Employee benefit obligations

The Group operates various provident and pension funds, which are defined contribution funds and are governed by the pension funds legislation in the respective countries. Contributions are made to the funds based upon employees’ pensionable salary packages. All full-time employees are eligible to join the funds and it is a condition of employment.

Post-retirement medical benefits

The Group has no post-retirement medical benefits obligations.

MTN Cameroon

The licence authorises MTN Cameroon to set up and run a 900 MHz national mobile GSM cellular telephony network within the geographic territory of Cameroon. The licence was granted on 15 February 2000 and is valid for a period of 15 years, renewable for 10 years thereafter. The Group paid an initial licence fee of CFA40,4 billion and the annual licence fee payable based on 1% of network revenue for the first two years. Furthermore, an advance payment of CFA200 000 per year, is payable for microwave usage until a general formula of calculation is adopted with the Regulatory Board and pays an annual licence fee based on 2% of network revenue as defined in the licence from the third year onwards.

MTN Nigeria

The licence authorises MTN Nigeria to provide and operate a 900 and 1800 MHz second generation digital mobile service within the geographic territory of Nigeria. The licence was granted on 9 February 2001 and is valid for a period of 15 years, renewable for five years thereafter. The Group paid an initial licence fee of USD285 million and in addition, pays an annual licence fee based on 2,5% of assessed net revenue as defined in the licence.

MTN Rwanda

The licence authorises MTN Rwanda to construct, maintain and operate a 900, 1800 and 1900 MHz (including cellular public pay telephones) GSM telecommunication network within the geographic territory of Rwanda. The licence was granted on 2 April 1998 and is valid for 10 years and may be terminated thereafter with a two-year written notice period. The Group paid an initial licence fee of USD200 000 and in addition, pays an annual licence fee based on 3% (March 2005: 2,5%) of network revenue as defined in the licence. Furthermore a frequency fee of USD 2 000 per 1 MHz granted and an annual spectrum fee of USD50 000 is payable.

MTN Uganda

The licence authorises MTN Uganda to construct, maintain and operate a 900 and 1800 MHz national second generation digital mobile radio telephony service within the geographic territory of Uganda. The licence was granted on 15 April 1998 and is valid for a period of 20 years. The Group paid an initial licence fee of USD5,8 million, and an annual spectrum fee of 1% of network revenue is payable as a contribution to the Rural Communications Development Fund.

Irancell

The licence authorises Irancell to construct and operate a GSM-standard mobile radio-communication network for the purpose of providing a full range of licensed services within the Islamic Republic of Iran. The licence was granted on 21 November 2005 and has a validity period of up to 15 years with two renewable periods of five years each. An initial licence fee of Euro300 million was paid. An annual spectrum fee of 0,25% of revenue, an annual universal service fee of 3% of revenue and other fixed fees, all totalling in aggregate, not more than 5% of revenue are payable in each contractual year of the licence. In addition, Irancell is required to pay 28,1% of revenue in each contractual year, with a minimum guaranteed amount, which is based on 80% of 28,1% of the revenue amount included in the business plan, subject to certain conditions being met, on an annual basis.

MTN Zambia

The licence authorises MTN Zambia Limited to set up and run a cellular service within the designated bandwidth of 890-960 MHz band within the geographic territory of Zambia. The licence was granted on 23 September 1995 and is valid for a period of 15 years, renewable for five years thereafter. An initial licence fee of USD40 000 was paid to acquire the licence and the annual operating licence fees payable are 5% of the assessed annual revenue. Annual spectrum fees are also payable in respect of transmission.

MTN Côte d’Ivoire

The licence authorises MTN Côte d’Ivoire to construct, maintain and operate a 900 and 1 800 MHz GSM telecommunication network within the geographic territory of Côte d’Ivoire. The licence was granted on 21 December 2001 and is valid for 15 years. An initial licence fee of CFA40 billion was determined, which is payable from 2001 to 2007.

MTN Congo Brazzaville

The licence authorises MTN Congo Brazzaville to construct, maintain and operate a 900 and 1800 MHz GSM telecommunication network within the geographical territory of the Republic of Congo. The licence consists of a mobile licence granted on 15 October 1999 and an international gateway licence granted on 2 February 2005 valid for 15 years. The payable initial licence fee of FCFA365 million was paid for the mobile licence and FCFA250 million for the international gateway licence. The annual licence fee is based on 3% of local and 6% of international traffic. Furthermore, a frequency management fee of FCFA100 million, frequency usage fee of FCFA162,2 million and a number licence fee of FCFA60 million are payable annually. The payment on renewal is set at FCFA2,2 billion.

