and other payables

8,771

8,771 – – –

Bank borrowings

1,342

1,342 – – –

Derivative financial liabilities

Put option (Multi-Links)

919

919 –

919 – –

Put option (Vodacom DRC)

198

198 – – –

Forward exchange contracts

173

173 – – –

27,136

30,273

16,999

6,048

3,322

3,904

2007

Non-derivative financial liabilities

Finance lease liabilities*

1,220

2,424

231

276

585

1,332

Interest -bearing debt (excluding finance leases)

9,144

11,329

6,133

2,551

2,644

Trade and other payables

7,237

7,237 – – –

Bank borrowings

441

441 – – –

Derivative financial liabilities

Put option (Vodacom DRC)

125

125 – – –

Interest rate swaps

26 – – –

Forward exchange contracts

42 – – –

Other financial liability

36 – – –

18,271

21,660

14,271

277

3,136

3,976

2006

Non-derivative financial liabilities

Finance lease liabilities*

1,272

2,644

217

236

672

1,519

Interest -bearing debt (excluding finance leases)

9,851

12,415

3,425

4,581

1,792

2,617

Trade and other payables

6,103

6,103 – – –

Bank borrowings

693

693 – – –

Derivative financial liabilities

Forward exchange contracts

130

130 – – –

Interest rate swaps

105

–

105 – –

18,154

22,090

10,568

4,922

2,464

4,136

*For details on minimum lease payments refer to note 37

F-37

12. Financial instruments and risk management (continued)

12.4 Liquidity risk management continued)

Put and call options

In terms of various shareholders’ agreements, put and call options exist for the acquisition of shares in the following companies:

Call options

Period

VM, S.A.R.L call option

Four years from August 23, 2003. Replaced with a new option for a period of 5 years after April 1, 2007.

The Somnium Family Trust

The Trust granted Vodacom Ventures (Proprietary) Limited a call option to purchase such number of
shares in Gogga Tracking Solutions (Proprietary) Limited from the Trust totalling 23% of the issued
share capital of the company on the date upon which the option is exercised. The option will lapse
after 36 months following the month in which the triggering events, as stipulated in the option
agreement, occurs. The option price is specified in the option agreement.

WBS Holdings (Proprietary) Limited

Until February 27, 2009, subject to fulfilment of conditions, which will result in the Group holding and

beneficially owning in aggregate 25.5% of the total issued ordinary share capital.

G-Mobile Holdings Limited

Irrevocable call option to subscribe for such number of further shares as specified in the agreement.
The option was exercised on September 20, 2007.

Put Options

Multi-Links Telecommunications

The minorities have been granted a put option that requires Telkom to purchase all of the minorities’

Limited

shares. The put option is exercisable within 90 days of the second anniversary of signing of the sale
agreement, being May 1, 2009. A liability of R919 million has been recognised in this regard and is
included in other non-current financial liabilities. R661 million was initially recognised in equity and
R258 million subsequent re-measurement through finance charges and fair value movements.

Smartphone SP (Proprietary) Limited

This put option was cancelled with the acquisition of the minorities of Smartphone SP (Proprietary) Limited.

Smartcom (Proprietary) Limited

This put option was cancelled with the acquisition of the minorities of Smartcom (Proprietary) Limited.

Congolese Wireless Network s.p.r.l.

Maximum 8 years after December 1, 2001. The option liability had a value of R397 million (2007:
R249 million; 2006: RNil) (Group share: R198 million; 2007: R125 million; 2006: RNil) as at
March 31, 2008.

Except as separately disclosed, none of the above put and call options have any value at any of the periods presented.

12.5 Insurance risk management

Vodacom is exposed to insurance risk as a result of its asset base as well as its customer commitments. In terms of its insurance risk profile
the company ensures that there is adequate insurance cover through the utilisation of a special purpose insurance vehicle.

F-38

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued)

12.6 Foreign currency exchange rate risk management

The Group manages its foreign currency exchange rate risk by economically hedging all identifiable exposures via various financial instruments
suitable to the Group’s risk exposure.

Forward exchange contracts have been entered into to reduce the foreign currency exposure on the Group’s operations and liabilities. The Group
also enters into forward foreign exchange contracts to economically hedge interest expense and purchase and sale commitments denominated
in foreign currencies (primarily United States Dollars and Euros). The purpose of the Group’s foreign currency hedging activities is to protect
the Group from the risk that the eventual net flows will be adversely affected by changes in exchange rates.

There were no material changes in the exposure to foreign currency exchange rate risk and its objectives, policies and processes for managing and
measuring the risk during the 2008 financial year.

The following table details the foreign exchange forward contracts outstanding at year end:

Foreign contract value

Forward value

Fair value

To buy

2008

Currency

USD

139

1,042

109

Euro

252

2,826

444

Pound Sterling

281

Other

4,181

2007

Currency

USD

181

1,329

(1)

Euro

196

1,899

Pound Sterling

261

Other 66 49 (1)

3,538

2006

Currency

USD

178

1,157

(51)

Euro

156

1,235

(46)

Pound Sterling

321

(21)

Other

(1)

2,761

F-39

F-40

Foreign contract value

Forward value

Fair value

To sell

12. Financial instruments and risk management (continued)

12.6 Foreign currency exchange rate risk management (continued)

2008

Currency

USD

596

(68)

Euro

848

(103)

Pound Sterling

(1)

Other 17 22 (1)

1,555

2007

Currency

USD

122

994

Euro

505

(5)

Pound Sterling

(1)

Other

–

1,567

2006

Currency

USD

128

954

140

Euro

309

(3)

Pound Sterling

Other

–

1,342

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued)

12.6 Foreign currency exchange rate risk management (continued)

The Group has various monetary assets and liabilities in currencies other than the Group’s functional currency. The following table represents
the net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Group according to the different
foreign currencies.

South

United

African

Pound

States

Rand

Euro

Sterling

Dollar

Other

2008

Net foreign currency monetary assets/(liabilities)

Functional currency of company operation

ZAR

–

481

(133)

224

(13)

USD

–

(17)

Naira

–

(446)

–

2007

Net foreign currency monetary assets/(liabilities)

Functional currency of company operation

ZAR

–

475

(166)

159

USD

(25)

–

(17)

2006

Net foreign currency monetary assets/(liabilities)

Functional currency of company operation

ZAR

–

376

(165)

USD

(28)

(13)

–

Currency swaps

There were no currency swaps in place at March 31, 2008, 2007 and 2006.

12.7 Sensitivity analysis

Interest rate risk

The sensitivity analyses below have been determined based on the exposure to interest rates for derivatives and other financial liabilities at
the balance sheet date. A 100 basis point increase or decrease is used when reporting interest rate risk and represents management’s
assessment of the reasonably possible change in interest rates.

If interest rates had been 100 basis points higher/lower and all other variables were held constant, Telkom’s profit for the year ended March
31, 2008 would decrease/increase by R3 million (2007: decrease/increase by RNil; 2006: decrease/increase by R9 million). This is
attributable to the fixed-line’s segment exposure to interest rates on its derivative and floating rate debt portfolio.

F-41

12. Financial instruments and risk management (continued)

12.7 Sensitivity analysis (continued)

Interest rate risk (continued)

The table below illustrates Mobile’s sensitivity (Group share) to a 100 basis point increase/decrease in the interest rate.

2006

2007

2008

RSA prime rates, JIBAR rates, Money market rates, and RSA BA rates

Basis points increase

100

Profit/(loss) before tax (Rm)

(12)

LIBOR

Basis points increase

100

Profit/(loss) before tax (Rm)

(5)

EURIBOR

Basis points increase

100

Profit/(loss) before tax (Rm)

Lesotho prime rates

Basis points increase

100

Profit/(loss) before tax (Rm)

Foreign exchange currency risk
The following table illustrates the sensitivity to a reasonably possible change in the foreign exchange rate, with all other variables held constant,
to the Group’s profit before tax (excluding the Mobile segment).

Increase/decrease

Effect on profit

in foreign

before tax

exchange currency

increase/(decrease)

2008
Rand appreciates

USD

+10

(25)

EURO

+10

(42)

Rand depreciates

USD

–10

EURO

–10

2007

Rand appreciates

USD

+10

(18)

EURO

+10

(27)

Rand depreciates

USD

–10

EURO

–10

2006
Rand appreciates

USD

+10

(11)

EURO

+10

(17)

Rand depreciates

USD

–10

EURO

–10

F-42

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

12. Financial instruments and risk management (continued)

12.7 Sensitivity analysis (continued)

Foreign exchange currency risk (continued)

The following table details Mobile’s sensitivity to the below-mentioned percentage strengthening and weakening in the functional currency against
the relevant foreign currencies.

A positive number indicates an increase in profit before taxation where the functional currency is expected to strengthen against the relevant
currency in a net financial liability position. A negative number indicates a decrease in profit before taxation where the functional currency is
expected to strengthen against the relevant currency in a net financial asset position.

The Group is exposed to 50% of the following:

South

United

African

Pound

States

Rand

Euro

Sterling

Dollar

2008

South African Rands

–

7.6

6.5

9.5

United States Dollar

9.5

5.1

2.6

–

Tanzanian Shilling

7.5

2.5

Mozambican Meticals

0.1

3.8

6.5

9.4

Profit before tax (Rm)

(54.4)

(1.0)

(7.7)

2007

South African Rands

–

31.9

13.1

11.5

United States Dollar

11.5

18.3

1.4

–

Tanzanian Shilling

17.4

0.6

0.8

Mozambican Meticals

17.7

8.6

6.9

8.2

Profit before tax (Rm)

6.3

(36.8)

(2.6)

2.1

2006

South African Rands

–

29.3

32.5

17.7

United States Dollar

17.7

9.8

12.5

–

Tanzanian Shilling

13.7

11.5

14.3

1.5

Mozambican Meticals

7.4

2.2

Profit before tax (Rm)

3.2

(16.9)

(38.3)

4.1

F-43

12. Financial instruments and risk management (continued)

12.7 Sensitivity analysis (continued)

Exchange rate table (closing rate)

USD

6.180

7.248

8.132

Euro

7.482

9.649

12.854

Pound Sterling

10.737

14.189

16.166

Swedish Krona

0.793

1.033

1.370

Japanese Yen

0.052

0.061

0.082

Capital management

The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The Group monitors capital using net debt to equity ratio. Telkom’s policy is to keep the net debt to equity ratio
between 50% and 70%. Vodacom’s strategy is to maintain a net debt to adjusted equity ratio of below 150%. Included in net debt are interest
bearing loans and borrowings, credit facilities and other financial liabilities, less cash and cash equivalents and other financial assets.

Telkom plans on continuing its share buy back strategy based on certain criteria, including market conditions, availability of cash and other
investments opportunities and needs.

All of Telkom’s issued and outstanding ordinary shares, including the class A ordinary share and the class B ordinary share, rank equal for
dividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is declared
to holders of all ordinary shares. Telkom’s current dividend policy aims to provide shareholders with a competitive return on their investment,
while assuring sufficient reinvestment of profits to enable us to achieve our strategy. Telkom may revise its dividend policy from time to time.
The determination to pay dividends, and the amount of the dividends, will depend upon, among other things the earnings, financial position,
capital requirements, general business conditions, cash flows, net debt levels and share buy back plans.

The Group has access to financing facilities, the total unused amount which is R7,565 million at the balance sheet date. Capital comprises equity
attributable to equity holders of Telkom.

There were no changes in the Group’s approach to capital management during the year.

Neither the Group nor any of its subsidiaries are subject to externally imposed capital requirements.

The net debt to equity ratio at year end was as follows:

2006

2007

2008

Non-current portion of interest-bearing debt

7,655

4,338

9,403

Current portion of interest -bearing debt

3,468

6,026

6,330

Credit facilities utilised
Non-curremt portion of o ther financial liabilities

693

441

1,342

Current portion of other financial liabilities 235 193 371

919

Less: Cash and cash equivalents

(4,948)

(749)

(1,134)

Less: Other financial assets

(275)

(259)

(614)

Net debt

6,828

10,026

16,617

Equity attributable to equity holders of Telkom

29,165

31,724

32,815

Net debt to equity ratio

23.4%

31.6%

50.6%

2006

2007

2008

F-44

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

13. Investments

2,894

1,384

1,448

Available-for-sale

–

Unlisted investments

Rascom

–

0.69% (2007: 0.69%, 2006: 0.70%) interest in Regional African
Satellite Communications Organisation, headquartered in Abidjan, Ivory
Coast, at cost.

Cost

Impairment

(1)

The fair value of this unlisted investment cannot be practicably
determined. The directors’ valuation is based on the Group’s interest in
the entity’s net asset value converted at year-end exchange rates. The
directors’ valuation of the above unlisted investment is RNil (2007: RNil;
2006: RNil).

WBS Holdings (Proprietary) Limited

–

2,500 ordinary shares at R0.01 each

The directors’ valuation of this unlisted investment is not materially
different from the carrying amount as it is recognised at fair value. The
investee company also granted the Group an option to subscribe for
additional shares (refer to note 12) from the 10% currently held up to
an aggregate of 25.5%.

Other investments

–

The Group purchased a 10% equity stake in G-Mobile Holdings Limited
and a 25.93% equity stake in Gogga Tracking Solutions (Proprietary)
Limited. The investee companies also granted the Group an option to
increase the investments (refer to note 27). During 2008 the Group
purchased a 50% equity stake in Waterberg Lodge (Proprietary) Limited,
a 35% equity stake in X-Link Communications (Proprietary) Limited and
increased its interest in G-Mobile Holdings Limited from 10% to 26% by
exercising the call option granted in 2007.

Loans and receivables

Mirambo Limited

–

Mirambo Limited bought the 16% and 19% equity stake of Planetel
Communications Limited and Caspian Limited respectively in Vodacom
Tanzania Limited on November 30, 2007. The shareholder loans with a
combined nominal value of USD14.9 million, were transferred to
Mirambo Limited in order to meet its obligations to Vodacom Tanzania
Limited in respect of shareholder contributions. The loan bears interest at
LIBOR plus 5% and shall be repaid from any cash distributions by
Vodacom Tanzania Limited to Mirambo Limited. The loan and capitalised
interest are collateralised by cession over all shareholder distributions
and a pledge over the shares of Vodacom Tanzania Limited.

2006

2007

2008

F-45

13. Investments (continued)

Loans and receivables (continued)

Planetel Communications Limited

–

The loan with a nominal value of USD7 million (Group share: USD3,5
million) issued during the 2003 year, bore interest at LIBOR plus 5%.
Planetel Communications Limited utilised this loan to ensure sufficient
shareholder loan funding by itself as a shareholder of Vodacom Tanzania
Limited. The loans and capitalised interest were collateralised by cession
over all shareholder distributions and a pledge over their shares of Vodacom
Tanzania Limited. All the shareholders subordinated their loans to Vodacom
Tanzania Limited for the duration of the project finance funding period,
which expired at the end of the current financial year (refer to note 27).
On November 30, 2007, Planetel Communications sold it’s 16%
shareholding in Vodacom Tanzania Limited to Mirambo Limited.

Caspian Limited

–

The loan with a nominal value of USD8 million (Group share: USD4
million) issued during the 2003 year, bore interest at LIBOR plus 5%.
Caspian Limited utilised this loan to ensure sufficient shareholder loan
funding by itself as a shareholder of Vodacom Tanzania Limited. The
loans and capitalised interest were collateralised by cession over all
shareholder distributions and a pledge over the shares of Vodacom
Tanzania Limited. All the shareholders subordinated their loans to
Vodacom Tanzania Limited for the duration of the project finance funding
period, which expired at the end of the current financial year (refer to
note 27). On November 30, 2007, Caspian sold its 19% shareholding
in Vodacom Tanzania Limited to Mirambo Limited.

Number Portability Company (Proprietary) Limited

–

The shareholder loan made to Number Portability Company (Proprietary)
Limited (‘NPC’) for an amount of R6 million (Group share: R3 million)
at March 2007, is subordinated and ranks behind the claims of all
creditors of NPC for repayment until such time as the assets of NPC fairly
valued exceed its liabilities and in such case, the loan shall cease to be
subordinated to the extent that the assets of NPC exceed its liabilities
from time to time. The shareholder loan bears no interest and has no
fixed repayment terms.

Sekha-Metsi Investment Consortium Limited

–

The loan was advanced to Sekha-Metsi Investment Consortium Limited
and bore interest at South African overdraft interest rates plus a margin
of 2%. Interest was payable monthly in arrears. The loan was repayable
on demand, should Sekha-Metsi Investment Consortium Limited be able
to obtain a loan externally. Sekha-Metsi Investment Consortium Limited
pledged their shares in Sekha-Metsi Enterprises (Proprietary) Limited as
security for the loan. During the current financial year the loan was repaid.

2006

2007

2008

F-46

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

13. Investments (continued)

Loans and receivables (continued)

Empresa Moçambicana de Telecommuniç˜acoes S.A.R.L.
(‘Emotel’)

–

The loan with a nominal value of USD0.9 million issued during the 2008
financial year bears interest at LIBOR plus 2%. Interest is capitalised on
a monthly basis. The loan and capitalised interest are repayable upon
the expiry of 5 years following the advance date, being March 31, 2012.
Emotel utilised this loan to meet its obligations to V.M, S.A.R.L. in respect
of its 2% shareholding in V.M, S.A.R.L. The loan and capitalised interest
are collateralised by cession over all cash distributions and a pledge over
their shares in V.M, S.A.R.L.

Tel.One (Pvt) Limited

–

The loan to Tel.One (Pvt) Limited was unsecured, interest-free and was
repayable through traffic revenue from June 2004 over 5 years. R41 million
traffic was set off against the loan in the 2007 financial year, hence
settling the full amount of the loan in advance.

Other receivables

–

Held for trading

2,874

1,349

1,377

Linked insurance policies – Coronation

1,182

1,280

1,291

Linked insurance policies – Investec

–

Ordinary shares – listed

1,059

–

Cash

229

–

Other money market investments

284

Government stock

–

Other unlisted investments

–

Less: Short-term investments

(69)

(77)

(51)

Tel.One (Pvt) Limited

(13)

–

Sekha-Metsi Investment Consortium Limited

–

(8)

–

WBS Holdings (Proprietary) Limited (included in Other unlisted investments)

–

(13)

Other money market investments

(56)

(69)

(38)

Included in held for trading investments is R1,290 million (2007: R1,279 million, 2006: R2,819 million) that will be used to fund the post-
retirement medical aid liability. These investments are made through a cell captive, in which Telkom holds 100% of the preference shares of the
cell captive, and represent the fair value of the underlying investments of the cell captive. The initial cost of the investment amounts to R535 million
(2007: R535 million; 2006: R1,891 million). Telkom bears all the risks and rewards of the investment, as the returns/losses on the preference
shares are dependant on the performance of the underlying investments made by the cell captive. On this basis Telkom as the preference
shareholder, receives any residual gains or losses made by the cell captive. The ordinary shareholders of the cell captive do not bear any of the
risks and rewards. The cell captive has been consolidated in full.

The cell captive has an investment in a sinking fund and an annuity policy. In the financial year ended March 31, 2007 an addendum to the cell captive
annuity policy was signed, which resulted in the annuity policy qualifying as a plan asset. This resulted in a reduction in the investment of R1,961 million
in the financial year ended March 31, 2007 (refer to note 29).

2006

2007

2008

F-47

14. Deferred revenue and Deferred expenses

Deferred expenses

480

557

583

Deferred expenses

254

270

221

Current portion of deferred expenses

226

287

362

Included in long-term deferred expenses and revenue is Vodacom
unactivated starter packs.

The current portion of deferred expenses represents the deferral of
connection costs.

Deferred revenue

2,966

3,004

3,721

Deferred revenue

991

1,021

1,128

Current portion of deferred revenue

1,975

1,983

2,593

Included in deferred revenue is profit on the sale and lease-back of certain Telkom buildings of R118 million, consisting of a long-term portion of
R107 million and a short-term portion of R11 million (2007: R129 million; 2006: R140 million). A profit of R11 million per annum is recognised
in income on a straight-line basis, over the period of the lease ending 2019 (refer to note 37).

15. Finance lease receivables

Total

< 1 year

1 – 5 years

> 5 years

The Group provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated to specific
customers. The disclosed information relates to certain customer arrangements which were assessed to be finance leases in terms of IAS17.

2008

Minimum lease payments

Lease payments receivable

452

196

256

–

Unearned finance income

(80)

(30)

(50)

–

Present value of minimum lease payments

372

166

206

–

Lease receivables

372

166

206

–

2007

Minimum lease payments

Lease payments receivable

312

110

202

–

Unearned finance income

(66)

(22)

(44)

–

Present value of minimum lease payments

246

158

–

Lease receivables

246

158

–

2006

2007

2008

F-48

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

16. Deferred taxation

(587)

(1,123)

(1,374)

Opening balance

(435)

(587)

(1,123)

Income statement movements

(173)

(516)

(219)

Temporary differences

(280)

(515)

(331)

Over provision/(under provision) prior year

107

(1)

Change in tax rate

–

Business combinations

(16)

(65)

Foreign currency translation reserve and foreign equity revaluation

–

(4)

The balance comprises:

(587)

(1,123)

(1,374)

Capital allowances

(2,682)

(3,325)

(3,841)

Provisions and other allowances

1,682

1,719

2,008

Tax losses

112

113

276

STC tax credits

301

370

183

Deferred tax balance is made up as follows:

(587)

(1,123)

(1,374)

Deferred tax assets

481

593

605

Deferred tax liabilities

(1,068)

(1,716)

(1,979)

Unutilised STC credits

2,393

2,958

1,830

Under South African tax legislation, tax losses for companies continuing to do business do not expire. The unused taxation losses available to
reduce the net deferred taxation liability is R1,615 million of which R1,456 relates to Vodacom (2007: R1,134 million; 2006: R876 million)
(Group share: R728 million; 2007: R567 million; 2006: R438 million). The full effect of this would be a R511 million of which R466 million
relates to Vodacom (2007: R363 million; 2006: R279 million) (Group share: R233 million; 2007: R182 million; 2006: R140 million)
reduction in the net deferred taxation liability.

The deferred tax asset represents amongst other items STC credits on past dividends received. The deferred tax asset for the current period is
calculated using the revised STC rate of 10% (previously 12,5%) as announced by the Minister of Finance. The deferred tax asset is recognised
as it is considered probable that it will be utilised in the future, given Telkom’s dividend policy. The asset will be released as a tax expense
when dividends are declared.

The deferred tax liability increased mainly due to the increase in the difference between the carrying value and tax base of assets, resulting from
the change in the estimate of useful lives of the assets as well as from the acquisition of Multi-Links Telecommunications (Proprietary) Limited.

2006

2007

2008

F-49

17. Inventories

814

1,093

1,287

Gross inventories

916

1,275

1,535

Write-down of inventories to net realisable value

(102)

(182)

(248)

Inventories consist of the following categories:

814

1,093

1,287

Installation material, maintenance material and network equipment

487

811

895

Merchandise

327

282

392

Write-down of inventories to net realisable value

102

182

248

Opening balance

102

182

Charged to selling, general and administrative expenses

154

164

Inventories written-off

(29)

(74)

(98)

Inventory levels as at March 31, 2008 and 2007 have increased due
to the roll-out of the Next Generation Network and increased inventory
levels, required to improve customer service.

The increase in merchandise in the current year is due to the accelerated
acquisition of merchandise to limit the Group’s exposure to foreign
currency fluctuations.

18. Trade and other receivables

6,399

7,303

8,986

Trade receivables

5,798

6,557

7,695

Gross trade receivables

6,088

6,792

7,985

Impairment of receivables

(290)

(235)

(290)

Prepayments and other receivables

601

746

1,291

Impairment of receivables

290

235

290

Opening balance

285

290

235

Charged to selling, general and administrative expenses

206

153

300

Receivables written-off

(201)

(208)

(245)

Refer to note 12 for detailed credit risk analysis.

The increase in the charged to selling, general and administrative expenses is as a result of increased revenues which resulted in a higher provision
for doubtful debts.

2006

2007

2008

F-50

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

19. Other financial assets and liabilities

Other financial assets consist of:

At fair value through profit or loss

275

259

614

Bills of exchange

107

–

Interest rate swaps

Other financial assets – – 16

19 16 9

Forward exchange contracts 149 145 589

Bills of exchange

The fair value of bills of exchange has been derived at with reference to
BESA quoted prices.

Other financial liabilities consist of:

(235)

(229)

(1,290)

Long-term portion of other financial liabilities

Other (refer to note 12)

–

(36)

–

Put option at fair value through profit or loss (refer to note 12)

–

(919)

Current portion of other financial liabilities
At fair value through profit or loss

(235)

(193)

(371)

Put option at fair value through profit or loss (refer to note 12)

–

(125)

(198)

Forward exchange contracts

(130)

(42)

(173)

Interest rate swaps

(105)

(26)

–

Change in comparative
Derivative instruments in other financial liabilities category increased by R125 million in 2007 (2006: RNil) due to the reclassification of the
Vodacom DRC put option from trade and other payables.

2006

2007

2008

F-51

20. Net cash and cash equivalents

4,255

308

(208)

Cash shown as current assets

4,948

749

1,134

Cash and bank balances

1,853

649

664

Short-term deposits

3,095

100

470

Credit facilities utilised

(693)

(441)

(1,342)

Undrawn borrowing facilities

9,519

8,658

7,565

The undrawn borrowing facilities are unsecured, when drawn bear interest
at a rate that will be mutually agreed between the borrower and lender
at the time of drawdown, have no specific maturity date and are subject
to annual review. The facilities are in place to ensure liquidity. At March 31,
2008, R2,000 million of these undrawn facilities were committed.

Borrowing powers

To borrow money, Telkom’s directors may mortgage or encumber
Telkom’s property or any part thereof and issue debentures, whether
secured or unsecured, whether outright or as security for debt, liability or
obligation of Telkom or any third party. For this purpose the borrowing
powers of Telkom are unlimited, but are subject to the restrictive financial
covenants of the TL20 loan and the conditions, and covenants of the
Bridge Loan facility indicated on note 27.

21. Share capital and premium

Authorised and issued share capital and share premium are made up
as follows:

Authorised

10,000

999,999,998 ordinary shares of R10 each

10,000

1 Class A ordinary share of R10

–

1 Class B ordinary share of R10

–

Issued and fully paid

6,791

5,329

5,208

520,784,184 (2007: 532,855,528; 2006: 544,944,899)
ordinary shares of R10 each

5,449

5,329

5,208

1 (2007: 1; 2006: 1) Class A ordinary share of R10

–

1 (2007: 1; 2006: 1) Class B ordinary share of R10

–

Share premium

1,342

–

The following table illustrates the movement in the number of shares issued:

Number of

Shares in issue at beginning of year

557,031,821

544,944,901

532,855,530

Shares bought back and cancelled*

(12,086,920)

(12,089,371)

(12,071,344)

Shares in issue at end of year

544,944,901

532,855,530

520,784,186

Full details of the voting rights of ordinary, class A and class B shares are documented in the Articles of Association of Telkom.

* As of March 31, 2008, 4,444,138 of these shares had not yet been cancelled from the issued share capital by the Registrar of Companies.

2006

2007

2008

F-52

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

2006

2007

2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

21. Share capital and premium (continued)

Share buy-back

During the financial year Telkom bought back 12,071,344 ordinary
shares at a total consideration of R1,647 million. This reduced Share
capital by R121 million and Retained earnings by R1,526 million.

During the financial year ended March 31, 2007, Telkom bought back
12,089,371 ordinary shares at a total consideration of R1,596 million.
This reduced Share capital by R120 million, Share premium by
R1,342 million and Retained earnings by R134 million.

During the financial year ended March 31, 2006, Telkom bought back
12,086,920 ordinary shares at a total consideration of R1,502 million.
This reduced the Share capital by R121 million and Share premium by
R1,381 million.

Capital Management

Refer to note 12 for a detailed capital management disclosure.

22. Treasury shares

(1,809)

(1,774)

(1,638)

At March 31, 2008, 10,493,141 (2007: 12,237,016; 2006:
12,687,521) and 10,849,058 (2007: 10,849,058; 2006:
10,849,058) ordinary shares in Telkom, with a fair value of R1,377 million
(2007: R2,031 million; 2006: R2,038 million) and R1,423 million
(2007: R1,801 million; 2006: R1,743 million) are held as treasury
shares by its subsidiaries Rossal No 65 (Proprietary) Limited and Acajou
Investments (Proprietary) Limited, respectively.

The shares held by Rossal No 65 (Proprietary) Limited are reserved for
issue in terms of the Telkom Conditional Share Plan (‘TCSP’). In addition,
the Board of directors agreed that, subject to the JSE Listing requirements,
the treasury shares held by Acajou Investments (Proprietary) Limited be
made available to the TCSP to make up for the current shortfall in the
share scheme after the additional grants made in the current year (refer
to note 23).

The reduction in the number of treasury shares is due to 1,743,785 shares
(2007: 450,505; 2006: 29,669) shares that vested in terms of the
TCSP during the year.

The fair value of these shares at the date of vesting was R301 million
(2007: R63 million; 2006: R4 million).

F-53

23. Share-based compensation reserve

This reserve represents the cumulative fair value of the equity-settled
share-based payment transactions recognised in employee expenses
over the vesting period of the equity instruments granted to employees
in terms of the Telkom Conditional Share Plan (refer to note 29).

The Telkom Board approved the fourth enhanced allocation of shares to
employees on September 4, 2007, with a grant date of September 27,
2007, the day that the employees and Telkom shared a common
understanding of the terms and conditions of this grant. A total of
6,089,810 shares were granted.

The Board has also approved an enhanced allocation for the November
2006 grant on September 4, 2007, with a grant date of September
27, 2007. The number of additional shares granted with respect to the
2006 allocation is 4,966,860.

No consideration is payable on the shares issued to employees, but
performance criteria will have to be met in order for the granted shares
to vest. The ultimate number of shares that will vest may differ based on
certain individual and Telkom performance conditions being met. The
related compensation expense is recognised over the vesting period of
shares granted, commencing on the grant date.

The following table illustrates the movement within the Share-based
compensation reserve:

Balance at beginning of year

151

257

Net increase in equity

106

386

Employee cost*

120

141

522

Accelerated vesting of shares

(37)

–

Vesting and transfer of shares

–

(35)

(136)

Balance at end of year

151

257

643

At March 31, 2008 the estimated total compensation expense to be recognised over the vesting period was R2,151 million (2007:
R580 million; 2006: R381 million), of which R522 million (2007: R141 million; 2006: R120 million) was recognised in employee expenses
for the year.

*The increase in the employee costs in the current financial year is mainly as a result of the additional share allocations (refer to note 29).

2006

2007

2008

F-54

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

24. Non-distributable reserves

1,128

1,413

1,292

Opening balance

360

1,128

1,413

Movement during the year

768

285

(121)

Foreign currency translation reserve (net of tax of R6 million;
2007: R4 million; 2006: RNil)

521

Minority put option (refer to note 12)

–

(661)

Revaluation of an available-for-sale investment (net of tax of R1 million)

–

Available-for-sale financial asset
Life fund reserve (Cell captive)

716

239

The balance comprises:

1,128

1,413

1,292

Foreign currency translation reserve

(104)

(58)

463

Cell Captive reserve

1,232

1,471

1,482

Available-for-sale investment

–

Minority put option

–

(661)

The Group has two consolidated cell captives, one used as an investment
to fund Telkom’s post-retirement medical aid liability and the other is for
Vodacom’s short-term insurance obligation in respect of handsets.

In terms of the Short-term Insurance Act, 1998, the Vodacom Group’s cell
captive partner, Nova Risk Partners Limited is required to recognise a
contingency reserve equal to 10% of premiums written less approved
reinsurance (as defined in the Act). This reserve can be utilised only with
the prior permission of the Registrar of Short-term Insurance.

The earnings from the cell captives are recognised in the income
statement and then transferred to Non-distributable reserves.

Gains and losses from changes in the fair value of available-for-sale
investments are recognised directly in equity until the financial asset is
disposed of.

25. Retained earnings

22,904

26,499

27,310

Opening balance

19,232

22,904

26,499

Movement during year

3,672

3,729

2,337

Net profit for the year

9,189

8,646

7,975

Transfer to non-distributable reserves (refer to note 24)

(716)

(239)

(11)

Dividend declared (refer to note 34)

(4,801)

(4,678)

(5,627)

Shares bought back (refer to note 21)

–

(134)

(1,526)

The balance comprises:

22,904

26,499

27,310

Company

18,534

21,906

22,484

Joint venture

4,293

4,762

5,697

Subsidiaries

568

786

428

Eliminations

(491)

(955)

(1,299)

2006

2007

2008

F-55

26. Minority interest

301

284

522

Opening balance

220

301

284

Movement during the year

(17)

238

Reconciliation:

301

284

522

Balance at beginning of year

220

301

284

Share of earnings

139

203

197

Acquisition of subsidiaries and minorities

(68)

Foreign currency translation reserves

(7)

Dividend declared

(78)

(166)

(65)

27. Interest-bearing debt

Long-term interest-bearing debt

7,655

4,338

9,403

Total interest-bearing debt

11,123

10,364

15,733

Gross interest-bearing debt

13,686

12,549

17,839

Discount on debt instruments issued

(2,563)

(2,185)

(2,106)

Less: Current portion of interest-bearing debt

(3,468)

(6,026)

(6,330)

Local debt

(2,642)

(5,772)

(6,001)

Locally registered Telkom debt instruments

(2,211)

(4,432)

–

Commercial paper bills

(429)

(1,339)

(3,401)

Short-term interest-free loans

(2)

(1) –

Call borrowings

– – (2,600)

Foreign debt

(786)

(193)

(202)

Finance leases

(40)

(61)

(124)

Licence obligation

–

(3)

Total interest-bearing debt is made up as follows:

11,123

10,364

15,733

(a) Local debt

8,938

8,131

12,923

Locally registered Telkom debt instruments

8,507

6,786

8,164

Name, maturity, rate p.a., nominal value
TK01, 2008, 10%, RNil (2007: R4,680 million; 2006: R4,689 million)

4,230

4,432

–

TL06, 2006, 10.5%, RNil (2007: RNil; 2006: R2,100 million)

2,103

–

TL20, 2020, 6%, R2,500 million (2007: R2,500 million;
2006: R2,500 million)

1,214

1,246

1,283

PP02, 2010, 0%, R430 million (2007: R430 million; 2006: R430 million)

230

264

304

PP03, 2010, 0%, R1,350 million (2007: R1,350 million;
2006: R1,350 million)

730

844

977

Call borrowings, 2009, 11.58%, R2,600 million (2007: RNil; 2006: RNil)

–

2,600

Term loans, 2010, 12.22%, R3,000 million (2007: RNil; 2006: RNil)

–

3,000

Local bonds

The local Telkom bonds are unsecured, but a side letter to the subscription
agreement (as amended) of the TL20 bond, and the R1,600 million Bridge
Loan facility, included in call borrowings contain a number of restrictive
financial covenants to be maintained by the Group at the following ratios:
EBITDA to net interest expense ratio of no less than 3.5:1 and net interest
bearing debt to EBITDA ratio of no greater than 3.0:1 which, if not met,
could result in the early redemption of the loan. The R1,600 million Bridge
Loan facility and R2,000 million Term loan agreement agreements limit
the Group’s ability to encumber, cede, assign, sell or otherwise dispose of
a material portion of its assets without the prior written consent of the
Lenders, which will not be unreasonably withheld. The TL20, PP02, and
PP03 local bonds limit Telkom’s ability to create encumbrances on revenues
or assets, and secure any indebtedness without securing the outstanding
bonds equally and rateably with such indebtedness.

2006

2007

2008

F-56

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

27. Interest-bearing debt (continued)

(a) Local debt (continued)

Commercial paper bills

429

1,339

4,202

Rate p.a., nominal value

2008, 11.71% (2007: 9.04%; 2006: 7%), R4,383 million (2007:
R1,350 million; 2006: R430 million)

Asset Backed Arbitraged Securities (Proprietary) Limited

–

500

On December 5, 2007 Vodacom (Proprietary) Limited entered into a
subscription agreement with Asset Backed Arbitraged Securities (Proprietary)
Limited (‘ABACAS’). In terms of the agreement Vodacom (Proprietary)
Limited issued debt instruments in the form of two promissory notes with
a nominal value of R500 million (Group shares: R250 million) each to
which ABACAS subscribed. The debt instrument will bear interest based on
JIBAR plus credit margin and funding margin. The repayment term is three
years with interest being paid quarterly. The credit margin is 0.4% and the
funding margin is 0.18% and 0.15% respectively.

Licence Obligation

–

On December 9, 2004, ICASA amended the Vodacom South Africa licence
to allow for access to the 1800 Megahertz frequency spectrum band and
the 3G radio spectrum band. The costs to the Group for the 1800 Megahertz
frequency band obligations is estimated at R68.8 million (Group share
R34.4 million). The net present value, at a discount rate of 8%, over three
years amounts to R64 million (Group share: R32 million). The cost to the
Group for the 3G radio sprectrum band obligation is estimated at
R36.8 million (Group share: R18.4 million). The net present value, at a
discount rate of 8%, over three year amounts to R32.2 million (Group
share: R16.1 million).

Other debt

Other debt includes Vodacom Group shareholders’ loans with variable
payment terms. Group share is 50% on the respective balances.

(b) Foreign debt

913

1,013

1,643

Maturity, rate p.a., nominal value

106

141

Euro: 2010 – 2025, 0.1% – 0.14% (2007: 0.10% – 0.14%; 2006:
0.10% – 6.81%),

€ 11 million (2007: € 11 million; 2006: € 11 million)

Mirambo Limited

–

Mirambo Limited bought the 16% and 19% equity stake of Planetel
Communications Limited and Caspian Limited respectively in Vodacom Tanzania Limited on November 30, 2007. The shareholder loans with a combined nominal value of USD18 million (Group share: USD9 million), were transferred to Mirambo Limited in order to meet its obligations to Vodacom Tanzania Limited in respect of shareholder contributions. The loan bears interest at LIBOR plus 5% and shall be repaid by approval of at least 60% of the shareholders of Vodacom Tanzania Limited. The loan and capitalised interest are unsecured and surbordinated.

2006

2007

2008

F-57

27. Interest-bearing debt (continued)

(b) Foreign debt (continued)

Planetel Communications Limited

–

The shareholder loan of USD8 million (2007: USD8 million; 2006: USD8
million) (Group share: USD4 million; 2007: USD4 million; 2006: USD4
million) was subordinated for the duration of the project finance funding
period of Vodacom Tanzania Limited, which expired at the end of the current
financial year, bore no interest from April 1, 2002, and was thereafter
available for repayment, by approval of at least 60% of the shareholders
of Vodacom Tanzania Limited. The loan became non-interest bearing and
was remeasured at amortised cost at an effective interest rate of LIBOR
plus 5%. The gain on remeasurement was included in equity. On November
30, 2007 Planetel Communications Limited sold its 16% shareholding in
Vodacom Tanzania Limited to Mirambo Limited.

Caspian Limited

–

The shareholder loan of USD10 million (2007: USD10 million; 2006:
USD10 million) (Group share: USD5 million; 2007: USD5 million; 2006:
USD5 million) was subordinated for the duration of the project finance
funding period of Vodacom Tanzania Limited, bears no interest from April
1, 2002, and was thereafter available for repayment, by approval of at least
60% of the shareholders of Vodacom Tanzania Limited. The loan became
non-interest bearing and was remeasured at amortised cost at an effective
interest rate of LIBOR plus 5%. The gain on remeasurement was included
in equity. On November 30, 2007 Caspian Limited sold its 19%
shareholding in Vodacom Tanzania Limited to Mirambo LImited.

Loan to Vodacom International Limited

557

655

731

The loan provided by Standard Bank Plc and RMB International (Dublin)
Limited that amounts to USD180 million (2007: USD180 million; 2006:
USD180 million) (Group share: USD90 million; 2007: USD90 million 2006;
USD90 million)) is collateralised by guarantees provided by the Vodacom
Group. The loan originally repayable on July 19, 2006, was refinanced
during the 2007 financial year. The loan is now repayable on July 26,
2009 and bears interest at an effective interest rate of LIBOR plus 0.35%.

Project finance funding for Vodacom Tanzania Limited

–

The drawn down portions of the project finance funding from external parties
include the following:

(a) Netherlands Development Finance Company USDNil (2007: USD4

million; 2006: USD8 million) (Group share: USDNil; 2007: USD2
million; 2006: USD4 million)

(b) Deutsche Investitions – und Entwicklungsgesellschaft mbH

€ Nil

(2007: € 4 million; 2006: € 8 million) (Group share: € Nil; 2007: € 2

million; 2006:

€ 4 million)

2006: USD8 million) (Group share: USDNil; 2007: USD2 million;
2006: USD4 million)

(d) Barclays Bank (Local Syndicate Tanzania) TSHNil (2007: TSHNil;

2006: TSH5,704 million) (Group share: TSHNil; 2007: TSHNil; 2006:
TSH2,852 million).

The funding was collateralised by a charge over 51% of the shares, the
license and Vodacom Tanzania Limited’s tangible assets and intangible
assets. The loans bore interest based upon the foreign currency
denomination of the project financing between 6% and 14.4% per annum
and was fully repaid in the 2008 financial year.

2006

2007

2008

F-58

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

27. Interest-bearing debt (continued)

(b) Foreign debt

(continued)

Vodacom Congo (RDC) s.p.r.l.

Vodacom’s share of the short-term facilities amount to USD1 million (2007:
USD3 million; 2006: USD6 million) (Group share: USD1 million; 2007:
USD2 million; 2006: USD3 million) bears interest at 18% per annum with
no fixed repayment terms. USD2 million (Group share: USD1 million) of
these facilities was repaid on June 30, 2007 and bore interest at LIBOR plus
6% per annum.

Preference shares issued by Vodacom Congo (RDC) s.p.r.l.

114

135

150

The preference shares of USD37 million (2007: USD37 million; 2006:
USD37 million) (Group share: USD19 million; 2007: USD19 million;
2006: USD19 million) bear interest at a rate of 4% per annum. The
preference shares are redeemable at the discretion of the shareholders and
on the basis that the shareholders are repaid simultaneously and in
proportion to their shareholding.

Zenith Bank

–

Multi-Links Telecommunications Limited has taken out a loan
from Zenith Bank. The original loan amounted to USD14 million against which
repayments amounting to USD8.4 million have already been made. The loan
bears interest at LIBOR plus 3.5% and will be repaid during 2008.

FCMB Loan

–

Multi-Links Telecommunications Limited has taken out a FCMB
loan.The original loan amounted to Naira 1,500 million against which
repayments amounting to Naira 250 million have already been made. The
loan bears interest at 13% and will be fully repaid during 2010. This loan is
secured by a charge of assets valued at N520 million.

Export Development Bank of Canada

–

Multi-Links Telecommunications Limited has a long-term
funding facility in place with Export Development Bank of Canada (EDC),
through First Bank of Nigeria Plc. The original funding amounted to
USD18 million against which USD8 million repayments have already been
made. The loan bears interest at LIBOR plus 2.5%, and will be fully repaid
during 2014.

Huawei Vendor Financing Facility VFF

–

319

Multi-Links Telecommunications Limited entered into a Bridge
Financing agreement with Huawei Tech Investment Co. Limited for the
supply of telecommunications equipment and services. The original funding
amounted to USD41.6 million against which repayments of USD2 million
have already been made. The loan bears interest at LIBOR plus 2% and will
be repaid by 2010. The above arrangement is temporary until financing
facilities are obtained from China Development Bank.

PTA Bank and Barclays Bank

–

Africa Online Group has taken out a loan from PTA Bank and Barclays
Bank that in total amounts to USD1,5 million. Of this amount
USD0.8 million bears interest at LIBOR plus 6% and the remaining
USD0.4 million bears interest at 11.5%.

1,272

1,220

1,167

The finance leases are secured by buildings with a carrying value of R634
million (2007: R564 million; 2006: R618 million) and office equipment
with a book value of R14 million (2007: R10 million; 2006: R6 million)
(refer to note 10). These amounts are repayable within periods ranging
from 1 to 12 years. Interest rates vary between 13% and 38%.

2006

2007

2008

F-59

27. Interest-bearing debt (continued)

Included in long-term and short-term debt is:
Debt guaranteed by the South African Government

4,315

4,537

141

A major portion of the guaranteed debt for the years ended March 31, 2007
and 2006 relates to the TK01 debt instrument, however, this instrument
has been redeemed in full during the year ended March 31, 2008.

Telkom may issue or re-issue locally registered debt instruments in terms of
the Post Office Amendment Act 85 of 1991. The borrowing powers of
Telkom are set out as per note 20.

Repayments/refinancing of current portion of interest-bearing debt
The repayment/refinancing of R6,330 million of the current portion of
interest-bearing debt will depend on the market circumstances at the time
of repayment.

Management believes that sufficient funding facilities will be available at the
date of repayment/refinancing.

Loans raised and loans repaid on the cash flow statement increased due
to raising and redemption of the Commercial Paper Bills in Telkom, as well
as newly acquired Asset Backing finance in Vodacom.

