Directors’ report

for the year ended 31 March

Nature of business

Vodacom Group Limited ('the Company') is an investment holding company. Its principal subsidiaries are engaged in the provision of a wide-range of communication products and services including but not limited to voice, messaging, converged services, broadband and data connectivity.

There have been no material changes to the nature of the Group's business from the prior year. 

Financial results

Earnings attributable to equity holders of the Group for the year ended 31 March 2010 were R4 196 million (2009: R6 089 million; 2008: R7 811 million) representing basic earnings per share of 282.3 cents (2009: 409.2 cents; 2008: 525.0 cents).

The Group has recognised a goodwill impairment of R3 039 million relating to Gateway. Full details of the impairment are included in Note 2 of the consolidated annual financial statements.

Full details of the financial position and results of the Group are set out in these consolidated annual financial statements. 


Dividend distribution
An ordinary dividend of R1 637 million (2009: R5 200 million; 2008: R5 940 million) was declared for the year, of which R6 million (2009 and 2008: RNil) was paid to participants of the forfeitable share plan ('FSP') (Note 16). Details of the final dividend are included under 'Events after the reporting period' in this directors' report. 
Declared 6 March 2008 and paid 3 April 2008
3 190
Declared 1 October 2007 and paid 4 October 2007
2 750
Declared 11 September 2008 and paid 6 October 2008
3 000
Declared 30 January 2009 and paid 8 April 2009
2 200
Declared 5 November 2009 and paid 7 December 2009
1 637
1 637
5 200 5 940
Dividend policy
The Company intends to pay so much of its after tax profits as will be available after retaining such sums and repaying such borrowings owing to third-parties as shall be necessary to meet the requirements reflected in the budget and business plan, taking into account monies required for investment opportunities. However, there is no assurance that a dividend will be paid in respect of any financial period and any future dividends will be dependent upon the operating results, financial condition, investment strategy, capital requirements and other factors. It is envisaged that interim dividends will be paid in December and final dividends in June of each year. There is no fixed date on which entitlement to dividends arises and the date of payment will be determined by the Board or shareholders at the time of declaration, subject to the JSE Listings Requirements.

The Company declared a final dividend of 175.0 cents per share on 14 May 2010, representing approximately 60.0% of headline earnings for the six months ended 31 March 2010. 

Share capital

Full details of the authorised and issued share capital of the Company are contained in Note 15 of the consolidated annual financial statements. Following conclusion of the implementation of the share sale transaction between Telkom SA Limited and Vodafone Holdings SA (Pty) Limited, the authorised and issued share capital were restructured on 18 May 2009 as follows: 
The 100 000 ordinary shares of R0.01 each in the authorised share capital were subdivided into 14 879 540 000 ordinary shares with the resulting issued share capital consisting of 1 487 954 000 ordinary shares; 
The 14 879 540 000 authorised ordinary shares¹ and 1 487 954 000 issued ordinary shares² were converted into ordinary shares of no par value; and 
10 879 540 000 ordinary shares of no par value in the authorised share capital of 14 879 540 000 ordinary shares of no par value were cancelled, resulting in the authorised share capital comprising 4 000 000 000 ordinary shares of no par value. 
1. 14 879 540 000 ordinary shares of R0.000000067206378691814397488094390014745 each.
2. 1 487 954 000 ordinary shares of R0.000000067206378691814397488094390014745 each.
The authorised and issued share capital are thus illustrated as follows:
Stated capital
Authorised – 4 000 000 000 ordinary shares of no par value; and
Issued – 1 487 954 000 ordinary shares of no par value amounting to R100.
Shareholders approved a special resolution granting a general authority for the repurchase of ordinary shares by the Group, to a maximum of 20% of shares in issue, at the annual general meeting held on 31 July 2009, subject to the JSE Listings Requirements and the provisions of the Companies Act of 1973, as amended. In terms of this general authority, 120 456 ordinary shares were repurchased at an average price of R57.92 per share. The repurchased shares are in connection with shares that were forfeited by executives who either elected not to participate in the FSP on the allocation date of 26 November 2009, or had resigned post the allocation. These shares are held as treasury shares by wholly owned subsidiary, Wheatfields Investments 276 (Pty) Limited ('Wheatfields'). Approval to renew this general authority will be sought at the forthcoming annual general meeting on 30 July 2010. 
Odd-lot offer
On 4 March 2010, shareholders approved ordinary and special resolutions to implement an odd-lot offer and a specific repurchase of shares at R56.61 per share. Pursuant to the odd-lot offer and specific share repurchase, 2 426 471 shares were purchased on 30 March 2010. These shares are held as treasury shares by wholly owned subsidiary, Wheatfields. 
Share scheme
Shareholders adopted the FSP at the annual general meeting of 31 July 2009. The FSP was implemented on 26 November 2009 with 4 722 504 shares being granted to participants. Further details on the FSP may be found in Note 16 of the consolidated annual financial statements and in the remuneration report.

