Directors' report

for the year ended 31 December 2009

The directors have pleasure in submitting their report on the annual financial statements of the Group for the year ended 31 December 2009.

Nature of business

MTN Group Limited (MTN Group or the Company) carries on the business of investing in the telecommunications industry through its subsidiary companies, joint ventures and associate companies.

International Financial Reporting Standards (IFRS)

The Company’s financial statements were prepared in accordance with International Financial Reporting Standards.

Review of financial results and operations

The detailed reviews of financial results and the activities of MTN Group are contained in the reports of the chairman, the Group president and CEO, the Group finance director, the Group chief operating officer and the annual financial statements.

Subsidiary companies

Details of entities in which MTN Group has a direct or indirect interest are set out in Annexure 1 of the financial statements on page 162.
All Group subsidiaries have a year-end consistent with that of the MTN Group, with the exception of Irancell Telecommunication Services Company (Proprietary) Limited, which has a year-end of 19 March, due to statutory requirements in Iran.

Distribution to shareholders

A dividend of 192 cents per share (December 2008: 181 cents per share) amounting to R3,534 million (December 2008: R3,381 million) in respect of the financial year ended 31 December 2009 was declared on Wednesday, 10 March 2010, payable to shareholders registered on Friday, 9 April 2010. The payment of future dividends will depend on the board’s ongoing assessment of MTN Group’s earnings, financial position, including its cash needs, future earnings prospects and other factors.

Shareholders on the South African register who dematerialised their ordinary shares received payment of their dividends electronically, as provided for by STRATE. For those shareholders who have not yet dematerialised their shareholding in the Company in certificated form, the Company operates an electronic funds transmission service, whereby dividends may be electronically transferred to shareholders’ bank accounts. These shareholders are encouraged to mandate this method of payment for all future dividends, by approaching our share registrar, Computershare Investor Services (Proprietary) Limited, whose contact details are reflected on page 180 of the notice of the annual general meeting.

Share capital

Authorised share capital

There was no change in the authorised share capital of the Company during the year under review. The authorised ordinary share capital of MTN Group is 2,5 billion shares of 0,01 cent each. The movements in the issued ordinary share capital during the period under review were as follows:

Issued share capital

There was a net decrease in the issued share capital due to the acquisition and subsequent cancellation of shares relating to the Newshelf transaction (refer below). The allotment of shares for the year were as follows:

Options exercised and allotted

Other shares issued

Shares issued to the Public Investment Corporation (PIC)

Shares repurchased and cancelled in terms of the Newshelf transaction

Accordingly, at 31 December 2009, the issued share capital of the Company was R184 053 (December 2008: R186 801) comprising 1 840 536 491 (December 2008: 1 868 010 304) ordinary shares of 0,01 cent each. No treasury shares were held at the date of this report.

Control of unissued share capital

The unissued ordinary shares are the subject of a general authority granted to the directors in terms of section 221 of the Companies Act, 1973 as amended (Act No 61 of 1973) (the Companies Act). As this general authority remains valid only until the next annual general meeting, which is to be held on 15 July 2010, members will be asked at that meeting to consider an ordinary resolution placing the said unissued ordinary shares, up to a maximum of 10% of the Company’s issued share capital, under the control of the directors until the next annual general meeting.

Further details of the authorised and issued shares as well as the share premium for the year ended 31 December 2009 appears in note 17 to the MTN Group annual financial statements.

Acquisition of the Company’s own shares

Shareholders are referred to the circular to MTN shareholders issued on 6 April 2009, the purpose of which was to provide shareholders with the relevant information relating to the acquisition of Newshelf 664 (Proprietary) Limited (Newshelf ).

At the beginning of the 2009 financial year, Newshelf owned 243 500 011 MTN ordinary shares. Newshelf acquired 37 589 980 MTN ordinary shares on loan account from the PIC to enable Newshelf to declare and pay a special dividend to its ordinary shareholder, the Alpine Trust (34 389 980 MTN ordinary shares with 300 000 MTN ordinary shares to be retained by the Alpine Trust to cover contingencies and the balance distributed to the Alpine Trust beneficiaries in February 2009) and to settle the related taxes (3 200 000 MTN ordinary shares).

Following the approvals of the South African competition authorities on 11 March 2009 and MTN shareholders on 5 May 2009, respectively, as well as the fulfilment of other conditions precedent, MTN repurchased and cancelled 234 500 011 of its own shares from Newshelf. The repurchase of these shares resulted in the immediate reduction of approximately 1,6% in the total number of MTN shares in issue.