28. Provisions

2,677

1,443

1,675

Employee related

4,293

3,005

3,186

Annual leave

356

413

438

Balance at beginning of year

337

356

413

Charged to employee expenses

Leave paid

(69)

(9)

(19)

Post-retirement medical aid (refer to note 29)

2,607

1,139

1,356

Balance at beginning of year

2,430

2,607

1,139

Interest cost

249

286

322

Current service cost

Expected return on plan asset

–

(188)

(257)

Actuarial loss

149

129

Curtailment gain

(8)

–

Settlement loss

–

Termination settlement

(29)

–

Plan asset – initial recognition

–

(1,720)

–

Contributions paid

(153)

(78)

(61)

Telephone rebates (refer to note 29)

198

282

287

Balance at beginning of year

179

198

282

Interest cost

Current service cost

Past service cost

–

Actuarial loss

–

Benefits paid

–

(20)

(22)

Bonus

1,071

1,090

992

Balance at beginning of year

826

1,071

1,090

Charged to employee expenses

965

797

Payments made

(720)

(946)

(895)

Long-term incentive provision*

113

Balance at beginning of year

–

Charged to employee expenses

Payment

(8)

(1)

(9)

2006

2007

2008

F-60

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

28. Provisions

Non-employee related

533

670

Supplier dispute (refer to note 38)

–

527

569

Balance at beginning of year

–

527

Net movements

–

527

Warranty provision

–

Balance at beginning of year

–

Charged to expenses

–

Provision utilised

(18)

(16)

–

Other

101

Less: Current portion of provisions

(1,660)

(2,095)

(2,181)

Annual leave

(356)

(402)

(417)

Post-retirement medical aid

(159)

(186)

Telephone rebates

(17)

(26)

Bonus

(1,071)

(911)

(921)

Supplier dispute

–

(527)

(569)

Warranty provision

(16)

–

Other

(41)

(43)

(62)

Annual leave

In terms of Telkom’s policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle, to a cap of 22 days
(previously 25 days) which must be taken within an 18 month leave cycle. The leave cycle is reviewed annually and is in accordance with legislation.

Bonus

The Telkom bonus scheme consists of performance bonuses which are dependent on achievement of certain financial and non-financial targets.
The bonus is payable bi-annually to all qualifying employees after Telkom’s results have been made public.

Vodacom’s bonus provision consists of a performance bonus based on the achievement of the predetermined financial targets payable to all
levels of staff.

Deferred bonus incentive

Vodacom’s deferred bonus incentive provision represents the present value of the expected future cash outflows of the entitlement value at
the balance sheet date less the value at which the entitlements were issued, multiplied by the number of entitlements allocated to a participant.

Periodically, a number of entitlements are issued to employees, the value of which depends on the seniority of the employee. The participating
rights of employees vest at different stages and employees are entitled to cash in their entitlements within one year after the participating rights
have vested. The provision is utilised when eligible employees receive the value of vested entitlements.

Supplier dispute

Telkom provided R569 million (2007: R527 million; 2006: RNil) for its estimate of the probable liability as discussed in note 38. The net
movement in the provision of R42 million (2007: R17 million; 2006: R Nil) consists of Finance charges and fair value movements offset by
provisional payments made during the current year.

Warranty provision

The warranty provision in Vodacom covers manufacturing defects in the second year of warranty on handsets sold to customers. The estimate
is based on claims notified and past experience. The suppliers of the various handsets assumed responsibility for the second year warranty
subsequent to March 31, 2007 and accordingly there is no remaining provision.

Other

Included in other provisions is an amount provided for asset retirement obligations.
Other provisions also include advertising received from suppliers of handsets and various other smaller provisions.

*In the previous year the long-term incentive provision was included in other provisions.

2006

2007

2008

F-61

29. Employee benefits

The Group provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund and the
Vodacom Group Pension Fund. Membership of one of the funds is compulsory. In addition, certain retired employees receive medical aid
benefits and a telephone rebate. The liabilities for all of the benefits are actuarially determined in accordance with accounting requirements
each year. In addition, statutory funding valuations for the retirement and pension funds are performed at intervals not exceeding three years.

At March 31, 2008, the Group employed 33,616 employees (2007: 33,047; 2006: 31,458).

Actuarial valuations were performed by qualified actuaries to determine the benefit obligation, plan asset and service costs for the pension and
retirement funds for each of the financial periods presented.

The Telkom Pension Fund

The latest actuarial valuation performed at March 31, 2008 indicates that the pension fund is in a surplus position of R84 million after
unrecognised gains. The recognition of the surplus is limited due to the application of the asset limitation criteria in IAS19 (revised).

The last statutory funding valuation of the fund performed in March 2007, indicated that the fund is fully funded. The current contributions
(plus an annual top-up lump sum if necessary) are based on that valuation. Management expects to complete the next statutory valuation in
November 2008.

With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the financial year ended March 31, 2007, a
settlement event occurred in the Telkom Pension Fund whereby 106 members were transferred to the Telkom Retirement Fund.

The funded status of the Telkom Pension Fund is disclosed below.

2006

2007

2008

The Telkom Pension Fund

The net periodic pension costs includes the following components:
Interest and service cost on projected benefit obligations

Expected return on plan assets

(24)

(19)

(27)

Recognised actuarial loss/(gain)

(16)

Settlement loss/(gain)

–

(2)

Asset Limitation

–

Net periodic pension expense recognised

Pension fund contributions (refer to note 5.1)

The status of the pension plan obligation is as follows:
At beginning of year

186

281

205

Interest and service cost

Employee contributions

Benefits paid

(20)

(2)

(3)

Settlements

–

(70)

(15)

Actuarial loss/(gain)

(28)

(6)

Benefit obligation at end of year

281

205

204

Plan assets at fair value:
At beginning of year

231

243

284

Expected return on plan assets

Benefits paid

(20)

(2)

(3)

Contributions

Settlements

–

(61)

(15)

Actuarial (loss)/gain

(18)

Plan assets at end of year

243

284

311

F-62

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

29. Employee benefits (continued)

The Telkom Pension Fund (continued)

Present value of funded obligation

281

205

204

Fair value of plan assets

(243)

(284)

(311)

Fund status

(79)

(107)

Unrecognised net actuarial (loss)/gain

(118)

Net surplus

(80)

(54)

(84)

Asset Limitation

–

Recognised net asset

(80)

(54)

(55)

Expected return on plan assets

Actuarial (loss)/return on plan assets

(18)

Actual return on plan assets

Principal actuarial assumptions were as follows:
Discount rate (%)

7.5

9.0

Yield on government bonds (%)

7.5

9.0

Long-term return on equities (%)

10.5

11.0

Long-term return on cash (%)

5.5

7.0

Expected return on plan assets (%)

9.5

9.7

9.8

Salary inflation rate (%)

6.0

7.5

Pension increase allowance (%)

2.9

4.3

The overall long-term expected rate of return on assets is 9.75%. This is
based on the portfolio as a whole and not the sum of the returns of
individual asset categories. The expected return takes into account the
asset allocation of the Telkom pension fund and expected long-term return
of these assets, of which South African equities and foreign investments
are the largest contributors.

The assumed rates of mortality are determined by reference to the SA85-
90 (Light) ultimate table, as published by the Actuarial Society of South
Africa, for pre-retirement purposes and the PA(90) ultimate table, minus
one year age rating as published by the Institute and Faculty of Actuaries
in London and Scotland, for retirement purposes.

Funding level per statutory actuarial valuation (%)

99.8

100.0

The number of employees registered under the Telkom Pension Fund

255

153

146

The fund portfolio consists of the following:
Equities (%)

Bonds (%)

Cash (%)

Foreign Investments (%)*

–

Insurance policies (%)

–

The total expected contributions payable to the pension fund for the next
financial year are R7 million.

*Includes offshore unit trusts.

2006

2007

2008

F-63

29. Employee benefits (continued)

The Telkom Retirement Fund

The Telkom Retirement Fund was established on July 1, 1995 as a hybrid defined benefit and defined contribution plan. Existing employees were
given the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the Telkom
Pension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the Government
ceased to guarantee the deficit in the Telkom Retirement Fund. Subsequent to July 1, 1995 further transfers of existing employees occurred.

The Telkom Retirement Fund is a defined contribution fund with regards to in-service members. On retirement, an employee is transferred from
the defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom Retirement
Fund. Moreover, all of the assets in the Fund, including any potential excess belong to the participants of the scheme. Telkom is unable to benefit
from the excess in the form of future reduced contributions.

Telkom guarantees any actuarial shortfall of the pensioner pool in the retirement fund. This liability is initially funded through assets of the
retirement fund. The latest actuarial valuation performed at March 31, 2008 indicates that the retirement fund is in a surplus funding position
of R1,368 million after unrecognised losses.

The Telkom Retirement Fund is governed by the Pension Funds Act 24 of 1956. In terms of section 37A of this Act, the pension benefits payable
to the pensioners cannot be reduced. If therefore the present value of the funded obligation were to exceed the fair value of plan assets, Telkom
would be required to fund the statutory deficit.

The information presented below is intended only to comply with the disclosure requirements of IAS19 (revised) and not to suggest that
Telkom has a potential asset with regards to this Fund.

The funded status of the Telkom Retirement Fund is disclosed below:

2006

2007

2008

The Telkom Retirement Fund

The net periodic retirement costs include the following components:
Interest and service cost on projected benefit obligations

346

312

493

Expected return on plan assets

(430)

(489)

(686)

Recognised actuarial gain

–

(145)

–

Net periodic pension expense not recognised (Asset limitation)

(84)

(322)

(193)

Retirement fund contributions (refer to note 5.1)

383

439

460

Benefit obligation:
At beginning of year

4,020

4,377

6,581

Interest and service cost

346

312

493

Benefits paid

(377)

(486)

(488)

Liability for new pensioners

–

Actuarial loss

388

2,334

501

Benefit obligation at end of year

4,377

6,581

7,101

Plan assets at fair value:
At beginning of year

4,477

5,973

7,661

Expected return on plan assets

431

489

686

Benefits paid

(377)

(486)

(488)

Asset backing new pensioners’ liabilities

–

Actuarial gain

1,442

1,641

118

Plan assets at end of year

5,973

7,661

7,991

F-64

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

29. Employee benefits (continued)

The Telkom Retirement Fund (continued)

Present value of funded obligation

4,377

6,581

7,101

Fair value of plan assets

(5,973)

(7,661)

(7,991)

Fund Status

(1,596)

(1,080)

(890)

Unrecognised net actuarial gain/(loss)

742

(96)

(478)

Unrecognised net asset

(854)

(1,176)

(1,368)

Expected return on plan assets

430

489

686

Actuarial gain on plan assets

1,442

1,641

118

Actual return on plan assets

1,872

2,130

804

Included in the fair value of plan assets is:
Office buildings occupied by Telkom

274

371

596

Telkom bonds

Telkom shares

287

284

141

The Telkom Retirement Fund invests its funds in South Africa and
internationally. Twelve fund managers invests in South Africa and five of
these managers specialise in trades with bonds on behalf of the
Retirement Fund. The international investment portfolio consists of global
equity and hedged funds.

Principal actuarial assumptions were as follows:

Discount rate (%)

7.5

9.0

Yield on government bonds (%)

7.5

9.0

Long-term return on equities (%)

10.5

11.0

Long-term return on cash (%)

5.5

7.0

Expected return on plan assets (%)

8.5

9.3

10.3

Pension increase allowance (%)

2.9

4.5

6.0

The overall long-term expected rate of return on assets is 10.3%. This is
based on the portfolio as a whole and not the sum of the returns of
individual asset categories. The expected return takes into account the
asset allocation of the Retirement Fund and expected long-term return on
these assets, of which South African equities, foreign investments and SA
fixed interest bonds are the largest contributors.

Experience adjustment

During the March 31, 2007 year end Telkom actuaries have performed a full valuation
while for the March 31, 2006 year end a roll forward method was used, as permitted under
IAS 19, to determine the present value of the benefit obligation and the fair value of the plan
assets using the March 31, 2005 statutory valuation as a base applying the relevant
assumptions determined by management to arrive at the present value of the benefit obligation,
and the fair value of plan assets.
This change in estimate resulted in a movement to the actuarial loss of R700 million and the fair
value of the plan assets of R350 million in the respect of the 31 March 2007 estimates. The remaining
R1,291 million is a result of the actual investment returns exceeding the expected return for the
March 31, 2007 year end.

Funding level per statutory actuarial valuation (%)

100

The number of pensioners registered under the Telkom Retirement Fund

14,323

14,451

14,255

The number of in-service employees registered under the Telkom
Retirement Fund

25,320

25,766

24,939

2006

2007

2008

F-65

29. Employee benefits (continued)

The Telkom Retirement Fund (continued)

The fund portfolio consists of the following:
Equities (%)

Property (%)

Bonds (%)

Cash (%)

Foreign investments (%)

–

The total expected contributions payable to the Retirement Fund for the
next financial year are R514 million.

Vodacom Group Pension Fund

All eligible employees of the Vodacom Group are members of the Vodacom Group Pension Fund, a defined contribution pension scheme. Certain executive employees of the Group are also members of the Vodacom Executive Provident Fund, a defined contribution provident scheme. Both schemes are administered by ABSA Consultants and Actuaries (Proprietary) Limited. The Group’s share of the current contributions to the pension fund amounted to R57 million (2007: R42 million; 2006: R38 million). The Group’s share of the current contributions to the provident fund
amounted to R7 million (2007: R6 million; 2006: R6 milllion). South African funds are governed in terms of the Pension Fund Act of 1956.

Medical benefits

Telkom makes certain contributions to medical funds in respect of current and retired employees. The scheme is a defined benefit plan. The
expense in respect of current employees’ medical aid is disclosed in note 5.1. The amounts due in respect of post-retirement medical benefits
to current and retired employees have been actuarially determined and provided for as set out in note 29. Telkom has terminated future post-
retirement medical benefits in respect of employees joining after July 1, 2000.

There are three major categories of members entitled to the post-retirement medical aid: pensioners who retired before 1994 (‘Pre-94’);
those who retired after 1994 (‘Post-94’); and the in-service members. The Post-94 and the in-service members’ liability is subject to a Rand
cap, which increases annually with the average salary increase.

Eligible employees must be employed by Telkom until retirement age to qualify for the post-retirement medical aid benefit. The most recent
actuarial valuation of the benefit was performed as at March 31, 2008.

Telkom has allocated certain investments to fund this liability as set out in note 13. The cell captive annuity policy qualified as a plan asset in
terms of IAS19, effective June 1, 2006.

2006

2007

2008

F-66

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

29. Employee benefits (continued)

Medical benefits (continued)

Medical aid

Benefit obligation:
At beginning of year

3,079

3,904

4,384

Interest cost

249

286

322

Current service cost

Actuarial loss

712

283

246

Settlement gain

(2)

–

Termination settlement

(29)

–

Benefits paid from plan assets

–

(94)

(125)

Contributions paid by Telkom

(153)

(78)

(61)

Benefit obligation at end of year

3,904

4,384

4,850

Plan assets at fair value:
At beginning of year

–

1,961

Plan asset – initial recognition

–

1,720

–

Expected return on plan assets

–

188

257

Benefits paid from plan assets

–

(94)

(125)

Actuarial gain/(loss)

–

147

(164)

Plan assets at end of year

–

1,961

1,929

Present value of funded obligation

3,904

4,384

4,850

Fair value of plan assets

–

(1,961)

(1,929)

Funded status

3,904

2,423

2,921

Unrecognised net actuarial loss

(1,297)

(1,284)

(1,565)

Liability as disclosed in the balance sheet (refer to note 28)

2,607

1,139

1,356

Expected return on plan asstes

–

188

257

Actuarial return on plan assets

–

147

(164)

Actual return on plan assets

–

335

Principal actuarial assumptions were as follows:
Discount rate (%)

7.5

9.0

Expected return on plan assets (%)

–

13.5

12.0

Salary inflation rate (%)

6.0

7.5

Medical inflation rate (%)

6.5

8.0

Contractual retirement age

Average retirement age

Number of members

17,872

17,119

15,526

Number of pensioners

8,665

8,494

8,430

The valuation results are extremely sensitive to changes in the underlying assumptions. The following table provides an indication of the impact
of changing some of the valuation assumptions above:

2006

2007

2008

F-67

29. Employee benefits (continued)

Medical benefits (continued)

The TDS benefit obligation of R19 million has been excluded from the sensitivity analysis below.

Current assumption

Decrease

Increase

Medical cost inflation rate

8.0%

(1.0%)

1.0%

Benefit obligation

4,831

(672)

845

Percentage change

(13.9%)

17.5%

Service cost and interest cost 2008/2009

521

(76)

Percentage change

(14.6%)

18.6%

Discount rate

9.0%

(1.0%)

1.0%

Benefit obligation

4,831

855

(670)

Percentage change

17.7%

(13.9%)

Service cost and interest cost 2008/2009

521

(35)

Percentage change

7.9%

(6.7%)

PA(90)

Post-retirement mortality rate

Ultimate-1

(10.0%)

10.0%

Benefit obligation

4,831

196

(173)

Percentage change

4.1%

(3.6%)

Service cost and interest cost 2008/2009

521

(17)

Percentage change

3.6%

(3.3%)

The fund portfolio consists of the following:
Equities (%)

Bonds (%)

Cash and money markets investments (%)

Foreign investments (%)

Insurance policies (%)

–

Telephone rebates

Telkom provides telephone rebates to its pensioners. The most recent actuarial valuation was performed as at March 31, 2008. Eligible
employees must be employed by Telkom until retirement age to qualify for the telephone rebates. The scheme is a defined benefit plan.

The status of the telephone rebate liability is disclosed below:

2006

2007

2008

Present value of unfunded obligation

251

307

443

Unrecognised net actuarial loss*

(53)

(25)

(156)

Liability as disclosed in the balance sheet (refer to note 28)

198

282

287

Principal actuarial assumptions were as follows:
Discount rate (%)

7.5

9.0

Rebate inflation rate (%)

0.0

4.0

Contractual retirement age

Average retirement age

*The major increase is attributable to the change in the Rebate inflation rate.

The assumed rates of mortality are determined by reference to the SA85-
90 (Light) Ultimate table, as published by the Actuarial Society of South
Africa, for pre-retirement purposes and the PA(90) ultimate table, minus
one year age rating as published by the Institute and Faculty of Actuaries
in London and Scotland, for retirement purposes.

Number of members

19,164

19,515

18,766

Number of pensioners

11,148

10,918

10,680

F-68

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

29. Employee benefits (continued)

Telkom Conditional Share Plan

Telkom’s shareholders approved the Telkom Conditional Share Plan at the January 2004 Annual General Meeting. The scheme covers both
operational and management employees and is aimed at giving shares to Telkom employees, at a RNil exercise price, at the end of the vesting
period. The vesting period for the operational employees shares awarded in 2004 and 2005 is 0% in year one, 33% in each of the 3 years
thereafter, while the shares allocated in 2006 and 2007 together with management shares vest fully after 3 years. Although the number of
shares awarded to employees will be communicated at the grant date, the ultimate number of shares that vest may differ based on certain
performance conditions being met (Refer note 22).

The weighted average remaining vesting period for the shares outstanding as at March 31, 2008 is 1.25 years (2007: 1.75 years; 2006:
1.75 years).

2006

2007

2008

The following table illustrates the movement of the maximum number
of shares that will vest to employees for the August 2004 grant:

Outstanding at beginning of the year

2,943,124

2,414,207

1,883,991

Granted during the year

1,212

252

Forfeited during the year

(67,573)

(80,923)

(43,790)

Vested during the year

(17,341)

(450,505)

(1,419,863)

Settled during the year

(444,093)

–

Outstanding at end of the year

2,414,207

1,883,991

420,590

The following table illustrates the movement of the maximum number of
shares that will vest to employees for the June 2005 grant:

Outstanding at beginning of the year

–

1,930,687

1,864,041

Granted during the year

2,024,465

1,005

3,469

Forfeited during the year

(62,354)

(67,651)

(108,177)

Vested during the year

(12,328)

–

(323,946)

Settled during the year

(19,096)

–

Outstanding at end of the year

1,930,687

1,864,041

1,435,387

The following table illustrates the movement of the maximum number of
shares that will vest to employees for the November 2006 grant:

Outstanding at beginning of the year

–

1,773,361

Granted during the year

–

1,825,488

833

Forfeited during the year

–

(52,127)

(133,214)

Outstanding at end of the year

–

1,773,361

1,640,980

The following table illustrates the movement of the maximum number
of shares that will vest to employees for the additional November
2006 grant:

Outstanding at beginning of the year

–

Granted during the year

–

4,984,693

Forfeited during the year

–

(172,388)

Outstanding at end of the year

–

4,812,305

The following table illustrates the movement of the maximum number of
shares that will vest to employees for the September 2007 grant:

Outstanding at beginning of the year

–

Granted during the year

–

6,117,163

Forfeited during the year

–

(270,527)

Outstanding at end of the year

–

5,846,636

F-69

29. Employee benefits (continued)

Telkom Conditional Share Plan

The fair value of the shares granted have been calculated by an actuary using
the Black-Scholes-Merton model and the following values at grant date:

August 8,

June 23,

November 2,

September 4,

2004 Grant

2005 Grant

2006 Grant

2007 Grant*

Market share price ( R)

77.50

111.00

141.25

173.00

Dividend yield (%)

2.60

3.60

3.50

*The same information was used for the November 2006 additional grant.

2006

2007

2008

The principal assumptions used in calculating the expected number of
shares that will vest are as follows:

Employee turnover (%)

Meeting specified performance criteria (%)

100

2006

2007

2008

Long-term incentive provision

The long-term incentive provision represents the present value of the
expected future cash outflows to eligible employees that qualify. The
amount of the liability is based on an actuarial valuation. The provision
is utilised when eligible employees of the Vodacom Group receive the
value of vested benefits.

The Group exposure is 50% of the following items:

Net liability at beginning of year

–

122

161

Interest cost

Current service cost

Past service and interest costs

–

Actuarial loss

Net cost

139

163

258

Total benefit payments

(17)

(2)

(33)

Net liability at end of year

122

161

225

The amounts for the current and previous four years are as follows:

2004

2005

2006

2007

2008

Telkom Pension Fund

Defined benefit obligation

(190)

(186)

(281)

(205)

(204)

Plan assets

219

231

243

284

311

Surplus/(deficit)

(38)

107

Asset limitation

–

(29)

Unrecognised actuarial loss/(gain)

100

118

(25)

(23)

Unrecognised/recognised net asset

129

134

Experience adjustment on assets

Experience adjustment on liabilities

(6)

F-70

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

29. Employee benefits (continued)

Telkom Retirement Fund

Defined benefit obligation

(3,162)

(4,020)

(4,377)

(6,581)

(7,101)

Plan assets

3,540

4,477

5,973

7,661

7,991

Surplus

378

457

1,596

1,080

890

Unrecognised actuarial gain/(loss)

382

312

(742)

478

Unrecognised net asset

760

769

854

1,176

1,368

Experience adjustment on assets

1,641

118

Experience adjustment on liabilities

1,234

485

Medical benefits

Defined benefit obligation

(2,378)

(3,079)

(3,904)

(4,384)

(4,850)

Plan assets

–

1,961

1,929

Deficit

(2,378)

(3,079)

(3,904)

(2,423)

(2,921)

Unrecognised actuarial (gain)/loss

(42)

649

1,297

1,284

1,565

Liability recognised

(2,420)

(2,430)

(2,607)

(1,139)

(1,356)

Experience adjustment on assets

147

(164)

Experience adjustment on liabilities

193

Telephone rebates

Defined benefit obligation

(164)

(177)

(251)

(307)

(443)

Unrecognised actuarial (gain)/loss

–

(2)

156

Liability recognised

(164)

(179)

(198)

(282)

(287)

Experience adjustment on liabilities

(25)

2006

2007

2008

30. Trade and other payables

6,103

7,237

8,771

Trade payables

4,371

5,511

6,768

Finance cost accrued

141

Accruals and other payables

1,591

1,704

1,964

Accruals and other payables mainly represent amounts payable for goods received, net of Value-added Tax obligations and licence fees.

Change in comparatives

Trade payables have decreased by R125 million in 2007 (2006: Rnil) due to the reclassification of the Vodacom DRC put option from trade
and other payables to other financial liabilities.

2004

2005

2006

2007

2008

F-71

31. Reconciliation of profit for the year

to cash generated from operations

19,724

20,520

21,256

Profit for the year

9,328

8,849

8,172

Finance charges and fair value movements

1,223

1,125

1,803

Taxation

4,523

4,731

4,704

Investment income

(397)

(235)

(197)

Interest received from debtors

(136)

(190)

(257)

Non-cash items

6,206

6,582

6,930

Depreciation, amortisation, impairment and write-offs

5,876

5,315

6,130

Cost of equipment disposed when recognising finance leases

–

240

Increase in provisions

554

1,107

857

Profit on disposal of property, plant and equipment and intangible assets

(79)

(29)

(147)

Profit on disposal of investment and subsidiaries

(163)

(52)

–

Loss on disposal of property, plant and equipment and intangible assets

(Increase)/decrease in working capital

(1,023)

(342)

101

Inventories

(198)

(393)

(354)

Accounts receivable

(667)

(758)

(784)

Accounts payable

(158)

809

1,239

32. Finance charges paid

(1,316)

(1,115)

(1,077)

Finance charges per income statement

(1,223)

(1,125)

(1,803)

Non-cash items

(93)

726

Movements in interest accruals

(276)

(119)

101

Net discount amortised

423

409

568

Fair value adjustment

(312)

(338)

(243)

Unrealised gain

300

33. Taxation paid

(4,550)

(5,690)

(4,277)

Net liability at beginning of year

(1,711)

(1,549)

(74)

Current taxation (excluding deferred taxation)

(3,795)

(3,545)

(3,807)

Foreign currency translation reserve

–

(32)

Business combinations

(8)

–

Secondary Taxation on Companies

(585)

(670)

(678)

Net taxation liability at end of year

1,549

314

Reconciliation of net taxation liability at end of year

(1,549)

(74)

(314)

Income tax receivable

–

520

Income tax payable

(1,549)

(594)

(323)

2006

2007

2008

F-72

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

34. Dividend paid

(4,884)

(4,784)

(5,732)

Dividend payable at beginning of year

(7)

(4)

(15)

Declared during the year – Dividend on ordinary shares:

(4,801)

(4,678)

(5,627)

Final dividend for 2005: 400 cents

(2,134)

–

Special dividend for 2005: 500 cents

(2,667)

–

Final dividend for 2006: 500 cents

–

(2,599)

–

Special dividend for 2006: 400 cents

–

(2,079)

–

Final dividend for 2007: 600 cents

–

(3,069)

Special dividend for 2007: 500 cents

–

(2,558)

Dividends paid to minorities

(80)

(117)

(110)

Dividend payable at end of year

35. Acquisition and disposals of subsidiaries, joint

ventures and minority shareholders’ interests

35.1 Acquisitions

By Telkom

Africa Online Limited (‘Africa Online’)

On February 23, 2007 Telkom acquired a 100% shareholding of Africa
Online from African Lakes Corporation for a total cost of R150 million,
with a resulting goodwill of R145 million.

Africa Online is an internet service provider active in Cote d’Ivoire, Ghana,
Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.
Africa Online is incorporated in the Republic of Mauritius.

At acquisition date the company was not IFRS compliant and thus no
fair value information based on IFRS was available.

The process of calculating a fair value of the identified assets, liabilities
and contingent liabilities continued after the preceding year end and has
now been finalised.

The fair value of the assets and liabilities acquired were determined
as follows:

Fair value of intangible assets (Licences R1 million, Brand R42 million)

Less: Deferred taxation raised on intangible assets

(12)

Less: Net liabilities acquired (excluding fair value of intangible assets)

(26)

Fair value of net assets acquired

Goodwill

145

Purchase price

150

The goodwill has been allocated to the various cash-generating units (‘CGU’) representative of the countries in which Africa Online Limited
operates. An impairment loss of R12 million was recognised relating to the Tanzanian and Ghana cash generating units in 2008 in order to
write down goodwill to the recoverable amount. The recoverable amount represents the value in use of the CGU’s and has been determined
using 11.6% discount rate.

2006

2007

2008

F-73

35. Acquisition and disposals of subsidiaries, joint

ventures and minority shareholders’ interests (continued)

35.1 Acquisitions (continued)

By the Group’s 50% joint venture, Vodacom

Smartphone SP (Proprietary) Limited and subsidiaries
(‘Smartphone SP’)
On August 30, 2006 the Vodacom Group acquired a further 19% interest.

On August 31, 2007 the Vodacom Group increased its interest in the equity
of Smartphone SP from 70% to 100%. The acquisition was accounted for
using the parent entity extenstion method.

Minority interest acquired

Goodwill

157

466

Purchase price (including capitalised cost)

168

469

Less: Capitalised costs payable

–

(1)

Purchase price

168

468

Smartcom (Proprietary) Limited (‘Smartcom’)
On September 13, 2006 the Vodacom Group increased its interest to 88%.

On September 1, 2007 the Vodacom Group increased its interest in the
equity of Smartcom from 88% to 100%. The acquisition was accounted for
using the parent entity extension method.

Minority interest acquired (<R1 million)

–

Goodwill

Purchase price

The purchase price of R18 million (Group’s share: R9 million) was paid on
September 6, 2007.

Africell Cellular Services (Proprietary) Limited

Effective October 1, 2006 the Vodacom Group acquired the cellular business
of Africell Cellular Services (Proprietary) Limited. The fair value of the assets
and liabilities acquired were determined as follows:

Fair value of assets acquired

Less: Deferred taxation liability (including taxation effect on intangible assets)

(7)

Fair value of net assets acquired

Goodwill

Purchase price

2006

2007

2008

F-74

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

35. Acquisition and disposals of subsidiaries, joint

ventures and minority shareholders’ interests (continued)

35.1 Acquisitions (continued)

By the Group's 50% joint venture, Vodacom
InterConnect s.p.r.l

Effective November 1, 2006 the Vodacom Group acquired the internet
service provider business of InterConnect s.p.r.l. The fair values of the assets
and liabilities acquired were determined as follows:

Fair value of assets acquired

Less: Deferred taxation liability

(2)

Fair value of net assets acquired

Goodwill

Purchase price

The initial purchase price of R21 million (USD3 million) (Group share:
R10 million) excluding capitalised costs was paid on November 1, 2006.

The goodwill related to the acquisition represents future synergies and are
allocated to the Democratic Republic of Congo cash-generating unit.

Cointel V.A.S. (Proprietary) Limited

On August 1, 2005 the Vodacom Group acquired a 51% interest in the
equity of Cointel V.A.S. (Proprietary) Limited.

On October 4, 2006 the Vodacom Group increased its interest to 100% by
acquiring 49% from the minority shareholders. The acquisition was
accounted for using the parent entity extention method. The goodwill related
to the acquisition represents future synergies and are allocated to the mobile
South African cash-generating unit.

Fair value of net assets acquired

–

Minority interest

(23)

Goodwill

Purchase price (including capitalised costs)

Cash and cash equivalents

(42)

–

Cash consideration

–

On October 9, 2006 Smartphone SP (Proprietary) Limited, acquired a 100% shareholding of Cointel V.A.S. (Proprietary) Limited from Vodacom
Group (Proprietary) Limited for R300 million (Group share: R150 million).

As a result of the sale of Cointel V.A.S. (Proprietary) Limited from Vodacom Group (Proprietary) Limited to Smartphone SP (Proprietary)
Limited, R38 million (Group share: R19 million) goodwill was realised, which resulted in the realisation of R17.4 million profit (Group share:
R8.7 million) on consolidation.

2006

2007

2008

F-75

35. Acquisition and disposals of subsidiaries, joint

ventures and minority shareholders’ interests (continued)

35.1 Acquisitions (continued)

By the Group’s subsidiaries

One Africa Television (Proprietary) Limited (‘One Africa Television’)
and Downlink (Proprietary) Limited (‘Downlink’)

On August 13, 2007 Telkom Media acquired a 49% shareholding in One
Africa Television and Downlink respectively, two companies registered in
the Republic of Namibia, for a total cost of R18 million. Telkom Media has
management control and therefore the entities are consolidated into Telkom
Media Group.

Purchase price

The purchase price allocation will be completed in the 2009 financial year
as not all the information was available at year end to finalise it. Goodwill
has not been tested for impairment as the accounting is provisional and
has not been allocated to the various cash-generating units.

Multi-Links Telecommunications Limited (‘Multi-Links Telecommunications’)

On May 1, 2007 Telkom acquired a 75% shareholding in Multi-Links
Telecommunications through Telkom International, a wholly owned South
African subsidiary, for a total cost of R1,985 million.

Multi-Links Telecommunications is a Nigerian Private Telecommunications
Operator with a Unified Access License providing fixed, mobile, data, long
distance and international telecommunications services throughout Nigeria.
Multi-Links is domiciled and incorporated in Nigeria.

At this stage Telkom has not taken a decision to dispose of any operations
as a result of the combination.

At acquisition date the company was not IFRS compliant and thus no fair
value information based on IFRS was available.

The purchase price allocation has been completed during the current year
under review, and has resulted in goodwill being adjusted since the interim
results has been released.

The following intangible assets were identified and valued at the end of
the year:

Customer relationship

Licence

Brand

Fair value of intangible assets

105

202

2006

2007

2008

F-76

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

35. Acquisition and disposals of subsidiaries, joint

ventures and minority shareholders’ interests (continued)

35.1 Acquisitions (continued)

By the Group’s subsidiaries (continued)

Multi-Links Telecommunications Limited (‘Multi-Links
Telecommunications’) (continued)

The fair value of the assets and liabilities acquired were determined
as follows:

Net assets acquired (excluding fair value of intangible assets)

236

Fair value of intangible assets

202

Less: Contingencies recognised

(35)

Less: Deferred taxation raised on intangible assets

(65)

Fair value of net assets acquired

338

Less: Minority interest

(80)

Goodwill

1,727

Purchase price*

1,985

*The purchase price was settled in cash.

Revenue amounting to R845 million and a profit of R23 million are included
in the consolidated annual financial statements, since acquisition date.

The factors that lead to goodwill recognised is a combination of premium
paid and intangible assets not separately identifiable at acquisition.

35.2 Disposals of Subsidiaries

By the Group’s 50% joint venture, Vodacom

Ithuba Smartcall (Proprietary) Limited (‘Ithuba Smartcall’)

On September 3, 2007 the Group disposed of its 52% interest in Ithuba
Smartcall. The fair value of the assets and liabilities disposed of was less
than R1 million.

Stand 13 Eastwood Road Dunkeld (Proprietary) Limited

On September 3, 2007 the Group disposed of its 100% interest in Stand
13 Eastwood Road Dunkeld (Proprietary) Limited. The fair value of the
assets and liabilities disposed were as follows:

Carrying amount of net assets disposed of:

Gain on disposal

Selling price

The consideration was received on September 6, 2007.

2006

2007

2008

F-77

36. Undrawn borrowing facilities and guarantees
36.1 Rand denominated facilities and guarantees

Telkom has general banking facilities of R5,935 million with R41 million utilised at March 31, 2008. The facilities are unsecured. When
drawn bear interest at a rate linked to prime, have no specific maturity date and are subject to annual review. R2,000 million of these undrawn
facilities were committed

The Group exposure is 50% of the following items:

Vodacom has Rand denominated credit facilities totalling R5,788 million with R2,456 million utilised as at March 31, 2008. The facilities that
are uncommitted can also be utilised for loans to foreign entities and are subject to review at various dates (usually on an annual basis).
Certain of the facilities are still subject to the Group’s final acceptance.

2006

2007

2008

Guarantor

Details

Beneficiary

Currency

Vodacom (Proprietary) Limited

All guarantees individually

Various

less than R2 million.

Vodacom Service Provider

All guarantees individually

Various

Company (Proprietary) Limited

less than R2 million.

Vodacom Service Provider

Guarantee in respect of receipt

SA Insurance Association

Company (Proprietary) Limited

of independent intermediaries

for benefit of insurers

of premiums on behalf of short-
term insurers and Lloyd’s under-
writers, and relating to short-term
insurance business carried on in
RSA. Renewable annually.

Smartcom (Proprietary) Limited

Guarantees for salary bank

Various

–

account and debit orders.

Cointel VAS (Proprietary) Limited

Guarantees for operating lease

Various

–

and debit orders.

Vodacom (Proprietary) Limited

Letter of undertaking

Attorneys

–

in respect of land.

36.2 Foreign denominated facilities

and guarantees

Telkom SA Limited

Punctual payment and

Various

USD3 million

–

performance by Africa Online
under the Trade Finance Facility.
Agreement to various banks.

First Bank of Nigeria Plc

Guarantee on lending facility

Nortel Networks

USD18 million

–

147

(on behalf of Mutli-links

from Export Bank of Canada to

Canada

Telecommunications

Nortel Networks for the purchase

Limited)

of Telecommunications equipment
phases – 9a, 9b, 9c and 9d.

Zenith Bank Plc

Guarantee payment to Gilat

Gilat Satcom

USD0.1 million

–

(on behalf of Mutli-links

Satcom Limited in respect of

Limited

Telecommunications

interconnect service (standby

Limited)

letter of credit).

Zenith Bank Plc

Support the bid award of the

(on behalf of Mutli-links

contract for the submission of

Telecommunications

the proposal to provide wire

Limited)

Nigerian Telecommunications
Services.

NCC

USD0.1 million

–

Zenith Bank Plc

Issued in favour of Huawei

Huawei Technology USD31 million

–

250

(on behalf of Mutli-links

Technology Investment Company Investment Company

Telecommunications

Limited for the supply of core

Limited

Limited)

telecommunications services.

Zenith Bank Plc

Issued in favour of Huawei

Huawei Technology USD11 million

–

(on behalf of Mutli-links

Technology Investment Company Investment Company

Telecommunications

Limited for the supply of core

Limited

Limited)

telecommunications services.

–

510

F-78

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

36. Undrawn borrowing facilities and guarantees (continued)

36.2 Foreign denominated facilities and guarantees (continued)

The Group exposure is 50% of the following items:

Vodacom Congo (RDC) s.p.r.l. has various facilities of USD19 million of which USD9 million was fully utilised as at March 31, 2008. Vodacom
International Limited has a revolving term loan of USD180 million which was fully utilised at March 31, 2008. Vodacom Lesotho (Proprietary)
Limited has overdraft facilities with various banks of M40 million of which MNil was utilised at March 31, 2008. VM, S.A.R.L. has an overdraft
facility of USD0.5 million of which USDNil million was utilised at March 31, 2008. Foreign currency term facilities are predominantly US Dollar
based, at various maturities and are utilised for bridging and short-term working capital needs.

2006

2007

2008

Guarantor

Details

Beneficiary

Currency

Nedbank on behalf of

Unsecured standby

Alcatel CIT

€Nil

–

Vodacom

letters of credit

(2007: Nil;

(Proprietary) Limited

2006: €11 million)

Vodacom Group

Guarantees issued for

Standard Bank Plc

USD180 million

1,114

1,312

1,463

(Proprietary)Limited

the obligation of Vodacom and RMB

(2007: USD180 million;

International Limited’s

International

2006: USD180 million)

term loan facility*#

(Dublin) Limited

Vodacom International

Guarantees issued for the Alcatel CIT

€Nil

–

Limited

obligation of Vodacom

(2007: €Nil;

Congo (RDC) s.p.r.l.*

2006: €5 million)

1,238

1,312

1,463

* Foreign denominated guarantees amounting to R1,463 million (2007: R1,312 million; 2006: R1,152 million) issued in support of Vodacom Congo (RDC)

s.p.r.l. are included as liabilities in the consolidated balance sheet.

# The Group is in compliance with the covenants attached to the term loan facility.

Companies within the Group have provided the following guarantees:

Vodacom (Proprietary) Limited provides an unlimited guarantee for borrowings entered into by Vodacom Group (Proprietary) Limited.

2006

2007

2008

37. Commitments

Capital commitments authorised

10,265

11,167

15,198

Fixed-line

6,500

7,000

Mobile

3,746

4,159

5,211

Other

2,987

Commitments against authorised capital expenditure

842

1,099

3,504

Fixed-line

197

506

652

Mobile

642

591

800

Other

2,052

Authorised capital expenditure not yet contracted

9,423

10,068

11,694

Fixed-line

6,302

6,494

6,348

Mobile

3,104

3,568

4,411

Other

935

Capital commitments comprise of commitments for property, plant and equipment and software included in Intangible assets.

Management expects these commitments to be financed from internally generated cash and other borrowings.

F-79

37. Commitments (continued)

2010 FIFA World Cup Commitments

The FIFA World Cup commitments is an executory contract which requires Telkom to develop the fixed-line components of the necessary
telecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of the fixed-line
telecommunications related products and services and, where applicable, the services of qualified personnel necessary for the planning,
management, delivery, installation and de-installation, operation, maintenance and satisfactory functioning of these products and services.
Furthermore as a National Supporter, Telkom owns a tier 3 sponsorship that grants Telkom a package of advertising, promotional and marketing
rights that are exercisable within the borders of South Africa. The total value of the commitment for the year ended March 31, 2008 amounted
to USD35 million.

Total

<1 year

1 – 5 years

>5 years

Operating lease commitments and receivables

2008

Buildings

2,061

341

913

807

Rental receivable on buildings

(266)

(94)

(169)

(3)

Transmission and data lines

709

134

490

Vehicles

1,444

233

1,211

–

Equipment

–

Sport and marketing contracts

680

282

395

Customer premises equipment receivables

(84)

(45)

(39)

–

Total

4,557

861

2,804

892

Customer premises equipment receivable

The disclosed information relates to those arrangements which were
assessed to be operating leases in terms of IAS17.

The comparative information for 2006 is not disclosed as it was not considered to be material.

2007

Buildings

1,465

289

771

405

Rental receivable on buildings

(269)

(91)

(174)

(4)

Transmission and data lines

262

159

Vehicles

573

568

–

Equipment

–

Sport and marketing contracts

441

164

275

Customer premises equipment receivables

(57)

(30)

(27)

–

Total

2,438

974

1,026

438

2006

Buildings

890

240

640

Rental receivable on buildings

(180)

(56)

(122)

(2)

Transmission and data lines

131

102

Vehicles

996

498

–

Equipment

–

Sport and marketing contracts

567

149

418

–

Total

2,439

879

1,551

F-80

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

37. Commitments (continued)

Operating leases

The Group leases certain buildings, vehicles and equipment. The majority of the lease terms negotiated for equipment-related premises are ten years
with other leases signed for five and three years. The bulk of non-equipment related premises are for leases of three years to ten years. The majority
of the leases normally contain an option clause entitling Telkom to renew the lease agreements for a period usually equal to the main lease term.

The minimum lease payments under these agreements are subject to annual escalations, which range from 6% to 15%.

Penalties in terms of the lease agreements are only payable should Telkom vacate a premises and negotiate to terminate the lease agreement
prior to the expiry date, in which case the settlement payment will be negotiated in accordance with the market conditions of the premises.
Future minimum lease payments under operating leases are included in the above note. Onerous leases for buildings, of which Telkom has no
further use, no possibility of sub-lease and no option to cancel, are provided for in full and included in other provisions.

The master lease agreement for vehicles was for a period of five years and then extended for an additional three years which resulted in the
lease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operating lease
commitments for vehicles are based on the new agreement which expires on March 31, 2013. In accordance with this agreement Telkom is
not allowed to lease any similar vehicle as specified in the contract from any other service provider during the five year period except for the
rentals at airport which are utilised in cases of subsistence and travel as well as vehicles which are not part of the agreement.

The agreement is structured to have no lease increases on vehicles that are continually leased from the lessor. If a vehicle is, however, replaced
by a new similar vehicle, the lease costs of the newest vehicle, will increase by the Consumer Price Index. All leased vehicles are, however,
subject to any variance in the interest rate fluctuations and are adjusted as and when the adjustments are announced by the South African Reserve
Bank. The leases of individual vehicles are renewed annually.

The increase in the current year transmission and data line is attributable to Vodacom increasing their operating leases.

The master lease agreements for office equipment are with two suppliers with initial periods of 36 months effective from November 25, 2005.
In terms of these agreements the leases of individual equipment shall be valid for 36 months at a fixed fee for the entire period.

Total

<1 year

1 – 5 years

>5 years

Finance lease commitments

2008

Building
Minimum lease payments

2,182

161

871

1,150

Finance charges

(1,029)

(43)

(603)

(383)

Finance lease obligation

1,153

118

268

767

Equipment
Minimum lease payments

–

Finance charges

(2)

–

(2)

–

Finance lease obligation

–

Vehicles*
Minimum lease payments

242

194

–

Finance charges

(59)

(20)

(39)

–

Finance lease obligation

183

155

–

2007

Building
Minimum lease payments

2,412

227

853

1,332

Finance charges

(1,198)

(166)

(540)

(492)

Finance lease obligation

1,214

313

840

Equipment
Minimum lease payments

–

Finance charges

–

Finance lease obligation

–

* The finance lease commitments disclosed above are future commitments commencing April 1, 2008. Thus not recognised as interest-bearing debt.

F-81

37. Commitments (continued)

Finance lease commitments (continued)

2006

Building
Minimum lease payments

2,644

217

908

1,519

Finance charges

(1,372)

(172)

(587)

(613)

Finance lease obligation

1,272

321

906

Finance leases

Swap bodies are detactable parts of the vehicle designed according to Telkom specifications, which are used as mobile storage.

Finance leases on vehicles relates to the lease of Swap bodies. The lease term for the Swap bodies which have been classified as finance leases
and vehicles which have been classified as operating leases has been renewed from April 2008 to April 2013.