Treasury shares held by Wheatfields do not carry any voting rights. 

Subsidiaries, associate company and other investments

Particulars of the Group's principal subsidiaries are provided in Addendum A, while particulars of the associate company and other investments are provided in Note 11 of the consolidated annual financial statements. The attributable interest in the net profit or losses of subsidiaries before eliminations for the year ended 31 March 2010 is as follows: 
Aggregate amount of profit after tax
11 429
8 007 10 541
Aggregate amount of losses after tax
(9 425)
(696) (270)
2 004
7 311 10 271

Capital expenditure and commitments

Details of the Group’s capital expenditure and commitments are set out in Note 24 of the consolidated annual financial statements.

Special resolutions

No special resolutions relating to capital structure, borrowing powers or any other material matter that affects the understanding of the Group were passed by subsidiary companies during the year under review. 

Directorate and secretary

The following movements in the directorate were recorded during the year under review:
18 May 2009

1 July 2009
1 November 2009
15 January 2010
MP Moyo (Chairman)
M Joseph*
T Mokgosi-Mwantembe
RA Shuter
PJ Moleketi
P Bertoluzzo@
18 May 2009

30 June 2009
15 January 2010
OA Mabandla (Chairman)
E Spio-Garbrah†
DD Barber
PG Joubert
J van der Watt
JCG Maclaurin^
*American, @Italian, †Ghanaian, ^British
In terms of the Company's articles of association, Messrs RA Shuter, PJ Moleketi and P Bertoluzzo, having been appointed since the last annual general meeting of the Company, retire at the forthcoming annual general meeting to be held on 30 July 2010. In terms of the articles of association, Messrs MS Aziz Joosub and RC Snow^ retire by rotation. All retiring directors are eligible and available for re-election. Their profiles appear in Board of directors.

As at the date of this report, the directors of the Company were as follows: 
Independent non-executive
MP Moyo (Chairman), TA Boardman, P Malabie, T Mokgosi-Mwantembe, PJ Moleketi
M Lundal~, P Bertoluzzo@, M Joseph*, RAW Schellekens°, RC Snow^, HM Mahmoud (alternate)#, TJ Harrabin (alternate)^
PJ Uys (Chief Executive Officer), RA Shuter (Chief Financial Officer), MS Aziz Joosub

The secretary is SF Linford and her business and postal address appear on the corporate administration sheet included in this annual report.
*American, @Italian, ^British, ~Norwegian, °Dutch, #Egyptian

Interests of directors

As at the date of this report, the current directors of the Company held direct and indirect beneficial interests in 493 855 of its issued ordinary shares as set out below: 
of shares
of shares
PJ Uys
199 901
MP Moyo
2 415
RA Shuter
122 954
MS Aziz Joosub
167 692
PJ Moleketi
491 440
2 415
As at the day of listing, which was 18 May 2009, the directors held direct and indirect beneficial interests as follows:
PJ Uys held 900 shares directly; and
MP Moyo held 250 shares directly and 2 415 shares indirectly.
There have been no changes in beneficial interests that occurred between the end of the reporting period and the date of this report.

Holding company and ultimate holding company

The Group is ultimately controlled by Vodafone Group Plc which owns 65.0% of the shares through:
Vodafone Holdings (SA) (Pty) Limited; and
Vodafone Telecommunications Investments (SA) (Pty) Limited.
Vodafone Group Plc is incorporated and domiciled in the United Kingdom.

Audit Committee

In terms of section 270 A(f) of the Companies Act of 1973, as amended ('the Act'), the Group Audit Committee has discharged all of those functions delegated to it in terms of the Group's Audit Committee Charter, the Act and the JSE Listings Requirements: 
The Audit Committee met on five occasions to review, inter alia, the year end and interim results of the Group as well as consider regulatory and accounting standards compliance; 
Considered and satisfied itself that the external auditors are independent and determined the external fees for the 2010 financial year and nominated the external auditors for appointment for the 2011 financial year; 
Confirmed the non-audit services which the external auditors performed during the year under review;
Ensured that the Audit Committee complied with the membership criteria specified in the Act;
Confirmed the internal audit plan for the next financial year;
Held separate meetings with management and the external auditors to discuss any reserved matters; and
Considered the appropriateness and experience of the Chief Financial Officer as required by the JSE Listings Requirements.
For details on the role and function, refer to Audit Committee

The auditors' business and postal address appear on the corporate administration sheet included in this annual report. 
Other matters
Negative net current asset ratio
The Group has a negative net current asset ratio, however, management believes that based on its operating cash flows, the Group will be able to meet its liabilities as they arise and that it is in compliance with all covenants contained in material borrowing agreements.

