Telecommunication Interests

VODACOM

VenFin’s biggest investment is its 15% shareholding in Pan-African cellular communications company Vodacom.

PSITEK

Psitek has established itself as a leader in providing products in the fixed-line and cellular telecommunication arenas.

VODACOM www.vodacom.net

VenFin’s biggest investment is its 15% shareholding in Pan-African cellular communications company Vodacom Group (Proprietary) Limited (Vodacom). The other shareholders are Telkom SA Limited (50%) and Vodafone Group plc (35%).

Since its inception in 1993 in South Africa the Vodacom Group has grown both organically and through selective acquisitions. Today it has operations in four other sub-Saharan African countries, namely the Democratic Republic of the Congo (DRC), Tanzania, Lesotho and Mozambique. Vodacom’s expansion outside South Africa contributed 8.3% (2004: 6.6%) to revenue, during the year ended 31 March 2005. With 2.6 million customers (2004: 1.5 million), as at 31 March 2005, these operations constitute 17.1% of the total customer base (2004: 13.3%). All of Vodacom’s other African operations, with the exception of Vodacom Mozambique, are now profitable at the profit from operations level.

The recently formed alliance with Vodafone Group plc, the world’s largest cellular operator, is expected to provide further impetus to revenue growth through innovative products. In terms of this alliance, Vodacom is able to market Vodafone branded products and services, such as Vodafone Mobile Connect Cards, Vodafone live! and BlackBerry®, and is expected to support the group’s growth strategy for new technologies such as third generation GSM technology (3G), with the focus remaining on growing data revenues. Vodacom obtained a 3G licence during the year and launched the first commercial 3G network in South Africa in December 2004.

Vodacom had 15.5 million customers as at 31 March 2005 (2004: 11.2 million), an increase of 38.0% on the previous year. Vodacom remains the market leader in all the countries in which it operates, with the exception of Mozambique.

INVESTMENT HOLDING COMPANY

VODACOM GROUP (PROPRIETARY) LIMITED

CELLULAR NETWORK OPERATORS
Vodacom (Proprietary) Limited Vodacom Mozambique Vodacom Lesotho (Proprietary) Limited Vodacom Tanzania Limited Vodacom Congo (RDC)	100%
	98%
	88%
	65%
	51%

CELLULAR SERVICE PROVIDERS, CELLULAR TELEPHONE AND ACCESSORY MERCHANDISING AND CELLULAR TELEPHONE REPAIRS

Vodacom Service Provider Company (Proprietary) Limited Smartphone SP (Proprietary) Limited Smartcom (Proprietary) Limited	100%
	51%
	44%

Percentages represent effective interests

	31 March	31 March	30 June
Vodacom customers (’000) by country as at:	2004	2005	2005
Vodacom South Africa	9 725	12 838	14 289
Vodacom Tanzania	684	1 201	1 380
Vodacom Lesotho	80	147	157
Vodacom Congo	670	1 032	1 091
Vodacom Mozambique	58	265	299
Total customers	11 217	15 483	17 216

CORPORATE GOVERNANCE

During the year under review, Vodacom increased its focus on the implementation of group-wide best practices in corporate governance.

As Vodacom’s African business expands and, in keeping with the objectives of the New Partnership for Africa’s Development (NEPAD), the introduction and practice of good corporate governance in all its African operations is essential. To this end Vodacom created a new division, headed by the chief governance officer, to assist in building this capacity throughout the organisation. The group will continue to adopt the recommendations of the King Committee Report on Corporate Governance 2002.

OVERVIEW OF THE YEAR TO 31 MARCH 2005

The Vodacom Group delivered a strong financial performance for the year ended 31 March 2005. Growth was driven by excellent performances by all its operations, with the exception of Mozambique, which is in its start-up phase.