A major portion of the finance leases relates to the sale and lease-back of the Group’s office buildings. The lease term negotiated for the
buildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation of 10% p.a. Telkom has
the right to sublet part of the buildings. In case of breach of contract, the lessor is entitled to cancel the lease agreement and claim damages.

Finance charges accruing on one of the Group’s building leases exceed the lease payments for the next three years. Minimum lease payments
for the next five years do not result in any income accruing to the Group.

Finance leases on equipment relates to the reclassification of operating leases as the result of Telkom adopting IFRIC4, which requires assessment
of whether an arrangement contains a lease. These leases are classified as finance leases in terms of IAS17 since they transfer significant risks
and rewards of ownership to Telkom.

Finance leases on equipment mainly relates to office equipment. The lease term negotiated for the finance leases is for a period of 3 years
ending in 2011.

Other

The group exposure is 50% of the following items:

Global Alliance fees

The Vodacom Group pays annual fees from February 18, 2005 for the services provided by Vodafone Group Plc. The fee is calculated as
a percentage of revenue and amounts to R304 million (2007: R250 million; 2006: R175 million).

Retention incentives

The Vodacom Group has committed a maximum of R1,317 million (2007: R652 million; 2006: R456 million) in respect of customers already
beyond their normal 24 month contract period, but who have not yet upgraded to new contracts, and therefore have not utilised the incentive
available for such upgrades. The Group has not recognised the liability, as no legal obligation exists, since the customers have not yet entered
into new contracts.

Activation bonuses

The Vodacom Group has a potential liability in respect of activation bonuses payable related to starter packs sold which have not yet been
validated. The exposure is estimated at approximately R14 million (2007: R8 million; 2006: R9 million).

Activation commissions

The Vodacom Group has a commitment to a maximum of R119 million (2007: R116 milllion; 2006: R142 million) in terms of activation
commissions on gross prepaid connections in excess of the legal liability recorded in the financial statements.

F-82

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Total

<1 year

1 – 5 years

>5 years

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

38. Contingencies

Third parties

Fixed-line

Mobile

Other

Third parties

These amounts represent sundry disputes with suppliers that are not individually significant and that the Group does not intend to settle.

Supplier dispute

Expenditure of R594 million was incurred up to March 31, 2002 for the development and installation of an integrated end-to-end customer
assurance and activation system to be supplied by Telcordia. In the 2001 financial year, the agreement with Telcordia was terminated and in
that year, Telkom wrote off R119 million of this investment. Following an assessment of the viability of the project, the balance of the Telcordia
investment was written off in the 2002 financial year. During March 2001, the dispute was taken to arbitration where Telcordia was seeking
approximately USD130 million plus interest at a rate of 15.5% per year which was subsequently increased to USD172 million plus interest
at a rate of 15.5% per year in the 2007 financial year for money outstanding and damages. The claims have since been revised by Telcordia
to USD128 million.

The parties have since reached an advanced stage in their preparation to determine the quantum payable by Telkom to Telcordia. Following
the ruling by the Constitutional Court, two hearings were held at the International Dispute Resolutions Centre (IDRC). The first hearing was
held in London on May 21, 2007 and was a ‘directions hearing’ in terms of which the parties consented to a ruling by the arbitrator setting
out a consolidated list of proposals and issues to form part of the quantum hearing.

In the second hearing in London at the IDRC on June 25 and 26, 2007 the arbitrator set out a list of issues for determination of the damages.

At a subsequent hearing during July 2007 in London the arbitrator ruled that the rate in terms of the Prescribed Rate of Interest will apply on
both damages and debt claims, permitted Telcordia to a further amount to Telcordia’s existing claims, permitted VAT to be claimed on Telcordia’s
claim, where applicable, and set out an agreed timetable for the future conduct of proceedings.

A mediation took place, without success, during February and April 2008.

In the interim the parties have agreed to the appointment by the arbitrator of a third party expert to deal with the technical issues in relation
to the software that was required to be provided by Telcardia, who will make a recommendation to the arbitrator in dealing with the amount of
the claims.

The arbitrator confirmed certain dates for the compliance of precedural steps to be taken by all the parties before
final dates could be agreed upon for a hearing of the evidence on the quantum.

A provision has been raised based on management’s best estimate of the probable payments in this regard.

2006

2007

2008

Supplier dispute liability included in current portion of provisions _

527

569*

For the net increase in the provision refer to note 28.

* USD70 million.

Competition Commission

If found guilty Telkom could be required to cease these practices, divest these businesses and a maximum administrative penalty of up to
10%, calculated with reference to Telkom’s annual turnover, excluding the turnover of subsidiaries and joint ventures, for the financial year
prior to the complaint date, may be imposed if it is found that Telkom has committed a prohibited practice as set out in the Competition Act,
1998 (as amended). The Competition Commissions has to date not imposed the maximum penalty on any offender.

F-83

2006

2007

2008

38. Contingencies (continued)

Competition Commission (continued)

This applies to the following cases:

Independent Cellular Service Provider Association of South Africa ('ICSPA')

This is a complaint in terms of the Competition Act, which was brought in 2002. ICSPA alleged that Telkom had entered into contracts
with large corporations, providing large discounts with the effect of the discouraging the corporates from using the ‘premicell’ device installed
by their members. ICSPA alleged various contraventions of the Act. Telkom provided the Competition Commission with certain information
requested. Telkom also referred the Competition Commission to it's High Court application in respect of utilisation of the 'premicell' device.
The Competition Commission declined to refer the matter to the Competition Tribunal. ICSPA then referred the matter to the
Competition Tribunal on September 18, 2003 but has done nothing since, notwithstanding that Telkom filed its answering affidavit on
November 28, 2003. ICSPA has taken no further action since then.

The South African Value Added Network Services (‘SAVA’)

On May 7, 2002 SAVA, an association of Value Added Network Services (VANS) providers, filed complaints against Telkom at the Competition
Commission Competition Act, 89 of 1998, alleging, among other things, that Telkom was abusing its dominant position in contravention of
the Competition Act, 89 of 1998, and that it was engaged in price discrimination. The Competition Commission determined, among other things,
that several aspects of Telkom’s conduct contravened the Competition Act, 89 of 1998, and referred certain of the relevant complaints to the
Competition Tribunal for adjudication. The referred complaints deal with Telkom’s alleged refusal to provide telecommunications facilities to certain
VANS providers to construct their networks, refusal to lease access facilities to VANS providers, provision of bundled and cross subsidised
competitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged refusal to peer with certain
VANS providers.

Telkom brought an application for review against the Competition Commission and the Competition Tribunal in the High Court, in respect of
the decision by the Competition Commission to refer the matters to the Competition Tribunal. Telkom is of the view that the Competition
Tribunal does not have jurisdiction to adjudicate these matters and argued that the Independant Communications Authority of South Africa ('ICASA')
has the requisite jurisdiction. Only the Competition Commission opposed the application and filed an answering affidavit.

The application for review was heard on April 24 and 25, 2008. The High Court Judge agreed with Telkom’s arguments and set aside the decision
of the Competition Commission to refer the SAVA complaints (and the Omnilink complaint against Telkom discussed below) to the Competition
Tribunal. The decision was made based on three grounds:

• The Competition Commission failed to comply with the peremptory provisions of the memorandum of understanding between the Competition

Commission and ICASA;

• The referral was out of time;

• The Competition Commission’s reliance on a report by the Link Centre created a reasonable apprehension of bias, since some of the

complainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complainants in the
SAVA complaints.

The Judge did not make a decision on the matter of jurisdiction (whether ICASA or the Competition Tribunal has the right to rule on the
competition matters in the communications industry). To date, the Competition Commission has not appealed the High Court ruling.

Omnilink

Omnilink alleged that Telkom was abusing its dominance by discriminating in its price for Diginet services as against those charged to VANS
and the price charged to customers who apply for a Telkom IVPN solution. The Competition Commission conducted an enquiry and subsequently
referred the complaint, together with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt with
together with the SAVA matter discussed above.

Orion/Telkom (Standard Bank and Edcon): Competition Tribunal

In April 2003, Orion filed a complaint against Telkom, Standard Bank, and Edcon at the Competition Commission concerning Telkom offering
discounts on public switched telecommunication services to corporate customers. In terms of the rules of the Competition Commission, the
Competition Commission, who acts as an investigator, has one year to investigate the complaint. Orion simultaneously with the filing of the
complaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an interim order interdicting and
restraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s Cellsaver discount plan.

F-84

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

38. Contingencies (continued)

Competition Commission (continued)

Orion/Telkom (Standard Bank and Edcon): Competition Tribunal (continued)

The Competition Commission completed its investigation and decided that there was no prima facie evidence on any contravention of the
Competition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allows
for parties to refer matters to the Competition Tribunal themselves.

Telkom has not yet filed its answering affidavit in the main complaint before the Competition Tribunal. To date there has been no further
developments on this matter.

The Internet Service Providers Association (‘ISPA’)

In December 2005, ISPA, an association of Internet Service Providers (‘ISPs’), filed complaints against Telkom at the Competition Commission
regarding alleged anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to the South African Internet
Exchange (‘SAIX’), the prices offered by Telkom

Internet, the alleged delay in provision of facilities to ISP’s and the alleged favourable installation

timelines offered to Telkom

Internet customers.

The Competition Commission has formally requested Telkom to provide it with certain records of orders placed for certain services, in an attempt
to first investigate the latter aspects of the complaint. Telkom has provided the Competition Commission with the information and is awaiting
the Commissions’ response.

M-Web and Internet Solutions (‘IS’)

On June 29, 2005 M-Web and IS jointly lodged a complaint with the Competition Commission against Telkom and also requested interim relief
at the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing for ADSL retail products and its
IP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of SAIX bandwidth for ADSL users of
other ISP’s, the architecture of the ADSL access route and the manner in which ISP’s can only connect to the ESR via IP Connect as well as
alleged excessive pricing for bandwidth on the international undersea cable.

The application for interim relief at the Competition Tribunal dealt with allegations that Telkom should maintain the peering link between IS
and Telkom in terms of the current peering agreement, and demanded that Telkom treat traffic generated by the ADSL customers of M-Web
as traffic destined for the peering link and that Telkom upgrades the peering link to accommodate the increased ADSL traffic emanating from
M-Web and maintain a maximum of 65% utilisation.

Telkom filed its answering affidavit, and is awaiting IS/M-Web’s replying affidavit. Since then Telkom has entered into a new peering agreement
with IS and has responded to numerous documentation and information requests. To date there has been no further movement on this matter,
either in the filing of a replying affidavit by IS/M-Web in the interim relief application or in the investigation of the matter by the Competition
Commission.

M-Web

On June 5, 2007 M-Web brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner in which
Telkom provides wholesale ADSL internet connections. M-Web requested the Competition Tribunal to grant an order of interim relief against
Telkom to charge M-Web a wholesale price for the provision of ADSL internet connections which is not higher than the lowest retail price.
M-Web further applied for an order that Telkom implement the migration of end customers from Telkom PSTS (ADSL access) to M-Web without
interruption of the service. Although Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the matter in
its answering affidavit filed at the Competition Tribunal. Telkom still had to ‘plead over’ as to the merits of the matter. Telkom also filed an
application in the Transvaal Provincial Division of the High Court on July 3, 2007 for an order declaring that the Competition Tribunal does not
have jurisdiction to hear the application made to it by M-Web.

This application has been set down for hearing during the first quarter of the 2009 financial year. The parties have entered into settlement
negotiations, which resulted in the withdrawal of the interim relief application by M-Web as well as the withdrawal of the jurisdictional challenge
by Telkom. The parties are in further negotiations.

Salary negotiations

Telkom is a party to a collective agreement on substantive matters covering the terms and conditions of employment of its fixed-line unionised
employees and other non-management employees in Telkom’s bargaining unit with ATU and CWU for the period from April 1, 2006 to
March 31, 2009. The long term substantive agreement provides for the re-opening of negotiations in the event the consumer price index varies
from the April 2006 level of 3.7% by more than 3%. Due to inflation increasing beyond this amount, Telkom re-opened the negotiations in
December 2007and thus far, we have not managed to reach settlement. Given the current economic conditions, the various Trade Union
Federations especially COSATU have requested a double-digit increase. If Telkom’s unable to implement workforce reductions as necessary or
outsourcing as planned, particularly as a result of increased competition, or experience significant labour disputes, work stoppages, increased
employee expenses as a result of collective bargaining or compliance with labour laws, Telkom’s business operations could be disrupted and our net
profit could be reduced.

F-85

38. Contingencies (continued)

Negative working capital ratio

At each of the financial periods ended March 31, 2008, 2007 and 2006 Telkom had a negative working capital ratio. A negative working
capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from operating cash
flows, new borrowings and borrowings available under existing credit facilities.

The Group’s exposure is 50% of the following items:

Equity investment

The Vodacom Group through Vodacom Ventures (Proprietary) Limited has acquired a 35% equity stake in a X-Link Communications (Proprietary) Limited
R12 million, which is subject to Competition Commission approval. The Board of Vodacom Group (Proprietary) Limited has also approved the exercise
of the option to acquire a further 15.5% equity investment in WBS Holdings (Proprietary) Limited should certain suspensive conditions be fulfilled.

Customer registration

The telecommunications industry in the Democratic Republic of the Congo is subject to a recently promulgated ministerial decree requiring the
registration of the entire customer base of all network operators. This decree requires prescribed particulars of all customers to be obtained and
maintained by June 30, 2008. The sanction for non-compliance by any operator who has not identified its customers in accordance with the
requirements of this decree within three months from March 28, 2008 could result in:

• a fine equivalent to between USD5 thousand and USD10 thousand per customer; and

• suspension of the licence for a period not exceeding three months in the event of repetition; and

• suspension of the licence in the event of a likely disturbance of law and order/safety.

The Group is making every effort to obtain the required information but management believes it is unlikely that the Group will meet all the
requirements as prescribed in this decree by June 30, 2008. Management is engaging with the relevant ministries on this matter and are
presently unable to reliably assess the potential impact on the Group in the event of non-compliance with this decree.

The Group would be entitled to 50% of the following item:

Contingent Asset

Litigation is being instituted for the recovery of certain fees paid by the Vodacom Group. The information usually required by IAS37 Provisions,
Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the
litigation. The directors are of the opinion that a claim may be successful and that the amount recovered could be significant.

39. Directors’ interest

DD Tabata, one of Telkom’s Board members is a director and shareholder of Vuwa Investments (Proprietary) Limited which acquired a 40%
interest in SAIL Group Limited, with effect from October 1, 2006. SAIL Group Limited is a sports marketing company that does business with
Telkom. Telkom paid R17,094,884 for the financial year for these goods and services (2007: R18,682,568). The outstanding creditor’s balance
in Telkom at March 31, 2008 was R855,000 (2007: R151,924). Vodacom paid R592,474,403 for goods and services from the SAIL
Group (2007: R599,958,860). The outstanding creditor’s balance in Vodacom as at March 31, 2008 was R21,260,584 (2007:
R18,951,705). Vuwa Investments is a consortium member of Amandla Omoya, who has bid to acquire a 10% stake in Vodacom.

SL Arnold, RJ Huntley, E Spio-Garbrah, KST Matthews and VB Lawrence, five of Telkom’s board members, are the South African Government’s
representatives on Telkom’s Board of Directors. At March 31, 2008 the Government held 39.42% (2007: 38.83%; 2006: 37.99%) of
Telkom’s shares.

As at March 31, 2008 A Rhoda (B Molefe resigned March 5, 2008; T. Mahloele resigned on January 30, 2008) was the Public Investment
Corporation (‘PIC’) representative on Telkom’s Board of Directors. As at March 31, 2008 the PIC held 15.23% (2007: 15.27%; 2006: 15.73%)
of Telkom’s shares. On July 3, 2008 A Rhoda resigned and was replaced by B Molefe.

Beneficial

Non-beneficial

Number of shares

Direct

Indirect

Direct

Indirect

Directors shareholding

2008

Executive
RJ September

7,155

–

Total

7,155

–

2007

Non-executive
TF Mosololi

455

–

Total

455

–

F-86

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

39. Directors’ interest (continued)

Directors shareholding (continued)

2006

Non-executive
NE Mtshotshisa

–

TF Mosololi

455

–

Total

455

–

The directors’ shareholding did not change between the balance sheet date and the date of issue of the financial statements.

2006

2007

2008

Directors’ emoluments

Executive

For other services

Non-executive

For services as directors

Fringe

Performance

and other

Fees

Remuneration

bonus

benefits

Total

2008

Emoluments per director:

Non-executive

4,633,933

–

4,633,933

SL Arnold

1,124,373

–

1,124,373

B du Plessis

393,967

–

393,967

MJ Lamberti

–

PSC Luthuli

502,117

–

502,117

TD Mahloele

357,684

–

357,684

KST Matthews

501,217

–

501,217

TF Mosololi

174,960

–

174,960

M Mostert

229,433

–

229,433

DD Tabata

250,583

–

250,583

YR Tenza

305,633

–

305,633

PL Zim

5,333

–

5,333

B Molefe

20,497

–

20,497

A Rhoda

14,286

–

14,286

RJ Huntley

193,833

–

193,833

E Spio-Garbrah**

273,841

–

273,841

Dr. VB Lawrence**

286,176

–

286,176

Executive

–

14,489,833

3,436,308

13,244,896

31,171,037

RJ September*

–

2,453,757

3,436,308

13,218,772

19,108,837

CEO

1,016,524

3,436,308

10,438,538

14,891,370

Acting CEO

1,437,233

–

2,780,234

4,217,467

LRR Molotsane*

–

12,036,076

–

26,124

12,062,200

Total emoluments – paid by Telkom

4,633,933

14,489,833

3,436,308

13,244,896

35,804,970

Beneficial

Non-beneficial

Number of shares

Direct

Indirect

Direct

Indirect

F-87

Fringe

Performance

and other

Fees

Remuneration

bonus

benefits

Total

39. Directors’ interest (continued)

Directors’ emoluments

2007

Emoluments per director:

Non-executive

2,641,168

–

2,641,168

NE Mtshotshisa

463,050

–

463,050

SL Arnold

353,719

–

353,719

TCP Chikane

32,670

–

32,670

B du Plessis

213,367

–

213,367

PSC Luthuli

205,417

–

205,417

TD Mahloele

166,667

–

166,667

KST Matthews

109,643

–

109,643

TF Mosololi

214,417

–

214,417

M Mostert

232,417

–

232,417

DD Tabata

175,367

–

175,367

YR Tenza

321,767

–

321,767

PL Zim

152,667

–

152,667

Executive

–

2,272,785

–

1,653,202

3,925,987

LRR Molotsane*

–

2,272,785

–

1,653,202

3,925,987

Total emoluments – paid by Telkom

2,641,168

2,272,785

–

1,653,202

6,567,155

2006

Emoluments per director:

Non-executive

2,969,158

–

2,969,158

NE Mtshotshisa

759,500

–

759,500

TCP Chikane

181,022

–

181,022

B du Plessis

254,391

–

254,391

PSC Luthuli

168,357

–

168,357

TD Mahloele

223,227

–

223,227

TF Mosololi

230,809

–

230,809

M Mostert

308,272

–

308,272

A Ngwezi

47,727

–

47,727

DD Tabata

323,022

–

323,022

YR Tenza

349,022

–

349,022

PL Zim

123,809

–

123,809

Executive

–

2,186,460

7,070,262

2,990,865

12,247,587

LRR Molotsane*

–

1,250,747

3,442,573

909,675

5,602,995

SE Nxasana

–

935,713

3,627,689

2,081,190

6,644,592

Total emoluments – paid by Telkom

2,969,158

2,186,460

7,070,262

2,990,865

15,216,745

Included in fringe and other benefits is a pension contribution for LRR Molotsane of R4,690 (2007: R295,462; 2006: R162,597), as well as a pension contribution for RJ September of R280,261 paid to the Telkom Retirement Fund, and a payment made in terms of a restraint of trade agreement. Included in remuneration for LRR Molotsane is a payment pursuant to a settlement agreement with Telkom.
LRR Molotsane resigned from Telkom in April 2007 and RJ September was appointed CEO during November 2007.

Foreign Directors.

In the absence of an internal corporate finance division, and pending the structuring and staffing thereof, the Telkom Board resolved that it was in the best interest of the company and shareholders to deploy the highest quality skills currently resident in Telkom, to evaluate, structure and make recommendations to the Board on major transactions.

During the year M Mostert led all efforts in this regard and was remunerated accordingly. Moreover in compliance with the principles of good governance, the Board took legal advice and established that there was not conflict of interest arising out of his involvement in the transaction evaluated.

F-88

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

40. Segment information

Eliminations represent the inter-segmental transactions that have been
eliminated against segment results.

Business Segment

Consolidated operating revenue

47,625

51,619

56,285

Fixed-line

31,832

32,345

32,572

Elimination

(737)

(772)

(830)

Mobile

17,021

20,573

24,089

Elimination

(1,435)

(1,494)

(1,519)

Other

952

979

1,993

Elimination

(8)

(12)

(20)

Consolidated other income

480

384

534

Fixed-line

465

334

497

Elimination

(45)

(46)

(86)

Mobile

Elimination

–

Other

Elimination

–

Consolidated operating expenses

33,428

37,533

42,337

Fixed-line

22,454

24,083

24,962

Elimination

(1,443)

(1,495)

(1,709)

Mobile

12,635

15,185

17,898

Elimination

(710)

(755)

(805)

Other*

564

589

2,115

Elimination

(72)

(74)

(124)

Consolidated operating profit

14,677

14,470

14,482

Fixed-line

9,843

8,596

8,107

Elimination

661

677

793

Mobile

4,436

5,430

6,247

Elimination

(725)

(739)

(714)

Other

398

444

(55)

Elimination

104

Consolidated investment income

397

235

197

Fixed-line

2,720

3,041

3,975

Elimination

(2,398)

(2,850)

(3,832)

Mobile

Other

Consolidated finance charges

1,223

1,125

1,803

Fixed-line

839

856

1,277

Mobile

384

269

240

Other

–

320

Elimination

–

(34)

Consolidated taxation

4,523

4,731

4,704

Fixed-line

2,836

2,652

2,630

Mobile

1,542

1,918

2,055

Other

145

161

2006

2007

2008

F-89

40. Segment information (continued)

Business Segment (continued)

Minority interests

139

203

197

Mobile

109

Other

124

Profit attributable to equity holders of Telkom

9,189

8,646

7,975

Fixed-line

8,888

8,129

8,175

Elimination

(1,737)

(2,173)

(3,039)

Mobile

2,516

3,170

3,906

Elimination

(725)

(739)

(714)

Other

183

197

(491)

Elimination

138

Operating expenses

Other

2,115

Prior to consolidation adjustments

1,830

Consolidation adjustments

285

Consolidated assets

54,306

57,426

68,259

Fixed-line

43,121

44,224

47,829

Elimination

(1,598)

(1,547)

(1,604)

Mobile

12,263

14,026

16,743

Elimination

(258)

(353)

(278)

Other

905

1,188

5,734

Elimination

(127)

(112)

(165)

Investments

2,963

1,461

1,499

Fixed-line

3,093

1,621

4,917

Elimination

(232)

(341)

(3,607)

Mobile

102

181

176

Other

–

Other financial assets

275

259

614

Fixed-line

256

230

445

Mobile

169

Other

–

Total assets

57,544

59,146

70,372

Consolidated liabilities

15,171

15,951

19,689

Fixed-line

10,28 5

10,154

11,892

Elimination

(351)

(458)

(495)

Mobile

6,466

7,416

8,871

Elimination

(1,441)

(1,468)

(1,542)

Other

319

374

971

Elimination

(107)

(67)

(8)

Interest-bearing debt

11,123

10,364

15,733

Fixed-line

9,888

9,082

13,362

Mobile

1,234

1,278

1,815

Other

556

Other financial liabilities

235

229

1,290

Fixed-line

205

167

Mobile

158

204

Other

–

919

2006

2007

2008

F-90

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

40. Segment information (continued)

Business Segment (continued)

Tax liabilities

1,549

594

323

Fixed-line

1,186

–

Mobile

315

556

290

Other

Total liabilities

28,078

27,138

37,035

Other segment information

Capital expenditure for property, plant and equipment

6,310

8,648

10,108

Fixed-line

3,926

5,545

6,044

Mobile

2,350

3,069

2,475

Other

1,589

Capital expenditure for intangible assets

1,196

1,598

1,792

Fixed-line

974

1,049

750

Mobile

221

539

985

Other

Depreciation and amortisation

5,714

5,019

5,601

Fixed-line

4,176

3,298

3,470

Mobile

1,498

1,681

1,955

Other

176

Impairment and asset write-offs

162

296

529

Fixed-line

187

284

262

Mobile

(26)

Other

–

252

Workforce reduction expense – Fixed-line

Geographical segment

Consolidated operating revenue

47,625

51,619

56,285

South Africa

46,154

49,558

52,668

Other African countries

1,487

2,099

3,653

Eliminations

(16)

(38)

(36)

Consolidated operating profit

14,677

14,470

14,482

South Africa

14,665

14,366

14,343

Other African countries

131

294

245

Eliminations

(119)

(190)

(106)

Consolidated assets

57,544

59,146

70,372

South Africa

56,479

56,797

63,772

Other African countries

2,015

3,489

8,785

Eliminations

(950)

(1,140)

(2,185)

Capital expenditure for property, plant and equipment and intangible assets*

7,506

10,246

11,900

South Africa

7,135

9,459

9,781

Other African countries

371

787

2,119

‘South Africa’, which is also the country of domicile for Telkom, comprises the segment information relating to Telkom and its South African
subsidiaries as well as Vodacom’s South African-based mobile communications network, the segment information of its service providers.

Other African countries’ comprises Telkom’s subsidiaries Africa Online Limited and Multi-Links Telecommunications Limited as well
as Vodacom’s mobile communications network in Tanzania, Lesotho, the Democratic Republic of the Congo and Mozambique.

* The Geographical segment capital expenditure has been restated to include capital expenditure on intangible assets.

2006

2007

2008

F-91

41. Related parties

Details of material transactions and balances with related parties not
disclosed separately in the consolidated annual financial statements were
as follows:

With joint venture:
Vodacom Group (Proprietary) Limited

Related party balances
Trade receivables

Trade payables

(256)

(353)

(346)

Related party transactions
Revenue

(710)

(755)

(816)

Expenses

1,435

1,494

1,525

Audit fees

Revenue includes interconnect fees and lease and installation of
transmission lines
Expenses mostly represent interconnect expenses

With shareholders:
Government

Related party balances
Trade receivables

247

271

326

Related party transactions
Revenue

(2,304)

(2,458)

(2,623)

With entities under common control:
Major public entities

Related party balances
Trade receivables

Trade payables

(2)

(6)

(25)

The outstanding balances are unsecured and will be settled in cash in
the ordinary course of business

Related party transactions
Revenue

(370)

(435)

(486)

Expenses

172

238

243

Rent received

(17)

(29)

(21)

Rent paid

2006

2007

2008

F-92

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

41. Related parties (continued)

Key management personnel compensation:

(Including directors’ emoluments)

Related party transactions
Short-term employee benefits

157

176

231

Post-employment benefits

Termination benefits

–

Equity compensation benefits

Other long-term benefits

The fair value of the shares that vested in the current year is R12 million
(2007: RNil; 2006: R3 million).

Terms and conditions of transactions with related parties

The sales to and purchases from related parties of telecommunication services are made at arms length prices. Except as indicated above,
outstanding balances at the year-end are unsecured, interest free (except for interest charged on overdue telephone accounts) and settlement
occurs in cash. Apart from the bank guarantee to the amount not exceeding R23 million (USD3 million) provided to Africa Online, there have
been no guarantees provided or received for related party receivables or payables. Except as indicated above for the year ended March 31,
2008 the Group has not made any impairment of amounts owed by related parties (2007: RNil; 2006: RNil). This assessment is undertaken
each financial year through examining the financial position of the related party and the market in which the related party operates.

42. Investments in joint ventures

Vodacom Group (Proprietary) Limited (‘Vodacom’)

Telkom owns 5,000 shares of 1c each at cost. This amounts to a 50% shareholding in Vodacom. Vodacom is an entity that is jointly controlled
by its venturers, Telkom and Vodafone Plc through a contractual agreement. Telkom applies joint venture accounting in recognising its investment
in Vodacom since it shares control of Vodacom with Vodafone, as set out in the joint venture agreement between the two parties, and has
chosen to proportionately consolidate Vodacom on a line-by-line basis. Some of the provisions in the joint venture agreement that indicate how
the venturers jointly control the activities of Vodacom are as follows:

• The venturers have the right to appoint the 8 non-executive directors of Vodacom. A further 4 executive directors are appointed to the

Board;

• A Directing committee has been established that holds all powers, functions and authority of the directors to act for and on behalf of the

Company. This Directing committee constitutes only the directors as appointed by the venturers;

• All decisions made by the Directing committee are mandatorily ratified by the Board of Directors as the ultimate decision lies with the

Directing committee; and

• The Directing committee, which is composed entirely of venturer appointed directors, is the ultimate oversight committee of, and controls

the activities of, Vodacom.

2006

2007

2008

F-93

42. Investments in joint ventures (continued)

Total assets

12,384

14,235

17,087

Non-current assets

8,040

10,422

12,234

Current assets

4,344

3,813

4,853

Total liabilities and reserves

(12,384)

(14,235)

(17,087)

Reserves

(4,196)

(4,713)

(5,703)

Minority interests

(142)

(110)

(202)

Non-current liabilities

(932)

(1,906)

(2,394)

Current liabilities

(7,114)

(7,506)

(8,788)

The Group’s proportionate share of revenue and expense is as follows:

Revenue

17,021

20,573

24,089

Net operating expenses

(12,586)

(15,142)

(17,844)

Profit before net finance charges

4,435

5,431

6,245

Net finance charges

(320)

(233)

(212)

Net income before taxation

4,115

5,198

6,033

Taxation

(1,542)

(1,918)

(2,055)

Profit after taxation

2,573

3,280

3,978

Minority interest

(58)

(109)

(73)

Net profit for the year

2,515

3,171

3,905

The Group’s proportionate share of cash flow is as follows:
Cash flow from operating activities

2,251

2,429

2,562

Cash flow from investing activities

(2,395)

(3,292)

(3,751)

Cash flow from financing activities

(53)

(100)

1,617

Net (decrease)/increase in cash and cash equivalents

(197)

(963)

428

Effect of exchange rate on cash and cash equivalents

(8)

Cash and cash equivalent at beginning of year

1,085

880

(54)

Cash and cash equivalents at end of year

880

(54)

418

2006

2007

2008

F-94

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

43. Interest in subsidiaries

Country of incorporation: RSA – Republic of South Africa; TZN – Tanzania; LES – Lesotho; MZ – Mozambique; DRC – Democratic Republic of
Congo; MAU – Mauritius; NIG – Nigeria

Nature of business: C – Cellular; S – Satellite; MSC – Management services company; PROP – Property company; OTH – Other.

*Dormant at March 31, 2008.

Interest in issued

Issued share capital

ordinary share capital

Country of

2006

2007

2008

2006

2007

2008

incorporation

Directory advertising (OTH)

TDS Directory Operations (Proprietary) Limited

RSA

R100,000

64.9

Data application services (OTH)

Swiftnet (Proprietary) Limited

RSA

R25,000,000

R5,000,000

100

Other (OTH)

Q-Trunk (Proprietary) Limited

RSA

R10,001,000

100

Intekom (Proprietary) Limited

RSA

R10,001,000

100

Rossal No 65 (Proprietary) Limited

RSA

R100

100

Acajou Investments (Proprietary) Limited

RSA

R100

100

Telkom Media (Proprietary) Limited

RSA

–

R100

–

Africa Online Limited

MAU

–

USD1,000

–

100

Multi-Links Telecommunications

Limited

NIG

–

N300,000,000

–

Telkom International (Proprietary) Limited (MSC)

RSA

R100

100

The aggregate net (loss)/profit of the subsidiaries

is (R186) million (2007: R564 million; 2006:

R471 million)

Vodacom has an interest in the following companies

(Group Share: 50% of the interest in ordinary share

capital as indicated):

Cellular network operators

Vodacom (Proprietary) Limited (C)

RSA

R100

100

Vodacom Lesotho (Proprietary) Limited (C)

LES

M4,180

88.3

Vodacom Tanzania Limited (C)

TZN

TZS10,000

VM, S.A.R.L. (C)

MZ USD60,000,000 USD60,000,000

USD60,000,000

Vodacom Congo (RDC) s.p.r.l. (C)

DRC

USD1,000,000

Service providers

Vodacom Service Provider Company (Proprietary)

Limited (C)

RSA

R20

100

Smartphone SP (Proprietary) Limited (C)*

RSA

R20,000

R 20,000

100

Smartcom (Proprietary) Limited (C)*

RSA

R1,000

R 1,000

43.7

61.7

100

Cointel VAS (Proprietary) Limited (C)*

RSA

R10,204

R 10,204

100

F-95

F-96

Interest in issued

Issued share capital

ordinary share capital

Country of

2006

2007

2008

2006

2007

2008

incorporation

43. Interest in subsidiaries (continued)

Other subsidiaries ofthe Group’s
Joint Venture

Vodacom Service Provider Holdings Company

(Proprietary) Limited (MSC)*

RSA

R1,020

R1,023

100

Vodacom Satellite Services (Proprietary) Limited (OTH)* RSA

R100

100

GSM Cellular (Proprietary) Limited (OTH)*

RSA

R1,200

100

Vodacom Venture No.1 (Proprietary) Limited (OTH)*

RSA

R810

100

Vodacom Equipment Company (Proprietary)

Limited (OTH)*

RSA

R100

100

Vodacare (Proprietary) Limited (OTH)*

RSA

R100

100

Vodacom International Holdings
(Proprietary) Limited (MSC)

RSA

R100

100

Vodacom International Limited (MSC)

MAU

USD100

100

Vodacom Properties No.1 (Proprietary)
Limited (PROP)

RSA

R100

100

Vodacom Properties No.2 (Proprietary)
Limited (PROP)

RSA

R1,000

100

Stand 13 Eastwood Road Dunkeld West
(Proprietary) Limited (PROP)

RSA

R100

–

Ithuba Smartcall (Proprietary) Limited (OTH)

RSA

R100

–

26.5

36.4

–

Smartcall Smartlife (Proprietary) Limited (OTH)

RSA

–

R100

–

Vodacom Tanzania Limited (Zanzibar) (OTH)*

TZN

TZS10,000

Joycell Shops (Proprietary) Limited (OTH)*

RSA

R100

100

Marble Gold Investments (Proprietary)
Limited (OTH) *

RSA

R100

100

Vodacom Ventures (Proprietary) Limited (OTH)

RSA

R120

100

Skyprops 134 (Proprietary) Limited (PROP)

RSA

–

R100

–

100

Indebtness of Telkom subsidiary companies

Swiftnet (Proprietary) Limited

RSA

–

Intekom (Proprietary) Limited

RSA

–

Q-Trunk (Proprietary) Limited

RSA

Rossal No 65 (Proprietary) Limited

RSA

–

Acajou Investments (Proprietary) Limited

RSA

–

Africa Online Limited

MAU

–

Multi-Links Telecommunications
Limited

NIG

–

841

Telkom Media (Proprietary) Limited

RSA

–

326

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

44. Significant events

Swiftnet (Proprietary) Limited

Swiftnet is in breach of its license that requires it to have at least 30% of its shares held by black economic empowerment individuals or entities.
ICASA has required Switfnet to remedy the breach of its license, which expired on August 24, 2006. On February 14, 2007 Telkom announced that
it had entered into an agreement to sell a 30% stakein Swiftnet to the Radio Surveillance Consortium, a group of empowerment investors, for
R55 million following a competitive process run by an independent adviser. The transction would not have required any financial support or facilitation
from Telkom. The transaction received Competition Commission approval on May 28, 2007, but was not approved by ICASA. Swiftnet is currently
seeking black economic empowered individuals or entitied who would be acceptable to ICASA. Swiftnet met with ICASA on January 28, 2008 to
discuss its specific license terms and conditions. Swiftnet has submitted its comments on the draft license terms and conditions to ICASA that
ICASA sent to Swiftnet during October 2007. Swiftnet, assisted by Telkon as its sole shareholder, has had a further meeting with ICASA on
February 27, 2008. It was decided that the draft amended license that ICASA sent to Swiftnet during October 2007 would not form the basis of the conversion process, but instead the original license issued to Swiftnet in August 1995 would be used as the basis for license conversion.
The transaction is still subject to ICASA approval. With regard to shareholder issues, ICASA indicated that there is currently no
agreement within the industry as to acceptable BEE shareholding percentages for all licensees. ICASA indicated that the shareholding issue for
the Swiftnet license would need to be in line with BEE values applicable to other similar licensees.

Telkom Media (Proprietary) Limited

On August 31, 2006 Telkom created a new subsidiary, Telkom Media (Proprietary) Limited with a Black Economic Empowerement (‘BEE’)
shareholding. ICASA awarded Telkom Media a commercial satelite and cable subscription broadcast license on September 12, 2007.

The BEE shareholders are Videovision Entertainment, MSG Afrika Media and WDB Investment Holdings (Proprietary) Limited. As at March 31,
2008 Telkom had a 75% shareholding in Telkom Media, however, in a recent clarification and refinement of its strategy the board has taken
the decision to substantially reduce its investment in Telkom Media (Proprietary) Limited and will be investigating all opportunities to do this
in the best interest of Telkom shareholders and all other stakeholders.

Vodacom BBBEE equity deal

Vodacom is in the process of finalising a R7.5 billion BBBEE (Broad-Based Black Economic Empowerment) equity deal whereby strategic
business partners, employees and the black public will have an opportunity to share in the success of Vodacom South Africa going forward.
Vodacom announced that transaction agreements were signed on June 20, 2008. Telkom is supportive of this transaction but is not in a
position to comment on the impact of the proposed transaction on Telkom as the details relating to the transaction are expected to be announced
by Vodacom in the third quarter of this calender year.

Global Telematics SA (Proprietary) Limited

On October 26, 2007 Vodacom Service Provider Company (Proprietary) Limited (‘VSPC’), entered into an agreement with Global Telematics
SA (Proprietary) Limited (‘Global Telematics’). In terms of the agreement Glocell Service Provider Company (Proprietary) Limited (‘GSPC’),
will cede, transfer and assign its agreements together with all of its obligations and its rights attaching to its customers connected to the
Vodacom Network to Global Telematics. GSPC connects all voice contract customers and sells pre-paid packs on behalf of Global Telematics.
VSCP will acquire the consolidated customers base from Global Telematics which will consist of active prepaid customers, active contract
customers and active telemetry customers, subject to certain suspensive conditions. Once these suspensive conditions are met the transactions
will be effective.

F-97

45. Subsequent events

Dividends

The Telkom Board declared an annual dividend of R3,437 million or 660 cents per share on June 6, 2008 payable on July 7, 2008 for
shareholders registered on July 4, 2008 which will fully utilise the deferred tax asset on STC credits and result in an additional STC charge of
R161 million.

Mobile strategy and unlocking shareholder value

Telkom informed the shareholders that on Friday, May 30, 2008, Telkom received a non-binding proposal from a wholly-owned subsidiary of
Vodafone Group Plc (‘Vodafone’) to acquire a portion of Telkom’s stake in Vodacom Group (Proprietary) Limited (‘Vodacom’) subject to, inter
alia, the Company unbundling its remaining stake in Vodacom to Telkom shareholders.

Separately, on Friday, May 30, 2008 Telkom received a letter from a consortium comprising Mvelaphanda Holdings (Proprietary) Limited,
affiliated funds of Och-Ziff Capital Management Group and other strategic funders (‘the Consortium’), which states that the Consortium is
considering making an offer for the entire issued share capital of Telkom. The letter makes it clear that the offer will only be made if a number
of pre-conditions are met including, inter alia, confirmation by the Telkom Board that it will unbundle Telkom’s entire 50% stake in Vodacom
as part of the offer.

The discussions with Vodafone are independent from the approach from the Consortium. The Board of Telkom, in accordance with its fiduciary
duties, will evaluate all bona fide offers with a view to maximising shareholder value. No transaction will be entered into without requisite
shareholder approvals.

Telkom will advise shareholders of further developments in this regard in due course.

VM, S.A.R.L. trading as Vodacom Mozambique

Effective May 12, 2008 Vodacom International Limited sold 5% of its 90% owned equity investment in Vodacom Mozambique, leaving
Vodacom International Limited with an 85% equity investment in Vodacom Mozambique. Certain suspensive conditions are to be met before
the transaction will be effective.

Capability Management

Telkom will seek to manage costs by realigning its structure, employees and resources to better match its transforming information,
communications and technology business and to improve customer service. The transformation of the communications industry and increasing
market and competitive pressure has put communications companies such as Telkom under increasing revenue and expense constraints
while being required to improve customer service. As a result a capability management initiative has been launched which is designed to
ensure that the capabilities needed to succeed in a converged communications market are established through the optimal utilisation of external
as well as internal capabilities, extracting effiencencies, where possible, through scale of a rapidly maturing retail and wholesale market and
better organised functional areas in a more deregulated and liberalised communications market. The capability management initiative includes
the internal consolidation of certain functional areas and the selection of strategic long-term partners with proven performance for other
functional areas.

The areas which are expected to be impacted are the call centers, operations, ancillary services, network service providers, network field
operations, network core operations, information technology operations and retail outlets.

Telkom Management Services
On July 2, 2008, Telkom received confirmation from the Companies and Intellectual Property Registration Office for the approval and
reservation of a newly set-up company. The approved and reserved name is 'Telkom Management Services'.
Union action
Telkom has recieved a notice from CWU advising Telkom of its intention to embark on some unspecified industrial action.

Other matters

The directors are not aware of any other matters or circumstances since the consolidated annual financial statements for the financial year ended
March 31, 2008 and the date of this report, or otherwise dealt with in the consolidated annual financial statements, which significantly affects
the financial position of the Group and the results of it operations.

F-98

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2008

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Telkom Group Limited

We have audited the accompanying consolidated balance sheets of Vodacom Group
(Proprietary) Limited and subsidiaries (the “Group”) as at March 31, 2008, 2007 and
2006, and the related consolidated income statements, consolidated statements of
changes in equity,

and consolidated cash flow statements for each of the three years in

the period then ended as set out in pages F-101 to F-203.

These consolidated annual

financial statements are the responsibility of the Group’s directors. Our responsibility
is to express an opinion on these consolidated annual financial statements based on
our audits.

We conducted our audits in accordance with International Standards on Auditing and
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement.
The Group is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. An audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on
the Group’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated annual financial statements present fairly, in all
material respects, the financial position of Vodacom Group (Proprietary) Limited and
subsidiaries at March 31, 2008, 2007 and 2006, and the results of its operations and its
cash flows for each of the three years then ended in conformity with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) and in the manner required by the Companies Act of South
Africa.

Deloitte & Touche
Registered Auditors
Per Patrick Smit
Johannesburg, South Africa
10 July 2008

F-100

F-101

CONSOLIDATED INCOME STATEMENTS

2006

2007

2008

Notes

Revenue

34,042.5

41,146.4

48,177.8

Other operating income

125.1

119.8

155.6

Direct network operating cost

(18,297.2)

(22,439.8)

(26,299.5)

Depreciation

(2,651.6)

(2,901.8)

(3,366.0)

Staff expenses

(2,042.1)

(2,372.5)

(2,975.4)

Marketing and advertising expenses

(976.9)

(1,146.4)

(1,264.3)

Other operating expenses

(1,042.7)

(1,063.6)

(1,362.4)

Amortisation of intangible assets

(344.2)

(459.4)

(545.2)

Impairment of assets

52.8

(22.9)

(29.9)

Proﬁt from operations

8,865.7

10,859.8

12,490.7

Finance income

129.9

74.5

72.3

Finance costs

(246.0)

(369.3)

(681.3)

Gains/(Losses) on remeasurement and disposal of
ﬁnancial instruments

(523.1)

(169.0)

185.1

Proﬁt before taxation

8,226.5

10,396.0

12,066.8

Taxation

(3,083.7)

(3,836.0)

(4,109.2)

Net proﬁt

5,142.8

6,560.0

7,957.6

Attributable to:

Equity shareholders

5,026.1

6,342.4

7,811.4

Minority interests

116.7

217.6

146.2

2006

2007

2008

Basic and diluted earnings per share

502,610

634,240

781,140

Dividend per share

450,000

540,000

594,000

for the three years ended March 31, 2008

F-102

2006

2007

2008

Notes

ASSETS

Non-current assets

16,079.2

20,844.3

24,468.3

Property, plant and equipment

13,386.6

17,073.2

19,119.6

Intangible assets

1,954.9

2,700.3

4,224.1

Financial assets

92.1

209.5

244.2

Deferred taxation

297.6

386.1

455.1

Deferred cost

311.2

396.4

333.3

Lease assets

36.8

78.8

92.0

Current assets

8,688.6

7,625.9

9,706.9

Deferred cost

451.8

574.8

705.9

Financial assets

149.3

207.5

444.9

Inventory

454.3

364.3

636.9

Trade and other receivables

4,474.0

5,675.0

6,801.1

Lease assets

13.1

32.9

140.5

Cash and cash equivalents

3,146.1

771.4

977.6

Total assets

24,767.8

28,470.2

34,175.2

EQUITY AND LIABILITIES

Ordinary share capital

Retained earnings

8,583.0

9,523.2

11,392.9

Non-distributable reserves

(194.0)

(97.4)

8.8

Equity attributable to equity holders of the parent

8,389.0

9,425.8

11,401.7

Minority interests

283.3

221.2

403.6

Total equity

8,672.3

9,647.0

11,805.3

Non-current liabilities

2,236.6

3,812.1

4,788.2

Interest bearing debt

819.2

2,051.4

3,025.8

Non-interest bearing debt

3.0

6.0

Deferred taxation

602.3

757.3

776.5

Deferred revenue

320.3

412.3

358.8

Provisions

372.3

377.5

373.7

Other non-current liabilities

122.5

210.6

247.4

Current liabilities

13,858.9

15,011.1

17,581.7

Trade and other payables

5,104.7

6,874.4

7,561.3

Deferred revenue

1,604.5

1,904.8

2,229.9

Taxation payable

630.2

1,112.7

580.5

Non-interest bearing debt

4.3

Interest bearing debt

1,645.5

501.0

502.9

Provisions

623.0

741.8

909.5

Dividends payable

2,800.0

2,990.0

3,190.0

Derivative ﬁnancial liabilities

60.9

7.2

10.8

Bank borrowings

1,385.8

879.2

2,596.8

Total equity and liabilities

24,767.8

28,470.2

34,175.2

* Share capital R100

CONSOLIDATED BALANCE SHEETS

as at March 31, 2008

F-103

Attributable to equity shareholders

Retained

Non-

Total Minority

Total

capital

earnings distributable

interests

equity

reserves

Notes

Balance at March 31, 2005

8,059.1

(299.9) 7,759.2

128.7

7,887.9

Net proﬁt for the period

- 5,026.1

5,026.1

116.7

5,142.8

Dividends declared

19,35

- (4,500.0)

(0.9) (4,500.9)

Business combinations and other acquisitions 19,32

46.5

Minority shares of VM, S.A.R.L.

