Basis of preparation

These financial statements for the period ended 31 December 2005 are the Group’s first period end financial statements that comply with International Financial Reporting Standards (IFRS). MTN has undertaken a detailed conversion project across the Group in managing the transition to IFRS and in preparing the financial information outlined in these financial statements.

Detailed explanations of all significant accounting policy changes in order to effect IFRS compliance are set out in note 44.2 Note 44.5 details the changes to previously published South African Statement of Generally Accepted Accounting Practice (SA GAAP) in terms of the transition to IFRS.

Although the financial statements for the period ending 31 December 2005 are the Group’s first published financial statements stating full compliance with IFRS, the Group had already complied with the following SA GAAP standards that had identical requirements to the IFRS with effect from 17 July 2000:

IFRS 3 (AC140) (issued 2004): Business Combinations
IAS 36 (AC128) (revised 2004): Impairment of Assets
IAS 38 (AC129) (revised 2004): Intangible Assets
IAS 27 (AC132) (revised 2004): Consolidated and Separate Financial Statements

Transitional arrangements

The annual financial statements have been prepared in accordance with IFRS. This is the first period that the company has presented its financial statements under IFRS. IFRS 1 requires full retrospective application of IFRS. However, the standard allows for exceptions and exemptions from retrospective application of IFRS. The Group’s transitional elections are set out below and the Group has elected to apply the following exemptions from full retrospective application of IFRS in preparing its first IFRS financial statements:

Business combinations

Business combinations (including acquisitions) recognised before 17 July 2000 (the Group’s effective date of transition to IFRS 3) have not been restated. As a result the carrying amount of goodwill is the depreciated amount on 17 July 2000. Previously recognised amortisation of goodwill and goodwill previously eliminated against reserves are not restated.

Cumulative translation differences

The Group has elected to set the previously accumulated translation differences for all foreign operations recognised separately in equity, to zero as at 1 April 2004.

Share-based payments

The cost of share options issued prior to 7 November 2002 and the cost of share options issued after 7 November 2002 which vested prior to 1 January 2005 have not been recognised in the income statement.

Exemption from restatement of comparatives for IAS 32, IAS 39 and IFRS 4

The Group has elected the exemption not to restate comparative financial information relating to the financial year ended 31 March 2005 for IAS 32, IAS 39 and IFRS 4. The Group has applied SA GAAP rules to insurance contracts, derivative financial assets, financial liabilities and to hedging relationships for the 31 March 2005 comparative period.

Decommissioning liabilities included in respect of property, plant and equipment

The Group has elected the exemption not to account for changes in existing decommissioning, restoration and similar liabilities included in property, plant and equipment for changes in such liabilities that occurred before 1 April 2004.

The Group has elected to measure the decommissioning, restoration and similar liabilities included in the cost of property, plant and equipment as at the date of transition to IFRS in accordance with IAS 37. To the extent that the liability is within the scope of IFRIC 1, the amount that would have been included in the cost of the related asset when the liability first arose, was estimated by discounting the liability to the acquisition date of the related asset using its best estimate of the historical riskadjusted discount rate that would have been applied for that liability over the intervening period.

Business combinations and goodwill

The following standards were already effective under SA GAAP during the financial year ended 31 March 2005:

• IFRS 3 (AC 140) (issued 2004): Business Combinations
• IAS 27 (AC 132) (revised 2004): Consolidated and Separate Financial Statements
• IAS 36 (AC 128) (revised 2004): Impairment of Assets
• IAS 38(AC 129) (revised 2004): Intangible Assets

The Group has elected to retrospectively apply these standards under SA GAAP with effect from 17 July 2000, being the date on which the Group acquired the remaining 23% minority interest in MTN Holdings (Pty) Limited from Transnet Limited.

The adoption of IFRS 3 required simultaneous adoption of IAS 36 and IAS 38. The Group’s effective date of transition to IFRS
remains 1 April 2004.

Initially the Group accounted for the excess of the purchase price over the book value of the minority interest relating to the acquisition by the MTN Group of the remaining 23% interest in MTN Holdings (Pty) Limited from Transnet Limited, which amounted to R11,6 billion, as goodwill on the balance sheet and was amortising it through the income statement over 20 years.

During the year ended 31 March 2005, the Group changed its accounting policy to treat minority shareholders’ as equity participants with effect from 17 July 2000, and therefore any purchase/sale of minority interests are now accounted for as equity transactions and recorded directly in equity as opposed to being recorded as goodwill or credited to the income statement.