At the last annual general meeting held on 24 June 2009, shareholders gave the Company or any of its subsidiaries a general approval in terms of section 85 and 89 of the Companies Act, by way of special resolution, for the acquisition of its own shares. As this general approval remains valid only until the next annual general meeting, which is to be held on 15 July 2010, members will asked at that meeting to consider a special resolution to renew this general approval until the next annual general meeting, subject to a maximum extension of 15 months.

Shareholders’ interest

Major shareholders

The following information was extracted from the Company’s share register at 31 December 2009:

* National Empowerment Fund and StratEquity Empowerment Investments.
** Government Employee Pension Fund managed through various asset, investment and fund managers

Disclosure in accordance with section 140A (8) (a) of the Companies Act and paragraph 8.63 of the JSE Listings Requirements

According to information received by the directors, the following shareholders held shares in excess of 5% of the issued ordinary share capital of the Company:

Certain of these shareholdings are partially or wholly included in the nominee companies mentioned. Apart from this, the Company is not aware of any other party who has a shareholding of 5% or more in the Company.

Reward and remuneration philosophy

The principles of MTN Group’s remuneration policy reflect the Group’s objectives of a sound governance process and long-term value creation for the Group’s shareholders. Also, it is designed to support key business strategies and create a strong, performance-orientated environment. At the same time, the policy must attract, motivate and retain talent.

Performance management

The performance of MTN employees is enhanced through an effective performance management system at all levels of remuneration, whether through the fixed guaranteed package, or the various short-term and long-term incentive schemes.

As a multinational company, all applicable employees and executives within the MTN Group of companies and operating units participate in the Group’s Integrated Performance Framework (IPF) by means of performance agreements, thereby ensuring that the entire Group is fully aligned in achieving the strategic objectives and goals as determined by the board. This process consists of two elements, namely the individual performance section, which rewards individuals for achieving targets through the salary increase process; and the team performance section which rewards the team for achieving the strategically determined value drivers, coupled with the Company’s performance targets, and is rewarded through the performance bonus incentive scheme.

The MTN Group board of directors has delegated responsibility for the remuneration policy to the nomination, human resources and corporate governance committee (NRHR & CG committee). The role of this committee, among others, is to establish the overall principles that determine the remuneration of the Group’s executive directors and senior management. The full details of the NRHR & CG committee’s role, constitution and attendance are outlined in the corporate governance report.

In setting the remuneration policy, the NRHR & CG committee recognises the need to be competitive in an international market. The committee’s policy is to set remuneration levels which ensure that the executive directors and senior management are fairly and responsibly rewarded for their contribution to the Group’s operating and financial performance. In addition, in order to promote a common interest with shareholders, performance linked share-based incentives are considered to be an important element of the executive incentive policy.

Executive directors and senior management

The remuneration of the executive directors and senior management currently consists of three main components, to balance long- and short-term objectives; a base salary, annual bonus plan with performance targets and long-term incentives in the form of share-based incentive schemes. The last two are designed to encourage and reward superior performance, employee retention and to align interests of the executive directors and senior management as closely as possible with the interests of shareholders. In addition to these main components, the executive directors and senior management also receive pensions, medical insurance, death/disability insurance and other benefits.

Performance bonuses for executive directors are linked to the operational and financial value drivers pertaining to business performance against budget for individual operations and the MTN Group as a whole. These value drivers are determined by the board every year in respect of the next financial year. Each executive director’s performance bonus is conditional upon achievement of their specific value drivers and key performance indicators which are structured to retain a balance between the performance of entities for which they are directly responsible and that of the Group. In order to align incentive awards with the performance to which they relate, bonuses reflected are for amounts accrued in respect of each year and not the amounts paid in that year. The bonuses are determined by the NRHR & CG committee and are approved by the board.

The base salary of executive directors is subject to annual review and is set with reference to external market benchmarks, taking individuals into consideration. Executive directors do not receive payment of director’s fees or committee fees in respect of meetings attended.

MTN Group recognises the benefit that the involvement of the executive director’s as non-director’s of other companies (under certain conditions) has to the individual and the Company. However, each director is normally permitted to accept only one outside appointment. The director’s fees in that regard are ceded to MTN Group.

Remuneration of non-executive directors

MTN Group’s non-executive directors receive annual retainer and meeting attendance fees. They do not participate in any type of share incentive scheme or receive pension-related benefits.