Revenue continued its strong year-on-year growth, reaching R27.3 billion (2004: R22.9 billion), a 19.5% increase over 2004. This was primarily driven by strong customer growth in all of Vodacom’s operations, coupled with lower overall churn, the inclusion of 100% of Vodacom Congo’s results as well as the inclusion of Smartphone and Smartcom for the first full year. However, the strong rand had a negative impact on the contribution from Vodacom’s other African operations.

As a result of sound cost management, Vodacom’s revenue growth was translated into increased profits from operations, which grew by 23.9% to R6.5 billion (2004: R5.2 billion). Operating expenses increased by 18.2%, resulting in the profit from operations margin increasing to 23.7% (2004: 22.9%). Profit from operations was negatively impacted by a R268 million impairment charge to Vodacom Mozambique’s assets.

Earnings before interest, tax, depreciation, amortisation and impairments (EBITDA) increased by 23.6% to R9.6 billion (2004: R7.8 billion) for the year ended 31 March 2005, with Vodacom’s other African operations contributing 5.6% (2004: 4.3%) to EBITDA. Vodacom’s EBITDA margin increased to 35.1% (2004: 34.0%). Despite the impairment charge in respect of Vodacom Mozambique, net profit after taxation increased by a strong 27.2% to R3.9 billion (2004: R3.1 billion).

South Africa: Vodacom South Africa remains the biggest contributor to Vodacom’s revenue growth, accounting for 82.8% or R3.7 billion of the revenue growth. The growth was marginally diluted by declining average revenue per customer (ARPU), in particular in respect of the connection of prepaid customers who are lower-spending customers, resulting in a 7.9% decrease in blended ARPU to R163 per month (2004: R177). Vodacom South Africa had a record 6.2 million gross new connections (2004: 5.0 million), fuelling customer growth of 32.0% to a base of 12.8 million (2004: 9.7 million). This increased its estimated market share to 56% (2004: 54%) at 31 March 2005.

Tanzania: Vodacom Tanzania’s customer base increased sharply by 75.6% to 1.2 million (2004: 0.7 million) at 31 March 2005, due to 746 000 gross new connections. This translates into an increased estimated market share of 59% (2004: 57%). ARPU levels decreased by 36.7% to R81 (2004: R128) as a result of increased prepaid penetration and tariff reductions.

Democratic Republic of the Congo (DRC): The DRC is the country in Vodacom’s portfolio with the highest degree of political instability and, therefore, the highest degree of risk. Vodacom Congo achieved a 54% increase in customers to 1 million (2004: 670 000) as a result of a substantial 565 000 gross new connections and lower churn rate and continues to be the market leader with an estimated market share of 47% at 31 March 2005 (2004: 47%). ARPU declined by 34.7% to R98 (2004: R150), as lower-spending prepaid customers are connected, coupled with the devaluation of the local currency against the US dollar, as tariffs are denominated in US dollars.

Lesotho: Operating in a competitive environment, Vodacom Lesotho retained its market share of 80% with a customer base of 147 000 (2004: 80 000) at 31 March 2005, which represents growth of 83.8%. ARPU decreased by 26.4% to R92 (2004: R125) and is an area of focus for improvement through the introduction of new products and services.

Mozambique: Vodacom Mozambique had its first full year of commercial operations. Despite strong tariff competition its customer base increased to 265 000 (2004: 58 000) at 31 March 2005. Its estimated market share increased to 33% (2004: 11%). However, ARPU decreased by 52.7% to R52 (2004: R110). It is expected that it will take a number of years before Vodacom Mozambique contributes positively to the Vodacom Group’s operating profit, with effective distribution being a key challenge.

AFRICAN EXPANSION

Vodacom remains interested in the Nigerian market and, should a mutually beneficial opportunity present itself, the group will aggressively enter this market. For expansion into new African markets, Vodacom works within the constraints of its shareholder agreement, as well as within the boundaries of investment criteria that meet strict legal, financial, corporate governance and due diligence requirements. While several expansion opportunities have been evaluated, none have been pursued. However, the group will continue to explore opportunities cautiously as they arise.