8.0

Contingency reserve

(2.2)

2.2

Net gains and losses not recognised in the
income statement
Foreign currency translation reserve

103.9

(15.6)

88.3

Revaluation of available-for-sale investments 18,19

(0.2)

(0.1)

(0.3)

Balance at March 31, 2006

8,583.0

(194.0) 8,389.0

283.3

8,672.3

Net proﬁt for the period

6,342.4

217.6

6,560.0

Dividends declared

19,35

- (5,400.0)

(170.8) (5,570.8)

Business combinations and other acquisitions 19,32

(136.4)

Contingency reserve

(2.2)

2.2

Net gains and losses not recognised in the
income statement
Foreign currency translation reserve

94.4

27.5

121.9

Balance at March 31, 2007

9,523.2

(97.4)

9,425.8

221.2

9,647.0

Net proﬁt for the period

7,811.4

146.2

7,957.6

Dividends declared

19,35

- (5,940.0)

(5,940.0)

(0.6)

(5,940.6)

Business combinations and other acquisitions 19,32

(6.1)

Disposal of subsidiaries

19,33

(0.3)

Minority shares of VM, S.A.R.L.

0.8

Contingency reserve

(1.7)

1.7

Net gains and losses not recognised in the
income statement
Foreign currency translation reserve

87.7

42.4

130.1

Revaluation of available-for-sale investments 18,19

16.8

Balance at March 31, 2008

* 11,392.9

8.8 11,401.7

403.6

11,805.3

* Share capital R100

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

for the three years ended March 31, 2008

F-104

CONSOLIDATED CASH FLOW STATEMENTS

for the three years ended March 31, 2008

2006

2007

2008

Notes

CASH FLOW FROM OPERATING ACTIVITIES

Cash receipts from customers

33,132.7

40,380.0

47,409.6

Cash paid to suppliers and employees

(22,042.4)

(26,513.9)

(31,076.1)

Cash generated from operations

11,090.3

13,866.1

16,333.5

Finance costs paid

(214.3)

(326.6)

(669.6)

Finance income received

124.1

41.7

74.3

Realised net losses on remeasurement and disposal of
ﬁnancial instruments

(17.6)

(38.8)

(151.0)

Taxation paid

(2,980.3)

(3,303.3)

(4,721.5)

Dividends paid – equity shareholders

(3,500.0)

(5,300.0)

(5,650.0)

Dividends paid – minority shareholders

(0.9)

(80.8)

(90.6)

Net cash ﬂows from operating activities

4,501.3

4,858.3

5,125.1

CASH FLOW FROM INVESTING ACTIVITIES

Additions to property, plant and equipment and intangible assets

(4,788.4)

(5,955.3)

(6,540.6)

Proceeds on disposal of property, plant and equipment and
intangible assets

31.2

98.3

10.2

Business combinations and other acquisitions

(0.1)

(591.2)

(956.5)

Disposal of subsidiaries

15.7

Other investing activities

(33.5)

(135.7)

(31.0)

Net cash ﬂows utilised in investing activities

(4,790.8)

(6,583.9)

(7,502.2)

CASH FLOW FROM FINANCING ACTIVITIES

Non-interest bearing debt incurred

3.0

Non-interest bearing debt repaid

(3.0)

Interest bearing debt incurred

32.3

6.0

1,000.0

Interest bearing debt repaid

(89.7)

(141.3)

(117.5)

Finance lease capital repaid

(50.2)

(67.7)

(108.9)

Bank borrowings

2,456.0

Share capital and premium movement of minority shareholders

7.2

Net cash ﬂows from/(utilised) in ﬁnancing activities

(107.6)

(200.0)

3,233.8

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

(397.1)

(1,925.6)

856.7

(Bank borrowings)/cash and cash equivalents at the
beginning of the year

2,173.0

1,760.3

(107.8)

Effect of foreign exchange rate changes

(15.6)

57.5

87.9

CASH AND CASH EQUIVALENTS/(BANK BORROWINGS)
AT THE END OF THE YEAR

1,760.3

(107.8)

836.8

March 31, 2008

BASIS OF PREPARATION

These consolidated annual ﬁnancial statements of Vodacom Group (Proprietary) Limited (“the Group”) have been prepared
in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and have been prepared on the historical cost basis, except for ﬁnancial assets and ﬁnancial liabilities (including derivative instruments)
recorded at fair value or at amortised cost. The consolidated annual ﬁnancial statements have been presented in South African Rands, as this is the currency in which the majority of the Group’s transactions are denominated.

The principal accounting policies are consistent in all material respects with those applied in the previous period, except where
disclosed elsewhere.

The following are the principal accounting policies adopted by the Group in the preparation of these consolidated annual
ﬁnancial statements:

ACCOUNTING POLICIES
A.

CONSOLIDATION

A.1 Basis of consolidation

The consolidated annual ﬁnancial statements include the consolidated ﬁnancial position, results of operations and cash
ﬂows of Vodacom Group (Proprietary) Limited and both foreign and domestic entities (subsidiaries, special purpose entities
and joint ventures) controlled and jointly controlled by Vodacom Group (Proprietary) Limited, up to March 31, 2008.

Minority interests are separately presented in the consolidated balance sheets and income statements.

Goodwill on the acquisition of subsidiaries and joint ventures is accounted for in accordance with the Group’s accounting
policy for intangible assets set out below.

A.2 Business combinations

Acquisition of a business

Business combination acquisitions are accounted for using the purchase method of accounting, whereby the acquisition is
accounted for at its cost plus any costs directly attributable to the acquisition. Cost represents the cash or cash equivalents
paid or the fair value or other consideration given, at the date of the acquisition, measured as the aggregate of the fair
values, at the date of the exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the
acquirer, in exchange for control of the acquiree. Business combinations include the acquisition of subsidiaries and joint
ventures.

On acquisition, the identiﬁable assets, liabilities and contingent liabilities of the relevant subsidiaries or joint ventures
that meet the recognition criteria, are measured based upon the Group’s interest in their fair value at the date
of acquisition, except for non-current assets (or disposal groups) that are classiﬁed as held for sale in accordance with
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (“IFRS 5”), which are recognised and measured
at fair value less costs to sell. The interest of minority shareholders is recorded at the minority’s share of the net fair value
of the identiﬁable assets, liabilities and contingent liabilities that meet the recognition criteria. Subsequently, any losses
attributable to minority shareholders in excess of their interest, is allocated against the interest of the Group, except to
the extent that the minority shareholder has a binding obligation and is able to make an additional investment to cover
the losses.

Disposals

On subsequent disposal, the proﬁt or loss on disposal is the difference between the selling price and the carrying value
of net assets and liabilities disposed of, adjusted for any related carrying amount of goodwill in accordance with the
Group’s accounting policies.

A.3 Subsidiaries

Subsidiaries are those entities controlled by the Group. Control is presumed to exist where the Group has an interest of
more than one half of the voting rights and the power to control the ﬁnancial and operating activities of an entity so as
to obtain beneﬁts from its activities. All subsidiaries are consolidated.

Inter-company balances and transactions, and resulting unrealised proﬁts between Group companies, are eliminated in
full on consolidation.

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

F-105

A. CONSOLIDATION (CONTINUED)
A.3 Subsidiaries (continued)

Where necessary, accounting policies of subsidiaries are adjusted to ensure that the consolidated annual ﬁnancial
statements are prepared using uniform accounting policies.

Investments in subsidiaries are consolidated from the date on which the Group has power to exercise control, up to the
date on which power to exercise control ceases.

Minority shareholders are treated as equity participants and, therefore, all subsequent acquisitions of minority interest
by the Group in subsidiary companies are accounted for using the parent entity extension method. Under this method,
the assets and liabilities of the subsidiary are not restated to reﬂect their fair values at the date of the acquisition. The
difference between the purchase price and the minority interest’s share of the assets and liabilities reﬂected within the
consolidated balance sheet at the date of the acquisition is therefore reﬂected as goodwill.

A.4 Joint Ventures

Joint ventures, for the purpose of these consolidated annual ﬁnancial statements, are those entities in which the Group has
joint control through a contractual arrangement with one or more other venturers. Joint control exists when the strategic
ﬁnancial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the
parties sharing control.

Investments in joint ventures are proportionately consolidated from the date on which the Group has power to exercise
joint control, up to the date on which power to exercise joint control ceases.

The Group’s share of the assets, liabilities, income, expenses and cash ﬂows of joint ventures are combined on a
line by line basis with similar items in the consolidated annual ﬁnancial statements.

The Group’s proportionate share of inter-company balances and transactions, and resulting unrealised proﬁt or losses,
between Group companies and jointly controlled entities are eliminated on consolidation.

Joint ventures are included using the proportionate consolidation method, except when the investment is classiﬁed as held
for sale, in which case it is accounted for under IFRS 5.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if
any. Land is not depreciated and is recorded at cost less accumulated impairment losses, if any.

The cost of property, plant and equipment includes all directly attributable expenditure incurred in the acquisition,
establishment and installation of such assets so as to bring them to the location and condition necessary for it to be
capable of operating in the manner intended by management. Interest costs are not capitalised.

Depreciation is calculated so as to write off the cost of property, plant and equipment on a straight-line basis, over the
estimated useful lives to the estimated residual value. Useful lives, residual values and depreciation methods are reviewed
on an annual basis with the effect of any changes in estimate accounted for on a prospective basis. Residual values are
measured as the estimated amount currently receivable for an asset if the asset were already of the age and condition
expected at the end of its useful life. Each signiﬁcant component included in an item of property, plant and equipment is
separately recorded and depreciated.

Depreciation commences when the asset is ready for its intended use (in the case of infrastructure assets this is deemed
to be the date of acceptance). Depreciation of an asset ceases at the earlier of the date the asset is classiﬁed as
held for sale in accordance with IFRS 5 or the date the asset is derecognised. Depreciation is not ceased when assets
are idle.

F-106

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

General purpose buildings and special purpose buildings are generally classiﬁed as owner-occupied. They are therefore
held at cost and depreciated as property, plant and equipment and not regarded as investment properties.

Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined,
are carried at cost, less any recognised impairment loss. Depreciation commences when the assets are ready for their
intended use.

Assets held under ﬁnance leases are depreciated over their expected useful lives on the same basis as owned assets or,
where shorter, the term of the relevant lease if there is no reasonable certainty that the Group will obtain ownership by
the end of the lease term.

Maintenance and repairs, which neither materially add to the value of the assets nor appreciably prolong their useful
lives, are recognised as an expense in the period incurred. Minor plant and equipment items are also recognised as an
expense during the period incurred.

Proﬁts or losses on the retirement or disposal of property, plant and equipment, determined as the difference between the
actual proceeds and the carrying amount of the assets, are recognised in proﬁt or loss in the period in which they occur.
The date of disposal is determined as the date on which the Group has transferred to the buyer the signiﬁcant risks and
rewards of ownership of the goods, the Group retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold, the proceeds on the sale can be measured reliably,
it is probable that the economic beneﬁts associated with the transaction will ﬂow to the Group and the costs incurred or
to be incurred in respect of the transaction can be measured reliably.

Property, plant and equipment acquired in exchange for a non-monetary asset or assets is measured at fair value unless
the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given
up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount
of the asset given up.

Where a network infrastructure site lease contains a restoration clause, or where historical experience indicates that
restoration costs will be incurred, a liability for the site restoration costs is recorded. The liability recorded is measured at
the present value of the estimated future restoration costs to be incurred. The present value of the liability is capitalised
to the underlying infrastructure asset to which the restorations costs relate at the inception of the restoration obligation.
These amounts are amortised over the estimated useful life of the related infrastructure asset. The restoration liability is
accredited to its future value over the lease period.

Changes in the measurement of an existing liability that result from changes in the estimated timing or amount of the
outﬂow of resources required to settle the liability, or a change in the discount rate, are accounted for as follows:

· changes in the liability are added, or deducted from, the cost of the reﬂected asset. If the amount deducted exceeds
the carrying amount of the asset, the excess is recognised immediately in proﬁt and loss.
· adjustments that result in additions to the cost of assets are tested for impairment if it is considered that the new
carrying value of the asset is not fully recoverable.

INVESTMENT PROPERTIES

Investment properties, which are properties held to earn rentals and/or for capital appreciation, are stated at cost less
accumulated depreciation and accumulated impairment losses, if any.

Depreciation is calculated so as to write off the cost of the investment property on a straight-line basis, over its estimated
useful life to its estimated residual value. Depreciation commences when the property is ready for its intended use. The
estimated useful lives of depreciable properties are disclosed under property, plant and equipment and can be general
purpose buildings or special purpose buildings.

F-107

INTANGIBLE ASSETS

Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses, if any.
The following are the main categories of intangible assets:

D.1 Intangible assets with an indeﬁnite useful life

Intangible assets with an indeﬁnite useful life are not amortised but instead are tested for impairment on an annual
basis.

Goodwill

Goodwill represents the excess of the cost of an acquisition of a subsidiary or joint venture, over the Group’s interest
in the fair value of the identiﬁable assets, liabilities and contingent liabilities recognised at the date of acquisition.
Goodwill on the acquisition of subsidiaries and joint ventures is included in intangible assets. If the Group’s interest
in the fair value of identiﬁable assets, liabilities and contingent liabilities recognised at the date of acquisition of a
subsidiary or joint venture exceed the cost of the business combination, the excess is recognised immediately in proﬁt
or loss. Goodwill is tested annually for impairment, or more frequently when there is an indication that the goodwill
may be impaired and carried at cost less accumulated impairment losses, if any. Impairment losses previously
recognised cannot be reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill
relating to the entity sold.

D.2 Intangible assets with a ﬁnite useful life

Intangible assets with ﬁnite useful lives are amortised to proﬁt or loss on a straight-line basis over their estimated useful
lives. Useful lives and amortisation methods are reviewed at the end of each annual reporting period, or more frequently
when there is an indication that the intangible asset may be impaired, with the effect of any changes accounted for
on a prospective basis. Amortisation commences when the intangible asset is available for use. The residual values of
intangible assets are assumed to be zero.

Licences

Licences, which are acquired, other than through a business combination, to yield an enduring beneﬁt, are capitalised
at cost and amortised from the date of commencement of usage rights over the shorter of the economic life or the
duration of the licence agreement.

Customer bases

Cost of contract customer bases, prepaid customer bases and internet service provider customer bases acquired, other
than through a business combination, represents the fair value at the acquisition date of the customer bases. Customer
bases are amortised on a straight-line basis over their estimated useful lives.

Trademarks, patents and other

Purchased trademarks, patents and other acquired, other than through business combinations, are capitalised at
cost and amortised over their estimated useful lives. Expenditure incurred to develop, maintain and renew internally
generated trademarks and patents is recognised as an expense in the period incurred.

Computer software

Computer software that is not considered to form an integral part of any hardware equipment is recorded as intangible
assets. The software is capitalised at cost and amortised over its estimated useful life.

D.3 Intangible assets not available for use

Intangible assets not available for use are not amortised but tested for impairment on an annual basis, or more frequently
when there is an indication that the intangible asset may be impaired.

F-108

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

INVENTORY

Inventory is stated at the lower of cost and net realisable value. Cost is determined by the ﬁrst-in-ﬁrst-out method and
comprises all costs of purchase, costs of conversion and other costs incurred in bringing it to its present location and
condition. Net realisable value represents the estimated selling price in the ordinary course of business less all estimated
costs to completion and the estimated costs necessary to make the sale.

The amount of any write-down of inventory to net realisable value and all losses of inventory are recognised as an
expense in the period that the write-down or loss occurs.

FOREIGN CURRENCIES

F.1 Transactions and balances

Foreign currency transactions are translated, on initial recognition, at the foreign exchange rate ruling at the date of the
transaction.

Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rate ruling at
settlement date or balance sheet date, whichever occurs ﬁrst. Exchange differences on the settlement or translation of
monetary assets or liabilities are included in gains or losses on remeasurement and disposal of ﬁnancial instruments in
proﬁt or loss in the period in which they arise.

Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing
on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in
foreign currency are not retranslated. When a gain or loss on a non-monetary item is recognised directly in equity, any
exchange component of that gain or loss is recognised directly in equity. When a gain or loss on a non-monetary item
is recognised in proﬁt or loss, any exchange component of that gain or loss is recognised in proﬁt or loss.

F.2 Foreign operations

The annual ﬁnancial statements of foreign operations are translated into South African Rands for incorporation into the
consolidated annual ﬁnancial statements. Assets and liabilities are translated at the foreign exchange rates ruling at
balance sheet date. Income, expenditure and cash ﬂow items are translated at the actual foreign exchange rate at the
date of the transaction or average foreign exchange rates for the period.

All resulting unrealised exchange differences are classiﬁed as equity and recognised in the foreign currency translation
reserve. On disposal, the cumulative amounts of unrealised exchange differences that have been deferred are recognised
in proﬁt or loss as part of the gain or loss on disposal.

All gains and losses on the translation of equity loans to foreign entities that are intended to be permanent, whether they
are denominated in one of the entities functional currencies or in a third currency, are recognised in equity.

Goodwill and fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of a foreign
operation are treated as assets and liabilities of the foreign operation and translated at the foreign exchange rates ruling
at the balance sheet date. The resulting exchange differences are classiﬁed as equity and recognised in the foreign
currency translation reserve.

F-109

TAXATION

G.1 Current taxation

The charge for current taxation is based on the results for the period and is adjusted for items that are non-assessable or
disallowed. Current taxation is measured at the amount expected to be paid, using taxation rates and laws that have
been enacted or substantively enacted by the balance sheet date.

G.2 Deferred taxation balances

Deferred taxation is provided using the balance sheet liability method for all temporary differences arising between the
carrying amounts of assets and liabilities, on the consolidated balance sheet, and their respective taxation bases.

Deferred taxation is not provided on differences relating to goodwill for which amortisation is not deductible for taxation
purposes or on the initial recognition of assets or liabilities, which is not a business combination and, at the time of the
transaction, affects neither accounting nor taxable proﬁt or loss.

Deferred taxation liabilities are recognised for taxable temporary differences associated with investments in subsidiaries
and joint ventures, except where the Group is able to control the timing of the reversal of the temporary differences and
it is probable that it will not reverse in the foreseeable future.

Deferred taxation assets are recognised to the extent that it is probable that future taxable proﬁts will be available against
which the associated unused taxation losses or credits and deductible temporary differences can be utilised.

The carrying amount of deferred taxation assets is reviewed at each balance sheet date and reduced to the extent that
it is no longer probable that sufﬁcient taxable proﬁts will be available to allow all, or part of the asset to be recovered.

Deferred taxation assets and liabilities are offset when there is a legally enforceable right to set off current taxation assets
against current taxation liabilities and when they relate to income taxes levied by the same taxation authority and the
Group has the intention to settle its current taxation assets and liabilities on a net basis.

Deferred taxation assets and liabilities are measured at the taxation rates that are expected to apply in the period in
which the asset is realised or the liability is settled, based on taxation rates (and taxation laws) that have been enacted or
substantively enacted by the balance sheet date. The measurement of deferred taxation assets and liabilities reﬂects the
taxation consequences that would follow from the manner in which the Group expects, at the reporting date, to recover
or settle the carrying amount of its assets and liabilities.

Exchange differences arising from the translation of foreign taxation assets and liabilities of foreign entities where the
functional currency is different to the local currency are classiﬁed as a deferred taxation expense or income.

G.3 Current and deferred taxation for the period

Current and deferred taxation are recognised as an expense or income in proﬁt or loss, except when they relate to items
credited or debited directly to equity, in which case the taxation is also recognised directly in equity, or where deferred
taxation arises from the initial accounting for a business combination. In the case of a business combination, the deferred
taxation asset or liability affects goodwill or the amount of any excess of the acquirer’s interest in the net fair value of the
acquiree’s identiﬁable assets, liabilities and contingent liabilities over the cost of the business combination.

G.4 Secondary taxation on companies

Secondary Taxation on Companies (“STC”) is provided for at the prevailing rate on the amount of the net dividend
declared by Vodacom Group (Proprietary) Limited. It is recorded as a taxation expense when dividends are declared.

STC credits on dividends received are recorded as assets in the period that they arise, limited to the amount recoverable
based on the reserves available for distribution.

F-110

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

EMPLOYEE BENEFITS

H.1 Post-employment beneﬁts

The Group provides deﬁned contribution funds for the beneﬁt of employees, the assets of which are held in separate
funds. The funds are funded by payments from employees and the Group. Contributions to the funds are recognised as
an expense in the period in which the employee renders the related service.

The Group has no liability for contributions to the medical aid of retired employees.

H.2 Short-term and long-term beneﬁts

The cost of all short-term employee beneﬁts, such as salaries, employee entitlements to leave pay, bonuses, medical aid
and other contributions, are recognised during the period in which the employee renders the related service. The Group
recognises the expected cost of bonuses only when the Group has a present legal or constructive obligation to make
such payment and a reliable estimate can be made.

The Group provides long-term incentives to eligible employees payable on termination or retirement. The Group’s liability
is based on an actuarial valuation. Actuarial gains and losses on the long-term incentives are accounted for through proﬁt
and loss in the year in which they arise.

H.3 Accumulative termination beneﬁts

Accumulative termination beneﬁts are payable whenever:

· an employee’s employment is terminated before the normal retirement date, or
· an employee accepts voluntary redundancy.

The Group recognises termination beneﬁts when it is constructively obliged to either terminate the employment of current
employees according to a detailed formal plan without possibility of withdrawal or to provide termination beneﬁts as a
result of an offer made to encourage voluntary redundancy. If the beneﬁts fall due more than 12 months after balance
sheet date, they are discounted to present value. If the amount can be reasonably estimated, the measurement of
termination beneﬁts is based on the number of employees expected to accept the offer.

H.4 Compensation beneﬁts

Employees of wholly owned subsidiaries, including executive directors, are eligible for compensation beneﬁts in the
form of a deferred bonus incentive scheme. The beneﬁt is recorded at the present value of the expected future cash
outﬂows.

REVENUE RECOGNITION

Revenue net of discounts, which excludes Value Added Taxation and sales between Group companies, represents
the invoiced value of goods and services supplied by the Group. The Group measures revenue at the fair value of
the consideration received or receivable. Revenue is recognised only 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. If applicable, revenue is split into separately identiﬁable components.

The Group invoices its independent service providers for the revenue billed by them on behalf of the Group. The Group,
within its contractual arrangements with its agents, pays them administrative fees. The Group receives in cash, the net
amount equal to the gross revenue earned less the administrative fees payable to the agents.

The recognition of revenue involves estimates and assumptions with regards to the useful life of the customer base. The
estimates and assumptions are based on past experience.

F-111

REVENUE RECOGNITION (CONTINUED)

The main categories of revenue and bases of recognition for the Group are:

I.1 Contract products

Contract products that may include deliverables such as a handset and 24-month service are deﬁned as arrangements
with multiple deliverables. The arrangement consideration is allocated to each deliverable, based on the fair value of
each deliverable on a stand alone basis as a percentage of the aggregated fair value of the individual deliverables.
Revenue allocated to the identiﬁed deliverables in each revenue arrangement and the cost applicable to these identiﬁed
deliverables are recognised based on the same recognition criteria of the individual deliverable at the time the product
or service is delivered.

· Revenue from the handset is recognised when the product is delivered, limited to the amount of cash received.
· Monthly service revenue received from the customer is recognised in the period in which the service is delivered.
· Airtime revenue is recognised on the usage basis. The terms and conditions of the bundled airtime products,
where applicable, allow the carry over of unused airtime. The unused airtime is deferred in full.
· Deferred revenue related to unused airtime is recognised when utilised by the customer. Upon termination of the
customer contract, all deferred revenue for unused airtime is recognised in revenue.

I.2 Prepaid products

Prepaid products that may include deliverables such as a SIM-card and airtime are deﬁned as arrangements with multiple
deliverables. The arrangement consideration is allocated to each deliverable, based on the fair value of each deliverable
on a stand alone basis as a percentage of the aggregated fair value of the individual deliverables.
Revenue allocated to the identiﬁed deliverables in each revenue arrangement and the cost applicable to these identiﬁed
deliverables are recognised based on the same recognition criteria of the individual deliverable at the time the product
or service is delivered.

· Revenue from the activated SIM-card, representing activation fees, is recognised over the average useful life of a
prepaid customer.
· Airtime revenue is recognised on the usage basis. Unused airtime is deferred in full.
· Deferred revenue related to unused airtime is recognised when utilised by the customer. Upon termination of the
customer relationship, all deferred revenue for unused airtime is recognised in revenue.

Upon purchase of an airtime voucher the customer receives the right to make outgoing voice and data calls to the value
of the airtime voucher. Revenue is recognised as the customer utilises the voucher.

Deferred revenue and costs related to unactivated starter packs which do not contain any expiry date, is recognised in
the period when the probability of these starter packs being activated by a customer becomes remote. In this regard the
Group applies a period of 36 months before these revenue and costs are released to proﬁt or loss.

I.3 Data revenue

Revenue net of discounts, from data services is recognised when the Group has performed the related service and
depending on the nature of the service, is recognised either at the gross amount billed to the customer or the amount
receivable by the Group as commission for facilitating the service.

I.4 Equipment sales

Revenue from equipment sales is recognised only when the Group has transferred to the buyer the signiﬁcant risks and
rewards of ownership of the goods and the Group retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold. This is normally achieved with acceptance
of the goods on the delivery thereof.

Equipment sales to third party service providers are recognised when delivery is accepted. No rights of return exist on
sale to third party service providers.

I.5 Mobile number portability

Revenue transactions from mobile number portability are accounted for in terms of current business rules and revenue
recognition policies above.

F-112

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

REVENUE RECOGNITION (CONTINUED)

I.6 Other revenue and income

· Interconnect and international revenue

Interconnect and international revenue is recognised on the usage basis.

· Dividends

Dividends from investments or subsidiaries are recognised when the shareholder’s right to receive payment has been
established.

· Interest

Interest is recognised on a time proportion basis with reference to the principal amount receivable and the effective
interest rate applicable.

LEASES

J.1 Lease classiﬁcation

Leases involving property, plant and equipment whereby the lessor provides ﬁnance to the lessee with the asset as
security, and where the lessee assumes the signiﬁcant risks and rewards of ownership of those leased assets, are
classiﬁed as ﬁnance leases.

Leases of property, plant and equipment to the lessee, under which the lessor effectively retains the signiﬁcant risks and
rewards of ownership of those leased assets, are classiﬁed as operating leases.

A lease of land and buildings is classiﬁed by considering the land and buildings elements separately. Minimum lease
payments are allocated between the land and buildings elements in proportion to the relative fair values of the land and
leasehold buildings elements of the lease.

J.2 Group as lessee

· Finance leases

Lessee ﬁnance leases are capitalised, as property, plant and equipment, at their cash equivalent cost and a
corresponding ﬁnance lease liability is raised. The cash equivalent cost is the lower of fair value of the asset or the
present value of the minimum lease payments, at inception of the lease. Such assets are depreciated in accordance
with the accounting policy on property, plant and equipment stated above.

Lease payments are allocated between lease ﬁnance costs and a capital reduction of the ﬁnance lease liability. Lease
ﬁnance costs are allocated to proﬁt or loss over the term of the lease using the effective interest rate method, so as to
produce a constant periodic rate of return on the remaining balance of the liability for each period.

· Operating leases

Lessee operating lease rental payments are expensed in proﬁt or loss on a straight-line basis over the lease term.

When an operating lease is terminated before the lease term has expired any payment to the lessor that is required,
by way of penalty, is recognised as an expense in the period in which termination takes place.

J.3 Group as lessor

· Finance leases

Amounts due from lessees under ﬁnance leases are recorded as receivables at the amount of the Group’s net investment
in the leases. Finance lease income is allocated to accounting periods so as to reﬂect a constant periodic rate of return
on the Group’s net investment outstanding in respect of the leases.

· Operating leases

Lessor operating lease rental income is recognised in proﬁt or loss on a straight-line basis over the lease term. Such
leased assets are included under property, plant and equipment and depreciated in accordance with the accounting
policy stated above.

F-113

FINANCIAL INSTRUMENTS

Financial instruments include all ﬁnancial assets, ﬁnancial liabilities and equity instruments including derivative
instruments.

Financial assets and ﬁnancial liabilities, in respect of ﬁnancial instruments, are recognised on the Group's balance sheet
when the Group becomes party to the contractual provisions of the instrument.

· Fair value methods and assumptions

The fair value of ﬁnancial assets and ﬁnancial liabilities are determined as follows:
The fair value of ﬁnancial instruments with standard terms and conditions and traded in active, liquid and organised
ﬁnancial markets are determined with reference to the applicable quoted market prices.

The fair values of derivative instruments are determined using quoted prices or where such prices are not available,
discounted cash ﬂow methods using the applicable yield curve for the duration of the instruments for non-optional
derivatives and option pricing models for optional derivatives. These amounts reﬂect the approximate values of the net
derivative position at the balance sheet date. The quoted market prices used for interest rate derivatives is at the effective
yield basis, while the quoted market prices used for foreign exchange derivatives is at the mid or mid forward rate.

The fair value of other ﬁnancial instruments, excluding derivative instruments, not traded in active, liquid and organised
ﬁnancial markets is determined by using a variety of methods and assumptions that are based on market conditions
and risks existing at balance sheet date, including independent appraisals and discounted cash ﬂow methods.

· Effective interest rate method

The effective interest rate method is a method of calculating the amortised cost of ﬁnancial assets and ﬁnancial
liabilities and of allocating interest income and interest expense over the relevant period. The effective interest rate is
the rate that discounts estimated future cash receipts and future cash payments through the expected life of the ﬁnancial
asset and ﬁnancial liability, or where appropriate a shorter period, to the net carrying amount of the ﬁnancial asset or
ﬁnancial liability.

· Amortised cost

Amortised cost is the amount at which the ﬁnancial asset and ﬁnancial liability is measured at initial recognition less
principal repayments, cumulative amortisation and accumulated impairment losses. The cumulative amortisation of any
difference between the initial amount and the maturity amount of the ﬁnancial asset and ﬁnancial liability is calculated
by using the effective interest rate method and recognised in proﬁt or loss as interest income or interest expense over
the period of the investment or debt.

K.1 Financial assets

Financial assets are classiﬁed into the following categories: ﬁnancial assets at fair value through proﬁt or loss, held-to-
maturity investments, available-for-sale ﬁnancial assets and loans and receivables. The classiﬁcation depends on the
nature and purpose of the ﬁnancial assets and is determined at the time of initial recognition.

The Group’s principal ﬁnancial assets, other than derivatives which are dealt with below, are investments, loans and
other receivables, ﬁnance lease assets, trade and other receivables (excluding Value Added Taxation, prepayments and
operating lease receivables) and cash and cash equivalents.

Financial assets are recognised and derecognised on a trade date where the purchase or sale of the ﬁnancial asset
is under a contract whose terms require delivery of the instrument within the timeframe established by the market
concerned.

All ﬁnancial assets are initially measured at fair value, including transaction costs, except for those ﬁnancial assets
classiﬁed as at fair value through proﬁt or loss which are initially measured at fair value, excluding transaction costs.

F-114

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

FINANCIAL INSTRUMENTS (CONTINUED)

K.1 Financial assets (continued)

The fair value of a ﬁnancial instrument on initial recognition is normally the transaction price unless the fair value is evident
from observable market data.

Subsequent to initial measurement, these instruments are measured as set out below.

· Financial assets at fair value through proﬁt or loss

Financial assets are classiﬁed as at fair value through proﬁt or loss where the ﬁnancial asset is either held for trading
or the ﬁnancial asset is designated at fair value through proﬁt or loss upon initial recognition.

A ﬁnancial asset is classiﬁed as held for trading if:

· it has been acquired principally for the purpose of selling it in the near term;
· it is part of a portfolio of identiﬁed ﬁnancial instruments that the Group manages together and for which there is
evidence of a recent actual pattern of short-term proﬁt-taking; or
· it is a derivative that it is not designated as an effective hedging instrument or a derivative that is a ﬁnancial
guarantee contract.

Financial assets are designated upon initial recognition at fair value through proﬁt or loss when:

· such designation eliminates or signiﬁcantly reduces a measurement or recognition inconsistency that would otherwise
arise;
· the ﬁnancial asset forms part of a group of ﬁnancial assets or ﬁnancial liabilities or both, which is managed and its
performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or
investment strategy and information about the grouping is provided internally on that basis; or
· it forms part of a contract containing one or more embedded derivatives which do not signiﬁcantly modify cash ﬂows
and can be separated from the hybrid contract.

Financial assets at fair value through proﬁt or loss are subsequently measured at fair value, with any resultant
remeasurement gains and losses recognised in gains or losses on remeasurement and disposal of ﬁnancial instruments
in proﬁt or loss. The net gain or loss recognised in proﬁt or loss incorporates any gains or losses on remeasurement,
dividends and interest income on the ﬁnancial asset.

These ﬁnancial assets are classiﬁed as current assets if they are either held for trading or expected to be realised within
twelve months of the balance sheet date.

· Held-to-maturity investments

Held-to-maturity investments are non-derivative ﬁnancial assets with ﬁxed or determinable payments and ﬁxed maturities
that the Group has the positive intent and ability to hold to maturity.

Held-to-maturity investments are subsequently measured at amortised cost using the effective interest rate method less
any impairment loss. Interest income is recognised in proﬁt or loss by applying the effective interest rate.

· Available-for-sale ﬁnancial assets

Investments in equity instruments, excluding those in subsidiaries, joint ventures and those acquired principally for the
purpose of generating a proﬁt from the short-term ﬂuctuations in price, are classiﬁed as available-for-sale investments and
are subsequently measured at fair value. Gains and losses from changes in fair value of available-for-sale investments
are recognised directly in equity until the ﬁnancial asset is disposed of or it is determined to be impaired, at which
time the cumulative gain or loss previously recognised in equity is recognised in gains or losses on remeasurement and
disposal of ﬁnancial instruments in proﬁt or loss.

The net gain or loss recognised in proﬁt or loss incorporates any gains or losses on remeasurement transferred from
equity to proﬁt or loss, dividends and interest income on the ﬁnancial asset.

These investments are classiﬁed as non-current assets unless management intends to dispose of the investments within
twelve months of the balance sheet date.

F-115

FINANCIAL INSTRUMENTS (CONTINUED)

K.1 Financial assets (continued)

· Loans and receivables

Trade and other receivables (excluding Value Added Taxation, prepayments and operating lease receivables), loans,

finance lease assets and cash and cash equivalents that have fixed or determinable payments that are not quoted in
an active market are classified as loans and receivables.

Loans and receivables are subsequently measured at amortised cost using the effective interest rate method less

any impairment loss. Interest income is recognised in profit or loss by applying the effective interest rate, except for
short-term trade receivables where the recognition of interest would be immaterial. Trade receivables are carried at
original invoice amount less any impairment loss.

The terms of loans granted are renegotiated on a case by case basis if circumstances require renegotiation.

The accounting policy for bank and cash balances is dealt with under cash and cash equivalents set out below.

· Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at

each balance sheet date. Financial assets are impaired and impairment losses are incurred where there is objective
evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the
estimated future cash flows of the financial asset has been impacted and the Group will not be able to collect all
amounts due according to the original terms of the financial asset.

Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the

attention of the holder of the asset about the following loss events:

· significant financial difficulty of the issuer or obligor;
· a breach of contract, such as default or delinquency in interest or principal payments;
· it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
· the disappearance of an active market for the financial asset because of financial difficulties; or
· observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of
financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the
individual financial assets in the Group.

· Financial assets carried at amortised cost

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original
effective interest rate.

The carrying amount of financial assets carried at amortised cost is reduced directly by the impairment loss with
the exception of trade receivables where the carrying amount is reduced through the use of an allowance account.
The amount of the allowance account is the difference between the carrying amount and the recoverable amount.
When management deems a trade receivable to be uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited to profit or loss. Changes in the carrying amount
of the allowance account are recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed,
either directly or by adjusting the allowance account, through profit or loss. The carrying amount of the financial
asset at the date the impairment is reversed will not exceed what the amortised cost would have been had the
impairment not been recognised.

F-116

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

FINANCIAL INSTRUMENTS (CONTINUED)

K.1 Financial assets (continued)

· Available-for-sale ﬁnancial assets

When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and
there is objective evidence that the asset is impaired, the cumulative loss recognised directly in equity is removed
from equity and recognised in profit or loss. The amount of the cumulative loss removed from equity to profit or loss
is the difference between the acquisition cost and current fair value, less any impairment loss previously recognised
in profit or loss.

Reversal of impairment losses on available-for-sale equity investments is recognised directly in equity, while the
reversal of impairment losses on available-for-sale debt instruments is recognised in profit or loss.

K.2 Financial liabilities and equity instruments

· Classification as equity, debt or compound instruments

Financial liabilities and equity instruments issued by the Group are classified on initial recognition as debt or equity

or compound instruments in accordance with the substance of the contractual arrangement and the definitions of a
financial liability and an equity instrument.

· Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of

its liabilities.

The Group’s principal equity instrument is ordinary share capital, which is recorded at the proceeds received, net of

any direct issue costs.

· Financial liabilities

Financial liabilities are classified into the following categories: financial liabilities at fair value through profit or loss,

financial liabilities held at amortised cost and financial guarantee contract liabilities. The classification depends on the
nature and purpose of the financial liabilities and is determined at the time of initial recognition.

The Group’s principal financial liabilities, other than derivatives which are dealt with below, are interest bearing debt,

non-interest bearing debt, trade and other payables (Value Added Taxation, revenue charged in advance and reduced
subscriptions excluded), dividends payable, bank borrowings and other short-term debt.

All financial liabilities are initially measured at fair value, including transaction costs, except for those financial liabilities

classified as at fair value through profit or loss, which are initially measured at fair value, excluding transaction costs.

The fair value of a financial instrument on initial recognition is normally the transaction price unless the fair value is

evident from observable market data.

F-117

FINANCIAL INSTRUMENTS (CONTINUED)

K.2 Financial liabilities and equity instruments (continued)

Subsequent to initial measurement, these instruments are measured as set out below.

· Financial liabilities at fair value through profit or loss

Financial liabilities are classified at fair value through profit or loss where the financial liability is either held for trading

or the financial liability is designated at fair value through profit or loss upon initial recognition.

A financial liability is classified as held for trading if:

· it has been incurred principally for the purpose of repurchasing it in the near term;
· it is part of a portfolio of identified financial instruments that the Group manages together and for which there is
evidence of a recent actual pattern of short-term profit-taking; or
· it is a derivative that is not designated as an effective hedging instrument or a derivative that is a financial guarantee
contract.

Financial liabilities are designated upon initial recognition at fair value through profit or loss when:

· such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise
arise;
· the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and
its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or
investment strategy, and information about the groupings is provided internally on that basis; or
· it forms part of any contract containing one or more embedded derivatives.

Financial liabilities at fair value through profit or loss are subsequently measured at fair value, with any resultant

remeasurement gains and losses recognised in gains or losses on remeasurement and disposal of financial instruments
in profit or loss. The net gain or loss recognised in profit or loss incorporates any gains or losses on remeasurement
and interest paid on the financial liability.

These financial liabilities are classified as current liabilities if they are either held for trading or expected to be settled

within twelve months of the balance sheet date.

· Financial liabilities held at amortised cost

Interest bearing debt, including finance lease obligations, non-interest bearing debt, bank borrowings and other

short-term debt are subsequently measured at amortised cost using the effective interest rate method. Interest expense
is recognised in profit or loss by applying the effective interest rate.

The terms of loans received are renegotiated on a case by case basis if circumstances require renegotiation.

Interest bearing debt and non-interest bearing debt are classified as current liabilities unless the Group has an

unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

Trade and other payables are carried at the original invoice amount.

Dividends payable are stated at amounts declared.

Preference shares, which are mandatory redeemable on a specific date, are classified as liabilities. The dividends on

these preference shares are recognised in profit or loss as interest expense.

A contract that contains an obligation for the Group to purchase its own equity instrument for cash or another financial

asset gives rise to a financial liability and is accounted for at the present value of the redemption amount. On initial
recognition its fair value is reclassified directly from equity. Subsequent changes in the liability are included in profit
and loss. On expiry or exercise of the option the carrying value of the liability is reclassified directly to equity.

The accounting policy for bank borrowings and other short-term debt is dealt with under cash and cash equivalents set

out below, while the accounting policy for finance lease obligations is dealt with under leases set out above.

F-118

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

FINANCIAL INSTRUMENTS (CONTINUED)

K.2 Financial liabilities and equity instruments (continued)

· Financial guarantee contract liabilities

Financial guarantee contracts represent contracts that require the issuer to make specified payments to reimburse
the holder of the instrument for a loss it incurs because a specified debtor fails to make payments when they are
contractually due.

Financial guarantee contract liabilities are measured initially at fair value and subsequently at the higher of the amount
determined in accordance with the Group’s policy on provisions as set out below, or the amount initially recognised
less, when appropriate, cumulative amortisation.

K.3 Derivative financial instruments

The Group’s principal derivative financial instruments are option contracts, interest rate swaps and foreign exchange
forward contracts.

The Group recognises all derivative instruments on the consolidated balance sheet at fair value, including certain
derivative instruments embedded in other contracts. Derivatives are initially measured at fair value on the contract date
and are subsequently remeasured to fair value at each reporting date. Changes in the fair value of derivative instruments
are recorded in profit or loss as they arise.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives unless the
risks and characteristics are closely related to those host contracts and the host contracts are carried at fair value.

The Group does not use derivatives for trading or speculative purposes. Derivatives are not designated into an effective
hedge relationship and are classified as current assets or a current liability.

K.4 Derecognition

Financial assets, or a portion thereof, are derecognised when the Group’s rights to the cash flow expire or when the
Group transfers substantially all the risks and rewards related to the financial asset or when the entity loses control of
the financial asset. On derecognition, the difference between the carrying amount of the financial asset and proceeds
receivable and any prior adjustment to reflect fair value that had been reported in equity are included in profit or loss.

Financial liabilities, or a portion thereof, are derecognised when the obligation specified in the contract is discharged,
cancelled or expired. On derecognition, the difference between the carrying amount of the financial liability, including
related unamortised costs, and settlement amounts paid are included in profit or loss.

K.5 Offset

Where a legally enforceable right of offset exists for recognised financial assets and financial liabilities, and there is an
intention to settle the liability and realise the asset simultaneously, or to settle on a net basis, all related financial effects
are offset.

PROVISIONS

Provisions are recognised when the Group has a present legal or constructive obligation resulting from past events, for
which it is probable 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. A past event is deemed to give rise to a present
obligation if, taking into account all of the available evidence, it is more likely than not that a present obligation exists at
balance sheet date.

The amount recognised, as a provision is the best estimate of the expenditure required to settle the present obligation
at balance sheet date, taking into account risks and uncertainties surrounding the provision. Long-term provisions are
discounted to net present value.

F-119

M. IMPAIRMENT OF ASSETS

Goodwill and other assets that have an indefinite useful life and intangible assets not available for use are tested
annually for impairment and when events or changes in circumstances indicate that the carrying amount may not be
recoverable.

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.

An impairment loss is recognised if the recoverable amount of an asset is less than its carrying amount. The impairment
loss is recognised as an expense in profit or loss immediately. The recoverable amount of an asset is the higher of the
asset’s fair value less cost of disposal and its value in use.

The fair value represents the amount obtainable from the sale of an asset in an arm’s length transaction between
knowledgeable, willing parties.

