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MTN Zakhele (RF) LimitedAnnual financial statements for the year ended 31 December 2015

MTN Zakhele (RF) Limited Annual Financial Statements

1

for the year ended 31 December 2015Index

The reports and annual financial statements set out below comprise the annual report presented to the shareholders.

Index PageBoard of directors 2A statement from your chairperson 3 – 4Directors’ responsibilities and approval 5Certificate by the company secretary 6Audit and risk committee report 7 – 8Directors’ report 9 – 11Independent auditors’ report to the shareholders of MTN Zakhele (RF) Limited 12Statement of profit or loss 13Statement of other comprehensive income 13Statement of financial position 14Statement of changes in equity 15Statement of cash flows 16Notes to the annual financial statements 17 – 42Annexure A: Shareholder information 43Compilation report 44Administration 45

Prepared under the supervision of:Siviwe XA Dongwana PartnerDeloitte & Touche

The annual financial statements set out on pages 13 to 42, which have been prepared on the going concern basis, were approved by the board on 9 March 2016 and were signed on its behalf by:

Sindisiwe N Mabaso-KoyanaChairperson: Board of directorsSandton Director

9 March 2016

2MTN Zakhele (RF) Limited Annual Financial Statements

for the year ended 31 December 2015Board of directors

Sindisiwe N Mabaso-Koyana (46)

Grant G Gelink (66) Sonja De Bruyn Sebotsa (44)

CA(SA), BComm (Natal), Post Graduate Diploma in Accounting (Natal)

BComm, BCompt (Hons), CA(SA) LLB (Hons), MA: Economic Policy Management, SFA (UK), Harvard Executive Program

Non-executive chairperson Non-executive director Non-executive directorAppointed: 28 May 2015 Appointed: 17 October 2012 Appointed: 23 February 2011

Member of the audit committee Chairperson of the audit committee Member of the audit committee Appointed: 17 September 2015 Appointed: 17 October 2012 Appointed: 15 March 2011

Directorships Directorships DirectorshipsNon-executive chairperson of AWCA Investment Holdings, non-executive director of Altron Limited, Adcorp Limited

Non-executive director of FirstRand, Grindrod, Santam and Altron

Non-executive director of RMB/RMI Holdings, Discovery Holdings and Aquarius Platinum

Skills, expertise and work experience



Sindi is the founder and executive chairperson of Advanced Capital since March 2012. Prior to founding Advanced Capital, she was also the former Group CFO of Transnet and PRASA. She was also an executive partner at Ernst & Young heading divisions such as the Government and Public Sector, Risk Regulatory & Public Policy and Strategic Services. She was a founding member of Gobodo Incorporated and previously financial director at SARWHU Investments and managing director at Viamax, a subsidiary of Transnet.

Grant was the chief executive of Deloitte & Touche from 2006 to 2012. His vast experience in Deloitte spans over 26 years and included being the Lead Client Service Partner across a number of different industries servicing clients such as Barloworld, Imperial Holdings, Murray & Roberts, Nedbank, Sappi, South African Airways and Transnet.

Sonja is the founder and principal partner of investment, advisory and financing firm Identity Capital Partners. She started her career in investment banking in 1997, working on mergers and acquisitions, privatisations, IPOs and financings, ultimately becoming a vice-president at Deutsche Bank. She was appointed executive director of Women’s Development Bank Investment Holdings (2002 to 2007). She was previously a trustee of the National Empowerment Fund and a member of the Presidential Working Group on BEE. Sonja has been awarded and recognised by the Black Management Forum and the Association of Black Securities and Investment Professionals. She is a Young Global Leader of the World Economic Forum.

for the year ended 31 December 2015


3

for the year ended 31 December 2015A statement from your chairperson

Dear shareholder

In 2015, MTN Zakhele (RF) Limited (MTN Zakhele or the Company) continued to deliver on its efforts to bring previously disadvantaged South Africans into the economic mainstream with the listing of its shares on the Johannesburg Stock Exchange (JSE), while continuing to decrease its debt.

Set up in 2010, MTN Zakhele is a vehicle for qualifying black South Africans to invest in MTN Group Limited (MTN Group), a leading emerging markets telecoms service provider. MTN Zakhele has a 4% stake in MTN Group. This investment is the Company’s only asset. The Company also administers the associated funding of this investment. Most MTN Zakhele shareholders, some 87%, hold fewer than 500 shares each, ensuring the broad-based nature of the scheme.

MTN’s status as one of South Africa’s black economic empowerment (BEE) companies is dependent on MTN Zakhele’s shareholding, in addition to other transformation and empowerment initiatives. In turn, MTN Zakhele’s ability to grow shareholder value, depends on the profitability of MTN Group, the continuing receipt of dividends to service and repay its debt and the performance of MTN Group shares.

Repaying more of MTN Zakhele’s debtIn 2015, the Company received greater-than-expected dividends from the mobile operator and was able to repay debt in excess of the budgeted repayment schedule. MTN Zakhele received R964,6 million in dividend income from MTN Group, up from R836,5 million in 2014. This income was used firstly to pay the Company’s permitted operational costs and tax. The remainder of the dividend income was used to pay dividends owed to preference shareholders and to reduce MTN Zakhele’s notional vendor financing (NVF).

In 2015, MTN Zakhele paid preference shareholders R211,3 million, up from R201,8 million in 2014, and partly settled the NVF with a payment of R688,8 million (compared to a payment of R581,8 million in 2014).

Transferring share trade to the JSEDuring the year, pursuant to the requirements of the Financial Services Board and after careful consideration of numerous factors including the costs, MTN Zakhele applied to list its shares on the revised BEE board of the JSE. This course of action was overwhelmingly endorsed by shareholders at the extraordinary general meeting held on 29 September 2015.

The process to bring our shareholders, who number more than 100 000 black individuals and groups, many with no previous exposure to the JSE, onto one of the world’s reputable equity markets was exciting. It culminated in the successful transfer of trade in MTN Zakhele shares from an over-the-counter (OTC) platform to the BEE Board of the JSE on 5 November 2015. This move is part of broader efforts to stimulate a culture of retail investment and savings in South Africa, particularly among previously disenfranchised communities.

The shares continued to be traded actively between qualifying black investors during the year. Prior to the listing on the JSE MTN Zakhele shares worth R373 million changed hands. After the listing on the JSE, shares worth R35,5 million were traded in November and December 2015. A total of 21 000 trades took place across both platforms. This compares to a trading value in 2014 of R902 million in more than 42 000 deals.

Feeling the impact of developments at MTN GroupThe performance of the MTN Zakhele share price is linked to that of MTN Group. To this end, the decline in the share price of MTN Group over the past few months due to, among other factors, the imposition by the Nigerian authorities of a fine has also led to a decline in the share price of MTN Zakhele.

At the end of 2015, the MTN Zakhele share closed at R73,90, down 32% from the closing price of R108,50 a year earlier. However, it is important to note that the share price at the end of 2015 still represents an almost 270% gain on the initial investment of R20 per share investors paid for each MTN Zakhele share in 2010.


for the year ended 31 December 2015A statement from your chairperson (continued)

The Company’s profit after taxation for 2015 was R2,2 million (2014: R724,2 million) and the sharp decline is as a result of a non-cash adjustment arising from the revaluation of the derivative financial asset, based on the MTN Group share price. This derivative financial asset is revalued at the end of each financial year and is determined by reference to the MTN share price at year end. The MTN Group share price declined from R221,41 at 31 December 2014 to R132,89 at 31 December 2015 resulting in a loss of R871,9 million recognised for the year in the books of MTN Zakhele.

Making changes to the board and looking aheadThere were a number of changes to the board during the year. On 28 May 2015, I took over from Thulani Gcabashe as chairperson of MTN Zakhele. He retired after serving the Company with distinction in that role since February 2011. On behalf of the board of directors we extend our thanks and gratitude for his valuable contribution and commitment over the years.

Martin Shaw retired as non-executive director on 31 August 2015 after four years of distinguished service. It is with deep regret that we learnt of Martin Shaw’s passing on 16 February 2016. The board of MTN Zakhele would like once again to extend its sincere condolences to his family.

I would like to thank my fellow directors on the board, as well as service providers, for their support and hard work in 2015. The 2016 financial period promises to be yet another significant year for MTN Zakhele. The scheme matures on 24 November 2016, and the restrictions that allow only qualifying black individuals and groups to trade in the Company’s shares will fall away from that date.

On 3 March 2016, MTN Group released its 2015 results and declared a second half dividend of 830 cents, bringing the total dividend for the year to 1 310 cents. Thus, MTN Zakhele expects to receive a dividend payment from MTN Group in April 2016 totalling R625,5 million in respect of the 2015 year, which will be used to repay debt.

The board continues to receive requests from some shareholders that the Company pay a dividend. However, acting in the best interests of shareholders, the directors will continue to use all extra cash to repay the Company’s debt and so steadily reduce the cost of this debt. It remains the board of directors’ intention to maintain this approach and to ensure all liabilities are settled, in anticipation of the scheme’s unwinding in November 2016. Apart from dividend income, debt repayments are expected to be financed through the sale of some MTN Group shares, the number of which will depend on the value of each MTN Group share at the time.

We will communicate further on options available to MTN Zakhele shareholders as a result of winding-up the scheme at the annual general meeting of MTN Zakhele, which will be held in Midrand on 30 May 2016. I encourage all shareholders to attend this meeting.

Sindi Mabaso-KoyanaChairperson9 March 2016


5

for the year ended 31 December 2015Directors’ responsibilities and approval

The directors are required, in terms of the Companies Act 2008, as amended (Companies Act), to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements fairly present the state of affairs of the Company as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards (IFRS), the Companies Act and the Listings Requirements of the JSE Limited (JSE) relating to asset backed securities. The external auditor is engaged to express an independent opinion on the annual financial statements.