BEE

Vodacom continues to demonstrate its commitment to black economic empowerment (BEE), human resources development and the spirit inherent in the employment equity legislation.

As at 31 March 2005, 55% of Vodacom’s managers were from historically disadvantaged communities.
At an operational level, 73% of its staff members were from historically disadvantaged communities at 31 March 2005.
Vodacom invested 2% (R11.5 million) of its total salary budget on training and development for the year to 31 March 2005.
R2.5 million went towards employees’ studies through its Yebo Bursary Scheme.
Vodacom’s preferential procurement programme continues to strive for commercial equity with regard to supplier companies owned by designated historically disadvantaged individuals (HDI). HDI procurement reached R2.4 billion, representing 75.3% of commercial spend in 2005 and an increase of 87.9% over the previous year.

THE FUTURE

Vodacom’s vision is to be one of Africa’s most admired companies. Vodacom believes that it has a critical role to play in bridging the digital divide and it believes that the group has already made a significant contribution towards this end. Mobile penetration in South Africa today stands at 48.5%, a significant improvement over less than 1% in 1993 when Vodacom was issued its mobile cellular licence.

Vodacom believes that it can continue to achieve growth in revenues, profits and cash flows, while maintaining its leading market position in South Africa. Growing its other existing African operations and establishing new operations in other African countries remain key focus areas.

Remaining focused on its core business, whilst displaying intuitive innovation and courage in leading the way in the introduction of new technologies, Vodacom will ensure a scenario of continued growth for itself.

33% interest

PSITEK www.psitek.com

Founded in 1990, Psitek (Proprietary) Limited (Psitek) has established itself as a leader in providing products in the fixed-line and cellular telecommunication arenas. Its core innovative skills are focused on designing telecommunication products and solutions for the world’s emerging economic regions. As part of this process, sustainable long-term business opportunities are created for the company and its partners.

The Psitek brand is fast becoming globally recognised for its excellence in appropriate product development as well as a partner and technology support in all regions where its products are used. This is backed up by the superb reputations of product brands like the Adondo, Jembi and Tici-B supervised payphones as well as the Fusion range of wireless interface products and the new VendingReady value-added services portal.

With the view of becoming a world leader at solving the problems of the emerging markets, Psitek has established regional offices in South Africa, Kenya and Malaysia.

OVERVIEW OF THE YEAR TO 30 JUNE 2005

Financial results for the year to 30 June 2005 were disappointing as the company failed to meet its turnover and profit targets in both its established and new market regions. This was caused by sales decreases due to a slow down in demand in certain existing markets, increased margin pressure across all markets due to competition and the fact that establishing and penetrating new markets has taken longer than originally anticipated.

Psitek invested significantly in product development, marketing and sales. This, together with the bolstering of the executive team, will ensure that the current trend is reversed and that the company re-establishes growth in both profit and turnover lines.

BEE

Psitek is committed to broad based black economic empowerment and the Board of the company is currently in the process of finalising a plan with a view to entering into a BEE transaction which would result in meaningful equity ownership being vested in previously disadvantaged individuals.

In addition, Psitek is in the process of implementing practices which would result in achieving the objectives of the ICT Charter, specifically with respect to corporate social investment, enterprise development, preferential procurement, skills development and employment equity.

THE FUTURE

Psitek is now well structured for sustainable and steady growth in the future and is seeking satisfactory bottom line growth for the new financial year.

Current concerns regarding narrowing margins and competitive market segments are actively being addressed through customer engagement and specific product strategies. These will provide a wider product range that will address all identified market segments. Regional strategies will continue to improve sales from new regions, while market extension strategies are being deployed into some of the more mature markets to ensure growth.

Psitek remains committed to its people and innovation as well as the continuous improvement of its skills to build a company that is recognised as a leader in its field.