Depending on market conditions, the Group will continue to seek longer-term funding opportunities which will reduce the negative net current asset ratio. 
Electronic Communications Act (‘EC Act’)
Under the newly promulgated EC Act of 2008 and in terms of the Regulations on Standard Terms and Conditions for licensees (which came into effect on 19 January 2009), the Group's South African operation has been issued with two licences which largely confer the same rights as provided for under the EC Act of 2006, with the exception of the following: 
All licensees are subject to an annual licence fee of 1.5% of gross profit (previously 5.0% of net operational income); and
As part of the conversion process, no additional universal service obligations have been imposed.
Customer registration
Democratic Republic of Congo (‘DRC’)
In terms of a ministerial decree promulgated in 2008, network operators in the DRC had to register their customers by 31 December 2009. In December 2009 a new customer registration decree was issued, which requires due process to be followed on individual customer information requests prior to penalties being imposed. Significant progress has been made to register customers and to minimise disruptions to customer acquisitions as a result of registration. 
Vodacom Tanzania Limited and Vodacom (Pty) Limited, a South African-based company, are also subject to customer registration by 30 June 2010 and 31 December 2010 respectively. The Group is making every effort to be fully compliant by the set deadlines. 
Interconnect rates
The Group's South African operation has, as a result of bilateral negotiations with the other mobile operators, agreed to reduce the peak interconnect rate from R1.25 to R0.89 with effect from 1 March 2010. The R0.77 off-peak rate remained unchanged. On 16 April 2010, the Independent Communications Authority of South Africa ('ICASA') published draft regulations in which it proposes to reduce the rate to R0.65 in July 2010, R0.55 in July 2011 and R0.40 in July 2012. Vodacom (Pty) Limited will actively participate in the ICASA public consultation process on the draft regulations. 
Code of conduct on the sale, lease, rental or subsidisation of subscriber equipment (‘draft Code’)
In December 2009, ICASA published a draft Code, the purpose of which is to foster transparency, promote consumer rights and set out minimum standards to be adhered to by licensees. The draft Code is also applicable to licensees' agents and resellers. It is anticipated that the draft Code will be finalised within the next financial year. 
A request for arbitration, under the aegis of the International Chamber of Commerce, was filed by Vodacom International Limited ('VIL') against Congolese Wireless Network s.p.r.l. ('CWN') on 7 April 2010.

VIL is seeking, inter alia, as a provisional measure, the appointment of an ad hoc trustee with the mandate to represent CWN at the next extraordinary shareholders' meeting in order to vote, in accordance with the corporate interest of Vodacom Congo (RDC) s.p.r.l., the resolutions relating to: 
The conversion of the latter into a s.a.r.l. (including the approval of by-laws and five nominee shareholders); and
The capital increase, as well as an order confirming the lack of validity of the purported resolution in favour of a dissolution of Vodacom Congo (RDC) s.p.r.l. 
VIL's claims are primarily based on the contention that CWN has committed an abuse of its rights as a non-controlling shareholder (by refusing to vote the capital increase and the conversion of Vodacom Congo (RDC) s.p.r.l. into a s.a.r.l.). 

In terms of monetary claims, VIL has requested the reimbursement of all arbitration costs including its legal costs and attorney fees, and has reserved its rights to claim damages as may be particularised in its pleadings.

Events after the reporting period

Final dividend
A final dividend of R2 599 million (175.0 cents per ordinary share) for the year ended 31 March 2010, was declared on 14 May 2010, payable on 5 July 2010 to shareholders recorded in the register at the close of business on 2 July 2010. 
Other matters
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 Group as at 31 March 2010 or the results of its operations or cash flows for the year then ended, other than those disclosed in Note 27


Deloitte & Touche continued in office as the Group's auditors. At the annual general meeting of 30 July 2010, shareholders will be requested to appoint Deloitte & Touche as the Group's auditors for the 2011 financial year and it will be noted that PJ Smit will be the individual registered auditor who will undertake the audit.