The annual financial statements are prepared in accordance with IFRS and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the systems of internal financial control established by the Company and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures, and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the Company and ensure the Company’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the Company is on identifying, assessing, managing and monitoring all known forms of risk across the Company. While operating risk cannot be fully eliminated, the Company endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

The directors are responsible for the Company’s systems of internal control and are of the opinion that the systems of internal control provide reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The going concern basis has been adopted in preparing the Company’s annual financial statements. The directors have reviewed the Company’s cash flow forecast for the year to 31 December 2016. In light of this review and the current financial position, the directors find no reason to believe that the Company will not be a going concern and continue in operational existence for the foreseeable future.

The directors are satisfied that the information contained in the annual financial statements fairly presents the financial position at the year end and the financial performance and cash flows of the Company.

The external auditor is responsible for independently reviewing and reporting on the Company’s annual financial statements. The auditor was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors and audit committee. The directors believe that all representations made to the independent auditors during their audit are valid and appropriate. The annual financial statements have been examined by the Company’s external auditors and their report is presented on page 11.

The annual financial statements, set out on pages 13 to 42, were approved by the board on 9 March 2016 and were signed on its behalf by:

Sindisiwe N Mabaso-Koyana Grant GelinkChairperson: Board of directors Chairperson: Audit committeeSandton Sandton

9 March 2016 9 March 2016



Certificate by the company secretary

In terms of section 88(2)(e) of the Companies Act, as amended, we certify that, to the best of our knowledge and belief, the Company has lodged with the Companies Intellectual and Property Commission for the period ended 31 December 2015, all such returns as are required of a public company and that such returns are true, correct and up to date.

Levitt Kirson Management Services CCCompany secretarySandton

9 March 2016




7

Audit and risk committee report

The MTN Zakhele audit and risk committee presents its report in terms of section 94(7)(f ) of the Companies Act and as recommended by King III for the financial year ended 31 December 2015.

Membership, meeting attendance and evaluationMembers of the committee are formally nominated by the board for re-election by shareholders. Members of the audit committee were all independent non-executive directors of the Company. The committee meets at least twice a year. The composition of the committee and attendance at meetings by its members are set out below:

Members AttendanceThulani S Gcabashe(1) 2/3Sindisiwe N Mabaso-Koyana(2) 1/3Grant G Gelink 3/3Sonja De Bruyn Sebotsa 2/3Martin J Shaw(3) 2/3(1) Thulani Gcabashe resigned as a member of the audit committee effective 28 May 2015.(2) Sindisiwe Mabaso-Koyana was appointed as a member of the audit committee effective 17 September 2015. Her appointment will be ratified by the

shareholders at the next annual general meeting to be held on 30 May 2016.(3) Martin Shaw resigned as a member of the audit committee effective 31 August 2015.

Biographical details of members at 31 December 2015 are set out on page 2 of this annual report. The members’ fees are included in note 23 which includes disclosure of the directors’ emoluments and related parties.

The external auditors attend all audit committee meetings.

The committee is satisfied that the members thereof have the required knowledge and experience as set out in section 94(5) of the Companies Act, and Regulation 42 of the Companies Regulation, 2011. The effectiveness of the committee as a whole and its individual members are assessed on an annual basis.

The audit and risk committee performs the duties laid upon it by section 94(7) of the Companies Act, by holding meetings with the key role-players on a regular basis and by the unrestricted access granted to the external auditors.

Independence of external auditorThe Company’s external auditor is SizweNtsalubaGobodo Inc. Fees paid to the auditor for the year under review is disclosed in note 3 to the annual financial statements.

The committee satisfied itself that the external auditor is independent, as defined by the Companies Act and as per the standards stipulated by the auditing profession. Requisite assurance was sought and provided by the Companies Act that internal governance processes within the firms support and demonstrate the claim to independence.

The audit and risk committee agreed to the terms of the engagement. The audit fee for the external audit has been considered and approved, taking into consideration such factors as the timing of the audit, the extent of the work required and the scope.

Expertise and experience of finance functionThe committee satisfied itself that the composition, experience and skills set of the finance function met the Company’s requirements.

The administration of the Company’s statutory records and accounting was outsourced to Deloitte & Touche, in its capacity as the professional administrator of the Company. Deloitte & Touche further subcontracted the maintenance of statutory records to Levitt Kirson Management Services CC.

The authority and responsibility for all management decisions lies with the board of directors.

Execution of functions of the audit committeeThe committee is satisfied that, in respect of the financial year under review, it has discharged its duties and responsibilities in accordance with its terms of reference and in terms of the Companies Act.




Audit and risk committee report continued

The committee performed the following activities during the year under review:reviewed the reports of the external auditors regarding their audit and where necessary requested appropriate responses from the various service providers appointed by the board of directors;reviewed and approved the policy for non-audit services that may be provided by the external auditors. This policy sets out those services that may be provided by the external auditors and the required authorisation process;approved the non-audit-related services performed by the external auditors during the year in accordance with the policy established and approved by the board;approved the external auditors’ fees for the 2015 audit; considered the independence and objectivity of the external auditors and ensured that the scope of additional services provided did not impair their independence; andrecommended the external auditors for re-appointment.

After assessing the requirements set out in section 94(8)(a-c) of the Companies Act, the committee is satisfied with the independence and objectivity of the external auditors.

Following the review by the committee of the annual financial statements of the Company for the year ended 31 December 2015 and based on the information provided to it, the committee considers that, in all material respects, the Company complies with the provisions of the Companies Act, International Financial Reporting Standards, Listings Requirements of the JSE Limited relating to Asset Backed Securities and that the accounting policies applied are appropriate and consistent. The committee recommended the Company’s 2015 annual report and annual financial statements for the year ended 31 December 2015 for approval by the board on 9 March 2016.

The committee concurs with the board of directors that the adoption of the going concern status in preparation of the annual financial statements is appropriate.

On behalf of the audit and risk committee

Grant G GelinkChairperson Sandton

9 March 2016




9

Directors’ report

The directors submit their report for the year ended 31 December 2015.

MTN Zakhele is a special purpose company which only has non-executive directors and does not employ any employees. The Company has engaged various service providers with necessary skills and experience to provide all goods and services required by MTN Zakhele to effectively carry out its functions and activities. The board of directors retain the full authority and responsibility for all management decisions taken and carried out by the various service providers.

The MTN Zakhele board recognises that, at the core of MTN Zakhele’s corporate governance system, it is ultimately accountable and responsible for the performance and affairs of MTN Zakhele. The board embraces the principles of good corporate governance as set out in the guidelines of the Code of Good Governance Principles for South Africa as laid out in the King III Report on Corporate Governance for South Africa. Where the board has deemed that recommended practices are not in the best interest of MTN Zakhele considering the nature and purpose of the entry, the report follows King III in explaining the reasons for an alternate approach.

The principles relating to the appointment of a chief executive officer and a financial director to the board to acheive a balance of power have not been applied. The Company has engaged various service providers with necessary skills and experience to provide all goods and services required by MTN Zakhele to effectively carry out its functions and activities. The ultimate responsibility still remains with the board of directors. This has been the case for the full period under review.

MTN Zakhele is committed to business integrity, transparency and professionalism in all its activities to ensure that it acts ethically and responsibly to enhance the value of its business for the benefit of all stakeholders.

Nature of business and incorporationMTN Zakhele is engaged in acquiring and holding shares in MTN Group on behalf of the participating black public and operates in South Africa. The Company was incorporated on 10 March 2010 and obtained its certificate to commence business on the same day.

The Company’s registered address is: 4th Floor, Aloe GroveHoughton Estate Office Park 2 Osborn Road, Houghton

Review of activitiesThe operating results and state of affairs of the Company are fully set out in the attached annual financial statements.

Net profit after tax of the Company for the year was R2 231 000 (2014: R724 196 000), after tax credits of R162 780 000 (2014: R24 786 000 expense).

Share capital and share premiumThe issued share capital consists of shares issued on incorporation of seven ordinary shares at a par value of R20 and a premium of R80 each. A total of 80 889 400 ordinary shares were issued subsequently on 24 November 2010 as part of the BBBEE transaction. The par value of the ordinary shares was 1 cent and the premium was R19,99. The offer described in the prospectus dated 18 August 2010 opened on 30 August 2010 and the offer closed on 14 October 2010.

Due to allocation errors, adjustments were made to the shareholders’ register in 2011 in respect of 1 200 shares, leaving 80 888 207 ordinary shares in issue at 31 December 2015 (2014: 80 888 207).

Dividend declarationNo dividends were declared or paid to ordinary shareholders during the current year or prior year.

Directors

The Company has a unitary board consisting of three non-executive directors. MTN Zakhele is committed to ensuring that there is a clear balance of power and authority at the board of directors level. This is evident in the memorandum of incorporation where the powers of the directors have been clearly stipulated. The aim is to promote objectivity and reduce the possibility of conflicts of interest.



for the year ended 31 December 2015Directors’ report continued

The directors of the Company during the year and to the date of this report are as follows:

Name ChangesThulani S Gcabashe Resigned 28 May 2015Sindisiwe N Mabaso-Koyana Appointed 28 May 2015Grant G Gelink Appointed 17 October 2012Sonja De Bruyn Sebotsa Appointed 23 February 2011Martin J Shaw Resigned 31 August 2015

Meetings held by the boardThe board held five scheduled meetings during 2015 and the members attended the meetings as follows:

Directors Applicable meetings AttendedThulani S Gcabashe (Chairperson – resigned 28 May 2015) 5 2Sindisiwe N Mabaso-Koyana (Chairperson – appointed 28 May 2015) 5 3Grant G Gelink 5 5Sonja De Bruyn Sebotsa 5 4Martin J Shaw (resigned 31 August 2015) 5 3

Over and above the scheduled meetings, additional ad hoc meetings were held and required attendance by one or more directors. Although these meetings are not included in the above attendance register, the total number held during the year is 34 (2014: 31) and they accounted for R92 985 (2014: R176 896) in the fee schedule included on page 35.