The value in use of an asset represents the expected future cash flows, from continuing use and disposal that are
discounted to their present value using an appropriate pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset.

For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount
is determined for the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest identifiable
group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups
of assets. For the purpose of impairment testing, goodwill is allocated to the cash-generating units expected to benefit
from the synergies of the combination. An impairment loss is recognised whenever the recoverable amount of a cash-
generating unit is less than its carrying amount.

The impairment loss is allocated to reduce the carrying amount of the assets of the cash-generating unit, first to goodwill
in respect of the cash generating unit, if any, and then to the other assets on a pro-rata basis based on their carrying
amounts. The carrying amount of individual assets are not reduced below the higher of its value in use, zero or fair value
less cost of disposal.

A previously recognised impairment loss related to assets is reversed if there has been a change in the estimates used
to determine the recoverable amount, however not to an amount higher than the carrying amount that would have been
determined had no impairment loss been recognised in prior periods. No goodwill impairment losses are reversed.

After the recognition of an impairment loss, any depreciation or amortisation charge for the asset is adjusted for future
periods to allocate the asset’s revised carrying amount, less its estimated residual value, on a systematic basis over its
remaining useful life.

F-120

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

N. INSURANCE CONTRACTS
N.1 Premiums

Outward reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct
insurance business assumed.

The net earned portion of premiums received is recognised as revenue. Premiums are earned from the date of attachment of
risk, over the indemnity period, based on the pattern of risks underwritten. Outward reinsurance premiums are recognised as
an expense in accordance with the pattern of indemnity received.

N.2 Unearned premium income

Unearned premium income comprises the proportion of premiums written which is estimated to be earned in subsequent
financial years, computed separately for each insurance contract using a time proportionate basis or another suitable basis for
uneven risk contracts.

N.3 Claims incurred

Claims incurred consist of claims and claims handling expenses paid during the financial year together with the movement in
the provision for outstanding claims. Claims outstanding comprise provisions for the Group’s estimate of the ultimate cost of
settling all claims incurred but unpaid at the balance sheet date whether reported or not, and an appropriate risk margin.

N.4 Contingency reserve

A reserve in equity is made for the full amount of the contingency reserve as required by the regulatory authorities in South
Africa. Transfers to and from this reserve are treated as appropriations of retained earnings.

O. CASH AND CASH EQUIVALENTS

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, deposits held on
call, net of bank borrowings, all of which are available for use by the Group unless otherwise stated.

Cash on hand is initially recognised at fair value and subsequently measured at its face value.

Deposits held on call are classified as loans and receivables by the Group and carried at amortised cost. Due to the short-term
nature of these, the amortised cost normally approximates its fair value.

Bank borrowings, consisting of interest-bearing short-term bank loans, repayable on demand and overdrafts are recorded at
the proceeds received, net of direct issue costs. Finance costs, including premiums payable on settlement or redemption, are
accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled
in the period in which they arise.

BORROWING COSTS

Borrowing costs are expensed as they are incurred.

Q. EXPENSES

Marketing and advertising costs are expensed as they are incurred. Prepaid costs related to annual events sponsorships are

expensed over the duration of the event. Restraint of trade payments are made to limit an executive’s post employment activities
and are expensed as incurred.

F-121

F-122

INCENTIVES

Incentives paid to service providers and dealers for products delivered to the customer are expensed as incurred. Incentives paid

to service providers and dealers for services delivered are expensed over the period that the related revenue is recognised.

Distribution incentives paid to service providers and dealers for exclusivity are deferred and expensed over the contractual

relationship period.

S. NON-CURRENT ASSETS HELD FOR SALE

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through
a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly
probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be
committed to the sale, which should be expected to qualify for recognition as a complete sale within one year from the
date of classification.

Non-current assets and disposal groups classified as held for sale are measured at the lower of the assets’ previous
carrying amount and fair value less cost to sell.

USE OF ESTIMATES

The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. It also
requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas
involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the
financial statements are disclosed in the relevant sections of the financial statements. Although these estimates are based
on management’s best knowledge of current events and actions they may undertake in the future, actual results ultimately
may differ from those estimates.

COMPARATIVES

Certain comparative figures have been reclassified, where required or necessary, in accordance with current period
classifications and presentation.

OPERATING SEGMENTS

The Group discloses its operating segments according to the entity components regularly reviewed by the chief operating
decision maker. The components comprise of geographical operating segments located in South Africa and non-South
African countries.

Segment information is prepared in conformity with the measure that is reported to the chief operating decision maker.
These values have been reconciled to the consolidated financial statements. The measure reported by the Group is in
accordance with the accounting policies adopted for preparing and presenting the consolidated financial statements.

Segment revenue excludes Value Added Taxation and includes intergroup revenue. Net revenue represents segment
revenue from which intergroup revenue has been eliminated. Sales between segments are made on a commercial basis.
Segment profit or loss from operations represents segment revenue less segment operating expenses. Segment expenses
include direct and operating expenses. Impairments, depreciation and amortisation have been allocated to the segments
to which they relate.

The segment assets and liabilities comprise all assets and liabilities of the different segments that are employed by the
segment and that either are directly attributable to the segment, or can be allocated to the segment on a reasonable
basis.

Capital expenditure in property, plant and equipment and intangible assets has been allocated to the segments to which
it relates.

F-123

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

1. REVENUE

Airtime and access

20,085.8

23,707.5

27,095.2

Data revenue

2,037.6

3,341.7

5,002.2

Interconnect revenue

6,696.8

7,835.6

8,887.1

Equipment sales

3,985.6

4,699.1

5,051.4

International airtime

971.2

1,305.8

1,835.9

Other

265.5

256.7

306.0

34,042.5

41,146.4

48,177.8

2. DIRECT NETWORK OPERATING COST

Airtime and access

(5,596.0)

(6,929.0)

(7,838.6)

Data expenditure

(320.0)

(531.3)

(757.0)

Interconnect cost

(4,312.2)

(5,179.9)

(6,039.2)

Equipment cost

(4,173.9)

(5,022.8)

(5,519.1)

International airtime cost

(322.1)

(456.2)

(518.1)

Regulatory fees

(812.1)

(979.7)

(1,054.9)

Network operational expenses *

(1,781.0)

(2,248.1)

(2,778.7)

Other

(979.9)

(1,092.8)

(1,793.9)

(18,297.2)

(22,439.8)

(26,299.5)

* Network operational expenses include transmission
rental, site costs and site maintenance.

3. IMPAIRMENT OF ASSETS

Intangible asset

(0.1)

(0.3)

Goodwill

(0.2)

Computer software

(0.1)

Property, plant and equipment

52.9

(22.6)

(29.9)

Infrastructure

59.9

(17.9)

(23.9)

Information services

(5.6)

(3.7)

(3.2)

Motor vehicles

(0.3)

(0.8)

Furniture and ofﬁce equipment

(0.5)

(0.3)

(0.6)

Leasehold improvements

(0.3)

(0.1)

(0.7)

Other assets

(0.3)

(0.7)

(Impairment recognised)/impairment reversed

52.8

(22.9)

(29.9)

Due to the competitive and economic environment in which VM, S.A.R.L. operates in Mozambique, the Group assessed the
assets for impairment in accordance with the requirements of IAS 36: Impairment of Assets (“IAS 36”). The recoverable amount
of these assets was based on the fair value less cost of disposal at March 31, 2008, 2007 and 2006. The amount with which
the carrying amount exceeded the recoverable amount is recognised as an impairment loss. The reversal of the impairment loss
in the 2006 ﬁnancial year related to an increase in the fair value of infrastructure assets due to exchange rate ﬂuctuations.

F-124

2006

2007

2008

4. PROFIT FROM OPERATIONS

The proﬁt from operations is arrived at after taking the following
income/(expenditure) into account:

Net (loss)/proﬁt on disposal of property, plant and equipment
and intangible assets

(26.8)

26.9

(39.3)

Loss on disposal of property, plant and equipment
and intangible assets

(27.5)

(30.3)

(42.2)

Proﬁt on disposal of property, plant and equipment
and intangible assets

0.7

57.2

2.9

Proﬁt on disposal of shares in subsidiary

17.4

8.0

Auditor's remuneration - audit fees

(14.9)

(16.6)

(23.3)

Current year audit fees

(14.0)

(16.2)

(21.1)

Prior year under-provision of audit fees

(0.8)

(0.2)

(1.4)

Telkom costs

(4.8)

(6.1)

(5.1)

Telkom recovery

4.8

6.1

5.1

Expenses

(0.1)

(0.2)

(0.8)

Auditor’s remuneration - other services

(2.1)

(0.6)

(3.0)

Professional fees for consultancy services

(112.2)

(147.1)

(203.7)

Operating lease rentals

(870.7)

(1,259.1)

(1,550.3)

GSM transmission and data lines

(787.9)

(965.8)

(1,224.7)

Ofﬁce

accommodation

(47.6)

(65.1)

(94.0)

Other

accommodation

(33.0)

(223.4)

(225.6)

Ofﬁce

equipment

(1.1)

(0.2)

Motor

vehicles

(1.1)

(4.6)

(5.8)

Staff expenses - pension and provident fund contributions

(89.3)

(97.4)

(126.9)

Pension fund contributions

(76.4)

(84.7)

(113.4)

Provident fund contributions

(12.9)

(12.7)

(13.5)

Increase in provision for obsolete inventory (Note 14)

(15.9)

(18.3)

(0.2)

F-125

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

4. PROFIT FROM OPERATIONS (CONTINUED)

The proﬁt from operations is arrived at after taking the
following income/(expenditure) into account:

(Increase)/Decrease in provision for doubtful
receivables (Note 15)

8.9

9.7

(5.8)

Decrease/(Increase) in provision for doubtful receivables -
South Africa (Note 15)

1.0

(6.8)

12.6

(Increase)/Decrease in provision for doubtful receivables -
non-South African (Note 15)

7.9

16.5

(18.4)

Marketing and advertising expenses include broadcasting, branding, publications and sponsorship expenditure.

Other operating expenses include accommodation costs, auditor’s remuneration, consultancy fees, information technology
costs, insurance, ofﬁce administration costs, sales and distribution costs, social economic investment costs, subsistence and
travel costs and transport costs.

Insurance activities

The Group offers a range of insurance contracts to its customers providing protection against speciﬁed risks associated
with the ownership of a cell phone. These products are offered through a cell captive facility maintained with Centriq
Insurance Company Limited, a South African registered short-term insurance company. The cell captive facility is further
used to issue insurance contracts to Group companies to provide cover against a variety of insurable risks including
assets own risk. The extended warranty provided to customers is no longer provided by the Group as the suppliers
assumed responsibility for the second year warranty. Inter-company transactions are eliminated on consolidation of the
cell captive.

In terms of the shareholders' agreement, the Group carries all the risks and rewards related to the business underwritten in
the cell captive facility. The risks are closely monitored by the Group through the ongoing review of the performance of
the underlying insurance products. Premium rate adjustments are used to mitigate the associated insurance risks.

Provided below is a summarised underwriting account giving details of the R38.7 million (2007: R28.8 million;
2006: R52.5 million) underwriting proﬁt included in proﬁt from operations:

2006

2007

2008

Net earned premiums

112.7

131.6

146.6

Gross claims incurred

(51.7)

(67.4)

(76.1)

Net reinsurance (expense)/income

10.7

(11.6)

(4.9)

Net operating expenses

(19.2)

(23.8)

(26.9)

Underwriting proﬁt

52.5

28.8

38.7

F-126

2006

2007

2008

5. FINANCE INCOME

Interest on ﬁnancial instruments not at fair value
through proﬁt or loss

93.7

52.8

54.6

Banks

89.4

30.6

33.0

Loans

20.7

17.7

Other interest income

4.3

1.5

3.9

Interest on ﬁnancial assets at fair value through proﬁt or loss

20.8

20.6

17.7

Interest rate swap interest

13.0

10.2

5.1

Interest on money market investments

7.8

10.4

12.6

Interest on non-ﬁnancial instruments

15.4

1.1

Interest received from taxation authorities

15.4

1.1

129.9

74.5

72.3

During the year the Group reclassiﬁed gains on
remeasurement and disposal of ﬁnancial instruments from
ﬁnance income to gains or losses on remeasurement and
disposal of ﬁnancial instruments.

6. FINANCE COSTS

Finance costs on ﬁnancial liabilities not at fair value
through proﬁt or loss

(237.8)

(358.9)

(666.5)

Bank overdraft

(12.4)

(131.4)

(399.1)

Debt *

(92.0)

(113.9)

(168.8)

Finance leases

(121.6)

(112.3)

(98.2)

Other ﬁnance costs

(11.8)

(1.3)

(0.4)

Finance costs on non-ﬁnancial instruments

(8.2)

(10.4)

(14.8)

Long-term incentive interest

(6.5)

(9.6)

(14.4)

Interest paid to taxation authorities

(1.7)

(0.8)

(0.4)

(246.0)

(369.3)

(681.3)

* Included in debt is an amount of R11.0 million (2007: R10.0 million; 2006: R8.1 million) which relates to notional

interest on the loans from Caspian Limited, Planetel Communications Limited and Mirambo Limited that was remeasured
at amortised cost, at an effective interest rate of LIBOR plus 5% and the loan from Sekha-Metsi Investment Consortium
Limited that was remeasured at amortised cost, at an effective interest rate of 13.7%, for which no consideration has
been recorded.

During the year the Group reclassiﬁed losses on remeasurement and disposal of ﬁnancial instruments from ﬁnance costs
to gains or losses on remeasurement and disposal of ﬁnancial instruments.

F-127

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

7. GAINS/(LOSSES) ON REMEASUREMENT AND DISPOSAL

OF FINANCIAL INSTRUMENTS

Gain/(Loss) on foreign exchange forward
contract revaluation

(260.6)

467.7

345.8

Loss on interest rate swap revaluation

(6.6)

(9.9)

(10.3)

Gain on revaluation of foreign denominated
cash and cash equivalents

6.2

24.3

(Loss)/Gain on revaluation of foreign denominated assets

(27.4)

9.7

(15.2)

Gain/(Loss) on sale of investments

(3.3)

(0.7)

2.2

Loss on revaluation of foreign denominated liabilities

(225.2)

(642.0)

(161.7)

(523.1)

(169.0)

185.1

8. NET GAINS/(LOSSES)

Net gains/(losses) on ﬁnancial instruments analysed
by category, are as follows:
Financial assets and ﬁnancial liabilities at fair value
through proﬁt or loss, classiﬁed as held for trading

(246.4)

478.4

353.2

Available-for-sale investments

(3.3)

(0.7)

2.2

Loans and receivables (including cash and bank deposits)

66.3

62.5

63.7

Financial liabilities held at amortised cost

(341.4)

(882.4)

(730.0)

Finance leases

(121.6)

(112.3)

(98.2)

Net losses attributable to ﬁnancial instruments

(646.4)

(454.5)

(409.1)

Net (losses)/gains attributable to non-ﬁnancial instruments

7.2

(9.3)

(14.8)

(639.2)

(463.8)

(423.9)

F-128

2006

2007

2008

TAXATION

South African normal taxation

(2,375.6)

(3,058.7)

(3,472.8)

Current year

(2,337.9)

(3,063.7)

(3,487.2)

Prior year over/(under) provision

(37.7)

5.0

14.4

Deferred taxation

(136.2)

44.0

99.5

Current year

(177.0)

45.3

94.4

Prior year (under)/over provision

40.8

(1.3)

(4.6)

Taxation rate change*

9.7

Secondary taxation on companies - current year

(562.5)

(692.7)

(594.0)

Foreign taxation

(29.8)

(34.3)

(114.3)

Current year

(29.4)

(34.0)

(113.0)

Prior year under provision

(0.4)

(0.3)

(1.3)

Foreign deferred taxation

20.4

(94.3)

(27.6)

Current year

43.5

(135.4)

(134.0)

Prior year over/(under) over provision

(22.0)

41.1

106.4

Taxation rate change #

(1.1)

(3,083.7)

(3,836.0)

(4,109.2)

* Deferred taxation was calculated at 28% for all South African entities at March 31, 2008 following a change in the

corporate taxation rate. The revised taxation rate is applicable to normal taxation with effect from the 2009 ﬁnancial
year.

# Deferred taxation was calculated at 25% for Vodacom Lesotho (Proprietary) Limited at March 31, 2006 following a

change in the corporate taxation rate. The revised taxation rate is applicable to normal taxation with effect from the
2007 ﬁnancial year.

F-129

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

TAXATION (CONTINUED)
Reconciliation of rate of taxation

Normal taxation on proﬁt before taxation (2,385.7)

(29.0)

(3,014.9)

(29.0)

(3,499.4)

(29.0)

Adjusted for:
Disallowed expenditure

(135.6)

(1.7)

(205.8)

(2.0)

(125.8)

(1.0)

Unrecognised taxation asset

(149.9)

(1.8)

(86.5)

(0.9)

(31.9)

(0.3)

Functional vs local reporting currency

(45.3)

(0.6)

226.8

2.2

23.8

0.2

Revaluation of tax base of qualifying assets 181.6

2.2

(98.6)

(0.9)

(26.6)

(0.2)

Translation of deferred taxation to US$

16.8

0.2

(95.7)

(0.9)

(6.0)

(0.1)

Secondary taxation on companies

(562.5)

(6.9)

(692.7)

(6.7)

(594.0)

(5.0)

Secondary taxation on companies credits

(3.8)

Prior year over/(under) provision

(19.3)

(0.2)

44.5

0.4

114.8

1.0

Foreign taxation rate differences

15.6

0.2

48.6

0.5

(7.6)

(0.1)

Taxation rate change * #

(1.1)

9.7

0.1

Foreign

taxation

(8.7)

(0.1)

(10.4)

(0.1)

(20.6)

(0.2)

Taxation not payable due to tax

concession

81.2

0.8

67.7

0.6

Foreign controlled entity passive

income imputed

(17.8)

(0.2)

(27.9)

(0.3)

(21.9)

(0.2)

Exempt income

1.1

(0.2)

Other adjustments

(0.4)

(0.6)

8.0

0.1

Business combination contingent

purchase consideration

20.6

0.3

Utilisation of taxation losses

6.9

0.1

0.6

(3,083.7)

(37.5)

(3,836.0)

(36.9)

(4,109.2)

(34.1)

* Deferred taxation was calculated at 28% for all South African entities at March 31, 2008 following a change in the

corporate taxation rate. The revised taxation rate is applicable to normal taxation with effect from the 2009 ﬁnancial
year.

# Deferred taxation was calculated at 25% for Vodacom Lesotho (Proprietary) Limited at March 31, 2006 following a

change in the corporate taxation rate. The revised taxation rate is applicable to normal taxation with effect from the
2007 ﬁnancial year.

F-130

Cost

Accumulated

Net book value

depreciation and

impairment

10. PROPERTY, PLANT AND EQUIPMENT

2006

Land and buildings

1,033.9

(105.0)

928.9

Infrastructure

22,556.3

(10,925.7)

11,630.6

Information services

1,623.9

(1,100.4)

523.5

Community services

107.8

(65.9)

41.9

Motor vehicles

154.4

(90.8)

63.6

Furniture and ofﬁce equipment

251.3

(203.0)

48.3

Leasehold improvements

361.4

(214.9)

146.5

Other assets

33.2

(29.9)

3.3

26,122.2

(12,735.6)

13,386.6

2007

Land and buildings

1,277.9

(135.4)

1,142.5

Infrastructure

26,788.9

(12,084.6)

14,704.3

Information services

1,924.0

(1,248.5)

675.5

Community services

127.2

(72.3)

54.9

Motor vehicles

192.7

(103.6)

89.1

Furniture and ofﬁce equipment

335.9

(233.0)

102.9

Leasehold improvements

538.2

(276.5)

261.7

Other assets

74.3

(32.0)

42.3

31,259.1

(14,185.9)

17,073.2

2008

Land and buildings

1,470.2

(163.5)

1,306.7

Infrastructure

31,398.2

(15,131.2)

16,267.0

Information services

2,165.0

(1,426.8)

738.2

Community services

131.6

(76.9)

54.7

Motor vehicles

252.0

(121.2)

130.8

Furniture and ofﬁce equipment

327.3

(183.4)

143.9

Leasehold improvements

763.4

(320.4)

443.0

Other assets

83.3

(48.0)

35.3

36,591.0

(17,471.4)

19,119.6

F-131

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

Land and

Infra- Information Community

Motor Furniture &

Leasehold

Other

Total

buildings

structure

services

vehicles

ofﬁce improvements

assets

equipment

10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Reconciliation 2006

Opening balance

848.8 9,889.7

572.0

18.9

64.4

54.2

102.0

26.9 11,576.9

Reclassiﬁed to ﬁnance
lease receivables

(12.0)

Additions

98.2 4,237.9

237.2

16.1

27.1

23.0

55.3

4.6 4,699.4

Disposals

(51.0)

(1.7)

(0.2)

(0.4)

(0.1)

(3.0)

(56.4)

Foreign currency translation (0.5)

(246.0)

(3.8)

(1.8)

(0.9)

(253.9)

Depreciation

(17.6) (2,530.0)

(41.9)

6.9

(13.6)

(24.9)

(22.0)

(8.5) (2,651.6)

Business combinations
(Note 32)

1.7

Impairments (Note 3)

59.9

(5.6)

(0.3)

(0.5)

(0.3)

52.9

Transfer from intangible
assets/Asset category
transfer (Note 11)

270.1 (234.4)

(2.2)

12.5 (16.4)

29.6

Closing balance

928.9 11,630.6

523.5

41.9

63.6

48.3

146.5

3.3 13,386.6

Reconciliation 2007

Opening balance

928.9 11,630.6

523.5

41.9

63.6

48.3

146.5

3.3 13,386.6

Additions

214.3 5,239.2

302.3

19.6

41.3

71.9

208.3

40.2 6,137.1

Disposals

(1.3)

(60.5)

(4.0)

(0.1)

(5.1)

(0.2)

(71.2)

Foreign currency translation

4.0

479.9

12.8

3.2

2.0

4.0

0.6

506.5

Depreciation

(21.5) (2,580.0)

(181.2)

(6.5)

(13.6)

(29.8)

(67.6)

(1.6) (2,901.8)

Business combinations
(Note 32)

2.4

0.2

3.0

5.6

Impairments (Note 3)

(17.9)

(3.7)

(0.3)

(0.1)

(0.3)

(22.6)

Transfer from intangible
assets/Asset category
transfer (Note 11)

18.1

10.6

25.8

(0.2)

8.0

(29.4)

0.1

33.0

Closing balance

1,142.5 14,704.3

675.5

54.9

89.1

102.9

261.7

42.3 17,073.2

Reconciliation 2008

Opening balance

1,142.5 14,704.3

675.5

54.9

89.1

102.9

261.7

42.3 17,073.2

Additions

184.2 4,047.6

309.9

7.9

62.6

83.0

252.5

4.5 4,952.2

Disposals

(1.1)

(37.4)

(4.7)

(0.1)

(3.6)

(2.0)

(0.6)

0.9

(48.6)

Foreign currency translation

5.8

563.7

13.2

5.0

2.4

8.0

1.9

600.0

Depreciation

(29.3) (2,953.0)

(220.3)

(8.0)

(21.2)

(42.0)

(79.1)

(13.1) (3,366.0)

Disposal of subsidiaries
(Note 33)

(13.8)

Impairments (Note 3)

(23.9)

(3.2)

(0.8)

(0.6)

(0.7)

(29.9)

Transfer between property,
plant and equipment and
ﬁnance lease receivables
(Note 16)

2.0

Transfer to intangible
assets/Asset category
transfer (Note 11)

18.4

(34.3)

(32.2)

(2.3)

0.2

1.2

(0.5)

(49.5)

Closing balance

1,306.7 16,267.0

738.2

54.7

130.8

143.9

443.0

35.3 19,119.6

F-132

10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Debt is collateralised over leasehold land and buildings and the fair value of the lease liability is R629.0 million
(2007: R786.3 million; 2006: R911.5 million) (Note 21). A register with details of the cost price, cost of improvements
and date of acquisition of all land and buildings is available for inspection at the registered ofﬁce.

Land and buildings in which the Group occupies more than 25% of the ﬂoor space or when the primary purpose is the
service and connection of Vodacom customers are classiﬁed as property, plant and equipment.

The estimated useful lives of depreciable property, plant and equipment are as follows:

2006

2007

2008

years

General purpose buildings

Special purpose buildings

15 - 17

Infrastructure

- Radio

1 - 10

- Intelligent Networks

5 - 8

4 - 8

- Switching

5 - 10

2 - 15

- Transmission

8 - 12

- Billing

5 - 6

3 - 8

- Value added services equipment

3 - 8

Community services

2 - 10

2 - 15

Information services

3 - 5

3 - 6

SIM centre

3 - 8

6 - 8

Ofﬁce automation

3 - 5

Other assets
- Motor vehicles

3 - 5

- Furniture and ﬁttings

4 - 5

- Ofﬁce equipment

2 - 6

The Group is required to measure the residual value of every item of property, plant and equipment. Management has
determined that radio, transmission, switching, sim centres and community services categories of property, plant and
equipment have no active market and the value of the asset at the end of its life would therefore be nil or insigniﬁcant.

The above categories are not exhaustive and will depend on the existence of an active market for the asset. The Group

ensures that proper documentation exists to support the non-existence of an active market. For assets with an active
market, conﬁrmation of the residual values is received from third parties where the residuals are more than 10%. For
residuals less than 10% the Group uses historical sales and management’s best estimate.

During the current ﬁnancial year the Group reviewed the estimated useful lives and residual values of property, plant

and equipment. The review resulted in a increase of R6.7 million (2007: R14.7 million decrease) in the current year's
depreciation charge.

The Group uses the following indicators to determine useful lives:

- Expected usage of the asset
- Expected physical wear and tear
- Technical or commercial obsolescence

F-133

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

Cost

Accumulated

Net book

amortisation and

value

impairment

11. INTANGIBLE ASSETS

2006

Goodwill

1,002.0

(518.1)

483.9

Licences

306.3

(186.6)

119.7

Trademark and patents

390.4

(132.5)

257.9

Customer bases

863.2

(700.3)

162.9

Computer software

2,375.6

(1,445.1)

930.5

4,937.5

(2,982.6)

1,954.9

2007

Goodwill

1,455.8

(524.6)

931.2

Licences

439.0

(229.2)

209.8

Trademark and patents

390.4

(169.8)

220.6

Customer bases

919.3

(760.3)

159.0

Computer software

2,827.5

(1,647.8)

1,179.7

6,032.0

(3,331.7)

2,700.3

2008

Goodwill

2,426.0

(529.4)

1,896.6

Licences

478.9

(269.3)

209.6

Trademark, patents and other*

445.3

(195.7)

249.6

Customer bases

920.4

(816.0)

104.4

Computer software

3,734.6

(1,970.7)

1,763.9

8,005.2

(3,781.1)

4,224.1

* Other includes future beneﬁts from provisioning of infrastructure and supply of non-mobile services.

F-134

Goodwill

Licences Trademark,

Customer

Computer

Total

patents

and

bases

software

other*

11. INTANGIBLE ASSETS (CONTINUED)

Reconciliation 2006

Opening balance

413.5

126.6

130.9

269.8

703.5 1,644.3

Contingent purchase consideration

36.2

Additions

3.3

438.8

442.1

Disposals

(1.6)

Foreign currency translation

(1.4)

(1.7)

(4.0)

(7.1)

Amortisation

(8.5)

(52.3)

(106.9)

(176.5)

(344.2)

Business combinations

35.6

179.3

214.9

Impairment of assets (Note 3)

(0.1)

Transfer to property, plant and
equipment (Note 10)

(29.6)

Closing balance

483.9

119.7

257.9

162.9

930.5 1,954.9

Reconciliation 2007

Opening balance

483.9

119.7

257.9

162.9

930.5 1,954.9

Additions

372.2

93.9

611.2 1,077.3

Disposals

(0.2)

Foreign currency translation

19.0

16.6

(0.4)

13.0

48.2

Amortisation

(20.4)

(37.3)

(60.0)

(341.7)

(459.4)

Business combinations

56.3

56.5

112.8

Impairment of assets (Note 3)

(0.2)

(0.1)

(0.3)

Transfer to property, plant and
equipment (Note 10)

(33.0)

Closing balance

931.2

209.8

220.6

159.0 1,179.7 2,700.3

Reconciliation 2008

Opening balance

931.2

209.8

220.6

159.0 1,179.7 2,700.3

Additions

949.2

3.0

54.9

963.9 1,971.0

Disposals

(0.9)

Foreign currency translation

16.2

11.1

1.0

21.1

49.4

Amortisation

(14.3)

(25.9)

(55.6)

(449.4)

(545.2)

Transfer from property, plant and
equipment (Note 10)

49.5

Closing balance

1,896.6

209.6

249.6

104.4 1,763.9 4,224.1

* Other includes future beneﬁts from provisioning of infrastructure and supply of non-mobile services.

F-135

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

years

11. INTANGIBLE ASSETS (CONTINUED)

The estimated useful lives of intangible assets are currently as follows:
- Mobile licences

5 - 30

8 - 30

- Trademarks, patents and other

5 - 15

10 - 15

10 - 14

- Computer software

2 - 8

- Internet service provider customers

2006

2007

2008

months

- Contract and prepaid mobile customers

36 - 60

36 - 96

53 - 119

The company uses the following indicators to determine useful lives:

- Expected usage of the asset
- Expected physical wear and tear
- Technical or commercial obsolescence

The largest components of individual material intangibles relates to licences and trademarks and patents of the Group that have
estimated remaining useful lives of between 11 to 16 (2007: 12 to 17) years and 8 to 10 (2007: 9 to 11) years respectively
as at March 31, 2008. The licence and other intangible assets of Vodacom Tanzania Limited were pledged as security for the
project ﬁnance funding obtained which expired at the end of the ﬁnancial year (Note 21).

During the current ﬁnancial year the Group reviewed the estimated useful lives of intangible assets. The review resulted in
a decrease of R10.6 million (2007: R66.5 million decrease) in the current year's amortisation charge.

2006

2007

Short-term

Long-term

Total

Short-term

Long-Term

Total

portion

12. FINANCIAL ASSETS

Loans and receivables (Note 12.1)

92.1

16.2

114.4

130.6

Financial assets at fair value through
proﬁt or loss (Note 12.2)

149.3

191.3

Available-for-sale investments (Note 12.3)

95.1

149.3

92.1

241.4

207.5

209.5

417.0

2008

Short-term

Long-term

Total

portion

Loans and receivables (Note 12.1)

29.7

134.2

163.9

Financial assets at fair value through proﬁt or loss (Note 12.2)

415.2

Available-for-sale investments (Note 12.3)

110.0

444.9

244.2

689.1

F-136

2006

2007

2008

12.

FINANCIAL ASSETS (CONTINUED)

12.1

Loans and receivables

Planetel Communications Limited

42.1

49.6

The loan with a nominal value of US$6.8 million issued
during the 2003 year bore interest at LIBOR plus 5%.
Planetel Communications Limited utilised this loan to ensure
sufﬁcient shareholder loan funding by itself as a shareholder
of Vodacom Tanzania Limited. The loans and capitalised
interest were collateralised by cession over all shareholder
distributions and a pledge over their shares of Vodacom
Tanzania Limited. All the shareholders subordinated their
loans to Vodacom Tanzania Limited for the duration of the
project ﬁnance funding, which expired at the end of the
current ﬁnancial year (Note 21). On November 30, 2007
Planetel Communications Limited sold its 16% shareholding
in Vodacom Tanzania Limited to Mirambo Limited.

Caspian Limited

50.0

58.8

The loan with a nominal value of US$8.1 million issued
during the 2003 year bore interest at LIBOR plus 5%. Caspian
Limited utilised this loan to ensure sufﬁcient shareholder loan
funding by itself as a shareholder of Vodacom Tanzania
Limited. The loans and capitalised interest were collateralised
by cession over all shareholder distributions and a pledge
over their shares of Vodacom Tanzania Limited. All the
shareholders subordinated their loans to Vodacom Tanzania
Limited for the duration of the project ﬁnance funding, which
expired at the end of the current ﬁnancial year (Note 21).
On November 30, 2007 Caspian Limited sold its 19%
shareholding in Vodacom Tanzania Limited to Mirambo
Limited.

Sekha-Metsi Investment Consortium Limited

16.2

The loan was advanced to Sekha-Metsi Investment Consortium
Limited and bore interest at South African overdraft interest
rates plus a margin of 2%. Interest was payable monthly
in arrears. The loan was repayable on demand, should
Sekha-Metsi Investment Consortium be able to obtain a
loan externally. Sekha-Metsi Investment Consortium Limited
pledged their shares in Sekha-Metsi Enterprises (Proprietary)
Limited as security for the loan. During the current ﬁnancial
year the loan was repaid.

Other

3.9

Balance carried forward

92.1

124.6

3.9

F-137

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

12.

FINANCIAL ASSETS (CONTINUED)

12.1

Loans and receivables (continued)

Balance brought forward

92.1

124.6

3.9

Number Portability Company (Proprietary) Limited

6.0

The shareholders loan made to Number Portability Company
(Proprietary) Limited (“NPC”), during the 2007 year, for an
amount of R6.0 million, is subordinated and ranks behind all
the claims of all creditors of NPC for repayment until such
time as the assets of NPC fairly valued exceed its liabilities.
In such case, the loan shall cease to be subordinated to the
extent that the assets of NPC exceed its liabilities from time
to time. The shareholder loan bears no interest and has no
ﬁxed repayment terms.

Mirambo Limited

120.9

Mirambo Limited bought the 16% and 19% equity
stake of Planetel Communications Limited and Caspian
Limited respectively in Vodacom Tanzania Limited on
November 30, 2007. The shareholder loans with a combined
nominal value of US$14.9 million, were transferred to
Mirambo Limited in order to meet its obligations to Vodacom
Tanzania Limited in respect of shareholder contributions. The
loan bears interest at LIBOR plus 5% and shall be repaid
from any cash distributions by Vodacom Tanzania Limited
to Mirambo Limited. The loan and capitalised interest are
collateralised by cession over all shareholder distributions and
a pledge over the shares of Vodacom Tanzania Limited.

WBS Holdings (Proprietary) Limited

25.8

The loan with a nominal value of R25.5 million issued during
the 2008 ﬁnancial year bears interest at RSA prime minus
0.5%. The loan with capitalised interest is repayable from
pre-determined cash ﬂows of WBS Holdings (Proprietary)
Limited pro rata to the shareholder’s respective claims on loan
account at the relevant time. WBS Holdings (Proprietary)
Limited may not declare and/or pay any dividend or make
any capital distribution to shareholders without the prior
written consent of the existing shareholders.

Balance carried forward

92.1

130.6

156.6

F-138

2006

2007

2008

12.

FINANCIAL ASSETS (CONTINUED)

12.1

Loans and receivables (continued)

Balance brought forward

92.1

130.6

156.6

Empresa Moçambicana de Telecommuniçãcoes S.A.R.L.

(“Emotel”)

7.3

The loan with a nominal value of US$0.9 million issued
during the 2008 ﬁnancial year bears interest at LIBOR plus
2%. Interest is capitalised on a monthly basis. The loan and
capitalised interest are repayable upon the expiry of 5 years
following the advance date, being March 31, 2012. Emotel
utilised this loan to meet its obligations to V.M, S.A.R.L. in
respect of its 2% shareholding in VM, S.A.R.L. The loan and
capitalised interest are collateralised by cession over all cash
distributions and a pledge over their shares in V.M, S.A.R.L.

92.1

130.6

163.9

Less: Short-term portion of loans and receivables

Sekha-Metsi Investment Consortium Limited

(16.2)

WBS Holdings (Proprietary) Limited

(25.8)

Other

(3.9)

Short-term portion of loans and receivables

(16.2)

(29.7)

Long-term portion of loans and receivables

92.1

114.4

134.2

The fair value of the short-term portion of loans and receivables are R29.7 million (2007: R16.2 million;

2006: Rnil million). The fair value of the long-term portion of loans and receivables are not determinable due to the
lack of repayment dates and/or market prices.

F-139

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

12.

FINANCIAL ASSETS (CONTINUED)

12.2

Financial assets at fair value through proﬁt or loss

12.2.1 Financial assets held for trading
12.2.1.1 Money market investments

111.7

135.7

107.9

The fair value of money market investments are derived from

quoted market prices of identical assets.

12.2.1.2 Derivative ﬁnancial assets

37.6

55.6

307.3

Interest rate swap asset (Note 42)

37.6

27.7

17.4

Foreign exchange forward contracts assets

27.9

289.9

The fair value is determined using quoted market prices. The
quoted market prices used to fair value foreign exchange
forward contracts are the mid or mid forward rates at year end
based on quoted market prices applicable to similar assets.
Interest rate swaps are fair valued according to forward rates
and discount rates determined from a yield curve derived from
similar market traded instruments.

Total ﬁnancial assets held for trading

149.3

191.3

415.2

12.3

Available-for-sale investments

12.3.1 Unlisted investments carried at fair value

WBS Holdings (Proprietary) Limited

80.8

45.4

2,500 ordinary shares of R0.01 each

The fair value was determined by applying the discounted
cash ﬂow method. The discount rates and terminal
growth rates used ranged between 16.0% and 18.0%
(2007: 15.0% and 17.0%) and 3.0% and 5.0%
(2007: nil% and 3.0%), respectively.

During the current ﬁnancial year, R54.9 million was
reclassiﬁed to intangible assets (Note 11).

12.3.2 Unlisted investments carried at cost

14.3

64.6

During 2007 the Group purchased a 10% equity stake in
G-Mobile Holdings Limited and a 25.93% equity stake in
Gogga Tracking Solutions (Proprietary) Limited. The investee
companies also granted the Group an option to increase these
investments (Note 42). During 2008 the Group purchased a
50% equity stake in Waterberg Lodge (Proprietary) Limited, a
35% equity stake in XLink Communications (Proprietary) Limited
and increased its interest in G-Mobile Holdings Limited from
10% to 26% by exercising the call option granted in 2007
(Note 42).

Total available-for-sale investments

95.1

110.0

The carrying value of unlisted investments carried at cost approximate their fair value.

F-140

2006

2007

2008

13. DEFERRED TAXATION

Deferred taxation assets

297.6

386.1

455.1

Deferred taxation liabilities

(602.3)

(757.3)

(776.5)

(304.7)

(371.2)

(321.4)

13.1

Components

Capital allowances

(1,243.6)

(1,418.8)

(1,809.0)

Fair value adjustment of available-for-sale investments

(2.7)

Fair value adjustment of customer bases

(46.7)

(53.4)

(30.2)

Fair value adjustment of trademarks and patents

(56.4)

(47.9)

(41.8)

Fair value adjustment of properties

(2.0)

Foreign

exchange

(22.9)

180.9

296.8

Foreign equity revaluation reserve

12.6

4.5

(12.3)

Prepayments and other allowances

10.8

(84.9)

(137.4)

Provisions and deferred income

797.2

1,006.0

1,194.4

Remeasurement of shareholders loans assets

32.5

29.5

3.4

Remeasurement of shareholders loans liabilities

(19.5)

(16.8)

(6.1)

Secondary taxation on companies credits

3.8

Taxation losses

223.1

25.1

223.5

Other

6.4

6.6

(304.7)

(371.2)

(321.4)

13.2

Reconciliation

Balance at the beginning of the year

(164.0)

(304.7)

(371.2)

Deferred taxation - income statement expense (Note 9)

(115.8)

(50.3)

71.9

Foreign equity revaluation reserve

0.7

(8.1)

(12.7)

Business combinations

Acquisition of customer base

(17.5)

Acquisition of trademark and patents

(35.8)

Disposal of subsidiaries

1.8

Fair value adjustment of available-for-sale investments

(2.7)

Foreign exchange differences on consolidation

of foreign subsidiaries

10.2

9.3

(8.6)

Other

0.1

Balance at the end of the year

(304.7)

(371.2)

(321.4)

Provision for taxation which could arise if undistributed retained proﬁts of certain subsidiaries are remitted, is only
made where a decision has been taken to remit such retained proﬁts. The Group did not provide for Secondary
Taxation on Companies (“STC”) on its undistributed earnings which is payable when it declares dividends to its
shareholders, as the taxation will only be payable once the dividends are declared.

Deferred tax is not raised at a rate other than the normal taxation rate as the intention of the Group is to hold assets
for use and not for resale.

F-141

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

13.

DEFERRED TAXATION (CONTINUED)

13.3

Utilisation of taxation losses

Opening taxation loss

1,194.8

1,538.7

1,212.7

Foreign exchange movement on opening taxation loss

(142.3)

104.5

260.0

Prior year under/(over) statement

24.3

(129.7)

693.6

Current year taxation loss created/(utilised)

461.9

(300.8)

107.8

Closing taxation loss

1,538.7

1,212.7

2,274.1

Utilised to reduce net temporary differences

(662.3)

(78.4)

(818.3)

Vodacom Congo (taxation rate of 40%)

(244.1)

Vodacom Mozambique (taxation rate of 32%)

(78.4)

(73.4)

Vodacom Tanzania (taxation rate of 30%)

(418.2)

(744.9)

Taxation losses available to reduce deferred taxation

876.4

1,134.3

1,455.8

Taxation credit

268.1

There are estimated unused taxation losses to the value of R1,455.8 million (2007: R1,134.3 million;
2006: R876.4 million) available to reduce the net deferred taxation liability. If applied, the available
R465.9 million (2007: R363.0 million; 2006: R279.4 million) would result in a full reduction of the current year's
R318.6 million (2007: reduced to R8.2 million; 2006: reduced to R25.3 million) net deferred taxation liability. The
unused taxation losses of Vodacom Mozambique are available for utilisation for a period of ﬁve years, after which
they expire.

The R268.1 million taxation credit relating to Vodacom Mozambique expires in 2014.

The growth of the Group following its geographical expansion into non-South African countries over the past few
years has made the estimation and judgment required in recognising and measuring deferred taxation balances
more challenging. The resolution of taxation issues is not always within the control of the Group and it is often
dependant on the efﬁciency of the legal processes in the relevant taxation jurisdictions in which the Group operates.
Issues can, and often do, take many years to resolve. Payments in respect of taxation liabilities for an accounting
period result from payments on account and on the ﬁnal resolution of open items. As a result there can be substantial
differences between the taxation charge in the consolidated income statement and current taxation payments.

2006

2007

2008

14. INVENTORY

Merchandise

397.5

287.3

507.1

Other inventory

56.8

77.0

129.8

454.3

364.3

636.9

Inventory carried at net realisable value

215.1

163.1

224.6

F-142

2006

2007

2008

14. INVENTORY (CONTINUED)
14.1

Inventory valuation allowance included above

Balance at the beginning of the year

(62.8)

(78.0)

(97.6)

Foreign exchange movement on opening balance

0.7

(1.3)

(0.9)

Charged to cost and expenses

(15.9)

(18.3)

(0.2)

Balance at the end of the year

(78.0)

(97.6)

(98.7)

The cost of inventories recognised as an expense during the period is reﬂected as equipment cost (Note 2).

The cost of inventories recognised as an expense includes R0.3 million (2007: R35.7 million; 2006: R6.9 million)
in respect of write downs of inventory to net realisable value, which has not been reduced (2007: R18.6 million;
2006: R2.3 million) in respect of the reversal of such write downs. Previous write downs have been reversed as a
result of increased sale prices in certain markets.

2006

2007

2008

15.

TRADE AND OTHER RECEIVABLES

Trade receivables

4,097.2

5,211.5

6,234.2

Prepayments

205.2

192.3

244.1

Value Added Taxation

88.1

147.7

200.3

Interest income receivable

41.5

51.3

76.1

Other

42.0

72.2

46.4

4,474.0

5,675.0

6,801.1

The average credit period for March 2008, 2007 and 2006 on sales of goods and services is between 30 and
60 days (2007: 30 and 60 days; 2006: 30 and 60 days) from date of invoice for the South African operations
and between 20 and 75 days (2007: 20 and 75 days; 2006: 20 and 75 days) from date of invoice for the
non-South African operations. Generally no interest is charged on trade receivables. The Group has provided fully
for all receivables over 120 days due (2007: 120 days due; 2006: 120 days due) for its South African operations
and 90 days due (2007: 90 days due; 2006: 90 days due) for its non-South African operations because historical
experience is such that receivables that are due beyond these days are generally not recoverable. Trade receivables
of the South African operations due between 60 and 120 days (2007: 60 and 120 days; 2006: 60 and
120 days) are provided for based on estimated irrecoverable amounts, determined by reference to past default
experience.

Before accepting any new individual customer, the Group uses an internal and external credit scoring system to
assess the potential customer's credit quality and deﬁnes credit limits by customer. The Group manually assesses the
credit of corporate customers, using credit bureaus, ﬁnancial standing as well as an internal grading system. Before
accepting any new network operator customers, the Group enters into a contractual arrangement. The contractual
arrangement is determined by regulatory requirements and industry norms. Of the trade receivable balance at the
end of the year R1.3 billion (2007: R0.9 billion; 2006: R0.6 billion) is due from the Group's largest customer.
There is no customer who represents more than 21.2% (2007: 17.6%; 2006: 15.7%) of the total balance of trade
receivables.