This resulted in a goodwill reduction of R9,5 billion on the MTN balance sheet with an equal reduction in shareholders’ equity on 17 July 2000 and accordingly at 1 April 2004.

These standards require that the Group apply the same principles to all acquisitions from 17 July 2000 onwards, of which the
following are most significant:

• Recognition of assets and liabilities on acquisition at fair value.

The Group is required, for each acquisition on or after 17 July 2000 on each acquisition date, to allocate the cost of the business combination by recognising the acquiree’s identifiable assets, liabilities and contingent liabilities that satisfy the recognition criteria, at their fair values at the appropriate acquisition dates. This includes the identification and accounting for intangible assets such as licences, subscriber bases, customer relationships, trademarks, brands, etc. These are amortised over their estimated expected useful lives.

• Calculating goodwill as being the difference between
– The net fair values of the assets, liabilities and contingent liabilities, and
– The purchase consideration including direct acquisition costs.

• As previously required in terms of SA GAAP (from 17 July 2000), goodwill is subject to an annual impairment review, or more frequently where indicators of impairment exist, as opposed to the amortisation method applied prior to 17 July 2000.

Significant accounting policy changes

The most significant changes in accounting policies are set out below. The effects of these changes are disclosed in the schedules to this Transition Document, and cross-referenced to the relevant note.

Property, plant and equipment [IAS 16]

The following adjustments have been accounted for retrospectively in order to comply with this standard:

• Identification of each significant part (component) of each item of property, plant and equipment (“PPE”) which has a significantly different useful life;
• For each financial year-end, reviewing and adjusting, where necessary, the useful lives and residual values of each asset;
• Inclusion of dismantling, removal and restoration costs as part of the cost of PPE;
• Inclusion of costs directly attributable to bringing the asset to the location and condition necessary for its intended use; and
• Recalculation of depreciation after taking the adjustments outlined above into account.

Foreign exchange [IAS 21]

• In terms of the standard, an entity’s “functional currency” is defined as the currency of the primary economic environment in which the entity operates.

MTN Mauritius, the Group’s wholly owned Mauritius-based holding company used to operate with US dollar as its functional currency. Given the changes in its structure over the years, as well as its operating model, MTN Mauritius is now regarded as a direct and integral extension of MTN’s South African operations. Accordingly, its functional currency has been changed from US dollar to South African rand.

On consolidation, this has resulted in exchange gains and losses on its dollar denominated assets and liabilities being accounted for in the income statement, as opposed to being included in the foreign currency translation reserve, as previously reported.

• Cumulative translation differences of R1,5 billion were classified as a separate component of equity on the MTN balance sheet at 31 March 2004. IFRS 1 allows the option to “reset” this to zero on the date of transition to IFRS, being 1 April 2004, which the MTN Group has opted to apply.

Share-based payments [IFRS 2]

This standard requires a charge to be raised in the income statement relating to certain share-based payments which had not vested at 1 January 2005, as well as cash-settled awards still outstanding at 1 January 2005. MTN operates certain share option and other employee benefit schemes which give rise to share-based payments.

IFRS 1 (First Time Adoption of IFRS) provides an exemption in terms of which MTN Group has elected to limit its retrospective adoption to awards granted after 7 November 2002, which had not yet vested on 1 January 2005.

The various share option and long-term incentive schemes in operation within MTN Group have been classified either as equity or cash-settled, and accounted for accordingly.

The income statement charge arising from each tranche of options issued is based on fair value and spread over the vesting
period. An independent valuation of the main option tranches granted has been obtained from an external valuator.

Leases [IAS 17]

The standard gives guidance on leases of land and buildings and as such where the buildings meet the criteria for capitalisation separately from the land, the components have been split and accounted for accordingly.

As far as operating leases are concerned, in respect of those which include fixed escalation clauses, the straight-line method has been adopted. In these cases, monthly expense is equal to the total amount of lease payments divided by the total lease period months.

Intangible assets [IAS 38]

In accordance with the requirements of the standard, software which is not an integral part of related hardware has been reclassified from PPE to intangible assets. The useful lives and residual values of the reclassified software assets, have been reviewed and adjusted where necessary for each financial reporting period. Amortisation has also been recalculated after taking these adjustments into account.

Effects of transition from SA GAAP to IFRS

The notes included hereafter set out a reconciliation of the previously reported financial information to that reported under IFRS.

These schedules explain only the significant adjustments effected in order to comply with IFRS.

This information does not comprise statutory financial statements within the meaning of section 286 of the Companies Act, 1973.

It is important to note that the financial information that follows has been prepared in accordance with the IFRS that are effective at 31 December 2005..