Directors’ interests in contractsSonja De Bruyn Sebotsa has a shareholding of 34.8% (2014: 34,8%) in Identity Capital Partners, which holds 190 500 (2014: 190 500) shares in the Company and Grant Gelink holds 23 450 (2014: 23 450) shares directly in the Company.

None of the other directors, the directors who resigned during the year or their associates had an interest in the Company in the current or prior year. There has been no change in the directors’ interest in contracts between 31 December 2015 and the date of this report.

SecretaryThe company secretary is Levitt Kirson Management Services CC of:

Postal address: PO Box 225Highlands North, 2037

Business address: 4th Floor, Aloe GroveHoughton Office Park2 Osborn Road, Houghton



11

for the year ended 31 December 2015Directors’ report continued

Auditors SizweNtsalubaGobodo Inc. will, subject to shareholders’ approval at the annual general meeting, continue in office in accordance with section 90 of the Companies Act.

Going concernThe directors have reviewed the Company’s budget and cash flow forecast for the year ahead. On the basis of this review, and in light of the current financial position of the Company, the directors are satisfied that the Company has sufficient funds for the foreseeable future and will continue as a going concern.

Events after reporting dateOn 24 February 2016, the South African Minister of Finance announced a change in the capital gains tax rate from 18,648% to 22,4%. The rate change is effective from disposals of capital asset for years of assessment beginning on or after 1 March 2016.

Should this capital gains tax rate have been applicable at year end, it would have resulted in additional comprehensive income of R20,9 million.

No other significant events after the reporting date have occurred between the reporting date and 9 March 2016 that require adjustment or disclosure. MTN Group Limited declared a final dividend of 830 cents per share in March 2016.

The annual financial statements set out on pages 13 to 42, which have been prepared on the going concern basis, were approved by the board on 9 March 2016 and were signed on its behalf by:

Sindisiwe N Mabaso-Koyana ChairpersonSandton

9 March 2016




Independent auditors’ report to the shareholder of MTN Zakhele (RF) Limited

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF MTN ZAKHELE (RF) LIMITED We have audited the annual financial statements of MTN Zakhele (RF) Limited set out on pages 13 to 42, which comprise the statement of financial position as at 31 December 2015 and the statement of profit or loss, the statement of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the annual financial statements The Company’s directors are responsible for the preparation and fair presentation of these annual financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditors’ responsibilityOur responsibility is to express an opinion on these annual financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making these risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the annual financial statements present fairly, in all material respects, the financial position of MTN Zakhele (RF) Limited as at 31 December 2015, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

Other reports required by the Companies ActAs part of our audit of the financial statements for the year ended 31 December 2015, we have read the directors’ report and the directors’ responsibility statement for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited financial statements. However, we have not audited these reports and, accordingly, do not express an opinion on these reports.

Report on other legal and regulatory requirementsIn terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that SizweNtsalubaGobodo has been the auditor of MTN Zakhele (RF) Limited for six years.

Director: Agnes Dire Registered Auditor SizweNtsalubaGobodo Inc.Woodmead9 March 2016 Johannesburg Head Office20 Morris Street East, Woodmead, 2191PO Box 2939, Saxonwold, 2132Tel: +27 (0) 11 231 0600Fax: +27 (0) 11 234 0933

Victor Sekese (Chief Executive)A comprehensive list of all Directors is available at the company office or registered office.SizweNtsalubaGobodo Incorporated. Registration number: 2005/034639/21


13

for the year ended 31 December 2015Statement of profit or loss

Notes2015

R’0002014R’000

Revenue 3 970 075 850 270Expenses 3 (44 714) (28 940)Operating profit 925 361 821 330Finance income 4 1 298 6 834Finance cost 5 (215 319) (208 829)(Loss)/gain on remeasurement of the derivative financial assets 6 (871 889) 129 647(Loss)/profit before tax (160 549) 748 982Income tax credit/(expense) 7 162 780 (24 786)

Profit for the year 2 231 724 196

Basic earnings per share (cents) 8 879 765The notes on pages 17 to 42 are an integral part of these annual financial statements.

for the year ended 31 December 2015Statement of other comprehensive income

Notes2015

R’0002014R’000

Profit for the year 2 231 724 196Other comprehensive income for the year – items that will be subsequently reclassified to profit/loss (4 598 708) 181 356(Loss)/gain on remeasurement of the available-for-sale financial assets 9 (5 653 661) 222 961Deferred tax on loss/(gain) on remeasurement of the available-for-sale financial assets 14 1 054 953 (41 605)

Total comprehensive (loss)/income for the year (4 596 477) 905 552The notes on pages 17 to 42 are an integral part of these annual financial statements.



Statement of financial position

Notes2015

R’0002014R’000

ASSETSNon-current assetsAvailable-for-sale financial assets 9 5 392 968 13 477 334Derivative financial assets 10 720 644 1 592 533

6 113 612 15 069 867Current assetsCurrent tax receivable 3 539 –Other receivables 11 3 501 2 695Cash and cash equivalents 12 51 010 66 183Available-for-sale financial assets 9 3 142 828 –

3 200 878 68 878

Total assets 9 314 490 15 138 745

EQUITY AND LIABILITIESEquityOrdinary share capital 13 809 809Share premium 13 1 616 956 1 616 956Retained earnings 3 938 321 3 226 981Available-for-sale reserve 14 (133 067) 4 465 641Non-distributable reserve 15 586 258 1 295 367

Total equity 6 009 277 10 605 754LiabilitiesNon-current liabilitiesBorrowings 16 – 3 131 810Deferred tax liability 17 104 335 1 322 068

104 335 4 453 878Current liabilitiesCurrent tax payable – 6Borrowings 16 3 189 382 53 567Trade and other payables 18 9 333 2 681Trading platform liability 19 2 163 22 859

3 200 878 79 113

Total liabilities 3 305 213 4 532 991

Total equity and liabilities 9 314 490 15 138 745The notes on pages 17 to 42 are an integral part of these annual financial statements.




15

for the year ended 31 December 2015Statement of changes in equity

Share capital

R’000

Share premium

R’000

Available- for-sale reserve

R’000

Non- distributable

reserve R’000

Retained earnings

R’000

Total equity R’000

Balance at 1 January 2014 809 1 616 956 4 284 285 1 189 912 2 608 240 9 700 202Total comprehensive income – – 181 356 – 724 196 905 552Transfer between reserves* – – – 105 455 (105 455) –

Balance at 31 December 2014 809 1 616 956 4 465 641 1 295 367 3 226 981 10 605 754

Balance at 1 January 2015 809 1 616 956 4 465 641 1 295 367 3 226 981 10 605 754Total comprehensive (loss)/income – – (4 598 708) – 2 231 (4 596 477)Transfer between reserves* – – – (709 109) 709 109 –Balance at 31 December 2015 809 1 616 956 (133 067) 586 258 3 938 321 6 009 277Notes 13 13 14 15* The transfer between reserves arises in respect of the (loss)/ gain on remeasurement of the derivative financial asset that was recorded in profit and

loss. The amount transferred is net of the related deferred tax. This transfer of the (net loss)/net gain from retained earnings to the non-distributable reserve is effected as the gain is currently not distributable.

The notes on pages 17 to 42 are an integral part of these annual financial statements.



Statement of cash flows

Notes2015

R’0002014R’000

Cash generated from operating activitiesCash used in operations 20 (54 136) (54 293)Dividends received 964 647 836 531Interest received 1 298 6 723Interest paid (211 314) (201 755)Tax paid 21 (3 545) (570)

Net cash generated from operating activities 696 950 586 636Cash flows used in financing activitiesCost of shares purchased to partially repay the Notional Vendor Finance 9 (712 123) (594 943)

Net cash used in financing activities (712 123) (594 943)Net decrease in cash and cash equivalents (15 173) (8 307)Cash and cash equivalents at the beginning of the year 66 183 74 490

Cash and cash equivalents at the end of the year 12 51 010 66 183The notes on pages 17 to 42 are an integral part of these annual financial statements.




17

Notes to the annual financial statementsfor the year ended 31 December 2015

1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (a) General information MTN Zakhele (RF) Limited (MTN Zakhele or the Company) is an investment company that was specifically

formed to facilitate the implementation of a broad-based black economic empowerment (BBBEE) transaction by MTN Group Limited (MTN Group) aimed at maintaining the MTN Group’s BBBEE status in support of South Africa’s BBBEE economic empowerment Codes of Good Practice.

(b) Basis of preparation The annual financial statements has been prepared in accordance with International Financial Reporting

Standards (IFRS) and the interpretation of these standards as adopted by the Independent Accounting Standards Board, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the South African Companies Act, as amended, and the Listings Requirements of the JSE Limited (JSE) relating to Asset Backed Securities. The annual financial statements have been prepared on the historical cost basis, as modified by the revaluation of available-for-sale assets, and financial assets and financial liabilities at fair value through profit or loss and incorporate the principal accounting policies set out below. They are presented in South African Rand, being its functional and presentational currency.

These accounting policies are consistent with the previous period unless otherwise stated. Refer to note 2 for

the impact of standards and interpretations adopted in the current period. Amounts are rounded to the nearest thousand Rand.

The preparation of annual financial statements in conformity with IFRS requires the use of certain critical

accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reporting period based on management’s best knowledge of current events and actions. Refer to note 1.13 for the critical accounting estimates and judgements used in the preparation of the annual financial statements.

1.1 Financial instruments 1.1.1 Classification The Company classifies financial assets and financial liabilities into the following categories:

financial assets at fair value through profit or loss (FVTPL) – financial assets designated at FVTPL or held-for-trading financial assets; loans and receivables; available-for-sale financial assets; andfinancial liabilities at amortised cost.