The Group does not have any signiﬁcant exposure to any individual customer or counter-party, except commercially
to Telkom SA Limited, the Group's largest shareholder, Mobile Telecommunications Networks (Proprietary) Limited,
the Group's largest competitor, Cell C (Proprietary) Limited, the country's third network operator and Vo-Call Cellular
(Proprietary) Limited, the Group's largest dealer.

Trade receivables are stated at their cost which normally approximate their fair value due to short-term maturity.

F-143

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

15.

TRADE AND OTHER RECEIVABLES (CONTINUED)

15.1

Doubtful receivable allowance

The Group’s South African trade receivables are stated
after allowances for doubtful debts based on management’s
assessment of creditworthiness, an analysis of which is as
follows:

Balance at the beginning of the year

(44.7)

(43.7)

(50.5)

Reversed from/(Charged to) proﬁt and loss

1.0

(6.8)

12.6

Balance at the end of the year

(43.7)

(50.5)

(37.9)

The Group’s non-South African trade receivables are stated
after allowances for doubtful debts based on management’s
assessment of creditworthiness, an analysis of which is as
follows:

Balance at the beginning of the year

(49.3)

(41.4)

(24.9)

Foreign exchange movement

2.9

(6.1)

(5.2)

(Charged to)/Reversed from proﬁt and loss

5.0

22.6

(13.2)

Balance at the end of the year

(41.4)

(24.9)

(43.3)

In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the
trade receivable from the date the credit was initially granted up to the reporting date. The concentration of credit risk
is limited due to the customer base being large and unrelated.

2006

2007

2008

16. LEASE ASSETS

Operating leases

30.6

35.1

20.1

Finance lease receivables

19.3

76.6

212.4

49.9

111.7

232.5

Less: Short-term portion *

Operating leases (Note 16.1)

(17.6)

Finance lease receivables (Note 16.2)

(13.1)

(32.9)

(122.9)

Short-term portion

(13.1)

(32.9)

(140.5)

Long-term portion of lease assets

36.8

78.8

92.0

* Short-term lease assets were included under trade and other receivables in prior years.

16.1

Operating leases

Operating lease payments are expensed in proﬁt or loss on a straight-line basis over the lease term and results in the
recognition of an operating lease asset.

F-144

Within one

Between one

After ﬁve

Total

year

and ﬁve years

years

16.

LEASE ASSETS (CONTINUED)

16.2

Finance lease receivables

Staff beneﬁts

3.9

7.5

11.4

Computers

119.0

82.0

201.0

Present value of minimum lease payments

122.9

89.5

212.4

The Group provides motor vehicles to certain of its executives. These executives may retain these assets at the end of
the lease period, normally between three and four years. In terms of IAS 17: Leases (“IAS 17”), these arrangements
are regarded as ﬁnance leases and the cost of the assets are capitalised as ﬁnance lease receivables and amortised
on a straight-line basis over the period of the agreement to employee cost. The implicit interest rate is zero.

The Group provides laptop or desktop computers to certain customers who enter into contract agreements. The
customers retain these computers at the end of the contract period. In terms of IAS 17, these arrangements are
regarded as ﬁnance leases and accounted for using the effective interest rate method. The interest rate inherent in
these leases is currently between nil% and 0.08% per annum.

The long-term portion of R89.5 million (2007: R43.7 million; 2006: R6.2 million) is reﬂected as part of non-current
lease assets on the consolidated balance sheet.

All leases are denominated in South African Rand.

The fair value of the electronic equipment ﬁnance lease receivables approximate their carrying value.

2006

2007

2008

17.

ORDINARY SHARE CAPITAL

Authorised

100,000 ordinary shares of R0.01 each

1,000

Issued

10,000 ordinary shares of R0.01 each

100

The unissued share capital is under the control of the current shareholders.

F-145

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

18. NON-DISTRIBUTABLE RESERVES

Foreign currency translations (Note 18.1)

(225.5)

(123.0)

(22.6)

Taxation on foreign currency translation reserve (Note 18.1)

18.0

9.9

(2.8)

Contingency reserve (Note 18.2)

13.5

15.7

17.4

Revaluation of available-for-sale investments (Note 18.3)

16.8

(194.0)

(97.4)

8.8

Reconciliation

Balance at the beginning of the year

(299.9)

(194.0)

(97.4)

Foreign currency translation reserve

103.9

94.4

87.7

Foreign currency translation for the year

98.2

102.5

100.4

Taxation for the year

5.7

(8.1)

(12.7)

Other non-distributable reserves

Transferred from distributable reserves – contingency reserve

2.2

1.7

Revaluation of available-for-sale investments

(0.2)

16.8

Revaluation of available-for-sale investments for the year

(0.2)

19.5

Taxation for the year

(2.7)

Balance at the end of the year

(194.0)

(97.4)

8.8

18.1

Foreign currency translation reserve and taxation

The ﬁnancial results of foreign operations are translated into South African Rands for incorporation into the consolidated
results. Assets and liabilities are translated at the foreign exchange rates ruling at balance sheet date. Income,
expenditure and cash ﬂow items are translated at the actual foreign exchange rate or average foreign exchange rates
for the period. All resulting unrealised foreign exchange differences are classiﬁed as equity.

This reserve also includes gains and losses on the translation of equity loans to foreign entities that are intended to be
permanent.

Deferred taxation and normal taxation on the foreign currency translation reserve relates only to the translation of
equity loans advanced to foreign subsidiaries.

18.2

Contingency reserve

In terms of the Short-term Insurance Act (“the Act”) of 1998 the Group’s cell captive partner, Centriq Insurance

Company Limited is required to recognise a contingency reserve equal to 10% of premiums written less approved
reinsurance, as deﬁned in the Act. This reserve can be utilised only with the prior permission of the Registrar of
Short-term Insurance.

18.3

Revaluation of available-for-sale investments

Gains and losses from changes in the fair value of available-for-sale investments are recognised directly in equity until
the ﬁnancial asset is disposed of (Note 12).

F-146

2006

2007

2008

19. MINORITY INTERESTS

Distributable reserves

358.1

268.5

408.5

Non-distributable reserves

(74.8)

(47.3)

(4.9)

283.3

221.2

403.6

Reconciliation

Balance at the beginning of the year

128.7

283.3

221.2

Proﬁt allocated to minority interest

116.7

217.6

146.2

Foreign currency translation reserve

(15.6)

27.5

42.4

Revaluation of available-for-sale investments

(0.1)

Business combinations and other acquisitions

46.5

(136.4)

(6.1)

Minority shares of VM, S.A.R.L.

8.0

0.8

Disposal of subsidiaries

(0.3)

Dividend to minority shareholders

(0.9)

(170.8)

(0.6)

Balance at the end of the year

283.3

221.2

403.6

20.

ANALYSIS OF RECOGNISED INCOME AND EXPENSES

Gain/(Loss) on revaluation of available-for-sale investment

(0.3)

16.8

Foreign currency translation reserve

88.3

121.9

130.1

Net proﬁt/(loss) recognised directly in equity

88.0

121.9

146.9

Net proﬁt for the year

5,142.8

6,560.0

7,957.6

Total recognised income and expense for the year

5,230.8

6,681.9

8,104.5

Attributable to:

Equity shareholders

5,129.8

6,436.8

7,915.9

Minority interests

101.0

245.1

188.6

2006

2007

Short-term

Long-term

Total Short-term

Long-term

Total

portion

21.

INTEREST BEARING DEBT

Finance leases (Note 21.1)

79.2

728.3 807.5

113.6

615.0

728.6

Funding loans (Note 21.2)

1,527.3

90.9 1,618.2

365.5 1,436.4 1,801.9

Other short-term loans (Note 21.3)

39.0

21.9

1,645.5

819.2 2,464.7

501.0 2,051.4 2,552.4

F-147

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2008

Short-term

Long-term

Total

portion

21.

INTEREST BEARING DEBT (CONTINUED)

Finance leases (Note 21.1)

194.3

420.7

615.0

Funding loans (Note 21.2)

300.5

2,605.1

2,905.6

Other short-term loans (Note 21.3)

8.1

502.9

3,025.8

3,528.7

2006

2007

2008

21.1

Finance leases

Vodacom (Proprietary) Limited

537.7

479.7

396.7

The ﬁnance leases are collateralised by various land
and buildings with a book value of R464.2 million
(2007: R477.3 million; 2006: R489.1 million), bearing
interest at ﬁxed effective interest rates of between 12.1%
and 16.9% per annum and are repayable between one and
ﬁve years. The residual payment on settlement date is
R144.4 million.

Vodacom Service Provider Company (Proprietary) Limited

269.8

248.9

218.3

The ﬁnance lease is collateralised by land and buildings
with a book value of R245.5 million (2007: R251.1 million;
2006: R256.8 million), bearing interest at a ﬁxed effective
interest rate of 14.8% per annum. Payments are made every
six months in arrears and commenced on March 1, 2002.
The ﬁnance lease expires on September 1, 2011.

807.5

728.6

615.0

Less: Short-term portion of ﬁnance leases

Vodacom (Proprietary) Limited

(58.3)

(83.0)

(151.7)

Vodacom Service Provider Company (Proprietary) Limited

(20.9)

(30.6)

(42.6)

Short-term portion of ﬁnance leases

(79.2)

(113.6)

(194.3)

Long-term portion of ﬁnance leases

728.3

615.0

420.7

All leases are denominated in South African Rand and are held with Rand Merchant Bank and Standard Bank.

The fair value of the Group’s ﬁnance lease liability is R629.0 million (2007: R786.3 million;
2006: R911.5 million).

The fair value of ﬁnance leases are determined as the present value of all future cash ﬂows discounted using
market related interest rates. The discount rate used varied between 13.5% and 14.9% (2007: 11.3% and 13.3%;
2006: 10.0% and 13.3%).

The Vodaworld Retail Park is sub-leased to various Telecommunications retail companies. Sublease payments expected
to be received under non-cancellable subleases at the balance sheet date amount to R4.0 million.

F-148

2009

2010

2011

2012

2013

2014

Total

onwards

21. INTEREST BEARING DEBT (CONTINUED)

21.1

Finance Leases (continued)

Repayment of ﬁnance leases

Future minimum lease payments* 271.2

153.6

200.6

98.7

82.1

806.2

Finance costs

(76.9)

(55.1)

(39.0)

(15.2)

(5.0)

(191.2)

Net present value

194.3

98.5

161.6

83.5

77.1

615.0

* Future minimum lease payments include residual payments at the end of the lease term.

2006

2007

2008

21.2

Funding Loans

Planetel Communications Limited

41.6

53.5

The shareholder loan of US$8.4 million (2007: US$8.4 million;
2006: US$8.4 million) was subordinated for the duration of the
project ﬁnance funding period of Vodacom Tanzania Limited,
which expired at the end of the current ﬁnancial year, bore no
interest from April 1, 2002 and was thereafter available for
repayment, by approval of at least 60% of the shareholders
of Vodacom Tanzania Limited. The loan became non-interest
bearing and was remeasured at amortised cost at an effective
interest rate of LIBOR plus 5% (Note 12) during the 2003
ﬁnancial year. The gain on remeasurement was included in
equity. On November 30, 2007 Planetel Communications
Limited sold its 16% shareholding in Vodacom Tanzania
Limited to Mirambo Limited.

Caspian Limited

49.3

63.6

The shareholder loan of US$10.0 million (2007: US$10.0 million;
2006: US$10.0 million) was subordinated for the duration
of the project ﬁnance funding period of Vodacom Tanzania
Limited, bore no interest from April 1, 2002 and was thereafter
available for repayment, by approval of at least 60% of the
shareholders of Vodacom Tanzania Limited. This loan became
non-interest bearing and was remeasured at amortised cost at
an effective interest rate of LIBOR plus 5% (Note 12) during
the 2003 ﬁnancial year. The gain on remeasurement was
included in equity. On November 30, 2007 Caspian Limited
sold its 19% shareholding in Vodacom Tanzania Limited to
Mirambo Limited.

Balance carried forward

90.9

117.1

F-149

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

21.

INTEREST BEARING DEBT (CONTINUED)

21.2

Funding loans (continued)

Balance brought forward

90.9

117.1

Project ﬁnance funding to Vodacom Tanzania Limited

184.0

94.9

The funding was collateralised by a charge over 51% of the
shares, the licence and Vodacom Tanzania Limited’s tangible
and intangible assets. The loans bore interest based upon
the foreign currency denomination of the project ﬁnancing
between 6.0% and 14.4% per annum and was fully repaid
by March 2008.

The drawn down portions of the project ﬁnance funding from
external parties included the following:

(a) Netherlands Development Finance Company of US$nil

(2007: US$3.8 million; 2006: US$7.6 million);

(b) Deutsche Investitions- und Entwicklungsgesellschaft mbH of

€ nil (2007: € 3.9 million; 2006: € 7.8 million);

(2007: US$4.0 million; 2006: US$8.0 million);

(d) Barclays Bank (Local Syndicate Tanzania) TSHnil

(2007: TSHnil; 2006: TSH5,703.8 million).

Term loan to Vodacom International Limited

1,114.4

1,311.9

1,462.5

The loan provided by Standard Bank Plc and RMB
International (Dublin) Limited that amounts to US$180.0 million
(2007: US$180.0 million; 2006: US$180.0 million) is
collateralised by guarantees provided by the Group. The
loan, originally repayable on July 19, 2006, was reﬁnanced
during the 2007 ﬁnancial year. The loan is now repayable
on July 26, 2009 and bears interest at an effective interest
rate of LIBOR plus 0.35%.

Balance carried forward

1,389.3

1,523.9

1,462.5

F-150

2006

2007

2008

21.

INTEREST BEARING DEBT (CONTINUED)

21.2

Funding loans (continued)

Balance brought forward

1,389.3

1,523.9

1,462.5

Mirambo Limited

142.6

Mirambo Limited bought the 16% and 19% equity stake
of Planetel Communications Limited and Caspian Limited
respectively in Vodacom Tanzania Limited on November 30, 2007.
The shareholder loans with a combined nominal value of
US$18.4 million, were transferred to Mirambo Limited in
order to meet its obligations to Vodacom Tanzania Limited in
respect of shareholder contributions. The loan bears interest at
LIBOR + 5% and shall be repaid by approval of at least 60%
of the shareholders of Vodacom Tanzania Limited. The loan
and capitalised interest are unsecured and subordinated.

Asset Backed Arbitraged Securities (Proprietary) Limited

1,000.0

On December 5, 2007 Vodacom (Proprietary) Limited
entered into a subscription agreement with Asset Backed
Arbitraged Securities (Proprietary) Limited (“ABACAS”). In
terms of the agreement Vodacom (Proprietary) Limited issued
debt instruments in the form of two promissory notes with a
nominal value of R500.0 million each to which ABACAS
subscribed. The debt instrument will bear interest based on
JIBAR plus a credit margin and funding margin. The repayment
term is three years with interest being paid quarterly. The
credit margin is 0.4% and the funding margin is 0.18% and
0.15% respectively.

Preference shares issued by Vodacom Congo (RDC) s.p.r.l.

228.9

269.5

300.5

The preference shares of US$37.0 million (2007: US$37.0 million;
2006: US$37.0 million) bear interest at a rate of 4% per annum.
The preference shares are redeemable at the discretion of the
shareholders and on the basis that the shareholders are repaid
simultaneously and in proportion to their shareholding.

Balance carried forward

1,618.2

1,793.4

2,905.6

F-151

21.3

Other short-term loans

Vodacom Congo (RDC) s.p.r.l.

37.1

21.9

8.1

The short-term facilities amount to US$1 million
(2007: US$3.0 million; 2006: US$6.0 million) bears
interest at 18% per annum with no ﬁxed repayment terms.
US$2.0 million of these facilities was repaid on June 30,
2007 and bore interest at LIBOR plus 6% per annum.

Other

1.9

39.0

21.9

8.1

The fair value of other short-term loans approximate their carrying value.

2006

2007

2008

21.

INTEREST BEARING DEBT (CONTINUED)

21.2

Funding loans (continued)

Balance brought forward

1,618.2

1,793.4

2,905.6

Sekha-Metsi Investment Consortium Limited

2.5

The shareholder loan bore no interest, was repayable
in ten equal six monthly instalments commencing on
September 30, 2006. Effective April 1, 2007 the repayment
terms changed to four equal six monthly instalments. The loan
was remeasured at amortised cost at a ﬁxed effective interest
rate of 13.7% during the 2007 ﬁnancial year. The gain on
remeasurement was included in equity.

Number Portability Company (Proprietary) Limited

6.0

The Group’s share of the shareholders loan provided,
amounted to R6.0 million at March 31, 2007. The
subordinated shareholder loan bore interest at the
maximum rate of the prevailing South African prime rate or
a lesser rate determined by the board of Number Portability
Company (Proprietary) Limited. During the current period the
loan became non-interest bearing (Note 22).

1,618.2

1,801.9

2,905.6

Less: Short-term portion of funding loans

Project ﬁnance funding to Vodacom Tanzania Limited

(184.0)

(94.9)

Term loan to Vodacom International Limited

(1,114.4)

Preference shares issued by Vodacom Congo (RDC) s.p.r.l.

(228.9)

(269.5)

(300.5)

Sekha-Metsi Investment Consortium Limited

(1.1)

Short-term portion of funding loans

(1,527.3)

(365.5)

(300.5)

Long-term portion of funding loans

90.9

1,436.4

2,605.1

The fair value of funding loans are R2,933.2 million. The
fair value of funding loans were determined by applying the
discounted cash ﬂow method, where applicable. A discount
rate which varied between 12.2% and 12.3% were applied to
ZAR denominated debt and 2.8% to US$ denominated debt.

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

F-152

2006

2007

2008

22.

NON-INTEREST BEARING DEBT

Sekha-Metsi Investment Consortium Limited

4.3

The minority shareholder’s loan was previously
uncollateralised and no repayment terms were determined.
During the 2007 ﬁnancial year repayment terms were
agreed and the loan was reclassiﬁed to interest bearing debt
(Note 21).

Minority shareholders of Smartcom (Proprietary) Limited

3.0

The minority shareholder’s loan was repaid during the current
ﬁnancial year. The loan was unsecured and bore no interest.

Number Portability Company (Proprietary) Limited

6.0

The Group’s share of the shareholders loan provided,
amounted to R6.0 million at March 31, 2007. The
subordinated shareholder loan bore interest at the
maximum rate of the prevailing South African prime rate or a lesser
rate determined by the board of Number Portability Company
(Proprietary) Limited and was classiﬁed as interest bearing debt
(Note 21). During the current year the loan became non-interest
bearing.

4.3

3.0

6.0

Less: Short-term portion of non-interest bearing debt

Sekha-Metsi Investment Consortium Limited

(4.3)

Long-term portion of non-interest bearing debt

3.0

6.0

The fair value of non-interest bearing debt is not determinable

as no repayment terms are set.

23. PROVISIONS

Deferred bonus incentive provision (Note 23.1)

452.4

500.7

497.4

Bonus provision (Note 23.2)

279.8

330.6

426.0

Leave pay provision (Note 23.3)

70.8

90.9

119.7

Warranty provision (Note 23.4)

32.8

Long-term incentive provision (Note 23.5)

122.1

161.2

225.2

Other (Note 23.6)

37.4

35.9

14.9

995.3

1,119.3

1,283.2

Timing of Provisions

Within one year

623.0

741.8

909.5

After one year

372.3

377.5

373.7

995.3

1,119.3

1,283.2

F-153

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

Deferred

Bonus

Leave pay

Warranty

Long-term

Other

bonus

provision

incentive

provision

23.

PROVISIONS (CONTINUED)

Reconciliation 2006

Balance at the beginning of the year

423.9

203.1

58.3

28.2

65.9

Provision created

188.0

321.1

25.1

38.5

139.0

25.3

Provision utilised

(159.5)

(244.4)

(12.6)

(33.9)

(16.9)

(53.8)

Balance at the end of the year

452.4

279.8

70.8

32.8

122.1

37.4

Reconciliation 2007

Balance at the beginning of the year

452.4

279.8

70.8

32.8

122.1

37.4

Provision created

191.6

380.2

24.7

39.1

29.2

Provision utilised

(143.3)

(329.4)

(4.6)

(32.8)

(30.7)

Balance at the end of the year

500.7

330.6

90.9

161.2

35.9

Reconciliation 2008

Balance at the beginning of the year

500.7

330.6

90.9

161.2

35.9

Provision created

181.0

474.6

48.9

81.4

5.3

Provision utilised

(184.3)

(379.2)

(20.1)

(17.4)

(26.3)

Balance at the end of the year

497.4

426.0

119.7

225.2

14.9

Provisions are required to be recorded when the Group has a present legal or constructive obligation as a result of
past events, for which it is probable that an outﬂow of economic beneﬁts will occur, and where a reliable estimate
can be made of the amount of the obligation.

Best estimates, being the amount that the Group would rationally pay to settle the obligation, are recognised as
provisions at balance sheet date. Risks, uncertainties and future events are taken into account by management in
determining the best estimates. Provisions are discounted where the effect of discounting is material. The discount
rate used is the rate that reﬂects current market assessments of the time value of money and, where appropriate,
the risks speciﬁc to the liability, all of which requires management judgement. All provisions are reviewed at each
balance sheet date.

Various uncertainties can result in obligations not being considered probable or estimable for signiﬁcant periods
of time. As a consequence, potentially material obligations may have no provisions and a change in facts or
circumstances that result in an obligation becoming probable or estimable can lead to a need for the establishment
of material provisions. In addition, where estimated amounts vary from initial estimates the provisions may be revised
materially, up or down.

The Group records provisions for legal contingencies when the contingency is probable of occurring and the amount
of the loss can be reasonably estimated. Liabilities provided for legal matters require judgements regarding projected
outcomes and ranges of losses based on historical experience and recommendations of legal counsel. Litigation is
however unpredictable and actual costs incurred could differ materially from those estimated at the balance sheet
date.

F-154

23. PROVISIONS (CONTINUED)
23.1

Deferred bonus incentive provision

The deferred bonus incentive provision represents the present value of the expected future cash outﬂows of the
entitlement value at the balance sheet date less the value at which the entitlements were issued, multiplied by the
number of entitlements allocated to a participant.

The value of the bonus entitlements are determined based upon the audited consolidated annual ﬁnancial statements
of the Group. Periodically, a number of entitlements are issued to employees, the value of which depends on the
seniority of the employee. The participating rights of employees vest at different stages and employees are entitled
to cash in their entitlements within one year after the participating rights have vested. The provision is utilised when
eligible employees receive the value of vested entitlements.

23.2

Bonus provision

The bonus provision consists of a performance bonus based on the achievement of predetermined ﬁnancial targets,
payable to all levels of staff.

23.3

Leave pay provision

The leave pay provision relates to vested leave pay to which employees may become entitled upon leaving the
employment of the Group. The provision arises as employees render a service that increases their entitlement to future
compensated leave. The provision is utilised when employees who are entitled to leave pay, leave the employment
of the Group or when the accrued leave due to an employee is utilised.

23.4

Warranty provision

The warranty provision covered manufacturing defects in the second year of warranty on handsets sold to
customers. The estimate was based on claims notiﬁed and past experience. The suppliers of the various handsets
assumed responsibility for the second year warranty subsequent to March 31, 2007 and accordingly there is no
remaining provision.

23.5

Long-term incentive provision

The long-term incentive provision represents the present value of the expected future cash outﬂows to eligible
employees that qualify. The amount of the liability is based on an actuarial valuation. The provision is utilised when
eligible employees receive the value of vested beneﬁts.

2006

2007

2008

Net liability at beginning of the year

122.1

161.2

Interest cost

6.5

9.6

14.4

Current service cost

9.1

17.6

20.0

Recognised actuarial losses

123.4

13.3

62.3

Net cost

139.0

162.6

257.9

Total beneﬁt payments

(16.9)

(1.4)

(32.7)

Net liability at end of the year

122.1

161.2

225.2

Key assumptions:

General inﬂation rate (%)

4.7

5.1

6.6

Discount rate (%)

7.4

8.0

9.5

Salary inﬂation (%)

5.7

6.1

7.6

Valuation date

March 31, 2006

March 31, 2007

March 31, 2008

F-155

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

23. PROVISIONS (CONTINUED)
23.6

Other

Other provisions for the Group include provisions for advertising support payments received from suppliers of handsets
and various other smaller provisions. The advertising provision represents the advertising expenditure not yet incurred
or claimed by the Group or external service providers.

2006

2007

2008

24.

OTHER NON-CURRENT LIABILITIES

Operating lease liability (Note 24.1)

122.5

150.4

165.0

Licence obligation (Note 24.2)

90.7

96.2

122.5

241.1

261.2

24.1

Operating lease liability

122.5

150.4

165.0

The value of the Group’s operating lease liability is
R165.0 million (2007: R150.4 million; 2006: R122.5 million).
The liability is due to the recognition of the operating lease
expense on a straight-line basis over the lease term (Note 37).

24.2

Licence obligation

90.7

96.2

On December 9, 2004, ICASA amended the Vodacom South
Africa licence to allow for access to the 1800 Megahertz
frequency spectrum band and the 3G radio spectrum band.

The costs to the Group for the 1800 Megahertz frequency
spectrum band obligations is estimated at R68.8 million. The
net present value, at a discount rate of 8%, over three years,
amounts to R64.0 million (2007: R59.1 million; 2006: Rnil).

The cost to the Group for the 3G radio spectrum band
obligations is estimated at R36.8 million. The net present
value, at a discount rate of 8%, over three years amounts to
R32.2 million. (2007: R31.6 million; 2006: Rnil).

122.5

241.1

261.2

Less: Short-term portion of other non-current liabilities

Operating lease liability

(0.3)

(7.1)

Licence obligation

(30.2)

(6.7)

Short-term portion of other non-current liabilities*

(30.5)

(13.8)

Long-term portion of other non-current liabilities

122.5

210.6

247.4

* The short-term portion of other non-current liabilities is included in trade payables (Note 25).

F-156

2006

2007

2008

25.

TRADE AND OTHER PAYABLES

Trade payables*

3,315.4

4,021.3

4,876.5

Capital expenditure creditors

1,478.7

2,274.9

1,718.9

Value Added Taxation

100.3

121.9

82.7

Sundry accruals

89.4

110.8

359.9

Revenue charged in advance

64.2

34.2

28.6

Interest accrual

56.7

62.0

98.2

Put option liability #

249.3

396.5

5,104.7

6,874.4

7,561.3

Trade payables are stated at their cost which normally approximate their fair value due to their short-term maturity.

The average credit period is between 30 and 60 days for the South African operations and between 45 and 105
days for the non-South African operations. No interest is charged on trade payables for the ﬁrst 30 to 60 days from
the date of invoice. The Group has ﬁnancial risk management policies in place to ensure that all payables are paid
within the credit timeframe.

* Trade payables include the short-term portion of other non-current liabilities of R13,8 million (2007: R30,5 million)

(Note 24).

# The obligation to settle the Congolese Wireless Networks s.p.r.l. put option (Note 42) in cash gives rise to an

obligation which represents a ﬁnancial liability. The value of the liability amounted to Rnil as at March 31, 2006.
During the current and previous ﬁnancial years the liability was remeasured through the consolidated income
statement.

2006

2007

2008

26.

CASH GENERATED FROM OPERATIONS

Proﬁt from operations

8,865.7

10,859.8

12,490.7

Adjusted for:

Depreciation of property, plant and equipment and

amortisation of intangible assets (Note 10 and Note 11)

2,995.8

3,361.2

3,911.2

Net loss/(proﬁt) on disposal of property, plant and

equipment and intangible assets

26.8

(26.9)

39.3

Net impairment recognised/(reversed) (Note 3)

(52.8)

22.9

29.9

Net proﬁt on disposal of subsidiary

(17.4)

(8.0)

Other non-cash ﬂow items

42.3

97.0

49.1

Cash ﬂow from operations before working capital changes

11,877.8

14,296.6

16,512.2

Increase in trade and other receivables

(1,035.0)

(838.8)

(915.5)

(Increase)/Decrease in inventory

16.8

84.8

(259.3)

Increase in trade and other payables and provisions

230.7

323.5

996.1

Cash generated from operations

11,090.3

13,866.1

16,333.5

27.

FINANCE COSTS PAID

Finance costs as per the income statement

(246.0)

(369.3)

(681.3)

Interest accrual at the beginning of the year

(39.9)

(56.7)

(62.0)

Interest accrual at the end of the year

56.7

62.0

98.2

Other non-cash ﬂow items

14.9

37.4

(24.5)

(214.3)

(326.6)

(669.6)

F-157

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

28.

FINANCE INCOME RECEIVED

Finance income per the income statement

129.9

74.5

72.3

Interest income receivable at the beginning of the year

35.7

41.5

51.3

Interest income receivable at the end of the year

(41.5)

(51.3)

(76.1)

Other non-cash ﬂow items

(23.0)

26.8

124.1

41.7

74.3

29.

REALISED NET LOSSES ON REMEASUREMENT AND

DISPOSAL OF FINANCIAL INSTRUMENTS

Gains/(losses) on remeasurement and disposal of ﬁnancial

instruments as per the income statement

(523.1)

(169.0)

185.1

Unrealised (losses)/gains on foreign exchange forward contracts

294.6

(20.6)

(258.4)

Unrealised (losses)/gains on foreign liability and asset revaluation

204.3

(108.4)

(191.9)

Unrealised gains on interest rate swap revaluation

6.6

9.9

10.3

Unrealised put option liability revaluation

249.3

103.9

(17.6)

(38.8)

(151.0)

30. TAXATION PAID

Taxation per the income statement

(3,083.7)

(3,836.0)

(4,109.2)

Taxation payable at the beginning of the year

(632.6)

(630.2)

(1,112.7)

Taxation payable at the end of the year

630.2

1,112.7

580.5

Deferred taxation at the beginning of the year

(164.0)

(304.7)

(371.2)

Deferred taxation at the end of the year

304.7

371.2

321.4

Disposal of subsidiary – deferred taxation

1.8

Disposal of subsidiary – taxation payable

0.1

Business combination – deferred taxation

(35.8)

(17.5)

Business combination – taxation payable

(15.2)

Exchange difference on consolidation of foreign subsidiary

10.4

9.3

(17.1)

Movement due to foreign equity revaluation reserve

5.7

(8.1)

(12.9)

Fair value adjustment for available-for-sale investments

(2.7)

Remeasurement of shareholders loans

0.5

(2,980.3)

(3,303.3)

(4,721.5)

31.

ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT AND

INTANGIBLE ASSETS

Additions to property, plant and equipment and intangible

assets (Note 10 and Note 11)

(5,141.5)

(7,214.4)

(6,923.2)

(Decrease)/Increase in capital expenditure related creditors

353.1

796.2

(591.5)

Licence obligation

90.7

5.5

Licence reallocation

46.9

Other non-cash ﬂow items

(27.5)

Less: Goodwill acquired through increase in shareholding

of existing subsidiaries

Smartphone SP (Proprietary) Limited (Note 32.2.1)

313.2

931.2

Smartcom (Proprietary) Limited (Note 32.2.2)

8.2

18.0

Cointel V.A.S. (Proprietary) Limited (Note 32.2.3)

90.9

Goodwill allocated to Smartphone SP (Proprietary) Limited’s

minority shareholders

(40.1)

(4,788.4)

(5,955.3)

(6,540.6)

F-158

2006

2007

2008

32.

BUSINESS COMBINATIONS AND OTHER ACQUISITIONS

Business combinations (Note 32.1)

(0.1)

(101.2)

Other acquisitions (Note 32.2)

(490.0)

(956.5)

(0.1)

(591.2)

(956.5)

32.1

Business combinations

InterConnect s.p.r.l. (Note 32.1.1)

(21.2)

Africell Cellular Services (Proprietary) Limited (Note 32.1.2)

(80.0)

Tiscali (Proprietary) Limited (Note 32.1.3)

0.3

Cointel V.A.S. (Proprietary) Limited (Note 32.1.4)

(0.4)

(0.1)

(101.2)

32.1.1 InterConnect s.p.r.l.

Effective November 1, 2006 the Group acquired the
internet service provider business of InterConnect s.p.r.l. The fair
values of the assets and liabilities acquired were determined as
follows:

Fair value of net assets acquired

(8.6)

Property, plant and equipment

2.5

Intangible assets

9.7

Inventory

0.3

Deferred taxation liability

(3.9)

Goodwill

(12.6)

Purchase price

(21.2)

The purchase price of R21.2 million (US$2.8 million) (excluding capitalised costs) was paid on

November 1, 2006.

Revenue amounting to R8.2 million (US$1.2 million) and net proﬁt of R2.8 million (US$0.4 million) are included in
the prior year results. It was impracticable to disclose the impact of the consolidated revenue and consolidated net
proﬁt for the full year ended March 31, 2007.

The goodwill related to the acquisition represents future synergies and is allocated to the Democratic Republic of
Congo’s cash-generating unit.

F-159

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

32.

BUSINESS COMBINATIONS AND OTHER ACQUISITIONS (CONTINUED)

32.1

Business combinations (continued)

32.1.2 Africell Cellular Services (Proprietary) Limited

Effective October 1, 2006 the Group acquired the cellular
business of Africell Cellular Services (Proprietary) Limited. The
fair value of the assets and liabilities acquired were preliminary
determined as follows:

Fair value of net assets acquired

(36.3)

Property, plant and equipment

3.1

Intangible assets

46.8

Deferred taxation liability (including taxation effect on

intangible assets)

(13.6)

Goodwill

(43.7)

Purchase price

(80.0)

The customer base was not previously recorded in the
accounting records of Africell Cellular Services (Proprietary)
Limited as it was an internally generated intangible asset. The
goodwill related to the acquisition represents future synergies
and the ability to directly control the Group’s customers in South
Africa. It is impracticable to disclose the revenue and proﬁt of
the business that is included in the prior year’s results as the
customer base was integrated into Vodacom Service Provider
Company (Proprietary) Limited. The proﬁt and revenue related
to these customers were not separately recorded. For this reason
it would not be practicable to determine the impact on revenue
and proﬁts of the Group for a full year.

32.1.3 Tiscali (Proprietary) Limited

Effective February 1, 2005 the Group acquired the cellular
business of Tiscali (Proprietary) Limited. The fair value of the
assets and liabilities acquired were determined as follows:

Fair value of net assets acquired

Contract customer base

Deferred taxation liability

Goodwill

0.3

Purchase price

0.3

The customer base was not previously recorded in the accounting records of Tiscali (Proprietary) Limited as it was an
internally generated intangible asset. The goodwill related to the acquisition represents future synergies and the ability
to directly control the Group’s customers in South Africa. It is impracticable to disclose the revenue and proﬁt of the
business that is included in the prior years results as the customer base was integrated into Vodacom Service Provider
Company (Proprietary) Limited. The proﬁt and revenue related to these customers were not separately recorded. For
this reason it would not be practicable to determine the impact on revenue and proﬁts of the Group for a full year.

F-160

2006

2007

2008

32.

BUSINESS COMBINATIONS AND OTHER ACQUISITIONS (CONTINUED)

32.1

Business combinations (continued)

32.1.4 Cointel V.A.S. (Proprietary) Limited

On August 1, 2005, the Group acquired a 51% interest in the
equity of Cointel V.A.S. (Proprietary) Limited. The fair value of the
assets and liabilities acquired were determined by the Group
as follows:

Fair value of net assets acquired

(94.9)

Property, plant and equipment

1.7

Intangible assets

179.3

Trade and other receivables

7.4

Cash and cash equivalents

83.9

Deferred taxation liability (including taxation effect

on intangible assets)

(35.8)

Trade and other payables

(114.2)

Taxation payable

(15.2)

Provisions

(1.2)

Dividends payable

(11.0)

Minority interest

46.5

Goodwill

(35.9)

Purchase price (including capitalised costs)

(84.3)

Cash and cash equivalents

83.9

Cash consideration

(0.4)

The carrying value of the assets and liabilities at

acquisition was as follows:

6.3

Non-current assets

56.7

Current assets

91.3

Non-current liabilities

(1.2)

Current liabilities

(140.5)

The purchase price of R83.6 million (excluding capitalised costs) was paid on August 23, 2005.

Revenue amounting to R89.9 million and net proﬁt of R17.8 million were included in the 2006 year results. Restated

consolidated revenue would have amounted to R34,062.5 million and restated consolidated net proﬁt to R5,153.2
million if the entity had been consolidated for the full year ended March 31, 2006.

The goodwill related to the acquisition represents future synergies and is allocated to the South African
cash-generating unit.

F-161

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

32.

BUSINESS COMBINATIONS AND OTHER ACQUISITIONS (CONTINUED)

32.2

Other acquisitions

Smartphone SP (Proprietary) Limited and subsidiaries

(Note 32.2.1)

(333.9)

(938.1)

Smartcom (Proprietary) Limited (Note 32.2.2)

(9.1)

(18.0)

Cointel V.A.S. (Proprietary) Limited (Note 32.2.3)

(147.0)

(0.4)

(490.0)

(956.5)

32.2.1 Smartphone SP (Proprietary) Limited and subsidiaries

On August 31, 2007 the Group increased its interest in the
equity of Smartphone SP (Proprietary) Limited from 70%
to 100%, which at that time had a 88% shareholding in
Smartcom (Proprietary) Limited, a 100% shareholding in Stand 13
Eastwood Road Dunkeld (Proprietary) Limited, a 52%
shareholding in Ithuba Smartcall (Proprietary) Limited, a 100%
shareholding in Cointel V.A.S. (Proprietary) Limited and a 90%
shareholding in Smartcall Smartlife (Proprietary) Limited. The
acquisition was accounted for using the parent entity extension
method.

Minority interest

(6.1)

Goodwill

(931.2)

Purchase price (including capitalised cost)

(937.3)

The purchase price of R935.0 million was paid on
September 3, 2007 and the capitalised costs of R2.3 million
was paid on March 26, 2008.

On August 30, 2006, the Group acquired a further 19%
interest in the equity of Smartphone SP (Proprietary) Limited,
which had a 85.75% shareholding in Smartcom (Proprietary)
Limited at the time, 100% shareholding in Stand 13 Eastwood
Road Dunkeld (Proprietary) Limited and 52% shareholding
in Ithuba Smartcall (Proprietary) Limited. The acquisition was
accounted for using the parent entity extension method.

Minority interest acquired

(21.5)

Goodwill

(313.2)

Purchase price (including capitalised costs)

(334.7)

Capitalised cost (paid)/payable

0.8

(0.8)

Cash consideration

(333.9)

(0.8)

The purchase price of R333.9 million was paid in three tranches on October 3, 2006, January 16, 2007 and
March 26, 2007. Capitalised costs of R0.8 million was paid on November 2, 2007. The outstanding amount
accrued interest at 7.6% per annum from September 21, 2006 up to the date of payment.

F-162

2006

2007

2008

32.

BUSINESS COMBINATIONS AND OTHER ACQUISITIONS (CONTINUED)

32.2

Other acquisitions (continued)

32.2.2 Smartcom (Proprietary) Limited

On September 1, 2007 the Group increased its interest in the
equity of Smartcom (Proprietary) Limited from 88% to 100%.
The acquisition was accounted for using the parent entity
extension method.

Minority interest

Goodwill

(18.0)

Purchase price

(18.0)

The purchase price of R18.0 million was paid on September 6,

2007.

On September 13, 2006, the Group increased its interest
in Smartcom (Proprietary) Limited to 88% by acquiring an
additional 2.25% interest through its 70% owned subsidiary,
Smartphone SP (Proprietary) Limited. The acquisition was
accounted for using the parent entity extension method.

Minority interest

(0.9)

Goodwill

(8.2)

Purchase price

(9.1)

The purchase price of R9.1 million was paid in two
instalments on February 21, 2007 and March 26, 2007.

32.2.3 Cointel V.A.S. (Proprietary) Limited

On October 4, 2006 the Group increased its interest to 100%
by acquiring 49% from the minority shareholders. The purchase
price of R147.0 million was paid on October 18, 2006 while
the capitalised cost was paid on November 2, 2007. The
acquisition was accounted for using the parent entity extension
method.

Minority interest

(56.5)

Goodwill

(90.9)

Purchase price (including capitalised costs)

(147.4)

Capitalised cost (paid)/payable

0.4

(0.4)

Cash consideration

(147.0)

(0.4)

On October 9, 2006, Smartphone SP (Proprietary) Limited, acquired 100% shareholding of Cointel V.A.S.
(Proprietary) Limited from Vodacom Group (Proprietary) Limited for R300.0 million.

As a result of the sale of Cointel V.A.S. (Proprietary) Limited from Vodacom Group (Proprietary) Limited to Smartphone
SP (Proprietary) Limited, R38.0 million goodwill was realised, which resulted in the realisation of R17.4 million proﬁt
on consolidation.

F-163

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

33.

DISPOSAL OF SUBSIDIARIES

Ithuba Smartcall (Proprietary) Limited (Note 33.1)

Stand 13 Eastwood Road Dunkeld (Proprietary) Limited (Note 33.2)

15.7

Smartcall Smartlife (Proprietary) Limited *

15.7

33.1

Ithuba Smartcall (Proprietary) Limited

On September 3, 2007, the Group disposed of its 52%

interest in Ithuba Smartcall (Proprietary) Limited. The carrying

value of the assets and liabilities disposed of were as follows:

Carrying amount of net assets disposed of

0.1

Trade and other receivables

Cash and cash equivalents

0.1

Minority interest

(0.3)

Capital gain on disposal

0.3

Selling price

0.1

Cash and cash equivalents

(0.1)

Cash consideration

Selling price satisﬁed by:

Cash

0.1

The consideration was received on September 6, 2007.

33.2

Stand 13 Eastwood Road Dunkeld (Proprietary) Limited

On September 3, 2007, the Group disposed of its 100%

interest in Stand 13 Eastwood Road Dunkeld (Proprietary)

Limited. The carrying value of the assets and liabilities disposed

of were as follows:

Carrying amount of net assets disposed of

8.4

Property, plant and equipment

13.8

Deferred taxation

(1.8)

Cash and cash equivalents

0.4

Interest bearing debt

(3.9)

Taxation payable

(0.1)

Minority interest

Capital gain on disposal

7.7

Selling price

16.1

Cash and cash equivalents

(0.4)

Cash consideration

15.7

Selling price satisﬁed by:

Cash

16.1

The consideration was received on September 6, 2007.

* On October 1, 2007, the Group disposed of its 90% interest in Smartcall Smartlife (Proprietary) Limited for R90.

The carrying value of the assets and liabilities disposed amounted to R1,000.

F-164

2006

2007

2008

34.

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

Bank and cash balances

3,146.1

771.4

977.6

Bank borrowings *

(1,385.8)

(879.2)

(2,596.8)

Bank borrowings classiﬁed as ﬁnancing activities

2,456.0

1,760.3

(107.8)

836.8

* Bank borrowings, excluding those used for ﬁnancing activities, are regarded as part of the Group’s integral cash

management system.

The fair value of cash and cash equivalents normally approximate their carrying amount due to short-term maturity.

2006

2007

2008

35.

EARNINGS AND DIVIDEND PER SHARE

35.1

Basic and diluted earnings per share

The calculation of basic earnings per ordinary share is based
on earnings of R7,811.4 million (2007: R6,342.4 million;
2006: R5,026.1 million) and 10,000 issued ordinary shares
(2007: 10,000; 2006: 10,000).

502,610

634,240

781,140

Due to no dilution factors being present, basic earnings per
share equals diluted earnings per share.

35.2

Dividend per share

The calculation of the dividend per ordinary share is based
on a declared ordinary dividend of R5,940.0 million
(2007: R5,400.0 million; 2006: R4,500.0 million) and 10,000
issued ordinary shares (2007: 10,000; 2006: 10,000).

The dividends were declared as follows:

Declared March 6, 2008 to shareholders registered on

April 1,

2008 and paid on April 3, 2008 (Final)

319,000

Declared October 1, 2007 to shareholders registered on

October 1, 2007 and paid on October 4, 2008 (Interim)

275,000

Declared March 14, 2007 to shareholders registered on

April 2, 2007 and paid on April 4, 2007 (Final)

290,000

Declared September 7, 2006 to shareholders registered on

October 2, 2006 and paid on October 4, 2006 (Interim)

250,000

Declared March 9, 2006 to shareholders registered on

April 3, 2006 and paid on April 5, 2006 (Final)

280,000

Declared September 9, 2005 to all shareholders registered on

October 1, 2005 and paid on October 3, 2005 (Interim)

170,000

450,000

540,000

594,000

F-165

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

36. CAPITAL COMMITMENTS

Capital expenditure contracted for at the balance sheet date

but not yet incurred is as follows:

Vodacom (Proprietary) Limited

709.1

747.6

997.4

Vodacom Congo (RDC) s.p.r.l.

99.5

209.7

251.1

Vodacom Tanzania Limited

201.2

56.7

212.9

VM, S.A.R.L.

34.2

32.0

66.3

Vodacom Service Provider Company (Proprietary) Limited

16.9

14.8

48.4

Vodacom Group (Proprietary) Limited

222.9

120.7

23.4

1,283.8

1,181.5

1,599.5

Capital expenditure commitments approved by the Board of
Directors but not yet contracted for at the balance sheet date
are as follows:

Vodacom (Proprietary) Limited

4,872.3

4,916.7

5,509.7

Vodacom Tanzania Limited

650.6

889.3

1,743.6

Vodacom Congo (RDC) s.p.r.l.