Mascom Botswana

The licence authorises Mascom Botswana to construct, operate and maintain GSM telecommunication systems within the geographic area of Botswana. The licence was granted on 17 February 1998 and is valid for a period of 15 years. The licence may be renewed upon expiry of the licence period provided that the licensee shall apply for such renewal no more than three years but not less than two years prior to the date of expiry. An initial licence fee of BWP1 000 000 was paid to acquire the licence. In addition to the initial fee, the licensee is also liable to pay fees for the radio licence, system licence and service licence in advance on an annual basis. A revenue fee of 3% (5% up to March 2004) is also payable quarterly based on net turnover, as defined in the licence, reported for each quarter.

MTN Swaziland

The licence authorises MTN Swaziland to provide and operate a 900 MHz GSM network within the geographic area of Swaziland. The licence was granted on 31 July 1998 and is valid for a period of 10 years, renewable for 10 years thereafter. The company pays annual spectrum fees of E20 000 per channel used (with a minimum of E600 000) and a licence fee of 5% of audited net operational income as defined in the licence.

MTN South Africa

The licence authorises MTN South Africa to construct, maintain and use a 900 MHz GSM national mobile cellular telecommunication service within the geographical area of South Africa. The licence was granted on 29 October 1993 and is valid for a period of 15 years from 1 June 1994, automatically renewable on the same terms and conditions, subject to certain provisions. The company paid an initial fee of R100 million and pays an annual licence fee based on 5% of net operating income as defined in the licence. In January 2005 MTN was granted the right to maintain and use the 1 800 MHz GSM spectrum as well as maintain and operate an UMTS (3G) network under the existing cellular network licence with the proviso that certain additional universal service obligations are met.

*Unit of payment for international telecommunication transactions

Liquidity risk

The Group has no material risk of liquidation and limited exposure to liquidity risk as it has significant banking facilities and reserve borrowing capacity. Available liquid resources are as follows:

Effective interest rate on cash ranges from 4% to 19% (March 2005: 2% to 15,6%)

Deposits have an average maturity of less than 43 days (March 2005: 60 days).

The Group has elected to early adopt the amendments in IAS 21 (Revised) in the current year with effect from 1 April 2004. The early adoption of the standard, which only becomes effective for years ending after 1 January 2006, results in a change in accounting policies previously applied.

Adoption of the standard, with effect from 1 April 2004, resulted in foreign currency fluctuations in respect of shareholder loans forming part of an entity’s net investment in a foreign operation, being recognised as a separate component of equity on consolidation, as opposed to being recorded in the consolidated income statement as previously prescribed. Foreign currency fluctuations on these loans will, however, still be recorded in the income statements of the respective stand-alone entities.

The change in accounting policy for the year ended 31 March 2005, is reflected in the table below:

Associates and joint ventures

Details of joint ventures and associates are disclosed in Appendix 1 and Appendix 2 of the financial statements.

Subsidiaries

Details of investments in subsidiaries are disclosed in Appendix 1 of the financial statements.

Directors

Details of directors’ remuneration are disclosed in note 3 of the Financial Statements as well as in the directors’ report under the heading “Details of emoluments and related payments”.

Shareholders

The principal shareholders of the company are disclosed in the directors’ report under the heading “Shareholders’ interest”.

On 1 July 2005, the Group acquired 51% of the share capital of Loteny Telecom, trading under the name Telecel Côte d’Ivoire (now named MTN Côte d’Ivoire), a telecommunications company operating in the Côte d’Ivoire. The acquired business contributed revenues of R392,5 million and profit after tax of R83,5 million to the Group for the period from 1 July 2005 to 31 December 2005.

If the acquisition had occurred on 1 April 2005, the contribution to Group revenue would have been R571,2 million, and the contribution to profit after tax would have been R98,3 million. These amounts have been calculated using the Group’s accounting policies and by adjusting the results of the subsidiary to reflect the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from 1 April 2005, together with the consequential tax effects.

The goodwill is attributable to the high profitability of the acquired business and the significant synergies expected to arise
after the Group’s acquisition of MTN Côte d’Ivoire.

On 1 August 2005, the Group acquired 100% of the share capital of Telecel Zambia, a telecommunications company operating in Zambia. On 1 April 2005, the Group acquired the remaining 40% of Network Solutions, an internet service provider company incorporated in South Africa. On 1 December 2005, the Group acquired 100% of Libertis Telecom, a telecommunications company incorporated in the Republic of the Congo and on 28 September 2005, the Group acquired 44% of Mascom Wireless Botswana (Proprietary) Limited, a telecommunications company operating in Botswana. The acquired businesses contributed revenues of R312 million and net profit of R54 million to the Group for the period.

If the acquisitions had occurred on 1 April 2005 the contribution to Group revenue would have been R708 million, and the contribution to profit after tax would have been R149 million. These amounts have been calculated using the Group’s accounting policies and by adjusting the results of the acquiree to reflect the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from 1 April 2005, together with the consequential tax effects.

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..