Classification depends on the purpose for which the financial instruments were obtained and takes place at

initial recognition. Classification is re-assessed on an annual basis, except for derivatives and financial assets designated as at fair value through profit or loss, which shall not be classified out of the fair value through profit or loss category.

1.1.1.1 Financial instruments at fair value through profit or loss A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term.

Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise they are classified as non-current.

A financial asset other than a financial asset held for trading may be designated at FVTPL upon initial recognition

if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise or it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as at FVTPL.

1.1.1.2 Financial instruments available-for-sale Available-for-sale financial assets are non-derivative financial assets that are not classified in any of the other

categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.



Notes to the annual financial statements (continued)

1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued) 1.1 Financial instruments (continued) 1.1.1 Classification (continued) 1.1.1.3 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not

quoted in an active market. They are included in current assets except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current. The entity’s loans and receivables comprise other receivables and cash and cash equivalents.

1.1.1.4 Financial liabilities and equity instruments Financial liabilities and equity instruments issued by the Company are classified according to the substance of

the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments include ordinary and preference shares. Preference shares that are mandatorily redeemable are classified as financial liabilities.

Financial liabilities comprise other payables and borrowings. 1.1.2 Offsetting of financial instruments Financial assets and liabilities are offset and the net amount is reported in the statement of financial position

when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

1.1.3 Measurement 1.1.3.1 Initial recognition and measurement Regular way purchases and sales of financial assets are recognised on the trade date, being the date on which

the entity commits to purchase or sell the instrument. Financial assets are recognised initially when the Company becomes a party to the contractual provisions of the

instruments. Financial assets are measured initially at fair value. For financial assets which are not at fair value through profit or loss, transaction costs are included in the initial

measurement of the instrument. Financial instruments carried at fair value through profit or loss are initially recognised at fair value, and

transaction costs are expensed in profit or loss. Non-derivative financial instruments comprise available-for-sale financial assets, other receivables, cash and cash

equivalents, borrowings and other payables.

1.1.3.2 Subsequent measurement Financial instruments at fair value through profit or loss are subsequently measured at fair value, with gains or

losses arising from changes in fair value being included in profit or loss for the period. Net gains or losses on the financial instruments at fair value through profit or loss exclude dividends and interest.

Refer to note 6.

Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses.




19


1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)1.1 Financial instruments (continued) 1.1.3 Measurement (continued)1.1.3.2 Subsequent measurement (continued) Available-for-sale financial assets are subsequently measured at fair value. This excludes equity investments for

which a fair value is not determinable, which are measured at cost less accumulated impairment losses. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in equity until the asset is disposed of or determined to be impaired. Dividends received on available-for-sale equity instruments are recognised in profit or loss as part of revenue when the Company’s right to receive payment is established. When an investment is derecognised or impaired, the cumulative gain or loss is reclassified to profit or loss.

Financial liabilities are subsequently measured at amortised cost using the effective interest rate method.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

1.1.4 Derivative financial instruments Derivatives at fair value through profit or loss A derivative is a financial instrument or other contract with all three of the following characteristics: (a) its value changes in response to the change in a specified interest rate, financial instrument price,

commodity price, foreign exchange rate or other variable; (b) it requires no initial net investment or an initial net investment that is smaller than would be for other types

of contracts that would be expected to have a similar response to changes in market factors; and (c) it is settled at a future date.

Derivatives are initially recognised at fair value on the date the derivative contract is entered into and attributable transaction costs are recognised in profit or loss when incurred. Subsequently, derivatives are remeasured at their fair value, with fair value movements, and are recognised immediately in profit or loss.

1.1.5 Derecognition Financial assets are derecognised when the rights to receive cash flows from the investments have expired or

have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.

1.1.6 Fair value determination Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date. A number of the Company’s accounting policies and disclosures require the determination of fair value. Fair

value has been determined for measurement and/or disclosure purposes based on the methods below. Where applicable, further information about the assumptions made in determining fair values is disclosed in the note specific to that asset or liability.

Transfers between fair value levels (level 1, level 2 and level 3) occur when the manner in which the fair value is

determined has changed. 1.1.6.1 Investments in equity The fair value of available-for-sale financial assets is determined by reference to their quoted closing bid price at

the reporting date. 1.1.6.2 Other receivables Other receivables are classified as loans and receivables. The fair value of other receivables is estimated as the

present value of future cash flows, discounted at the market rate of interest at the reporting date.





1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)1.1 Financial instruments (continued) 1.1.6 Fair value determination (continued)1.1.6.3 Derivatives The fair value of derivatives is estimated using valuation techniques. A Monte Carlo methodology was adopted

to value the option. The Monte Carlo simulation allows for the option model to consider the dependencies which exist between the Company value, the dividends paid, the notional funding value and the remitted value. Refer to note 9 for the respective assumptions used in the valuation.

1.1.6.4 Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future

principal and interest cash flows, discounted at the market rate of interest at the reporting date. 1.1.7 Impairment of financial assets At each reporting date the Company assesses all financial assets, other than those at fair value through profit or

loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

For the loans and receivables category, the amount of the loss is measured as the difference between the asset’s

carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined in accordance with the contract.

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 an indicator of impairment. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity as a reclassification adjustment to other comprehensive income and recognised in profit or loss.

Impairment losses are reversed to other comprehensive income when an increase in the financial asset’s

recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised.

Only impairment losses recognised in other comprehensive income are recorded in other comprehensive income. 1.2 Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held on call, and investments in money market

instruments, net of bank overdrafts, all of which are available for use by the Company. Bank overdrafts are included within current liabilities on the statement of financial position, unless the entity has a legally enforceable right to set off the amounts and intends to settle on a net basis, or realise the asset and settle the liability simultaneously.

1.3 Borrowings/preference share liabilities Borrowings are initially measured at fair value net of transaction costs incurred, and are subsequently carried at

amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised in profit or loss over the term of the borrowings using the effective interest method.




21


1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued) 1.3 Borrowings/preference share liabilities (continued) Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that

it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw- down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends

on these preference shares are recognised in profit or loss as interest expense. 1.4 Tax 1.4.1 Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already

paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax liabilities/(assets) for the current and prior periods are measured at the amount expected to be paid

to/(recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

1.4.2 Deferred tax assets and liabilities Deferred tax is recognised, using the liability method, on temporary differences arising between the tax base of

assets and liabilities and their carrying amounts in the annual financial statements. A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which, at the time of the transaction, affects neither accounting profit nor taxable profit/(tax loss).

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that

taxable profit will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction which, at the time of the transaction, affects neither accounting profit nor taxable profit/(tax loss).

A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable that

future taxable profit will be available against which the unused tax losses can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax

assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

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 end of the reporting period.





1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)1.4 Tax (continued) 1.4.3 Tax expenses The tax (credit)/expense for the period comprises current and deferred tax. Current and deferred taxes are recognised in profit or loss, except to the extent that the tax relates to items

recognised: in other comprehensive income; or directly in equity.

Current and deferred taxes are charged or credited to other comprehensive income if the tax relates to items

that are credited or charged, in the same or a different period, to other comprehensive income. Current and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited

or charged, in the same or a different period, directly in equity. 1.4.4 Dividend withholding tax Dividend withholding tax is payable at a rate of 15% on dividends distributed to certain shareholders. This tax is

not attributable to the Company but is collected and paid to the tax authorities on behalf of the shareholders.

1.4.5 Security transfer tax Security transfer tax (STT) is provided for at a rate of 0,25% on the transfer of listed or unlisted securities.

Securities include shares in companies. The STT paid relating to the acquisition of shares is capitalised as part of the investment.

1.5 Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting

all of its liabilities. Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

1.6 Dividends payable Dividends payable are recognised as a reduction from equity in the period in which they are approved by the

Company’s shareholders. 1.7 Provisions and contingencies Provisions are recognised when:

the Company has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the

obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense.

Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is

determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.



23


1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)1.7 Provisions and contingencies (continued) Contingent liabilities occur when there is a possible obligation that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company. Contingent liabilities are not recognised in the financial statements but are disclosed.

1.8 Revenue 1.8.1 Brokerage income Revenue from brokerage income is recognised when it is probable that the economic benefits associated with

the transaction will flow to the Company and the amount of revenue and associated costs incurred, or to be incurred, can be measured reliably. The amount of revenue is not considered to be reliably measurable until all contingencies have been resolved.

1.8.2 Dividend income Dividends are recognised in profit or loss, when the Company’s right to receive payment has been established.

The Company recognised dividend income received on the shares held under the derivative financial asset separately from the fair value movement on the derivative financial asset. Fair value adjustments in profit or loss therefore do not include dividends received or accrued.

1.9 Interest income Interest income is recognised in profit or loss, using the effective interest method. When a loan or receivable is

impaired, the entity reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans and receivables is recognised using the original effective interest rate.

1.10 Employee benefits/directors’ emoluments policy Remuneration to directors in respect of the services rendered during the reporting period is expensed in that

reporting period. 1.11 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on several factors, including expectations of

future events that are believed to be reasonable under the circumstances. The Company makes estimates and judgements concerning the future. The resulting accounting estimates will,

by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying

amounts of assets and liabilities within the next financial year are addressed below. 1.11.1 Income taxes Where applicable tax legislation is subject to interpretation, management makes assessments, based on expert

tax advice, of the relevant tax that is likely to be paid and provides accordingly. When the final outcome is determined and there is a difference, this is recognised in the period in which the final outcome is determined.

For purposes of the annual financial statements it is assumed that the tax will be borne by MTN Zakhele and thus the deferred tax has been calculated at the capital gains tax rate.

1.11.2 Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market is determined using valuation

techniques. The Company uses its judgement to select a variety of methods and make judgements that are based mainly on

market conditions existing at the end of each reporting period.