293.4

660.0

876.4

Vodacom Service Provider Company (Proprietary) Limited

164.7

277.7

254.0

Vodacom Lesotho (Proprietary) Limited

24.9

48.5

129.3

Vodacom Group (Proprietary) Limited

111.7

50.7

10.2

VM, S.A.R.L.

71.7

259.4

299.0

Vodacom International Limited (Mauritius)

0.2

Smartphone SP (Proprietary) Limited

15.2

12.2

Cointel V.A.S. (Proprietary) Limited

2.2

4.1

Skyprops 134 (Proprietary) Limited

16.6

6,206.7

7,135.2

8,822.4

The capital expenditure of the Group will be ﬁnanced through internal cash generation, extended supplier credit and
bank credit.

F-166

2006

2007

2008

37. OTHER COMMITMENTS

Operating leases (Note 37.1)

6,845.6

2,765.2

4,570.9

Sport and marketing contracts (Note 37.2)

1,133.7

881.7

1,359.5

Other (Note 37.10)

94.0

7,979.3

3,646.9

6,024.4

Within one

Between one

After ﬁve

Total

year

and ﬁve years

years

37.1

Operating leases

Transmission and data lines GSM

385.0

1,055.1

172.8

1,612.9

Accommodation

149.6

620.3

903.0

1,672.9

Site rentals

186.0

560.0

510.0

1,256.0

Other operating leases

14.9

14.1

0.1

29.1

735.5

2,249.5

1,585.9

4,570.9

The remaining lease term for transmission and data lines is between 1 and 5 years with a ﬁxed price
escalation clause per annum and various options to renew. The remaining lease term and escalation rate for ofﬁce
accommodation is between 1 and 15 years and between 3% and 13% per annum respectively with an option to
renew for a further period. The remaining lease term and escalation rate for other accommodation is between
1 month and 18 years and between 6% and 12% per annum respectively with a option to renew. The remaining
average lease term for site rentals is 5 years and the lease escalates annually on the anniversary date using ﬁxed or
consumer price index rates with an option to renew on the same terms and conditions.

Within one

Between one

After ﬁve

Total

year

and ﬁve years

years

37.2

Sport and marketing contracts

563.6

789.4

6.5

1,359.5

37.3

Service providers

Service provider agreements with the Group’s independent service providers were extended for a further period of
ﬁve years during the 2006 ﬁnancial year.

37.4

Cellular licence fees

Network operators in the Group pay monthly licence fees based on their net operational income as deﬁned in
the licence agreement. Net operational income is deﬁned as the total invoiced revenue of the licensee excluding
discounts, Value Added Taxation and other direct taxes derived from customers of the licensee for the provision to them
of the service, less net interconnect fees and bad debts actually incurred.

F-167

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

37.

OTHER COMMITMENTS (CONTINUED)

37.5

Global Alliance fees

The Group pays annual fees from February 18, 2005 for services provided to the Group by Vodafone Group
Plc. The fee is calculated as a percentage of revenue and amounted to R303.9 million (2007: R249.8 million;
2006: R175.2 million).

37.6

Retention incentives

The Group has committed a maximum of R1,316.6 million (2007: R651.9 million; 2006: R456.0 million) in
respect of customers already beyond their normal 24 month contract period, but who have not yet upgraded into new
contracts, and therefore have not utilised the incentives available for such upgrades. The Group has not recognised
the liability, as no legal obligation exists, since the customers have not yet entered into new contracts.

37.7

Activation bonuses

The Group has a potential liability in respect of activation bonuses payable related to starter packs sold which
have not yet been validated. The exposure is estimated at approximately R14.4 million (2007: R7.8 million;
2006: R8.9 million).

37.8

Activation commissions

The Group has a commitment to a maximum of R119.3 million (2007: R115.6 million; 2006: R141.7 million) in
terms of activation commissions on gross prepaid connections in excess of the legal liability recorded in the ﬁnancial
statements.

37.9

Transmission and data lines

Effective April 1, 2006 most transmission and data line links were migrated to new BTS and Broadband agreements.
The Group’s commitment to Telkom SA Limited in respect of transmission line rentals of R914.9 million per annum may
be adjusted downwards in the future depending on the Group’s self-provisioning capabilities and the availability of
alternative transmission players in the market place from whom the Group may source transmission on a competitive
basis and as a result no future commitments are disclosed in Note 37.1.

Within one

Between one

After ﬁve

Total

year

and ﬁve years

years

37.10 Other

14.9

79.1

94.0

Included above are various other accommodation commitments.

F-168

2006

2007

2008

38. CONTINGENCIES

Various other legal matters

5.0

7.6

7.0

38.1

Negative working capital ratio

For the ﬁnancial years ended March 31, 2008, 2007 and 2006 the Group had a negative working capital ratio.
A negative working capital ratio arises when the Group’s current liabilities are greater than the current assets. The
Group’s management believes that based on its operating cash ﬂow, it will be able to meet liabilities as they arise
and that it is in compliance with all covenants contained in the borrowing agreements.

38.2

Universal Service Obligation

The Group has a potential liability in respect of the 1800 MHz Universal Service Obligation in terms of the
distribution costs relating to 2.5 million SIM cards.

38.3

Unresolved taxation matters

The Group is regularly subject to an evaluation, by the taxation authorities, of its direct and indirect taxation ﬁlings.
The consequence of such reviews is that disputes can arise with the taxation authorities over the interpretation or
application of certain taxation rules applicable to the Group’s business. These disputes may not necessarily be
resolved in a manner that is favourable for the Group. Additionally the resolution of the disputes could result in an
obligation for the Group.

The Group has discussions with relevant taxation authorities on speciﬁc matters regarding the application and
interpretation of taxation legislation affecting the Group and the industry in which it operates. No reliable assessment
can be made at this time of any exposure, if any, that the Group may incur.

The Group has considered all matters in dispute with the taxation authorities and has assessed the deductibility of
expenses initially disallowed for taxation purposes. Deferred taxation assets have only been recognised in this regard
if it is probable that the Group will succeed in its disagreements with the taxation authorities.

38.4

Various legal contingencies

The Group is currently involved in various legal proceedings against it. Certain of these proceedings are long
outstanding and many of these are employee related matters. The Group in consultation with its legal counsel has
assessed the outcome of these proceedings and the likelihood that certain of these cases are not likely to be in the
Group’s favour. Following this assessment, the Group’s management has determined that no provision is required in
respect of these legal proceedings as at March 31, 2008.

38.5

Contingent asset

Litigation is being instituted for the recovery of certain fees paid by the Group. The information usually required
by IAS 37: Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be
expected to prejudice seriously the outcome of the litigation. The directors are of the opinion that a claim may be
successful and that the amount recovered could be signiﬁcant.

F-169

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

38. CONTINGENCIES (CONTINUED)
38.6

Customer registration

The telecommunications industry in the Democratic Republic of the Congo is subject to a recently promulgated
ministerial decree requiring the registration of the entire customer base of all network operators. This decree
requires prescribed particulars of all customers to be obtained and maintained by June 30, 2008. The sanction for
non-compliance by any operator who has not identiﬁed its customers in accordance with the requirements of this
decree within three months from March 28, 2008 could result in:

· a ﬁne equivalent to between US$5 thousand and US$10 thousand per customer; and
· suspension of the licence for a period not exceeding three months in the event of repetition; and
· suspension of the licence in the event of a likely disturbance of law and order/safety.

The Group is making every effort to obtain the required information but management believes it is unlikely that the
Group will meet all the requirements as prescribed in this decree by June 30, 2008. Management is engaging with
the relevant ministries on this matter and is presently unable to reliably assess the potential impact on the Group in the
event of non-compliance with this decree.

39. RETIREMENT BENEFITS

All eligible employees of the Group are members of the Vodacom Group Pension Fund, a deﬁned contribution
pension scheme. Certain executive employees of the Group are also members of the Vodacom Executive Provident
Fund, a deﬁned contribution provident scheme. Both schemes are administered by ABSA Consultants and Actuaries
(Proprietary) Limited. Current contributions to the pension fund amounted to R113.4 million (2007: R84.7 million;
2006: R76.4 million). Current contributions to the provident fund amounted to R13.5 million (2007: R12.7 million;
2006: R12.9 million). South African funds are governed in terms of the Pension Funds Act of 1956.

40.

EVENTS SUBSEQUENT TO YEAR END

The Directors are not aware of any matter or circumstance arising since the end of the ﬁnancial year, not otherwise
dealt with in the consolidated annual ﬁnancial statements, which signiﬁcantly affects the ﬁnancial position of the
company as at March 31, 2008 or the results of its operations or cash ﬂows for the year ended, other than the
following:

40.1

Broad Based Black Economic Empowerment ("BBBEE")

The Group is in the process of ﬁnalising a R7.5 billion BBBEE equity deal whereby strategic business partners,
employees and the black public will have the opportunity to share in the success of Vodacom South Africa going
forward.

40.2

Global Telematics SA (Proprietary) Limited

On October 26, 2007 Vodacom Service Provider Company (Proprietary) Limited ("VSPC"), entered into an agreement
with Global Telematics SA (Proprietary) Limited ("Global Telematics"). In terms of the agreement Glocell Service
Provider Company (Proprietary) Limited ("GSPC"), will cede, transfer and assign its agreements together with all of its
obligations and its rights attaching to its customers connected to the Vodacom Network to Global Telematics. GSPC
connects all voice contract customers and sells pre-paid starter packs on behalf of Global Telematics. VSPC will
acquire the consolidated customer base from Global Telematics which will consist of active prepaid customers, active
contract customers and active telemetry customers, subject to certain suspensive conditions. Once these suspensive
conditions are met the transaction would be effective.

40.3

VM, S.A.R.L. trading as Vodacom Mozambique

Effective May 12, 2008 Vodacom International Limited sold 5% of its 90% owned equity investment in Vodacom
Mozambique, leaving Vodacom International Limited with an 85% equity investment in Vodacom Mozambique.
Certain suspensive conditions are to be met before the transaction will be effective.

F-170

2006

2007

2008

41.

RELATED PARTY TRANSACTIONS

41.1

Balances with related parties

Related party transactions occur within the Group. Details of

transactions entered into are as follows:

Included in accounts receivable

Telkom SA Limited – Interconnect

509.7

699.3

761.7

Telkom SA Limited – Other

6.3

6.9

16.2

Vodafone Group Plc and subsidiaries

12.7

20.9

13.4

Transactions with entities in which related parties

have an interest

37.1

Included in accounts payable

Telkom SA Limited – Interconnect

(85.3)

(80.1)

(83.9)

Telkom SA Limited – Other

(16.5)

(41.3)

(23.2)

Vodafone Group Plc and subsidiaries

(4.7)

(6.4)

(328.1)

Transactions with entities in which related parties

have an interest

(8.0)

(3.4)

Dividends payable

Telkom SA Limited

(1,400.0)

(1,450.0)

(1,595.0)

Vodafone Holdings (SA) (Proprietary) Limited

(980.0)

(867.1)

(641.2)

Vodafone Telecommunications Investments
(SA) (Propietary) Limited (420.0) (582.9) (953.8)

These outstanding balances are unsecured and will be settled in cash in the ordinary course of business. No
guarantees or provision for doubtful debts have been recognised.

41.2

Transactions with related parties

Telkom SA Limited and subsidiaries

(Entity with joint control over the Group)

(798.5)

(1,221.3)

(1,436.1)

Audit fees recovered

4.8

6.1

5.9

Cellular usage

37.0

45.6

54.0

Installation of transmission lines

(93.4)

(67.6)

(100.2)

Interconnect expense

(464.3)

(468.2)

(468.1)

Interconnect income

2,817.8

2,908.4

2,963.4

Interest paid – commercial

(0.1)

(0.2)

Lease of transmission lines

(752.1)

(839.0)

(928.2)

Other

4.8

(75.4)

41.1

Site costs

(26.3)

(30.9)

(40.0)

Telephone landline usage

(26.7)

(14.9)

(10.7)

Site rental income

10.8

14.7

16.9

Telkom prepaid vouchers

(60.8)

Dividend payable

(1,400.0)

(1,450.0)

(1,595.0)

Dividend paid

(850.0)

(1,250.0)

(1,375.0)

F-171

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

2006

2007

2008

41.

RELATED PARTY TRANSACTIONS (CONTINUED)

41.2

Transactions with related parties (continued)

Vodafone Group Plc and subsidiaries

(192.0)

(338.2)

(417.9)

Roaming income

73.6

108.4

141.0

Roaming expense

(90.6)

(188.9)

(256.9)

Global alliance agreement

(175.2)

(249.8)

(303.9)

Other

0.2

(7.9)

1.9

Vodafone Holdings (SA) (Proprietary) Limited

(Entity with joint control over the Group)

(1,575.0)

(1,614.6)

(1,194.0)

Dividend payable

(980.0)

(867.1)

(641.2)

Dividend paid

(595.0)

(747.5)

(552.8)

Vodafone Telecommunications Investments (SA) (Proprietary) Limited

(679.8)

(1,085.4)

(1,776.1)

Dividend payable

(420.0)

(582.9)

(953.8)

Dividend paid

(255.0)

(502.5)

(822.3)

Interest payments

(1.9)

Facility fees

(0.9)

Aircraft charter fees

(2.0)

Gogga Tracking Solutions (Proprietary) Limited

(4.8)

Prepaid contracts activations and upgrades

(4.8)

XLink Communications (Proprietary) Limited

(5.9)

Prepaid contracts activations and upgrades

(5.9)

Transactions with entities in which related parties have an interest

(20.3)

(40.6)

53.0

During the previous year the Group acquired a 10%
shareholding in WBS Holdings (Proprietary) Limited for R80.8
million, a company in which a family member of a Group
director has signiﬁcant inﬂuence.

41.3

Key management personnel compensation

(excluding directors’ emoluments)

Key management personnel remuneration

(56.0)

(83.1)

(112.7)

Salaries and restraint of trade payments

(17.1)

(32.7)

(32.0)

Fringe beneﬁts

(0.6)

(0.8)

(1.2)

Bonuses and incentives

(30.6)

(37.6)

(61.1)

Long-term beneﬁts

(7.6)

(12.0)

(18.4)

Other

(0.1)

Included in key management personnel’s remuneration

(2.2)

(3.8)

(8.6)

Pension fund employer contributions

(1.2)

(1.7)

(4.3)

Provident fund employer contributions

(0.6)

(1.7)

(3.5)

Medical aid employer contributions

(0.4)

(0.8)

Key management include Chief Ofﬁcers and Group Executives.

F-172

2006

2007

2008

41.

RELATED PARTY TRANSACTIONS (CONTINUED)

41.4

Directors’ emoluments

Directors’ remuneration

(96.7)

(76.7)

(86.5)

Executive directors – fees as directors: salaries and

restraint of trade payments

(35.6)

(16.3)

(18.7)

Executive directors – fees as directors: fringe beneﬁts

(0.7)

(1.2)

(0.6)

Executive directors – fees as directors: bonuses and

incentives

(46.2)

(48.5)

(52.2)

Executive directors – long-term beneﬁts

(13.6)

(8.5)

(13.6)

Non-executive directors – fees as directors

(0.6)

(2.2)

(1.4)

Included in directors’ remuneration

(4.2)

(15.8)

(7.5)

Pension fund employer contributions

(0.5)

(8.3)

(2.5)

Provident fund employer contributions

(3.5)

(7.3)

(4.8)

Medical aid employer contributions

(0.2)

Directors’ remuneration and emoluments paid and accrued by:

(96.7)

(76.7)

(86.5)

Vodacom Group (Proprietary) Limited

(77.1)

(64.8)

(71.2)

Subsidiaries

(19.6)

(11.9)

(15.3)

F-173

42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

42.1 Categories of ﬁnancial instruments

Total At fair value Loans and Available-for-

Financial Finance lease

Equity and

through proﬁt receivables sale ﬁnancial liabilities at

receivables non ﬁnancial

or loss: Held

assets

amortised and payables

assets and

for trading

cost

liabilities

Notes

2006

Assets

Non-current assets

Property, plant
and equipment

10 13,386.6

13,386.6

Intangible assets

11 1,954.9

1,954.9

Financial assets

92.1

Deferred taxation

297.6

Deferred cost

311.2

Lease assets

36.8

6.2

30.6

Current assets

Deferred cost

451.8

Financial assets

149.3

Inventory

454.3

Trade and other
receivables

15 4,474.0

4,180.7

293.3

Lease assets

13.1

Cash and cash
equivalents

34 3,146.1

3,146.1

Total assets

24,767.8

149.3 7,418.9

19.3 17,180.3

Equity

Ordinary share
capital

Retained earnings

8,583.0

Non-distributable
reserves

(194.0)

Equity attributable

to equity

holders of the parent

8,389.0

Minority interests

283.3

Total equity

8,672.3

Non-current liabilities

Interest bearing debt 21

819.2

90.9

728.3

Deferred taxation

602.3

Deferred revenue

320.3

Provisions

372.3

Other non-current
liabilities

122.5

Current liabilties

Trade and other
payables

25 5,104.7

4,940.2

164.5

Deferred revenue

1,604.5

Taxation payable

630.2

Non-interest bearing
debt

4.3

Interest bearing debt 21 1,645.5

1,566.3

79.2

Provisions

623.0

Dividends payable

2,800.0

Derivative ﬁnancial
liabilities

60.9

Bank borrowings

34 1,385.8

1,385.8

Total liabilities

16,095.5

60.9

- 10,787.5

807.5

4,439.6

Total equity and

liabilities

24,767.8

60.9

- 10,787.5

807.5 13,111.9

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

F-174

42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.1 Categories of ﬁnancial instruments (continued)

Total At fair value Loans and Available-for-

Financial Finance lease

Equity and

through proﬁt receivables sale ﬁnancial liabilities at

receivables non ﬁnancial

or loss: Held

assets

amortised and payables

assets and

for trading

cost

liabilities

Notes

2007

Assets

Non-current assets

Property, plant and
equipment

10 17,073.2

17,073.2

Intangible assets

11 2,700.3

2,700.3

Financial assets

209.5

114.4

95.1

Deferred taxation

386.1

Deferred cost

396.4

Lease assets

78.8

43.7

35.1

Current assets

Deferred cost

574.8

Financial assets

207.5

191.3

16.2

Inventory

364.3

Trade and other
receivables

15 5,675.0

5,334.9

340.1

Lease assets

32.9

Cash and cash
equivalents

771.4

Total assets

28,470.2

191.3 6,236.9

95.1

76.6

21,870.3

Equity

Ordinary share
capital

Retained earnings

9,523.2

Non-distributable
reserves

(97.4)

Equity attributable

to equity

holders of the parent

9,425.8

Minority interests

221.2

Total equity

9,647.0

Non-current liabilities

Interest bearing debt 21 2,051.4

1,436.4

615.0

Non-interest bearing
debt

3.0

Deferred taxation

757.3

Deferred revenue

412.3

Provisions

377.5

Other non-current
liabilities

210.6

Current liabilties

Trade and other
payables

25 6,874.4

6,688.0

186.4

Deferred revenue

1,904.8

Taxation payable

1,112.7

Interest bearing debt 21

501.0

387.4

113.6

Provisions

741.8

Dividends payable

2,990.0

Derivative ﬁnancial
liabilities

7.2

Bank borrowings

879.2

Total liabilities

18,823.2

7.2

- 12,384.0

728.6

5,703.4

Total equity and

liabilities

28,470.2

7.2

- 12,384.0

728.6

15,350.4

F-175

42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.1 Categories of ﬁnancial instruments (continued)

Total At fair value Loans and Available-for-

Financial Finance lease

Equity and

through proﬁt receivables sale ﬁnancial liabilities at

receivables non ﬁnancial

or loss: Held

assets

amortised and payables

assets and

for trading

cost

liabilities

Notes

2008

Assets

Non-current assets

Property, plant
and equipment

10 19,119.6

19,119.6

Intangible assets

4,224.1

Financial assets

244.2

134.2

110.0

Deferred taxation

455.1

Deferred cost

333.3

Lease assets

92.0

89.5

2.5

Current assets

Deferred cost

705.9

Financial assets

444.9

415.2

29.7

Inventory

636.9

Trade and other
receivables

6,801.1

6,356.7

444.4

Lease assets

140.5

122.9

17.6

Cash and cash
equivalents

977.6

Total assets

34,175.2

415.2

7,498.2

110.0

212.4

25,939.4

Equity

Ordinary share
capital

Retained earnings

11,392.9

Non-distributable
reserves

8.8

Equity attributable

to equity

holders of the parent

11,401.7

Minority interests

403.6

Total equity

11,805.3

Non-current liabilities

Interest bearing debt 21

3,025.8

2,605.1

420.7

Non-interest bearing
debt

6.0

Deferred taxation

776.5

Deferred revenue

358.8

Provisions

373.7

Other non-current
liabilities

247.4

Current liabilties

Trade and other
payables

7,561.3

7,443.3

118.0

Deferred revenue

2,229.9

Taxation payable

580.5

Interest bearing debt 21

502.9

308.6

194.3

Provisions

909.5

Dividends payable

3,190.0

Derivative ﬁnancial
liabilities

10.8

Bank borrowings

2,596.8

Total liabilities

22,369.9

10.8

- 16,149.8

615.0

5,594.3

Total equity and

liabilities

34,175.2

10.8

- 16,149.8

615.0

17,399.6

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

F-176

42.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.2

RISK MANAGEMENT

The Group purchases or issues ﬁnancial instruments in order to ﬁnance its operations and to manage market risks
(foreign currency risk, interest rate risk and price risk) that arise from its operations and sources of ﬁnances. Various
ﬁnancial assets and liabilities for example trade and other receivables and trade and other payables, arise directly
from the Group’s operations. Changing market conditions expose the Group to various ﬁnancial risks and have
highlighted the importance of ﬁnancial risk management as an element of control for the Group. Principal ﬁnancial risk
faced in the normal course of the Group’s business are market risks (foreign currency risk, interest rate risk and price
risk), credit risk, liquidity risk and insurance risk.

A treasury function within Vodacom Group (Proprietary) Limited provides treasury and related services to the Group,
including co-ordinating access to domestic and international ﬁnancial markets, and the managing of various risks
relating to the Group’s operations.

Treasury operations are conducted within a framework of approved policies and guidelines that are
continuously monitored by management and the Board of Directors, through the audit committee, the objective being to
minimise exposure to market risks (foreign currency risk, interest rate risk and price risk) and liquidity risk. These risks are
managed, subject to the limitation of the local markets in which the various Group companies operate in and the
South African Reserve Bank Regulations.

The Group uses a number of derivative instruments that are transacted for risk management purposes only. The Group
does not trade in ﬁnancial instruments for speculative purposes.

The Group ﬁnances its operations through a mixture of retained proﬁts, bank borrowings and long-term loans.
Long-term ﬁnancing is arranged locally by the South African entities.

There has been no signiﬁcant change during the ﬁnancial year, or since the end of the ﬁnancial year, to the types of
ﬁnancial risks faced by the Group, the approach to the measurement of these ﬁnancial risks or the objectives, policies
and processes for managing these ﬁnancial risks.

42.2.1 Market risk management

The Group’s activities expose it primarily to the risks of ﬂuctuations in foreign currency exchange rates (Note 42.2.1.1),
interest rates (Note 42.2.1.2) and equity prices (Note 42.2.1.3).

Foreign currency risk refers to the risk that the fair value or future cash ﬂows of a ﬁnancial instrument will ﬂuctuate
because of changes in foreign exchange rates.

Interest rate risk refers to the risk that the fair value of future cash ﬂows of a ﬁnancial instrument will ﬂuctuate because
of changes in market interest rates.

Price risk refers to the risk that the fair value or future cash ﬂows of a ﬁnancial instrument will ﬂuctuate because of
changes in market prices other than those arising from interest rate risk or currency risk.

The Group enters into various derivative ﬁnancial instruments to manage its exposure to interest rate risk and foreign
currency risk, including:

· foreign exchange forward contracts to manage the exchange rate risk arising on foreign denominated
transactions; and
· interest rate swaps to manage the risk of rising interest rates on borrowings.

Market risk exposures are measured using sensitivity analysis. A sensitivity analysis shows how proﬁt before taxation
and equity would have been affected by changes in the relevant risk variable that were reasonably possible at the
reporting date.

F-177

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.2

RISK MANAGEMENT (CONTINUED)

42.2.1 Market risk management (continued)
42.2.1.1 Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. Hence the Group has a policy to
hedge foreign exchange risks on transactions denominated in other currencies above certain de minimis levels.

It is the Group's policy to enter into foreign exchange forward contracts to buy and/or sell speciﬁed amounts
of foreign currencies in the future at a predetermined exchange rate. The contracts are entered into to manage
the Group’s exposure to ﬂuctuations in foreign currency exchange rates on speciﬁc transactions. The contracts are
matched with anticipated future cash ﬂows in foreign currencies primarily from purchase of capital equipment and to
a lesser extent operating expenditure.

The Group has entered into numerous foreign exchange forward contracts to cover foreign capital commitments in
respect of future imports of infrastructure.

The total fair value for foreign exchange forward contracts at year end was:

2006

2007

2008

Foreign currency asset

To buy

27.8

289.9

To sell

0.1

27.9

289.9

Foreign currency liability

To buy

(60.9)

(6.9)

To sell

(0.3)

(10.8)

(60.9)

(7.2)

(10.8)

The following table details the foreign exchange forward contracts outstanding at year end:

Foreign contract

Forward value

Fair value

value

Mil

Forward contracts to buy foreign currency
2006

United States Dollars

7.1

45.0

(0.7)

Euro

154.8

1,208.6

(34.5)

Pound Sterling

41.7

477.8

(25.7)

Swiss Franc

0.1

1,731.5

(60.9)

2007

United States Dollars

32.0

240.5

(6.9)

Euro

187.2

1,815.0

21.2

Pound

Sterling

32.3

457.3

6.6

Swiss Franc

0.2

1.3

Australian Dollar

0.3

2,514.4

20.9

Forward value represents the foreign contract value multiplied by the contract forward exchange rate.

* Amount less than 50 000 of the currency.

F-178

42.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.2

RISK MANAGEMENT (CONTINUED)

42.2.1 Market risk management (continued)
42.2.1.1 Foreign currency risk management (continued)

Foreign contract

Forward value

Fair value

value

Mil

Forward contracts to buy foreign currency (continued)
2008

United States Dollars

31.3

253.0

2.9

Euro

157.1

1,806.4

249.5

Pound Sterling

19.9

288.0

37.5

Swiss Franc

0.2

1.4

Australian Dollar

0.6

4.5

2,353.3

289.9

Forward contracts to sell foreign currency
2006

United States Dollars

0.1

0.8

Euro

4.0

30.3

Pound Sterling

0.3

3.2

Swiss Franc

0.1

34.4

2007

United States Dollars

0.2

Euro

4.4

43.2

0.1

Pound Sterling

3.9

55.7

(0.3)

99.1

(0.2)

2008

United States Dollars

0.6

5.0

Euro

7.7

89.3

(10.6)

Pound Sterling

0.7

10.7

(0.2)

Australian Dollar

0.3

2.1

107.1

(10.8)

Forward value represents the foreign contract value multiplied by the contract forward exchange rate.

* Amount less than 50 000 of the currency.

F-179

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2

RISK MANAGEMENT (CONTINUED)

42.2.1 Market risk management (continued)
42.2.1.1 Foreign currency risk management (continued)

The Group has various monetary assets and liabilities in currencies other than the Group’s functional currency. The
following table represents the net currency exposure (net carrying amount of foreign denominated monetary assets
and liabilities) of the Group according to the different functional currencies of each entity within the Group.

South

Euro

Pound

United Congolese

Swiss

Other

African

Sterling

States

Franc

Rand

Dollar

2006

Net foreign currency monetary

assets/(liabilities)

Functional currency of company

operation

South African Rand

(850.5)

(330.4)

45.0

(0.2)

(0.8)

United States Dollar

(55.9)

(26.2)

(11.4)

(0.1)

38.0

Tanzanian Shilling

4.7

(13.6)

106.9

Mozambican Meticals

(0.2)

(51.4)

(890.3)

(330.4)

151.9

(11.4)

(0.3)

37.2

2007

Net foreign currency monetary

assets/(liabilities)

Functional currency of company

operation

South African Rand

(1,387.0)

(331.4)

(102.2)

(0.3)

2.4

United States Dollar

51.5

(49.9)

0.1

(3.2)

(0.4)

(30.8)

Tanzanian

Shilling

3.4

10.9

21.0

Mozambican Meticals

(33.7)

(0.3)

2.2

21.2

(1,426.3)

(331.3)

(79.0)

(3.2)

(0.7)

(28.4)

2008

Net foreign currency monetary

assets/(liabilities)

Functional currency of company

operation

South African Rand

(1,191.5)

(265.2)

(205.9)

(3.5)

(3.4)

United States Dollar

15.2

(34.1)

(0.3)

(0.1)

Tanzanian

Shilling

7.1

38.3

67.4

Mozambican Meticals

(27.2)

(0.1)

(14.5)

(20.1) (1,138.1)

(265.2)

(153.0)

(34.1)

(3.8)

(3.5)

In terms of the Group’s policy the net currency exposure is managed in terms of foreign exchange forward contracts
to buy and sell speciﬁed amounts of various foreign currencies in the future at pre-determined exchange rates.

F-180

42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2

RISK MANAGEMENT (CONTINUED)

42.2.1 Market risk management (continued)
42.2.1.1Foreign currency risk management (continued)

Foreign currency sensitivity analysis:

The Group is mainly exposed to the currencies mentioned below and to a lesser extent exposed to the following
currencies: Australian Dollar, Tanzanian Shilling, Mozambican Meticals, Mauritian Rupee and Lesotho Maloti which
have been combined as "Other" in the table below.

The following tables detail the Group's sensitivity to the below-mentioned percentage strenghtening and weakening
in the functional currency against the relevant foreign currencies. This percentage is the sensitivity rate used when
reporting foreign currency risk internally to key management personnel and represents management's assessment of
the reasonably possible change in foreign exchange rates. A reasonable possible change in prevailing African and
non-African foreign currency exchange rates are based upon 12 month forward mid rates as published by Reuters
and 12 month forward mid rates as published by Standard Bank respectively.

The sensitivity analysis includes only outstanding foreign-denominated monetary items and adjusts their translations at
the period end for the speciﬁed percentage change in foreign currency rates.

A positive number below indicates an increase in proﬁt before taxation where the functional currency is expected to
strengthen against the relevant currency in a net ﬁnancial liability position.
A negative number below indicates an decrease in proﬁt before taxation where the functional currency is expected to
strengthen against the relevant currency in a net ﬁnancial asset position.
For the same percentage weakening of the functional currency against the relevant currency, there would be an equal
and opposite impact on the proﬁt before taxation.

There were no changes in the methods and assumptions used in preparing the foreign currency sensitivity analysis.

South

Euro

Pound

United

Congolese

Swiss

Other

African

Sterling

States

Franc

Rand

Dollar

2006

Functional currency

South African Rands

29.3

32.5

17.7

11.8

20.4 13.7 - 24.6

United States Dollar

17.7

9.8

12.5

31.6

6.3

1.5 - 11.3

Tanzanian

Shilling

13.7

11.5

14.3

1.5

22.8

8.4

3.9

Mozambican Meticals

17.0

7.4

10.0

2.2

34.6

4.4

3.9

Proﬁt before taxation (Rm)

3.2

(16.9)

(38.3)

4.1

(2.8)

(0.2)

(1.0)

2007

Functional

currency

South African Rands

31.9

13.1

11.5

12.8

26.6 11.0 - 21.0

United States Dollar

11.5

18.3

1.4

2.7

18.1

0.8 - 19.8

Tanzanian

Shilling

11.0

17.4

0.6

0.8

2.0

21.2

8.1

Mozambican

Meticals

17.7

8.6

6.9

8.2

6.0

12.1

8.1

Proﬁt before taxation (Rm)

6.3

(36.8)

(2.6)

2.1

0.1

0.2

2008

Functional

currency

South African Rands

7.6

6.5

9.5

8.3

0.1 - 11.0

United States Dollar

9.5

5.1

2.6

10.0

5.5

5.0 - 10.0

Tanzanian

Shilling

11.0

7.5

5.0

2.5

Mozambican

Meticals

0.1

3.8

6.5

9.4

Proﬁt before taxation (Rm)

0.2

(54.4)

(1.0)

(7.7)

2.7

(0.6)

The closing exchange rates against the South African Rand in the current and prior years are as follows:

2006

2007

2008

United States Dollar

6.2

7.3

8.1

Tanzanian

Shilling

198.0

170.8

152.0

Mozambican

Meticals

4.4

3.6

3.0

F-181

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.2

RISK MANAGEMENT (CONTINUED)

42.2.1 Market risk management (continued)
42.2.1.2 Interest rate risk management

The Group’s interest rate proﬁle consists of ﬁxed and ﬂoating rate loans and bank balances which exposes the Group
to fair value interest rate risk and cash ﬂow interest rate risk and can be summarised as follows:

2006

2007

2008

Financial liabilities

Loans received and bank borrowings at ﬁxed rates of interest

(1,134.5)

(1,184.5)

(934.8)

Loans received and bank borrowings linked to South African

prime rates

(1,361.8)

(823.5)

(40.1)

Loans received and bank borrowings linked to Lesotho prime

rates

(7.5)

(3.0)

(24.4)

Loans received and bank borrowings linked to LIBOR

(1,286.2)

(1,382.8)

(1,670.2)

Loans received and bank borrowings linked to EURIBOR

(58.6)

(37.9)

Loans received and bank borrowings linked to RSA

money market rates

(2,456.0)

Loans received and bank borrowings linked to JIBAR

(1,000.0)

Finance leases linked to ﬁxed rates

(807.5)

(728.6)

(615.0)

(4,656.1)

(4,160.3)

(6,740.5)

Financial assets

Loans granted and bank deposits at ﬁxed rates of interest

168.1

194.2

496.1

Loans granted and bank deposits linked to money market

rates

471.0

537.0

421.5

Loans granted and bank deposits linked to South African

prime rates

2,603.1

180.5

74.1

Interest rate swaps linked to RSA BA rate

37.6

27.7

17.4

Loans granted and bank deposits linked to LIBOR

94.2

126.0

128.2

Loans granted and bank deposits linked to Lesotho prime

rates

13.5

116.3

Loans granted and bank deposits linked to RSA BA rate

18.4

Finance leases linked to ﬁxed rates

19.3

76.6

212.4

3,406.8

1,142.0

1,484.4

The risk is managed by the Group by maintaining an appropriate mix between ﬁxed and ﬂoating rate borrowings
and by the use of interest rate swap contracts.

Interest rate swap contracts

The Group has entered into interest rate swap contracts that entitle, or oblige it to receive interest at a ﬁxed rate on
notional principal amounts and entitle, or oblige it to pay interest at ﬂoating rates on the same notional principal
amounts. The interest rate swaps allow the Group to swap long-term debt from ﬁxed rates into ﬂoating rates that are
lower, or higher, than those available if it had borrowed at ﬂoating rates directly. Under the interest rate swaps, the
Group agrees with other parties to exchange, at speciﬁed quarterly intervals, the difference between ﬁxed rates and
ﬂoating rate interest amounts calculated by reference to the agreed notional principal amounts.

F-182

42.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.2

RISK MANAGEMENT (CONTINUED)

42.2.1 Market risk management (continued)
42.2.1.2 Interest rate risk management (continued)

At March 31, 2008 the Group had three interest rate swaps:

Vodacom Group (Proprietary) Limited - the Company swapped its ﬁxed interest rate of 14.9% Nominal Annual
Compounded Quarterly ("NACQ") for a ﬂoating rate, linked to the Bankers Acceptance ("BA") rate plus margin of
2.0%. The termination date of the agreement is January 30, 2009.

Vodacom (Proprietary) Limited - the Company swapped its ﬁxed interest rate of 20.1% NACQ for a ﬂoating rate
linked to the BA rate plus margin of 2.25%. The termination date of the agreement is August 24, 2012.

Vodacom (Proprietary) Limited - the Company swapped its ﬁxed interest rate of 13.3% NACS (Nominal Annual
Compounded Semi-annually) for a ﬂoating rate linked to the BA rate plus margin 2.0%. The termination date of the
agreement is December 1, 2012.

2006

2007

2008

Fair value of interest rate swap asset

37.6

27.7

17.4

The fair value of the interest rate swap assets is represented by a notional principal amount of R170.5 million
(2007: R198.5 million; 2006: R217.7 million) at a weighted average ﬂoating interest rate of 13.4% NACM
(2007: 11.45% NACM; 2006: 9.3% NACM) and a weighted average ﬁxed interest rate of 15.1% NACM.

Interest rate sensitivity analysis:

The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and
non-derivative instruments at the balance sheet date. For ﬂoating rate instruments, the analysis is prepared assuming
the amount of the instrument outstanding at the balance sheet date was outstanding for the whole year.

The basis points increases or decreases, as detailed in the table below, are used when reporting interest rate risk
internally to key management personnel and represents management's assessment of the reasonably possible change
in interest rates. Changes in prevailing market interest rates are based on economic forecasts as published by
Reuters.

A positive number below indicates an increase in proﬁt before taxation if interest rates were higher by the basis points
indicated below in a net ﬁnancial asset position.
A negative number below indicates a decrease in proﬁt before taxation if interest rates were higher by the basis points
indicated below in a net ﬁnancial liability position.
If interest rates were lower by the basis points indicated above, there would be an equal and opposite impact on
the proﬁt before taxation.

The sensitivity analysis is representative of the Group’s exposure to interest rate risk with exception of dividends
and taxation that are payable at the end of the ﬁnancial year and other interest bearing debt acquired
December 5, 2007. There were no changes in the methods and assumptions used in preparing the sensitivity
analysis.

2006

2007

2008

RSA prime rates, JIBAR rates, Money market rates and

RSA BA rates

Basis point increase

200

100

Proﬁt before taxation

147.8

94.5

(24.7)

LIBOR

Basis point increase

260

Proﬁt before taxation

(0.3)

(1.6)

(1.8)

EURIBOR

Basis point increase

120

Proﬁt before taxation

1.0

0.2

Lesotho prime rates

Basis point increase

200

100

Proﬁt before taxation

0.4

0.7

1.3

F-183

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.2

RISK MANAGEMENT (CONTINUED)

42.2.1 Market risk management (continued)
42.2.1.3 Price risk

The Group is exposed to equity price risk arising from equity investments. Equity investments are held for strategic
rather than trading purposes. The Group does not actively trade these investments.

Equity price risk sensitivity analysis:

The sensitivity analysis below has been determined based on the exposure to equity price risks at the reporting
date.

The Group's available-for-sale ﬁnancial assets are valued using the discounted cash ﬂow method. Assuming a constant
growth rate, a 1.0% increase in the discount rate would decrease the valuation of the investment by R6.6 million
(2007: R 7.0 million) and a 1.0% decrease in the discount rate would increase the valuation by R7.7 million
(2007: R8.6 million).

There were no changes in the methods and assumptions used in preparing the equity price sensitivity analysis.

42.2.2 Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in ﬁnancial loss
to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining
sufﬁcient collateral, where appropriate, as means of mitigating the risk of ﬁnancial loss from defaults. The Group
only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied
by independent rating agencies where available, if not available, the Group uses other publicly available ﬁnancial
information and its own trading records to rate its major customers. The Group’s exposure and the credit ratings of
its counterparties are continuously monitored and the aggregate values of transactions concluded is spread amongst
approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the
credit risk department.

Financial assets, which potentially subject the Group to concentrations of credit risk, consists principally of cash and
cash equivalents, short-term deposits, derivative contracts including foreign exchange forward contracts and interest
rate swaps, loans and receivables, investments and trade and other receivables, including ﬁnance lease receivables.
Financial guarantees granted also subject the Group to credit risk.

The Group’s cash and cash equivalents and short-term deposits are placed with high credit quality ﬁnancial institutions.
Credit risk with respect to trade and ﬁnance lease receivables is limited due to large number of customers comprising
the Group’s customer base and stringent credit approval processes for contracted subscribers.

With respect to the foreign exchange forward contracts, the Group’s exposure is on the full amount of the foreign
currency payable on settlement. The Group minimises credit risk relating to foreign exchange forward contracts and
interest rate swaps by limiting the counterparties to major local and international banks, and does not expect to incur
any losses as a result of non-performance by these counterparties. The positions in respect of these counterparties are
closely monitored.

The Group’s exposure to credit risk with regards to loans and receivables are limited due to collateral held (Note 12).

The carrying amounts of ﬁnancial assets, excluding foreign exchange forward contracts and interest rate swaps,

included in the consolidated balance sheets represent the Group’s maximum exposure to credit risk in relation to these
assets.

F-184

42.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.2

RISK MANAGEMENT (CONTINUED)

42.2.2 Credit risk management (continued)

The maximum credit exposure of forward exchange contracts and interest rate swaps is represented by the fair value
of these contracts.

The maximum credit exposure of ﬁnancial guarantee contracts granted is the maximum amount the Group could be
required to pay, or fund, without consideration of the probability of the actual outcome.

The Group holds collateral over certain trade and other receivables. The collateral is made up of demand
guarantees from ﬁnancial institutions and can be exercised on overdue invoices. The collateral held amounted to
R1,086.1 million (2007: R795.8 million; 2006: R432.9 million).

There has been no signiﬁcant change during the ﬁnancial year, or since the end of the ﬁnancial year, to the Group’s
exposure to credit risk, the approach to the measurement or the objectives, policies and processes for managing
this risk.

Except as detailed in the following table, the carrying amount of ﬁnancial assets recorded in the ﬁnancial statements,
which is net of impairment losses, represents the Group’s maximum exposure to credit risk without taking into account
the value of any collateral obtained:

2006

2007

2008

Loans and receivables - South Africa

22.2

31.8

Loans and receivables - non-South African

92.1

108.4

132.1

Trade and other receivables - South Africa

3,823.2

4,546.0

5,576.6

Trade and other receivables - non-South African

376.8

865.4

992.5

Financial guarantee contracts granted *

1,152.0

1,311.9

1,484.5

5,444.1

6,853.9

8,217.5

* Financial guarantees issued in support of Vodacom Congo (RDC) s.p.r.l are included as liabilities in the
consolidated balance sheet.

No terms of ﬁnancial assets were renegotiated.

The following represents information on the credit quality of South African trade receivables that are neither past due
nor impaired:

2006

2007

2008

High

Medium

Low

100

Deﬁnitions:

High: the probability exists that the debtor has defaulted in payments and entered into a delinquency
scenario.

Medium: the probability exists that the debtor is experiencing ﬁnancial difﬁculties and is in arrears. The debtor is
being managed closely to collect all overdue accounts.

Low: no default in payment has occurred or is anticipated by the debtor.

F-185

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2

RISK MANAGEMENT (CONTINUED)

42.2.2 Credit risk management (continued)

The following represents an analysis of the age of ﬁnancial assets that are past due but not impaired:

1 - 30 days

31 - 60 days

61 - 90 days

91 - 120 days

Total

past due

2006

Trade and other receivables -

South

Africa

7.6

4.4

12.1

10.3

34.4

Trade and other receivables -

non-South African

7.7

11.0

18.7

15.3

15.4

12.1

10.3

53.1

2007

Trade and other receivables -

South

Africa

13.0

6.6

6.3

28.9

54.8

Trade and other receivables -

non-South African

19.6

27.6

47.2

32.6

34.2

6.3

28.9

102.0

2008

Trade and other receivables -

South

Africa

22.0

12.4

12.7

13.9

61.0

Trade and other receivables -

non-South African

8.4

19.4

27.8

30.4

31.8

12.7

13.9

88.8

F-186

42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2

RISK MANAGEMENT (CONTINUED)

42.2.3 Liquidity risk management

Liquidity risk is the risk that the Group will not be able to meet its ﬁnancial obligations as they fall due.

In terms of its borrowing requirements, the Group ensures that adequate funds are available to meet its expected
and unexpected ﬁnancial commitments through undrawn borrowing facilities. In terms of its long-term liquidity risk, a
reasonable balance is maintained between the period over which assets generate funds and the period over which
the respective assets are funded.

The following tables detail the Group’s remaining contractual maturity for its non-derivative ﬁnancial liabilities. The
tables have been drawn up based on the undiscounted cash ﬂows of ﬁnancial liabilities based on the earliest
date on which the Group can be required to pay. The table includes both estimated interest and principal cash
ﬂows. Estimated interest of ﬂoating interest rate ﬁnancial liabilities is calculated using the applicable yield curves at
March 31, 2008, 2007 and 2006.