Notes to the annual financial statements (continued)for the year ended 31 December 2015

1. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)1.11 Critical accounting estimates and judgements (continued) 1.11.3 Impairment of available-for-sale equity investments The Company follows the guidance of lAS 39, Financial Instruments Recognition and Measurement, to determine

when an available-for-sale equity investment is impaired. This determination requires significant judgement. In determining the need to impair an available-for-sale equity investment, the Company evaluates, among other

factors, the duration and extent to which the fair value of an investment is less than its cost, and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flows.

The Company determines that available-for-sale equity investments are impaired and recognised as such in profit or loss when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgement. In making this judgement, the Company evaluates, among other factors, the normal volatility in the fair value. In addition, impairment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry or sector, or operational and financing cash flows or significant changes in technology. Based on the assessment performed, the directors do not consider the current decline in the MTN share price to be prolonged or significant. No impairment has therefore been recognised.

1.11.4 Fair value of the derivatives The Company used its judgement to select a variety of methods and make assumptions that are based mainly

on market conditions existing at the end of each reporting period. 1.14 Operating leases The Company acts as a lessee in respect of all leases it has entered into. Leases where the lessor retains the risk

and rewards of ownership of the underlying asset are classified as operating leases. Payments made under operating leases are charged against income on a straight line basis over the period of the lease.

1.15 Segmental reporting A segment is a distinguishable component of the Company that is engaged either in providing services

(business segment) or in providing services within a particular economic environment (geographical segment) which is subject to risks and returns that are different from those of other segments.

Based on the nature of the operations of MTN Zakhele no business or geographical segments have been

identified. No distinction is made between business or geographical segments when information is reported to the MTN Zakhele board of directors. The directors do not require this or any other financial information in order to assess the performance of the Company.

1.16 Earnings per share The Company presents basic earnings per share and headline earnings per share for its shares. Basic earnings per share is calculated by dividing profit attributable to equity holders by the weighted average

number of shares in issue during the year. Headline earnings per share is calculated by dividing the headline earnings attributable to equity holders by the

weighted average number of shares in issue during the year. There are no dilutionary instruments in issue.


25


2. NEW STANDARDS AND INTERPRETATIONS 2.1 Standards and interpretations effective and adopted in the current year In the current year, the Company has adopted the following standards and interpretations that are effective for

the current financial year and that are relevant to its operations. The adoption of these standards did not have a material impact on the annual financial statements.

International Financial Reporting Standards and amendments effective for the first time for 31 December 2015 year endStandard Details of the development Effective dateIFRS 2, Share-Based Payments

Amendments resulting from Annual Improvements 2010 – 2012 Cycle (definition of “vesting conditions”).

Annual periods on or after 1 July 2014

IFRS 3, Business Combinations

Amendments resulting from Annual Improvements 2010 – 2012 Cycle (accounting for contingent consideration).


Amendments resulting from Annual Improvements 2011 – 2013 Cycle (scope exception for joint ventures).


IFRS 8, Operating Segments

Amendments resulting from Annual Improvements 2010 – 2012 Cycle (aggregation of segments, reconciliation of segment assets).


IAS 16, Property, plant and equipment and IAS 38, Intangible assets

Amendments resulting from Annual Improvements 2010 – 2012 Cycle (proportionate restatement of accumulated depreciation on revaluation).


IAS 19, Employee benefits Amendment to clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to the periods of service.


IAS 24, Related party disclosure

Amendments resulting from Annual Improvements 2010 – 2012 Cycle (management entities).


IAS 40, Investment property

Amendments resulting from Annual Improvements 2011 – 2013 Cycle (interrelationships between IFRS 3 and IAS 40).




2. NEW STANDARDS AND INTERPRETATIONS (continued) 2.2 Standards and interpretations not yet effective The Company has chosen not to early adopt the following standards and interpretations, which have been

published and are mandatory for the Company’s accounting periods beginning on or after 1 January 2016, or later periods. It is expected that the Company will adopt the new pronouncements on their effective dates in accordance with the requirements of the pronouncements. The Company is in the process of assessing the impact of these standards and interpretations on the financial statements.

Standard Details of the development Effective dateIFRS 5, Non-current assets held for sale or discontinued operations

Amendments resulting from September 2014 Annual Improvements to IFRS’s.

Annual periods on or after 1 January 2016

IFRS 7, Financial Instruments: Disclosures



IFRS 9, Financial Instruments

Final version incorporating requirements of classification and measurement, impairment, general hedge accounting and recognition.


IFRS 10, Consolidated financial statements

Amendments regarding the application of the consolidation exception.


IFRS 11, Joint arrangements

Amendments regarding the accounting of acquisitions of an interest in a joint operation.


IFRS 12, Disclosure of interest in other entities



IFRS 14, Regulatory deferral accounts

Original issue. Annual periods on or after 1 January 2016

IFRS 15, Revenue from contract customers

Original issue. Annual periods on or after 1 January 2018

IAS 1, Presentation of financial statements

Amendments resulting from the disclosures initiative.


IAS 16, Property, plant and equipment

Amendments regarding the clarification of acceptable methods of depreciation and amortisation.Amendments bringing bearer notes into the scope of IAS 16.


IAS 19, Employee benefits Amendments resulting from September 2014 Annual Improvements to IFRS’s.


IAS 27, Separate financial statements

Amendments reinstating the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity’s separate financial statements.


IAS 28, Investments in associates and joint ventures



IAS 34, Interim financial reporting



IAS 38, Intangible assets Amendments regarding the clarification of acceptable methods of depreciation and amortisation.


IAS 40, Agriculture Amendments bringing bearer plants into the scope of IAS 16.



27


2015R’000

2014R’000

3. REVENUE AND EXPENSESRevenueBrokerage income 5 428 13 739Dividend income 964 647 836 531

970 075 850 270Employee costsDirectors’ remuneration (refer to note 23) 865 684Other expensesLease expense (trading platform system) 2 990 3 511Administration fees 3 021 3 158Annual general meeting costs 636 534Auditor’s fees 1 064 691Consulting fees 3 375 4 618Courier and postage 835 953Printing and stationery 664 542Trader OTC platform 8 970 14 245JSE listing costs 22 294 –Penalties and interest paid to SARS – 4

Total expenses 44 714 28 940

4. FINANCE INCOME – AT AMORTISED COSTInterest accrued on the call account 1 298 6 834

1 298 6 834

5. FINANCE COST – AT AMORTISED COSTInterest expense – borrowings (preference shares accrued interest) 215 319 208 829

215 319 208 829

6. (LOSS)/GAIN ON REMEASUREMENT OF THE DERIVATIVE FINANCIAL ASSETSGross fair value (loss)/gain (183 103) 711 501Reduction of NVF (688 786) (581 854)

Net fair value (loss)/gain (871 889) 129 647

Fair value movement in the derivative financial assets are presented net of dividends received or accrued.



2015R’000

2014R’000

7. INCOME TAX (CREDIT)/EXPENSEMajor components of the tax (credit)/expenseCurrentNormal tax – 546Prior year under accrual – 48

– 594DeferredFair value adjustment on the derivative financial asset (162 780) 24 192Capital gains tax (CGT) at 18,648% on the fair value (loss)/gain on the derivative financial asset

(162 780) 24 192

(162 780) 24 786

The company has a taxable loss of R8,4 million at 31 December 2015. No deferred tax asset has been recognised at year end due to the uncertainty of future taxable income against which to offset this loss.Tax rate reconciliationThe income tax (credit)/expense for the period is reconciled to the effective rate of tax in South Africa as follows:

% %

Tax at standard rate (28,0) 28,0Expenses not deductible for tax 44,2 8,2Income not subject to tax (168,2) (31,3)Difference between the CGT and the statutory rate on the revaluation of the derivative asset 50,6 (1,6)

Tax at effective rate (101,4) 3,3Deferred tax charged to the statement of profit or loss comprises:Deferred tax has been calculated using the CGT as the underlying investments are capital in nature and are being held with the intention of long-term strategic growth. The capital gains tax rate is 66,6%, therefore the deferred tax is at a rate of 18,648%.


29


2015R’000

2014R’000

8. EARNINGS AND HEADLINE EARNINGS PER SHARENumber of ordinary shares in issue at year end ('000) 80 888 80 888Weighted average number of shares ('000) 80 888 80 888

Profit for the year 2 231 724 196

Adjusted for the following:

Loss/(gain) on remeasurement of the derivative financial assets 709 109 (105 455)

Profit attributable to shareholders 711 340 618 741

Basic earnings per share (cents) 879 765 Headline earnings per share (cents) 879 765

There are no items included in the calculation of profit attributable to shareholders which are required to be excluded in terms of Circular 2/2015, Headline Earnings, in the calculation of headline earnings per share.

9. AVAILABLE-FOR-SALE FINANCIAL ASSETSAvailable for saleMTN Group shares (purchased from the Public Investment Corporation) 4 428 263 7 377 995MTN Group shares (purchased from MTN Group Limited with the donation income received) 1 600 715 2 666 975MTN Group shares (purchased on the open market) 2 506 818 3 432 364The loss recorded in other comprehensive income for the current year is R5 653 661 033 (2014: R222 960 930 gain).The investment consists of 64 232 040 (2014: 60 870 484) MTN Group shares. The total investment together with the derivative financial asset (refer to note 10) comprises 4% of the MTN Group issued share capital. The shares in the MTN Group were partly obtained through a donation received from the MTN Group.The donation was used to subscribe for 12 045 412 shares at a price of R107,46 per share. Shares were acquired for cash at a price of R3 680 190 649 in 2010. During the financial year, the notional vendor finance balance (refer to note 10) was partially settled through the acquisition of MTN Group shares in the market amounting to 3 361 556 (2014: 2 537 471) shares.The fair value of the available-for sale-investment is based on a quoted market price of R132,89 (2014: R221,41).

8 535 796 13 477 334Balance at the beginning of the year 13 477 334 12 659 430MTN Group Limited shares (purchased on the open market) 712 123 594 943(Loss)/gain on remeasurement of available-for-sale financial assets (5 653 661) 222 961

Balance at the end of the year 8 535 796 13 477 334

MTN Zakhele has an obligation to redeem the outstanding class A preference shares and an obligation to settle the outstanding Notional Vendor Financing in November 2016. In so far as MTN Zakhele does not have alternative resources to do so, it will, subject to obtaining the requisite contractual consents and statutory approvals, sell such number of MTN shares as are required in order to meet such obligations.

Non-current available-for-sale financial assets 5 392 968 13 477 334

Current available-for-sale financial assets 3 142 828 –

8 535 796 13 477 334



2015R’000

2014R’000

10. DERIVATIVE FINANCIAL ASSETSAs part of the implementation of the MTN Group BBBEE scheme, MTN Zakhele obtained notional vendor finance (NVF) to facilitate the purchase of MTN Group shares. MTN Group initially issued 29 994 952 NVF shares to MTN Zakhele at par value. MTN Group has exercised part of the call option over 3 361 466 of these shares during the current financial year (2014: 2 537 561) leaving 11 131 098 subject to the call option.As the outstanding debt at a given point is dependent on the dividends generated by MTN Group during the life of the option, the structure represents a path dependent option. A Monte Carlo simulation was applied as the valuation technique, which is in line with standard market practice.The balance of notional vendor finance at year end was R611 577 380 (2014: R1 223 921 072). During the current financial year the NVF was settled through the acquisition of MTN Group shares in the market for an amount of R688 785 543 (2014: R581 854 356).The interest accrued during the financial year was R76 441 851 (2014: R117 481 810).The value of the option at year end was R720 644 244 (2014: R1 592 532 724). The significant inputs into the model were as follows:

the market price of MTN Group shares of R132,89 (2014: R221,41);the NVF balance of R611 577 380 (2014: R1 223 921 072);the shares of 11 131 098 (2014: 14 492 564);volatility of 37,98% (2014 25,47%);a dividend yield of 11,26% (2014: 6,14%);an expected option life of one year (2014: two years); andannual risk-free rate of 7,4% (2014: 6,7%).

Financial asset at fair value through profit or loss – level 3 reconciliationBalance at the beginning of the year 1 592 533 1 462 886Fair value adjustments recognised in profit or loss (871 889) 129 647

Fair value at the end of the year 720 644 1 592 533

11. OTHER RECEIVABLESAccrued interest income 25 190Prepayments 155 319MTN recoverable (unsuccessful applicants refunded) 29 29VAT receivable 3 292 2 157

3 501 2 695

12. CASH AND CASH EQUIVALENTSCash and cash equivalents consist of:Cash at bank 51 010 66 183

51 010 66 183Cash and cash equivalents are denominated in South African rand.Included in the cash balance is an amount of R2 163 340 (2014: R23 607 648), which is monies deposited by shareholders and potential shareholders in order to be able to trade. As a result of the listing on the JSE, the manner in which deposits are received by shareholders and potential shareholders has changed. MTN Zakhele is therefore attempting to trace depositors in order to return such funds. This is therefore not cash available to the entity for expenditure.


31


2015R’000

2014R’000

13. SHARE CAPITALAuthorised100 000 000 ordinary shares with a par value of 1 cent each 1 000 1 000Seven ordinary shares at par value of R20 each * *3 140 000 Class A preference shares with no par value – –Unissued ordinary shares are under the control of the directors.Issued**Ordinary shares at par value (fully paid up) 809 809Ordinary share premium 1 616 956 1 616 956

1 617 765 1 617 765Ordinary share capitalBalance at the beginning of the period 809 809

Balance at the end of the period 809 809Ordinary share premiumBalance at the beginning of the period 1 616 956 1 616 956Balance at the end of the period 1 616 956 1 616 956

Total 1 617 765 1 617 765MTN Zakhele shares started trading in November 2013 after a minimum investment period of three years, from November 2010 to November 2013. There is restricted trading during the fourth to sixth years, when the MTN Zakhele shares can be sold to eligible individuals and groups. Other than sales on the JSE Limited platform which are subject to a verification process, all sales during the fourth to sixth years are subject to approval and verification by the Black Share Transfer Committee (BSTC). There are no special restrictions on the sale or encumbrance of MTN Zakhele shares after the empowerment period (i.e. after the sixth year). * Amount less than a thousand.** Seven ordinary shares with a par value of R20 and a premium of R80 each and 80 888 200 ordinary shares with a par value of 1 cent and a

premium of R19,99 each. Refer to note 17 for preference shares issued.

14. AVAILABLE-FOR-SALE RESERVEBalance at the beginning of the year 4 465 641 4 284 285(Loss)/gain on revaluation of available-for-sale assets (note 9) (5 653 661) 222 961Deferred tax on loss/(gain) on remeasurement of available-for-sale assets at 18,648% 1 054 953 (41 605)

Balance at the end of the year (133 067) 4 465 641

15. NON-DISTRIBUTABLE RESERVEThe transfer between reserves arises in respect of the (loss)/gain on remeasurement of the derivative financial asset that is recorded in profit or loss.The amount transferred is net of the related deferred tax calculated at the CGT rate.This transfer of the net gain from retained earnings to the non-distributable reserve is effected as the gain is currently not distributable.Balance at the beginning of the year 1 295 367 1 189 912Transfer of (loss)/ gain on revaluation of the derivative financial asset (note 6) (871 889) 129 647Deferred tax on loss on revaluation of the derivative asset 162 780 (24 192)

Balance at the end of the year 586 258 1 295 367



2015R’000

2014R’000

16. BORROWINGS – PREFERENCE SHARES LIABILITYPreference shares liabilityClass A preference shares 3 189 382 3 185 377

3 189 382 3 185 377Short-term portionClass A preference shares 3 189 382 (53 567)

3 189 382 (53 567)Long-term portionClass A preference shares – 3 131 810

– 3 131 810Class A cumulative redeemable non-participating preference shares3 140 000 cumulative redeemable non-participating preference sharesBalance at the beginning of the year 3 185 377 3 178 303Interest paid (211 314) (201 755)Interest accrued at effective interest rate 215 319 208 829

Balance at the end of the year 3 189 382 3 185 377


33


16. BORROWINGS – PREFERENCE SHARES LIABILITY (continued)The above Class A BIC preference shares are subject to the following debt covenants:

If either (i) MTN Group’s consolidated total net borrowings to adjusted consolidated EBITDA is at or above 2,5 times, or (ii) the share cover ratio (calculated as the ratio of the value of all the shares held by MTN Zakhele, plus certain cash balances; divided by the Class A preference share balances, minus certain cash balances) falls below a value of 2,0 times (and if MTN Group’s consolidated total net borrowings to adjusted consolidated EBITDA is below 2,0 times) or falls below a value of 2,5 times (and if MTN Group’s consolidated total net borrowings to adjusted consolidated EBITDA is at or above 2,0 times), a covenant will be triggered whereby the holders of the back-to-back preference shares issued by the BFC will have the right to enforce the sale of sufficient MTN Group shares to repay their outstanding debt.

During December 2015, in order to ensure that no continuing trigger events exist, MTN Group independently of MTN Zakhele, formally requested that the holders of the Class A preference shares agree that for the purpose of calculating MTN Group’s adjusted consolidated EBITDA any liability of MTN Nigeria Communications Limited to pay the fine imposed by the Nigerian Communications Commission will not be taken into account. The holders of the Class A preference shares agreed to this request.

There are no continuing trigger events and MTN Zakhele is in compliance with its debt covenant requirements at year end.

As at 31 December 2015, MTN Zakhele has given the following security and credit support.

First ranking guarantee, given by MTN Zakhele in respect of the obligations of Newshelf 1041 Proprietary Limited (BFC) under the Class A BFC preference shares (cumulative redeemable non-participating preference shares) issued by BFC to Depfin Investments Proprietary Limited, FirstRand Bank Limited and United Towers Proprietary Limited (the Class A BFC preference shareholders) on 24 November 2010 and 1 August 2013.

Second ranking guarantee given by MTN Zakhele in respect of the obligations of BFC under the Class B BFC preference shares (cumulative redeemable non-participating preference shares) issued by BFC to Depfin Investments Proprietary Limited, FirstRand Bank Limited and United Towers (the Class B BFC preference shareholders) on 24 November 2010 and 1 August 2013.

Class A BFC pledge and cession given by MTN Zakhele in favour of the Class A BFC preference shareholders in terms of which MTN Zakhele pledges and cedes the MTN Group shares to the Class A BFC preference shareholders as security for its obligations under the first ranking guarantee.

Class A BFC account cession given by MTN Zakhele in favour of the Class A BFC preference shareholders in terms of which MTN Zakhele cedes its rights to its bank accounts (other than the trading platform bank account) (Bank Accounts) to the Class A BFC preference shareholders as security for its obligations under the first ranking guarantee. As at 31 December 2015, the amount in the Bank Accounts was R48 847 000 (2014: R42 575 000). This amount secures, among other things, the preference share liability as at 31 December 2015 of R3 189 382 000 (2014: R3 185 377 000).

Class B BFC first reversionary pledge and cession by MTN Zakhele in favour of the Class B BFC preference shareholders in terms of which MTN Zakhele pledges and cedes the MTN Group shares to the Class B BFC preference shareholders as security for its obligations under the second ranking guarantee.

Class B BFC reversionary account cession given by MTN Zakhele in favour of the Class B BFC preference shareholders in terms of which MTN Zakhele cedes its rights to its Bank Accounts to the Class B BFC preference shareholders as security for its obligations under the second ranking guarantee.

Secondary reversionary pledge and cession by MTN Zakhele in favour of MTN Group and Mobile Telephone Networks Holdings Proprietary Limited (MTN Holdings) in terms of which MTN Zakhele pledges and cedes the MTN Group shares to MTN Group for all MTN Zakhele’s obligations to MTN Group and MTN Holdings under the transaction documents.