0 - 1 year

2 years

3 years 4 years 5 years 5+ years

Not

Total

determined

2006

Finance

leases

190.7

211.7

269.2

153.6

200.6

180.4

1,206.2

Funding

loans

1,527.3

90.9

1,618.2

Other short-term loans

39.0

Non-interest bearing debt

4.3

Trade and other payables

7,804.4

- 7,804.4

Bank

borrowings

1,385.8

10,947.2

211.7

269.2

153.6

200.6

180.4

95.2 12,057.9

2007

Finance

leases

211.7

271.2

153.6

200.6

98.7

82.1

1,017.9

Funding

loans

365.5

1.4 1,489.7

123.1

1,979.7

Other short-term loans

21.9

Non-interest bearing debt

3.0

Trade and other payables

9,742.5

Bank

borrowings

879.2

11,220.8

272.6 1,643.3

200.6

98.7

82.1

126.1 13,644.2

2008

Finance

leases

271.2

153.6

200.6

98.7

82.1

806.2

Funding

loans

421.1 1,665.3 1,089.0

142.6

3,318.0

Other short-term loans

8.1

Non-interest bearing debt

6.0

Trade and other payables

10,634.0

- 10,634.0

Bank

borrowings

2,596.8

13,931.2 1,818.9 1,289.6

98.7

82.1

148.6 17,369.1

F-187

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
42.2

RISK MANAGEMENT (CONTINUED)

42.2.3 Liquidity risk management (continued)

The following tables detail the Group’s liquidity analysis for its derivative ﬁnancial instruments. The tables have been
drawn up based on the undiscounted net cash inﬂows/outﬂows on the derivative instruments that settle on a net basis
and the undiscounted gross outﬂows on those derivatives that requires gross settlement. When the amount payable or
receivable is not ﬁxed, the amount disclosed has been determined by reference to projected interest rates as illustrated
by the yield curves existing at the reporting date.

0 - 1 year

2 years

3 years 4 years 5 years 5+ years

Not

Total

determined

2006

Net

settled:

Interest rate swaps

7.3

Foreign exchange

forward contracts

3.0

Gross settled:

Foreign exchange

forward contracts

1,650.6

1,660.9

2007

Net

settled:

Interest rate swaps

6.2

Foreign exchange

forward contracts

0.3

Gross settled:

Foreign exchange

forward contracts

2,322.5

2,329.0

2008

Net

settled:

Interest rate swaps

3.4

Foreign exchange

forward contracts

11.0

Gross settled:

Foreign exchange

forward contracts

2,134.8

100.4

2,235.2

2,149.2

100.4

2,249.6

42.2.4 Insurance risk management

The Group is exposed to insurance risk as a result of its asset base as well as its customer commitments. In terms of its
insurance risk proﬁle the company ensures that there is adequate insurance cover through the utilisation of a special
purpose insurance vehicle (Note 4).

F-188

42.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.2

RISK MANAGEMENT (CONTINUED)

42.2.5 Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while
maximising return to shareholders.

The capital structure of the Group consists of debt, cash and cash equivalents and adjusted equity.

The Group monitors capital on the basis of debt to equity. The ratio is calculated as net debt (as deﬁned below) to
adjusted equity (as deﬁned below).

Net debt comprises interest bearing debt, shareholder’s loans, outside shareholder’s loans, any other long-term
liabilities, shareholder for dividends, secondary taxation payable on shareholders for dividends and cash and cash
equivalents.

Adjusted equity comprises share capital, distributable reserves, non-distributable reserves less minority interest,
trademarks and goodwill.

The Group’s strategy is to maintain a net debt to adjusted equity ratio of below 150%. The Group reviews its
objectives on a semi-annual basis to ensure objectives are being met.

The net debt to equity ratio at year end was as follows:

2006

2007

2008

Debt

(5,619.0)

(5,919.1)

(7,043.6)

Cash and cash equivalents

1,760.3

(107.8)

(1,619.2)

Net debt

(3,858.7)

(6,026.9)

(8,662.8)

Adjusted equity

(7,647.2)

(8,274.0)

(9,308.0)

Net debt to adjusted equity ratio

50%

73%

93%

There were no changes in the Group’s objective, policies or processes for managing capital from the previous
ﬁnancial year.

The Group is not subject to externally imposed capital requirements.

42.3

VM, S.A.R.L. call option

In terms of the new shareholders’ agreement, effective April 1, 2007, the Group’s minority shareholders in VM,
S.A.R.L., Empresa Moçambicana de Telecommuniçãcoes S.A.R.L. (“Emotel”) and Intelec Holdings Limitada (“Intelec”)
have a option for a period of ﬁve years following the commencement date, April 1, 2007. In terms of the option,
Emotel and Intelec shall be entitled to acquire such numbers of further shares in and proportionate claims in and
against VM, S.A.R.L. as will result in Emotel and Intelec each holding and beneﬁcially owning, in aggregate together
with their shareholding in VM, S.A.R.L. as at April 1, 2007, 10% of the issued share capital, after the exercise of the
option. The option can only be exercised in a single transaction and after all obligations to Vodacom International
Limited have been fully discharged. The method of determining the option price is speciﬁed in the shareholders’
agreement. The call option had a nil value at March 31, 2008.

F-189

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

42.4

Smartphone SP (Proprietary) Limited put option

In terms of the shareholders’ agreement amended during the previous ﬁnancial year, the then minority shareholders of
Smartphone SP (Proprietary) Limited had a put option against Vodacom Group (Proprietary) Limited, should the Group
or the company had terminated or failed to renew the Service Provider Agreement for any reason other than the expiry
or cancellation of the Group’s South African licence. The previous put options had a nil value at March 31, 2007
and 2006 as the conditions set out in the agreement were not met. This put option was cancelled during the current
year with the acquisition of the minority shareholders of Smartphone SP (Proprietary) Limited (Note 32).

42.5

Smartcom (Proprietary) Limited put option

In terms of the amended agreement between Vodacom Group (Proprietary) Limited (“the Group”), Smartphone SP
(Proprietary) Limited (“Smartphone”) and the minority shareholders of Smartcom (Proprietary) Limited (“Smartcom”),
the then minority shareholders of Smartcom had a put option against the Group, should the Group had reduced the
standard service provider discount below the average service provider discount provided by Vodacom (Proprietary)
Limited to its other service providers. The previous put options had a nil value at March 31, 2007 and 2006 as the
conditions set out in the agreement were not met. This put option was cancelled with the acquisition of the minority
shareholders of Smartcom (Proprietary) Limited (Note 32).

42.6

Congolese Wireless Network s.p.r.l. (“CWN”) put option

In terms of a shareholders agreement, the minority shareholder in Vodacom Congo (RDC) s.p.r.l., Congolese
Wireless Network s.p.r.l. (“CWN”) has a put option which comes into effect three years after the commencement
date, December 1, 2001, and for a maximum of ﬁve years thereafter. In terms of the option, CWN shall be entitled
to put to Vodacom International Limited such number of shares in and claims on loan account against Vodacom
Congo (RDC) s.p.r.l. as constitute 19% of the entire issued share capital of that company. CWN can exercise this
option in a maximum of three tranches and each tranche must consist of at least 5% of the entire issued share capital
of Vodacom Congo (RDC) s.p.r.l. The option price will be the fair market value of the related shares at the date the
put option is exercised. The put option has a nil value as at March 31, 2008, 2007 and 2006. The option liability
had a value of R396.5 million (2007: R249.3 million; 2006: Rnil) as at March 31, 2008 (Note 25).

42.7

The Somnium Family Trust (“the Trust”) call option

The Somnium Family Trust (“the Trust”) granted Vodacom Ventures (Proprietary) Limited a call option to purchase
such number of shares in Gogga Tracking Solutions (Proprietary) Limited from the Trust totalling 23% of the issued
share capital of the company on the date upon which the option is exercised. The option will lapse after 36 months
following the month in which the triggering events, as stipulated in the option agreement, occurs. The option price is
speciﬁed in the option agreement. The call option had a nil value at March 31, 2008 and 2007.

42.8

WBS Holdings (Proprietary) Limited call option

The Group has purchased a 10% equity stake in WBS Holdings (Proprietary) Limited effective January 31, 2007.
WBS Holdings (Proprietary) Limited has on the same date granted the Group an option to subscribe in such number
of further shares as will result in the Group holding and beneﬁcially owning, in aggregate 25.5% of the total issued
ordinary share capital of the company after the exercise of the option. The option can be exercised by the Group until
February 27, 2009, subject to the fulﬁlment of the conditions precedent as set out in the sales of shares and option
agreement. The call option had a nil value at March 31, 2008 and 2007.

42.9

G-Mobile Holdings Limited call option

G-Mobile Holdings Limited granted to Vodacom Ventures (Proprietary) Limited an irrevocable call option to subscribe
for such number of further shares as would result in Vodacom Ventures (Proprietary) Limited holding and beneﬁcially
owning, in aggregate together with the subscription shares 26% of the total issued share capital of G-Mobile
Holdings Limited after the exercise of the option at a speciﬁed price. The option had a nil value at March 31, 2007.
This call option was exercised during the current year.

F-190

43.

GOODWILL IMPAIRMENT TEST

The Group periodically evaluates its non-current assets for impairment, whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. The Group’s judgements regarding the
existence of impairment indicators are based on market conditions and operational performance of the business.
Future events could cause management to conclude that impairment indicators exist.

Goodwill impairment tests are performed annually in terms of IFRS 3: Business Combinations (“IFRS 3”) to compare
the fair value of each of the cash-generating units to its carrying amount. Goodwill impairment testing is conducted at
cash-generating unit levels of the business and is based on a cash ﬂow-based valuation model to determine the fair
value of the cash-generating unit. The assumptions used in estimating future cash ﬂows were based upon the business
forecasts and incorporated external information from industry sources, where applicable. Changes in certain of
these estimates could have an effect on the estimated fair value of the cash-generating unit. Judgements in estimating
discounted cash ﬂows also include the selection of the pre-tax discount rate (weighted average cost of capital) to be
used in the valuation model. The discount rate used in the valuation model considered a targeted debt and equity
mix, a market risk premium, and other factors considered with valuation methodologies.

Based on the results of the impairment evaluation described above, the recorded goodwill was not impaired as
the fair value of each reporting unit exceeded the carrying value. Minor changes to the valuation model would not
signiﬁcantly impact the results of the valuation; however, if future cash ﬂows were materially different to the forecasts,
then the assessment of the potential impairment of the carrying value may be impacted.

Goodwill has been allocated for impairment testing purposes to six cash-generating units of which four are in South
Africa, one in the Democratic Republic of the Congo and one in Tanzania.

South Africa

The recoverable amounts of goodwill relating to Vodacom (Proprietary) Limited and Vodacom Service Provider
Company (Proprietary) Limited, which now includes the operations of Smartphone SP (Proprietary) Limited, Smartcom
(Proprietary) Limited and Cointel V.A.S. (Proprietary) Limited, has been determined on the basis of value in use
calculations. These companies operate in the same economic environment for which the same key assumptions
were used. These values in use calculations use cash ﬂow projections based on ﬁnancial budgets approved by
management covering a ten year period and discount rates of between 12.0% and 15.0% in Rand terms. Ten year
management accounts were used as expectations of strong revenue growth throughout the ten year period exists.
The implied terminal growth rate is between 4.0% and 6.0%. Management believes that any reasonable change
in any of these key assumptions would not cause the aggregate carrying amount of these companies to exceed the
aggregate recoverable amount of these units.

F-191

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

43. GOODWILL IMPAIRMENT TEST (CONTINUED)

Democratic Republic of Congo

The recoverable amount of this cash-generating unit was based on a value in use calculation for Vodacom Congo (RDC) s.p.r.l.
The calculation uses cash ﬂow projections based on ﬁnancial budgets approved by management covering a ten year period
and a discount rate which ranged between 16.0% and 19.0% in US Dollar terms. Ten year management accounts were used
as expectations of strong revenue growth throughout the ten year period exists. Cash ﬂows beyond this period have been
extrapolated using annual nominal growth rates which ranged between 2.0% and 5.0%. Management believes that these
growth rates do not exceed the long-term average growth rate for the market in which this company operates. Management
believes that any reasonable possible change in the key assumptions on which the recoverable amount is based would not
cause the carrying amount to exceed its recoverable amount.

Tanzania

The recoverable amount of this cash-generating unit was based on a value in use calculation for Vodacom Tanzania Limited.
The calculation uses cash ﬂow projections based on ﬁnancial budgets approved by management covering a ten year period
and a discount rate which ranged between 16.0% and 19.0% in Tanzanian Shilling terms. Ten year management accounts
were used as expectations of strong revenue growth throughout the ten year period exists. The terminal growth rate applicable
ranged between 7.0% and 11.0%, relative to a long-term inﬂation target of 7.0%. Management believes that any reasonable
possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to
exceed its recoverable amount.

Tanzania

9.2

Expected customer base
Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.

Value assigned to key
assumption reflects past
experience, except for potential
growth. Growth is based on
market expectation.

Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.

ARPU
Value assigned to key
assumption reflects past
experience. Growth is based
on expected market forces
and external sources of
information.

Democratic Republic of Congo

148.1

Expected customer base
Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.

Value assigned to key
assumption reflects past
experience, except for potential
growth. Growth is based on
market expectation.

Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.

ARPU
Value assigned to key
assumption reflects past
experience. Growth is based
on expected market forces
and external sources of
information.

South Africa

1,739.3

Expected customer base
Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.

Value assigned to key
assumption reflects past
experience, except for potential
growth. Growth is based on
market expectation.

Closing customer base in the
period immediately preceding
the budget period increased
for expected growth.

ARPU
Value assigned to key
assumption reflects past
experience. Growth is based
on expected market forces
and external sources of
information.

March 31, 2008

Carrying amount of

goodwill

Key assumption
Basis for determining
value(s) assigned to key
assumptions

Basis for determining
value(s) assigned to key

assumptions

Key assumption

F-192

43. GOODWILL IMPAIRMENT TEST (CONTINUED)

Tanzania

Gross margin
Average gross margin achieved
in period immediately before
the budget period, increased
for expected efficiency
improvements.

Value assigned to key
assumption reflects past
experience, except for
efficiency improvements.

Capital expenditure
Total capital expenditure
achieved in period immediately
before the budget period,
adjusted for expected network
coverage roll out.

Value assigned based
on management’s expected
network coverage roll out.

ZAR/TZS and USD/TZS
exchange rates during the
budget period.

Average market forward
exchange rate over the budget
period.

Value assigned to key
assumption is consistent with
external sources of information.

Democratic Republic of

Congo

Gross margin
Average gross margin achieved
in period immediately before
the budget period, increased
for expected efficiency
improvements.

Value assigned to key
assumption reflects past
experience, except for
efficiency improvements.

Capital expenditure
Total capital expenditure
achieved in period immediately
before the budget period,
adjusted for expected network
coverage roll out.

Value assigned based
on management’s expected
network coverage roll out.

ZAR/USD exchange rate
during the budget period.

Average market forward
exchange rate over the budget
period.

Value assigned to key
assumption is consistent with
external sources of information.

South Africa

Gross margin
Average gross margin achieved
in period immediately before
the budget period, increased
for expected efficiency
improvements.

Value assigned to key
assumption reflects past
experience, except for
efficiency improvements.

Capital expenditure
Total capital expenditure
achieved in period immediately
before the budget period,
adjusted for expected network
coverage roll out.

Value assigned based
on management’s expected
network coverage roll out.

March 31, 2008

Key assumption
Basis for determining
value(s) assigned to key
assumptions

Basis for determining
value(s) assigned to key
assumptions

Key assumption

F-193

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

44.

UNDRAWN BORROWING FACILITIES AND GUARANTEES

44.1

Rand denominated facilities and guarantees

The Group has Rand denominated credit facilities totalling R5,788 million (2007: R4,989.0 million; 2006: R7,083.0
million) with R2,456 million (2007: R816.0 million; 2006: R1,114.0 million) utilised at March 31, 2008. The
facilities that are uncommitted, can also be utilised for loans to foreign entities and are subject to review at various
dates (usually on an annual basis). Certain of the facilities are still subject to the Group’s ﬁnal acceptance.

Guarantor

Details

Beneﬁciary

2006

2007

2008

Vodacom (Proprietary)

All guarantees less than R2.0 million.

Various

2.6

2.7

2.4

Limited

Vodacom Service Provider All guarantees less than R2.0 million.

Various

2.8

2.6

2.9

Company (Proprietary)

Limited

Vodacom Service Provider Guarantee in respect of receipt by

SA Insurance

21.1

27.0

32.0

Company (Proprietary)

independent intermediaries of premiums Association for

Limited

behalf of short-term insurers and Lloyds beneﬁt of

underwriters, and relating to short-term

insurers

insurance business carried on in South

Africa. Renewable annually.

Vodacom (Proprietary)

Letter of undertaking in respect of land. Attorneys

6.8

16.9

Limited

Smartcom (Proprietary)

Guarantees for salary bank account

Various

2.9

3.2

Limited

and debit orders.

Cointel V.A.S. (Proprietary) Guarantees for operating lease

Limited

and debit orders.

Various

1.5

29.4

43.8

54.2

44.2

Foreign denominated facilities and guarantees

The following foreign denominated facilities are in place:

Company

Details

As at

March 31,

2008

Million

Total facility

Utilised

Vodacom International

Revolving term loan

US$180.0

Limited

Vodacom Congo (RDC)

Various

US$18.5

US$9.4

s.p.r.l.

Vodacom Lesotho

Overdraft facilities with various banks

M40.0

M0.0

(Proprietary) Limited

VM, S.A.R.L.

Overdraft facility

US$0.5

US$0.0

F-194

44.

UNDRAWN BORROWING FACILITIES AND GUARANTEES (CONTINUED)

44.2

Foreign denominated facilities and guarantees (continued)

The following foreign denominated guarantees have been issued:

Guarantor/Issuer

Details

Beneﬁciary

Currency

2006

2007

2008

Vodacom Group

Guarantees issued for

Standard Bank

US$180.0 million 1,114.4

1,311.9

1,462.6

(Proprietary)

the obligations of

Plc and RMB

(2007:

Limited

Vodacom

International International

US$180.0 million

Limited’s term loan

(Dublin) Limited

(2006:

facility * #

US$180.0 million)

Nedbank Limited

Unsecured standby

Alcatel CIT

€

nil (2007:

85.7

on behalf of

letters of credit

€

nil; 2006:

Vodacom

€

11.4 million)

(Proprietary) Limited

Vodacom

Guarantees issued

Alcatel CIT

€

nil (2007:

37.6

International

for the obligations of

€

nil (2006:

Limited

Vodacom

Congo

€

5.0 million)

(RDC) s.p.r.l. *

1,237.7

1,311.9

1,462.6

* Foreign denominated guarantees amounting to R1,462.6 million (2007: R1,311.9 million; 2006: R1,152.0

million issued in support of Vodacom Congo (RDC) s.p.r.l. are included as liabilities in the consolidated balance
sheets.

# The Group is in compliance with the covenants attached to the term loan facility.

Vodacom (Proprietary) Limited provides an unlimited guarantee for borrowings entered into by Vodacom Group
(Proprietary) Limited.

F-195

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

45.

SEGMENTAL INFORMATION

Vodacom’s reportable segments are geographical business units that offer comparable business products and services
however they are separately managed because the mobile telecommunication and data communication businesses
are located in South Africa and non-South African countries.

Vodacom has six reportable segments: South Africa, Tanzania, Mozambique, Lesotho, Democratic Republic of the
Congo, and Other. The segments offer a variety of telecommunication and data communication services as well as
equipment sales.

“Other” comprises of the holding companies of the Group.

“South Africa”, which is also the home country of the parent, comprises the segment information relating to the South
African based cellular network as well as all the segment information of the service providers and other business
segments.

“Tanzania”, “Mozambique”, “Lesotho”, and “DRC” comprise the segment information relating to the non-South African
based cellular networks.

2006

2007

2008

Reconciliations of reportable segments

Segment results

Management operating proﬁt for reportable segments

8,980.6

11,000.4*

12,616.4

Amortisation of licences, trademarks and patents and

customer bases

(167.7)

(117.7)

(95.8)

Impairment of assets

52.8

(22.9)

(29.9)

Proﬁt from operations

8,865.7

10,859.8

12,490.7

Net ﬁnance cost

(639.2)

(463.8)

(423.9)

Finance income

129.9

74.5

72.3

Finance costs

(246.0)

(369.3)

(681.3)

Gains/(Losses) on remeasurement and disposal of

ﬁnancial instruments

(523.1)

(169.0)

185.1

Proﬁt before taxation

8,226.5

10,396.0

12,066.8

Taxation

(3,083.7)

(3,836.0)

(4,109.2)

Net proﬁt

5,142.8

6,560.0

7,957.6

* Management operating proﬁt for reportable segments includes proﬁt on sale of shares in subsidiary.

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

F-196

Other

South Africa

Tanzania

Mozambique

Lesotho

DRC

Eliminations

Total

45.

SEGMENTAL INFORMATION (CONTINUED)

2006
Segment revenue

274.2

31,089.8

1,311.8

158.3

170.1

1,334.2

34,338.4

Inter-segment revenue

(274.2)

(8.5)

(5.2)

(5.3)

(1.6)

(1.1)

(295.9)

External customers segment revenue

31,081.3

1,306.6

153.0

168.5

1,333.1

34,042.5

Airtime and access

18,169.2

988.9

71.8

120.9

735.0

20,085.8

Data revenue

1,884.8

108.0

3.5

15.8

25.5

2,037.6

Interconnect revenue

6,141.6

188.0

57.5

26.5

283.2

6,696.8

Equipment sales

3,902.4

5.4

0.4

4.2

73.2

3,985.6

International airtime

720.8

14.3

19.5

0.7

215.9

971.2

Other

262.5

2.0

0.3

0.4

0.3

265.5

Management operating proﬁt/(loss)

(23.3)

8,762.9

263.6

(196.8)

50.9

123.3

8,980.6

Net ﬁnance income/(cost)

8,306.0

(357.7)

(86.1)

(364.4)

(0.1)

(237.4)

(7,899.5)

(639.2)

Taxation

(679.8)

(2,403.4)

(31.5)

(18.3)

49.3

(3,083.7)

Net proﬁt/(loss)

7,226.3

5,842.0

140.6

(508.5)

32.4

(71.4)

(7,518.6)

5,142.8

Other material non-cash items included in
segment proﬁt/(loss):
Depreciation and amortisation

(2.8)

(2,451.5)

(201.5)

(68.2)

(16.0)

(255.8)

(2,995.8)

Impairments of assets reversed

52.8

Assets

Reportable segment assets

14,391.1

20,642.0

1,348.6

527.2

136.8

1,992.9

(14,270.8)

24,767.8

Included in reportable segment assets:
Additions to property, plant and equipment
and intangible assets

16.5

4,383.0

321.5

121.4

25.9

273.2

5,141.5

Non-current assets other than ﬁnancial instruments
and deferred taxation

55.7

11,902.1

950.1

396.4

101.4

1,563.4

720.4

15,689.5

Liabilities

Reportable segment liabilities

(6,108.1)

(17,292.4)

(613.1)

(1,030.3)

(52.1)

(2,527.9)

11,528.4

(16,095.5)

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

F-197

Other

South Africa

Tanzania

Mozambique

Lesotho

DRC

Eliminations

Total

45.

SEGMENTAL INFORMATION (CONTINUED)

2007
Segment revenue

388.4

37,050.2

1,729.3

269.0

227.5

1,914.4

41,578.8

Inter-segment revenue

(388.4)

(11.6)

(7.4)

(10.0)

(2.1)

(12.9)

(432.4)

External customers segment revenue

37,038.6

1,721.9

259.0

225.4

1,901.5

41,146.4

Airtime and access

21,045.3

1,282.4

131.6

165.3

1,082.9

23,707.5

Data revenue

3,112.9

146.5

8.1

22.5

51.7

3,341.7

Interconnect revenue

7,058.0

257.8

80.1

31.7

408.0

7,835.6

Equipment sales

4,604.9

19.4

4.4

4.2

66.2

4,699.1

International airtime

961.8

15.4

34.6

1.3

292.7

1,305.8

Other

255.7

0.4

0.2

0.4

256.7

Management operating proﬁt/(loss)

64.2

10,383.6

347.0

(154.1)

74.9

284.8

11,000.4

Net ﬁnance income/(cost)

3,346.4

(475.3)

(43.6)

34.5

(0.8)

(287.8)

(3,037.2)

(463.8)

Taxation

(799.2)

(2,922.0)

(112.1)

(42.0)

(18.9)

58.2

(3,836.0)

Net proﬁt/(loss)

2,102.9

6,870.4

190.7

(184.4)

55.2

47.4

(2,522.2)

6,560.0

Other material non-cash items included in
segment proﬁt/(loss):
Depreciation and amortisation

(2.2)

(2,688.6)

(237.8)

(84.8)

(22.1)

(325.7)

(3,361.2)

Impairments of assets

(22.9)

Assets

Reportable segment assets

13,183.2

23,207.0

2,424.4

690.9

169.5

2,692.0

(13,896.8)

28,470.2

Included in reportable segment assets:
Additions to property, plant and
equipment and intangible assets

182.3

5,458.3

957.6

85.2

25.0

506.0

7,214.4

Non-current assets other than ﬁnancial
instruments and deferred taxation

230.1

14,949.8

1,864.9

459.4

104.3

2,036.1

604.1

20,248.7

Liabilities

Reportable segment liabilities

(7,693.4)

(16,746.1)

(1,123.0)

(1,261.2)

(66.2)

(3,272.7)

11,339.4

(18,823.2)

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

March 31, 2008

F-198

Other

South Africa

Tanzania

Mozambique

Lesotho

DRC

Eliminations

Total

45.

SEGMENTAL INFORMATION (CONTINUED)

2008
Segment revenue

43,180.3

2,354.5

433.9

308.9

2,296.6

48,574.2

Inter-segment revenue

(355.4)

(9.7)

(26.0)

(2.6)

(2.7)

(396.4)

External customers segment revenue

42,824.9

2,344.8

407.9

306.3

2,293.9

48,177.8

Airtime and access

23,596.4

1,704.7

220.5

186.6

1,387.0

27,095.2

Data revenue

4,669.8

206.8

15.7

31.3

78.6

5,002.2

Interconnect revenue

7,938.3

360.4

110.8

40.7

436.9

8,887.1

Equipment sales

4,931.0

45.6

8.2

8.9

57.7

5,051.4

International airtime

1,386.7

26.7

52.6

38.2

331.7

1,835.9

Other

302.7

0.6

0.1

0.6

2.0

306.0

Management operating proﬁt/(loss)

34.0

11,754.3

460.0

(127.0)

122.8

372.3

12,616.4

Net ﬁnance income/(cost)

7,885.4

(537.7)

(24.4)

56.2

2.5

(274.9)

(7,531.0)

(423.9)

Taxation

(739.6)

(3,250.9)

(121.2)

43.9

(32.5)

(8.9)

(4,109.2)

Net proﬁt/(loss)

6,675.9

7,916.3

314.5

(56.5)

94.0

80.2

(7,066.8)

7,957.6

Other material non-cash items included in
segment proﬁt/(loss):
Depreciation and amortisation

(56.7)

(3,056.5)

(305.5)

(94.6)

(16.1)

(381.7)

(3,911.1)

Impairments of assets

(29.9)

Assets

Reportable segment assets

16,015.4

24,597.8

3,430.7

892.0

277.5

3,431.3

(14,469.5)

34,175.2

Included in reportable segment assets:
Additions to property, plant and equipment
and intangible assets

1,132.0

4,270.0

712.6

111.3

38.7

658.6

6,923.2

Non-current assets other than ﬁnancial instruments
and deferred taxation

421.1

16,046.6

2,546.3

546.8

129.1

2,590.3

1,488.7

23,768.9

Liabilities

Reportable segment liabilities

(9,489.4)

(17,776.7)

(2,335.7)

(1,924.6)

(104.8)

(3,987.2)

13,248.5

(22,369.9)

F-199

46.

INTEREST IN SUBSIDIARIES

The information discloses interests in subsidiaries material to the ﬁnancial position of the Group. The interest in the ordinary share
capital is representative of the voting power.
RSA – Republic of South Africa; LES – Lesotho; TZN – Tanzania; MZ – Mozambique; DRC – Democratic Republic of the Congo;
MAU – Mauritius; C – Cellular; MSC – Management services company; PROP – Property company; OTH - Other.

Country of Issued share capital Interest in issued

incorporation

ordinary share capital

2006

2007

2008 2006

2007

2008

Cellular network operators

Vodacom (Proprietary) Limited (C)

RSA

R100

100

Vodacom Lesotho (Proprietary) Limited (C)

LES

M4,180

M4,180 88.3

88.3

Vodacom Tanzania Limited (C)

TZN

TZS10,000

VM, S.A.R.L. (C)

MZ US$60,000,000 US$60,000,000

US$60,000,000

Vodacom Congo (RDC) s.p.r.l. (C)

DRC

US$1,000,000

Service providers

Vodacom Service Provider Company
(Proprietary) Limited (C)

RSA

R20

100

Smartphone SP (Proprietary) Limited (C) *

RSA

R20,000

100

Smartcom (Proprietary) Limited (C) *

RSA

R1,000

R1,000 43.7

61.7

100

Cointel V.A.S. (Proprietary) Limited (C) *

RSA

R10,204

100

Other

VSP Holdings (Proprietary) Limited (MSC) *

RSA

R1,023

100

Vodacom Satellite Services (Proprietary)
Limited (OTH) *

RSA

R100

100

GSM Cellular (Proprietary) Limited (OTH) *

RSA

R1,200

100

Vodacom Venture No. 1 (Proprietary)
Limited (OTH) *

RSA

R810

100

Vodacom Equipment Company
(Proprietary) Limited (OTH) *

RSA

R100

100

Vodacare (Proprietary) Limited (OTH) *

RSA

R100

100

Vodacom International Holdings
(Proprietary) Limited (MSC)

RSA

R100

100

Vodacom International Limited (MSC)

MAU

US$100

100

Vodacom Properties No.1 (Proprietary)
Limited (PROP)

RSA

R100

100

Vodacom Properties No.2 (Proprietary)
Limited (PROP)

RSA

R1,000

100

Stand 13 Eastwood Road Dunkeld West
(Proprietary) Limited (PROP)

RSA

R100

Ithuba Smartcall (Proprietary) Limited (OTH)

RSA

R100

- 26.5

36.4

Smartcall Smartlife (Proprietary)
Limited (OTH)

RSA

R100

Vodacom Tanzania Limited
(Zanzibar) (OTH) *

TZN

TZS10,000

Joycell Shops (Proprietary) Limited (OTH) *

RSA

R100

100

Marble Gold Investments (Proprietary)
Limited (OTH) *

RSA

R100

100

Vodacom Ventures (Proprietary) Limited (OTH)

RSA

R120

100

Skyprops 134 (Proprietary) Limited (PROP)

RSA

R100

100

* Dormant as at March 31, 2008.

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

F-200

47.

INTERESTS IN JOINT VENTURES

47.1

Number Portability Company (Proprietary) Limited

In response to the introduction of Mobile Number Portability (“MNP”) it was necessary for the formation of a company
to provide all the services necessary to allow the existing three incumbent mobile operators to offer MNP.

Number Portability Company (Proprietary) Limited was formed for the express purpose of providing all the necessary
services required for MNP by Vodacom, MTN and Cell C.

Number Portability Company (Proprietary) Limited is owned equally by all three operators and they contributed the required
necessary ﬁnancial resources directly proportional to their shareholding. MNP was ofﬁcially launched on November
10, 2006.

Effective September 20, 2006, Vodacom (Proprietary) Limited acquired a 33.3% stake in Number Portability
Company (Proprietary) Limited by acquiring 100 shares for R1. Each shareholder advanced to Number Portability
Company (Proprietary) Limited funding by way of shareholders loans. As a March 31, 2008 the shareholder loan
balance was R6.0 million (2007: R6.0 million) (Note 21).

2007

2008

Interest held

33.3%

The Group’s proportionate share of assets and liabilities:

Property, plant and equipment

Intangible assets

6.3

Current assets

2.2

3.0

Total assets

8.5

9.3

Long-term liabilities

(6.0)

Inter company creditors

(3.0)

Current liabilities

(0.6)

(0.4)

Net liabilities

(1.1)

(0.1)

The Group’s proportionate share of revenue and expenditure:

Revenue

0.4

5.7

Proﬁt/(Loss) before taxation

(1.1)

1.1

Taxation

(0.1)

Net proﬁt/(loss)

(1.1)

1.0

The Group’s proportionate share of cash ﬂows:

Net cash ﬂows from operating activities

(1.0)

0.2

Net cash ﬂows utilised in investing activities

(7.0)

(1.8)

Net cash ﬂows from ﬁnancing activities

9.0

3.0

Net cash ﬂow

1.0

1.4

NPC had no contingent liabilities or capital commitments at March 31, 2007 and 2008.

* Amounts less than R50 000

F-201

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

48.

NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS ACCOUNTING PRONOUNCEMENTS
Accounting pronouncements adopted at March 31, 2008

The Group adopted the following revised and new International Financial Reporting Standards as issued by the International Accounting Standards Board in accordance with their effective dates during the current ﬁnancial year:

IAS 1 (revised August 2005)

Presentation of Financial Statements (capital disclosures)

IFRS 7

Financial Instruments: Disclosures

IFRIC 9

Reassessment of Embedded Derivatives

IFRIC 10

Interim Financial Reporting and Impairment

IFRIC 11

IFRS 2 Group and Treasury Share Transactions

AC 503

Accounting for BEE transactions

The adoption of the above mentioned accounting pronouncements had no impact on the Group’s results or cash ﬂow
information for the year ended March 31, 2008.

Accounting pronouncements not adopted at March 31, 2008

In November 2006 the IASB issued IFRIC 12: Service Concession Arrangements (“IFRIC 12”) effective for annual
periods beginning on or after January 1, 2008. The interpretation addresses the accounting by private sector
operators involved in the provision of public sector infrastructure assets and services, such as schools and roads. The
interpretation states that for arrangements falling within its scope (essentially those where the infrastructure assets are
not controlled by the operator), the infrastructure assets are not recognised as property, plant and equipment of the
operator. Rather, depending on the terms of the arrangement, the operator will recognise:

· a ﬁnancial asset where the operator has an unconditional right to receive a speciﬁed amount of cash or other
ﬁnancial asset over the life of the arrangement; or
· an intangible asset where the operator’s future cash ﬂows are not speciﬁed – e.g. where they will vary according
to usage of the infrastructure asset; or
· both a ﬁnancial asset and an intangible asset where the operator’s return is provided partially by a ﬁnancial asset
and partially by an intangible asset.

The Group will adopt IFRIC 12 during the 2009 ﬁnancial year and is currently evaluating the effects of the

interpretation.

In March 2007 the IASB issued a revision to IAS 23: Borrowing Costs (“IAS 23”) effective for annual periods
beginning on or after January 1, 2009. The revised standard removes the option of recognising immediately as
an expense those borrowing costs that relate to assets that take a substantial period of time to get ready for use or
sale. The revised standard does not apply to borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets measured at fair value or inventories that are manufactured, or otherwise produced,
in large quantities on a repetitive basis.

The Group will adopt the revised IAS 23 during the 2010 ﬁnancial year and is currently evaluating the effects of the
standard.

In June 2007 the IASB issued IFRIC 13: Customer Loyalty Programmes (“IFRIC 13”) effective for annual periods
beginning on or after July 1, 2008. The interpretation addresses accounting by entities that grant loyalty award
credits (such as points or travel miles) to customers who buy other goods or services. Speciﬁcally, it explains how such
entities should account for their obligations to provide free or discounted goods or services (awards) to customers
who redeem award credits. IFRIC 13 states that an entity that grants loyalty award credits shall allocate some of
the proceeds of the initial sale to the award credits as a liability (its obligation to provide the awards). The entity shall
recognise the deferred portion of the proceeds as revenue only when it has fulﬁlled its obligations.

The Group will adopt IFRIC 13 during the 2010 ﬁnancial year and is currently evaluating the effect of the
interpretation and based on current indications do not believe that it will have a material impact on the Group's
numbers.

F-202

48.

NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS ACCOUNTING PRONOUNCEMENTS

(CONTINUED)

Accounting pronouncements not adopted at March 31, 2008 (continued)

In July 2007 the IASB issued IFRIC 14: IAS 19 - The Limit on a Deﬁned Beneﬁt Asset, Minimum Funding Requirements
and their Interaction (“IFRIC 14”) effective for annual periods beginning on or after January 1, 2008. The interpretation
addresses the interaction between a minimum funding requirement and the limit placed by paragraph 58 of IAS 19
on the measurement of the deﬁned beneﬁt asset or liability. When determining the limit on a deﬁned beneﬁt asset in
accordance with IAS 19.58 entities are required, under IFRIC 14, to measure any economic beneﬁts available to
them in the form of refunds or reductions in future contributions at the maximum amount that is consistent with the terms
and conditions of the plan and any statutory requirements in the jurisdiction of the plan.

The Group will adopt IFRIC 14 during the 2009 ﬁnancial year and is currently evaluating the effects of the
interpretation.

In September 2007 the IASB issued a revision to IAS 1: Presentation of Financial Statements (“IAS 1”) effective for
annual periods beginning on or after January 1, 2009. The revised standard requires an entity to:

· present all non-owner changes in equity either in one statement of comprehensive income or in two statements, a
separate income statement and a statement of comprehensive income;
· present a statement of ﬁnancial position as at the beginning of the earliest comparative period in a complete
set of ﬁnancial statements when the entity applies an accounting policy retrospectively or makes a retrospective
adjustment; and
· disclose income tax relating to each component of other comprehensive income and to disclose reclassiﬁcation
adjustments relating to components of other comprehensive income.

In addition the revision includes changes in the titles of some of the ﬁnancial statements. The new titles will be used
in International Financial Reporting Standards, but are not mandatory for use in ﬁnancial statements.

The Group will adopt the revised IAS 1 during the 2010 ﬁnancial year and is currently evaluating the effect of the
revised standard.

In January 2008 the IASB issued a revision to IFRS 2: Share-based Payment (“IFRS 2”) effective for annual periods
beginning on or after January 1, 2009. The revised standard clariﬁes:

· vesting and non-vesting conditions;
· the estimation of the fair value of equity instruments granted;
· the accounting treatment of cancellations by counterparties to a share-based arrangement; and
· the deﬁnition of performance conditions.

The Group will adopt the revised IFRS 2 during the 2010 ﬁnancial year and is currently evaluating the effect of the
revised standard.

In February 2008 the IASB issued a revision to IAS 32: Financial instruments: Presentation (“IAS 32”) effective for
annual periods beginning on or after January 1, 2009. The revision requires:

· puttable instruments and 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 to be classiﬁed as equity if all
the conditions speciﬁed in the standard are met;
· reclassiﬁcation from or to equity when the speciﬁed criteria are no longer met or are subsequently met; and
· that derivatives over the aforementioned instruments may not be classiﬁed as equity.

The Group will adopt the revised IAS 32 during the 2010 ﬁnancial year and is currently evaluating the effect of the
revised standard.

F-203

March 31, 2008

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

48.

NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS ACCOUNTING PRONOUNCEMENTS

(CONTINUED)

Accounting pronouncements not adopted at March 31, 2008 (continued)

In January 2008 the IASB issued a revision to IFRS 3: Business Combinations (“IFRS 3”) effective for business
combinations in annual periods beginning on or after July 1, 2009, which consequentially amended IAS 27:
Consolidated and Separate Financial Statements (“IAS 27”), IAS 28: Investments in Associates (“IAS 28”) and
IAS 31: Interest in Joint Ventures (“IAS 31”) effective for annual periods beginning on or after July 1, 2009.

Revisions to IFRS 3:

· require all acquisition costs to be expensed;
· require acquirers, with step acquisitions achieving control, to remeasure its previously held equity interest to fair
value at the acquisition date and recognise any gain or loss in proﬁt or loss;
· require non-controlling interests to be measured at either fair value or at the non-controlling interest’s proportionate
share of net identiﬁable assets of the entity acquired;
· require considerations for acquisitions to be measured at fair value at the acquisition date including the fair value of
any contingent consideration payable. Subsequent changes are only allowed as a result of additional information
on facts and circumstances that existed at the acquisition date, all other changes are recognised in proﬁt or loss;
· require goodwill to be measured as the difference between the aggregate of the acquisition date fair value of
the consideration transferred; the amount of any non-controlling interest acquired and in a business combination
achieved in stages, the acquisition date fair value of the acquirers’ previously held equity interest and the net of
the acquisition date amounts of identiﬁable assets acquired and liabilities assumed; and
· clariﬁes that all contractual arrangements at the acquisition date must be classiﬁed and designated with the
exception of leases and insurance contracts. Thus the acquirer applies its accounting policies as if it has acquired
those contractual relationships outside of the business combination.

Revisions to IAS 27:

· require that changes in a parent’s ownership interest in a subsidiary that do no result in a loss of control are equity
transactions, no gain or loss is recognised and goodwill is not remeasured. The difference between the change in
the non-controlling interest and the fair value of the consideration paid or received is recognised in equity;
· require that with the loss of control all assets, liabilities and non-controlling interest should be derecognised at
carrying amount and any retained non-controlling interest should be remeasured to fair value on the date control is
lost. The difference between the sum of the proceeds received and any retained interest and the carrying amount
of assets, liabilities and non-controlling interests at the date control is lost, should be recognised in proﬁt or loss;
and
· require losses to be allocated to non-controlling interests even if they exceed the non-controlling interest’s share of
equity in the subsidiary.

Revisions to IAS 28:

· require derecognition of an associate with the loss of signiﬁcant inﬂuence; and
· recognition in proﬁt or loss of the difference between the sum of the proceeds received and any retained interest,
and the carrying amount of the investment in the associate at the date signiﬁcant inﬂuence is lost.

Revisions to IAS 31:

· similar treatment as for associate investments is required when an investor loses joint control over a jointly controlled
entity.

The Group will adopt the revised IFRS 3, IAS 27, IAS 28 and IAS 31 during the 2011 ﬁnancial year and is currently
evaluating the effect of the revised standards.

In February 2008 the IASB issued a revision to IAS 1: Presentation of ﬁnancial statements (“IAS 1”) effective for annual
periods beginning on or after January 1, 2009. The revision requires disclosures for puttable instruments classiﬁed
as equity which include quantative data about the amount classiﬁed as equity; the entity’s objectives, policies and
processes for managing its obligation to repurchase or redeem the instruments including any changes from the
previous period; the expected cash outﬂow on redemption or repurchase of that class of ﬁnancial instruments, how
the expected cash outﬂow was determined and if an instrument is reclassiﬁed into and out of ﬁnancial liabilities and
equity the amount, timing and reason for reclassiﬁcation.

The Group will adopt the revised IAS 1 during the 2010 ﬁnancial year and is currently evaluating the effect of the
revised standard.

Exhibit 12.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) (17 CFR 240.13a-14(a)) OR RULE
15d-14(a) (17 CFR 240.15d-14(a)), PROMULGATED UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Reuben Joseph September, certify that:

I have reviewed this annual report on Form 20-F for the year ended March 31, 2008, including
Amendment No. 1 to the annual report on Form 20-F/A, of Telkom SA Limited;

Based on my knowledge, this report does not contain any untrue statement of a

material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;

Based on my knowledge, the financial statements, and other financial information

included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;

The company’s other certifying officer and I are responsible for establishing and

maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the company’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(d)

Disclosed in this report any change in the company’s internal control over
financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect,
the company’s internal control over financial reporting; and

The company’s other certifying officer and I have disclosed, based on our most recent

evaluation of internal control over financial reporting, to the company’s auditors and the audit

committee of the company’s board of directors (or persons performing the equivalent
functions):

(a)

All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the company’s ability to record, process, summarize and
report financial information; and

(b)

Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company’s internal control over
financial reporting.

By: /s/ Reuben Joseph September

Name: Reuben Joseph September

Title: Chief Executive Officer

(principal financial officer)

Date: October 23, 2008

Exhibit 12.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) (17 CFR 240.13a-14(a)) OR RULE
15d-14(a) (17 CFR 240.15d-14(a)), PROMULGATED UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Deon Jeftha Fredericks, certify that:

I have reviewed this annual report on Form 20-F for the year ended March 31, 2008, including
Amendment No. 1 to the annual report on Form 20-F/A, of Telkom SA Limited;

Based on my knowledge, this report does not contain any untrue statement of a

Based on my knowledge, the financial statements, and other financial information

included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;

The company’s other certifying officer and I are responsible for establishing and

(a)

(b)

(c)

(d)

The company’s other certifying officer and I have disclosed, based on our most recent

evaluation of internal control over financial reporting, to the company’s auditors and the audit
committee of the company’s board of directors (or persons performing the equivalent
functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company’s internal control over
financial reporting.

By: /s/ Deon Jeftha Fredericks

Name: Deon Jeftha Fredericks
Title:

Acting Chief Financial Officer

(principal financial officer)

Date: October 23, 2008

Exhibit 13.1

CERTIFICATION FURNISHED PURSUANT TO RULE 13a-14(b) (17 CFR 240.13a-14(b))
OR RULE 15d-14(b) (17 CFR 240.15d-14(b)) AND SECTION 1350 OF CHAPTER 63 OF
TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350), PROMULGATED UNDER
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Telkom SA Limited (the “Company”) on Form 20-F for the year ending March 31, 2008, including Amendment No. 1 to the annual report on Form 20-F/A (the “Report”),
we, Reuben Joseph September , Chief Executive Officer of the Company, and Deon Jeftha Fredericks,
Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, promulgated
under Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the

Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the

financial condition and results of operations of the Company.

Date: October 23, 2008

By:

/s/ Reuben Joseph September
Reuben Joseph September
Chief Executive Officer
(principal executive officer)

Date: October 23, 2008

By:

/s/ Deon Jeftha Fredericks

Deon Jeftha Fredericks

Acting Chief Financial Officer

(principal financial officer)

The foregoing certifications are being furnished solely pursuant to Rule 13a-14(b) under

the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 and will not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section. Such certifications will not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically
incorporates them by reference.

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