Second reversionary account cession given by MTN Zakhele in favour of MTN Group and MTN Holdings in terms of which MTN Zakhele cedes its rights to its Bank Accounts to MTN Group and MTN Holdings for all MTN Zakhele’s obligations to MTN Group under the transaction documents.

MTN subordination and undertaking agreement entered into between MTN Group, MTN Holdings and the Class A BFC preference shareholders in relation to the subordination by MTN Group and MTN Holdings of their claims against BFC and MTN Zakhele.

MTN Group’s shares (being 75 363 138 ordinary shares) are held at Nedbank Corporate and Investment Banking (as security custodian).



2015R’000

2014R’000

17. DEFERRED TAX LIABILITYReconciliation of deferred tax liabilityBalance at the beginning of the year 1 322 068 1 256 271(Loss)/gain on revaluation of the derivative financial assets recorded through profit or loss (162 780) 24 192(Loss)/gain on the revaluation of available-for-sale financial assets recognised in other comprehensive income (1 054 953) 41 605Balance at the end of the year 104 335 1 322 068Available-for-sale financial assets (30 051) 1 024 902Derivative financial assets 134 386 297 166

104 335 1 322 068

Deferred taxation on the revaluation of the available-for-sale assets and derivative financial assets are raised at the capital gains tax rate of 18,648% (2014: 18,648%).

18. TRADE AND OTHER PAYABLESTrade creditors 9 097 2 445Refund due on over-subscription of shares 236 236

9 333 2 681

19. TRADING PLATFORM LIABILITYBalance as per trading platform bank account 2 163 23 608Less: brokerage fees accruing to MTN Zakhele – (600)Less: VAT payable to SARS – (84)Less: STT payable to SARS – (65)

2 163 22 859

The trading platform liability relates to funds which have been deposited to the trading platform bank account in order to allow shareholders and potential shareholders to trade on the over-the-counter trading platform.

20. CASH USED IN OPERATIONS(Loss)/profit before tax (160 549) 748 982Adjustments for:Finance income (note 4) (1 298) (6 834)Finance cost (note 5) 215 319 208 829 (Loss)/gain on remeasurement of the derivative financial instruments (note 6) 871 889 (129 647)Dividends received (note 3) (964 647) (836 531)Changes in working capital:Increase in other receivables (806) (2 211)Increase/(decrease) in trade and other payables 6 652 (2 875)Trading platform liability (20 696) (34 006)

(54 136) (54 293)

21. TAX PAIDBalance at the beginning of the year 6 18Current tax for the year recognised in profit or loss (note 7) – (594)Balance at the end of the year 3 539 6

3 545 (570)


35


2015R’000

2014R’000

22. CONTINGENCIES, COMMITMENTS AND GUARANTEESThere is no reimbursement to any third party for potential obligations of the Company that have not been accrued for at year end. The Company did not have any contingent liabilities at year end. Refer to note 27 for lease commitments.

Mobile Telephone Networks Holdings Proprietary Limited gives certain limited guarantees in favour of the holders of the preferences shares issued by Newshelf 1041 Proprietary Limited in relation to specified losses which may arise from (i) the over the counter trading platform which was operated by the Company up to 16 October 2015, or (ii) the JSE listing.

23. RELATED PARTIESRelationships:Preference shareholder Newshelf 1041 Proprietary Limited Provider of notional vendor finance MTN Group LimitedNon-executive directors Thulani S Gcabashe* Sindisiwe N Mabaso-Koyana Grant G Gelink Sonja De Bruyn Sebotsa Martin J Shaw*The preference shares are issued by MTN Zakhele to Newshelf 1041 Proprietary Limited (BFC). These are back-to-back preference shares with the preference shares issued by BFC to the Class A BFC preference shareholders. Refer to note 16 for terms of the preference shares borrowings.* Resigned during the 2015 financial year.Related party balances:Preference share liability – owing to related partyNewshelf 1041 Proprietary Limited 3 189 382 3 185 377Related party transactions:Interest paid to related partiesNewshelf 1041 Proprietary Limited 211 314 201 755Remuneration of the board of directors – directors’ feesThulani S Gcabashe 145 272Sindisiwe N Mabaso-Koyana 209 –Grant G Gelink 224 143Sonja De Bruyn Sebotsa 167 115Martin J Shaw 120 154

865 684

The directors do not consider the key service providers to be “key management personnel” as defined in IAS 24, Related Party Disclosure.

Reduction of the NVF balanceThe Company partially settled the NVF funding during the 2015 financial year with a payment of R688 785 543 (2014: R581 854 356) to MTN Group from proceeds of R712 123 033 (2014: R594 942 401) via acquiring shares in the open market and delivering an equivalent number of shares, initially issued by MTN Group to the Company, back to MTN Group. The difference between the amount of NVF settled and the proceeds used for settlement resulted from a calculation mechanism outlined in the transaction documents, namely, volume-weighted average price multiplied by the number of shares purchased, compared to the actual cost of those shares. The acquired MTN Group shares are now reflected in the Company’s statement of financial position and not as part of the derivative option.



24. GOING CONCERNThe annual financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.

The Company’s forecasts and projections, taking account of reasonably possible changes in investment performance, show that the Company will be able to operate within the level of its current funding. After making enquiries, the directors are comfortable that the Company has adequate resources to continue in existence for the foreseeable future.

25. EVENTS AFTER THE REPORTING DATEMTN Group Limited declared a final dividend of 830 cents per share in March 2016.

On 24 February 2016, the South African Minister of Finance announced a change in the capital gains tax rate from 18,648% to 22,4%. The rate change is effective for disposals of capital assets for years of assessment beginning on or after 1 March 2016.

Should this capital gains tax rate have been applicable at year end, it would have resulted in additional comprehensive income of R20,9 million.

The directors are not aware of any other matters or circumstances arising after the reporting date to the date of signing of this report that would require adjustment or disclosure.

26. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTSa. Introduction

The Company has exposure to the following risks from its use of financial instruments: credit risk, liquidity risk and market risk (price risk and interest rate risk). This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital.

Further quantitative disclosures are included throughout these annual financial statements.

The financial instruments of the Company have been classified as follows:

Non-financial

instru-ments Financial assets

Financial liabilities

Total financial instruments

Non-financial

instru-mentsR’000

Loans and

receivablesR’000

Availablefor sale

R’000

Fair value through

profit or lossR’000

Amortised cost

R’000

Total carrying amount

R’000

Total fair value

R’000

2015AssetsAvailable-for-sale financial assets – – 8 535 796 – – 8 535 796 8 535 796Derivative financial assets – – – 720 644 – 720 644 720 644Other receivables 3 447 54 – – – 54 54Current tax receivable 3 539 – – – – – –Cash and cash equivalents – 51 010 – – – 51 010 51 010


37


26. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)a. Introduction (continued)

Liabilities

Non-financial

instru-ments Financial assets

Financial liabilities

Total financial instruments

Non-financial

instru-mentsR’000

Loans and

receivablesR’000

Availablefor sale

R’000

Fair value through

profit or lossR’000

Amortised cost

R’000

Total carrying amount

R’000

Total fair value

R’000Borrowings – – – – 3 189 382 3 189 382 3 097 593Deferred tax liability 104 335 – – – – – –Trade and other payables – – – – 9 333 9 333 9 333Trading platform liability – – – – 2 163 2 163 2 163

2014AssetsAvailable-for-sale financial assets – – 13 477 334 – – 13 477 334 13 477 334Derivative financial assets – – – 1 592 533 – 1 592 533 1 592 533Other receivables 2 476 219 – – – 219 219Cash and cash equivalents – 66 183 – – – 66 183 66 183LiabilitiesBorrowings – – – – 3 185 377 3 185 377 3 206 253Deferred tax liability 1 322 068 – – – – – –Current tax payable 6 – – – – – –Trade and other payables – – – – 2 681 2 681 2 681Trading platform liability (149) – – – 23 008 23 008 23 008


26. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued) b. Fair value estimation In terms of IFRS 13, Fair Value Measurement, financial instruments that are measured in the statement of financial position at fair value require disclosure of the fair value by level in terms of the following fair value hierarchy: i. Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). ii. Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either

directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). iii. Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

(level 3). The assumptions and model used are disclosed in note 9. The fair value of the available-for-sale financial assets is based on the MTN Group share price, as listed on the JSE Limited. The fair value of the derivative financial asset is based on a valuation model. The input to this model includes the MTN Group share price, which is an observable input in the market. Other inputs include interest rates on the borrowings, which inputs are not observable in the market. The table below presents the Company’s assets and liabilities that are measured at fair value and those measured at amortised cost whose fair value is disclosed.

Level 1R’000

Level 2R’000

Level 3R’000

TotalR’000

2015Recurring fair value measurementAvailable-for-sale financial assets 8 535 796 – – 8 535 796Derivative financial assets – 720 644 720 644Amortised cost measurementOther receivables – 54 – 54Cash and cash equivalents – 51 010 – 51 010Borrowings – (3 097 593) – (3 097 593)Trade and other payables – (9 333) – (9 333)Trading platform liability – (2 163) – (2 163)

2014Recurring fair value measurementAvailable-for-sale financial assets 13 477 334 – – 13 477 334Derivative financial assets – – 1 592 533 1 592 533Amortised cost measurementOther receivables – 219 – 219Cash and cash equivalents – 66 183 – 66 183Borrowings – (3 206 253) – (3 206 253)Trade and other payables – (2 681) – (2 681)Trading platform liability – (23 008) – (23 008)There were no transfers between levels 1, 2 or 3 in the period.

Refer to note 10 for a reconciliation of the level 3 derivative financial assets.



39

26 FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)c. Derivative financial assets

Sensitivity analysisImpact of change in share priceThe table below summarises the impact of increases/ (decreases) of the MTN Group share price on profit or loss.The analysis is based on the assumption that the MTN Group share price increases/(decreases) by 10% with all other variables held constant.

MTN Group Limited share price Impact on post-tax profit

2015R’000

2014R’000

10% increase 145 067 319 76010% decrease (141 589) (317 773)

Impact of change in interest rateThe table below summarises the impact of increases/(decreases) in the interest rate on the borrowings on profit or loss.The analysis is based on the assumption that the interest rate increased/decreased by 1% with all other variables held constant.

Interest rate Impact on post-tax profit

2015R’000

2014R’000

1% increase 1 239 6 3251% decrease 1 251 (6 394)

d. Available-for-sale financial assetsPrice riskThe Company is exposed to equity securities price risk because of investments held by the Company which are classified on the statement of financial position either as available-for-sale financial assets or as financial assets at fair value through profit or loss. The Company’s exposure to equity securities price risk is limited to the MTN Group Company share price.

Sensitivity analysisThe table below summarises the impact of increases/(decreases) of the MTN Group share price. The analysis is based on the assumption that the MTN Group share price had increased/(decreased) by 10% with all other variables held constant.

Impact on other comprehensive income

before tax

2015R’000

2014R’000

Financial instrument10% increase 853 580 1 347 73310% decrease (853 580) (1 347 733)



26. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)e. Borrowings

Cash flow and fair value interest rate riskThe entity’s interest rate risk arises from long-term borrowings by means of preference shares which are partly based on floating rates. Borrowings issued at variable rates expose the Company to cash flow interest rate risk, which is partially offset by cash held at variable rates.

The Company analyses its interest rate exposure periodically. Scenarios are generally simulated taking into consideration repricing of preference share funding through derivatives to further reduce exposure to interest rate changes and, in certain cases refinancing, renewal of existing positions and alternative financing. Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions.

Sensitivity analysisThe Company has used a sensitivity analysis technique that measures the estimated change to the statement of profit or loss and other comprehensive income of an instantaneous increase or decrease of 1% (100 basis points) in market interest rates, from the rate applicable at 31 December 2015, for each class of financial instrument, with all other variables remaining constant. This analysis is for illustrative purposes only, as in practice, markets rarely change in isolation.

Changes in the above market interest rates at the reporting date would have increased/(decreased) profit before tax by the amounts shown below.

The analysis has been performed on the basis of the change occurring at the start of the reporting period and assumes that all other variables remaining constant.

Adjustinterestrate by

%

Upwardchange in

interest rateR’000

Downwardchange in

interest rateR’000

Financial instrument2015Borrowings 1 (5 348) 5 516

2014Borrowings 1 (11 409) 11 491



41

26. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)f. Liquidity risk

The Company’s risk to liquidity is a result of the funds available to cover future commitments. The Company manages liquidity risk through an ongoing review of future commitments and credit facilities.

The Company is primarily dependent on dividends from MTN Group Limited to service its obligations and, to a very small extent, on interest received. The liquidity risks are low due to the very conservative funding profile of the preference shares.

The Company ensures it has sufficient cash on demand (currently the Company is maintaining a positive cash position) to meet expected operational expenses, including the servicing of financial obligations, and having regard to the limitation of the cash flow waterfall provided in the funding agreements.

The Company remains confident that the available cash resources and borrowing facilities will be sufficient to meet its funding requirements. Subject to the rights of the preference shareholders, cash may also be used to repay the notional vendor finance to MTN Group Limited. Available liquid resources, subject to the security package described in note 16 are as follows:

2015R’000

2014R’000

Cash at bank and on hand 48 847 42 575Other receivables 54 29The cash and cash equivalents exclude an amount of R2 163 340 (2014: R23 607 648) as this cash is not available to the Company for use.The following are the contractual maturities of financial liabilities and payments that are undiscounted:

Carrying amount

R’000

Payable more than

three monthsbut less

than one year

R’000

Payable more than

one year but less

than five years

R’000

Payable more than five years

R’000

2015Borrowings 3 189 382 3 395 054 – –Other payables 9 333 9 333 – –

2014Borrowings 3 185 377 210 235 3 382 490 –Other payables 2 445 2 445 – –



26. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)g. Credit risk

Credit risk, or the risk of financial loss to the Company, arises due to counterparties not meeting their contractual obligations.

Credit risk consists mainly of cash deposits, cash equivalents, derivative financial instruments and trade debtors. The Company deposits cash only with major banks with high-quality credit standings, and limits exposure to any one counterparty.

Credit risk is managed on an entity basis. Credit risk arises from cash and cash equivalents and outstanding receivables. There are no material receivables and all financial assets are fully performing with no history of defaults.

The Company will continue to manage its credit risk relating to financial instruments by transacting only with credit-worthy counterparties.

The Company’s maximum exposure to credit risk is represented by the carrying amount of the financial assets that are exposed to credit risk.

Cash and cash equivalentsThe cash and cash equivalents are held at ABSA Bank Limited. This financial institution is a highly rated entity in the South African environment, thus the credit quality of this institution is acceptable.

h. Capital risk managementThe Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure of the Company consists of debt, which includes the preference share liabilities (excluding derivative financial liabilities) disclosed in note 16, cash and cash equivalents disclosed in note 11, and equity as disclosed in the statement of financial position.

Income generated by the entity will first be utilised for the purpose of settling any obligations in respect of borrowings before dividends are declared.

The preference share liabilities have debt covenants, the details of which have been included in note 16.

27. LEASING ARRANGEMENTSOperating leases relate to leases of the trading platform system from the information technology (IT) service providers. The lease is for a period three years, from November 2013 to November 2016. The Company does not have an option to purchase the system at the expiry of the lease periods. Payments recognised as an expense

2015

R’0002014R’000

Minimum lease payments 2 990 3 511

2 990 3 511Operating lease commitmentsNot later than one year 3 630 3 960Later than one year and not later than five years – 3 630Later than five years – –

3 630 7 590



43

Type of shareholderNumber of

shareholders %Number of

shares %Individuals 98 939 98,35 42 074 803 52,02

Groups 1 657 1,65 38 813 404 47,98

Total 100 596 100 80 888 207 100

Ownership rangeNumber of

shareholders %Number of

shares %

1 – 99 shares 5 230 5,20 199 268 0,25100 - 500 shares 82 596 82,11 14 509 001 17,94501 - 1 000 shares 5 688 5,65 5 110 744 6,32

1 001 - 5 000 shares 6 094 6,06 13 175 952 16,295 001 – 10 000 shares 617 0,61 4 360 135 5,3910 001 – 20 000 shares 187 0,19 2 752 810 3,4020 001 shares and over 184 0,18 40 780 297 50,41Total 100 596 100 80 888 207 100

Shareholders holding shares in excess of 5% of the issued ordinary share capital of the Company

2015 2014Number of

shares% of issued

share capitalNumber of

shares% of issued

share capital

Friedshelf 1562 (Pty) Limited 8 948 002 11,06 – –Shanduka Group (Pty) Limited – – 8 948 002 11,06

During July 2015, the board of directors and BIC Share Transfer Committee approved an off market trade allowing the Shanduka Group to transfer its shares into a new company called Friedshelf 1562.

Annexure A: Shareholder informationfor the year ended 31 December 2015


44

To the shareholders of MTN Zakhele (RF) Limited

On the basis of information provided by the directors we have compiled, in accordance with the International Standard on Related Services applicable to compilation engagements, the statement of financial position of MTN Zakhele (RF) Limited as at 31 December 2015 and the related statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory information.

We performed this compilation engagement in accordance with International Standard on Related Services 4410 (Revised), Compilation Engagements.

We have applied our expertise in accounting and financial reporting to assist the directors in the preparation and presentation of these financial statements on the basis of accounting described in note 1(b) to the financial statements. We have complied with relevant ethical requirements, including principles of integrity, objectivity, professional competence and due care.

These financial statements and the accuracy and completeness of the information used to compile them are the directors’ responsibility.

Since a compilation engagement is not an assurance engagement, we are not required to verify the accuracy or completeness of the information management provided to us to compile these financial statements. Accordingly, we do not express an audit opinion or a review conclusion on whether these financial statements are prepared in accordance with the basis of accounting described in note 1(b).

Siviwe XA DongwanaPartnerDeloitte & Touche9 March 2016

for the year ended 31 December 2015Compilation report


for the year ended 31 December 2015Administration

Company registration number2010/004693/06

JSE share codeMTNZBE

ISINZAE000208526

Postal addressPO Box 225Highlands, 2037

Registered address4th Floor, Aloe Grove Houghton Estate Office Park 2 Osborn RoadHoughton, 2198

Board of directorsSN Mabaso-Koyana (non-executive chairperson) S De Bruyn Sebotsa (non-executive) GG Gelink (non-executive)

Office of the transfer secretaries Link Market Services South Africa Proprietary LimitedRegistration number 2000/007239/0713th Floor, Rennie House, 19 Ameshoff Street, Braamfontein PO Box 4844, Johannesburg, 2000Tel: +27 0861 686925 (0861 MTNZAK)Fax: +27 086 674 4381E-mail: [email protected] Company secretaryLevitt Kirson Management Services CC Registration number 1994/036439/23

Registered office4th Floor, Aloe GroveHoughton Estate Office Park, 2 Osborn RoadHoughton, 2198

AuditorsSizweNtsalubaGobodo Inc. 20 Morris Street East Woodmead, 2191PO Box 2939, Saxonwold, 2132

AttorneysWebber Wentzel90 Rivonia Road, Sandton, 2196PO Box 61771, Marshalltown, 2107

SponsorRand Merchant Bank (a division of First Rand Bank Limited)Registration number: 1929/001225/061 Merchant Place, Cnr Fredman Drive and Rivonia RoadSandton, Johannesburg, 2196PO Box 786273, Sandton, 2196

www.mtnzakhele.co.za

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Documents

MTN Zakhele (RF) Limited - ShareData Online · MTN Zakhele (RF) Limited Annual Financial Statements 1 for the year ended 31 December 2015 Index The reports and annual financial …