The board is proposing an increase of fees by 10% for local non-executive directors, 6% for committee members and 3,5% for international board members. It is important to ensure that the remuneration of non-executive directors remains competitive in order to enable the Company to retain and attract persons of the required calibre in order to make meaningful contributions to the Company. Given its global footprint and growth rate and having regard to the appropriate capabilities, skills and experience required, the Group president and CEO, in consultation with the Group executive for human resources and Group finance director conducted a review of the remuneration paid to non-executive directors, based on data provided by independent remuneration specialists and benchmarked against comparable entities. The NRHR & CG committee debated and considered the revised remuneration proposal at length and after reaching consensus, recommended the revised remuneration proposal to the board, which sanctioned the proposal for recommendation to shareholders at the annual general meeting to be held on 15 July 2010. The proposed new fee structure is outlined in the notice of the 15th annual general meeting on page 174 and will be applicable with effect from 1 January 2010.

The fees received by executive and non-executive directors during 2009 are reflected in the following table:

Directors’ emoluments and related payments
For the year ended 31 December 2009

Directors’ emoluments and related payments
For the year ended 31 December 2008

The MTN Group share options, share appreciation rights and share rights schemes

The Company operates share options, share appreciation rights and share rights schemes (jointly referred to as the schemes) and eligible employees including executive directors, are able to participate in accordance with the schemes’ rules. The schemes are designed to retain and recognise the contributions of executive directors and eligible staff and to provide additional incentives to contribute to the Company’s continued growth.

In terms of the Company’s share option scheme, the total number of shares which may be allocated for the purposes of the scheme shall not exceed 5% of the total issued ordinary share capital of the Company, being 92 026 825 shares approved by shareholders in 2001.

The following information is provided in accordance with the provisions of the schemes:

The vesting periods under the schemes are as follows: 20%, 20%, 30% and 30% on the anniversary of the second, third, fourth and fifth years respectively, after the grant date. The strike price is determined as the closing market price for MTN Group Limited shares on the day prior to the date of allocation.

If the options or appreciation rights remain unexercised after a period of 10 years from the date of grant, they lapse. Furthermore, rights are forfeited if the employee leaves the Group before they vest.

Share options

Details of the share options allocated and reserved at year-end are as follows:

The market weighted average share price on the dates that share options were exercised during the year was R111,40.

The options outstanding at the end of the period under review have a weighted average remaining contractual life of three years (December 2008: four years). During the year ended 31 December 2009, no options were granted. The fair values were calculated using the stochastic model. The inputs into the model are reflected below:

Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous six years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The expected dividend yield was determined based on historical data.

Options exercised during the year yielded the following proceeds, after transaction costs:

*Amount less than R1 million.

The balances of share options, including executive director’s allocations in issue, are reflected below:

MTN Group share appreciation rights scheme and share rights scheme (the rights schemes)

The share appreciation rights scheme was implemented on 31 May 2006, and superseded the share option scheme.

On 26 August 2008, the board approved the share rights scheme, which superseded the share appreciation rights scheme. Both the rights schemes operate under the same provisions with the exception that the share rights scheme was extended to allow participation by junior managers.

Share rights under the rights schemes are granted to eligible employees by the relevant employer subsidiary company. Exercised rights are equity settled whereby the relevant MTN Group subsidiary purchases the required MTN shares in the open market.

The balances of the share rights schemes, including executive directors’ allocations in issue, are reflected below:

# The vesting period in respect of part of the allocation made on 31 May 2006 was accelerated by six months, due to the fact that the Company had not issued any share incentive rights to eligible employees in 2005. The remaining contractual life of these rights is thus reduced by six months.

A valuation has been prepared using the stochastic model to determine the fair value of share appreciation rights and the expense to be recognised during the year.

The inputs into stochastic model were as follows:

Expected volatility was determined by calculating the historical volatility of MTN Group Limited’s share price over the previous six years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The expected dividend yield was determined based on historical data.

The NRHR & CG committee periodically assesses the effectiveness of the Company’s long-term incentive scheme, to ensure alignment with shareholder requirements and international best practice.

To that effect the Company has developed the Share Appreciation Rights Scheme 2010 (SAR) and a Performance Share Plan 2010 (PSP), details of which are set out in the notice of annual general meeting to be held on 15 July 2010.

Equity compensation benefits for executive directors, the company secretary and directors of major subsidiaries

Participation in the MTN Group Limited share schemes for the year ended 31 December 2009.

*As approved at the AGM of 13 June 2007, all unvested shares will vest on 30 June 2010.

* Forfeited on resignation

Interests of directors and officers

During the year under review, no contracts were entered into in which directors and officers of the Company had an interest which significantly affected the business of the Group. The directors had no interest in any third party or company responsible for managing any of the business activities of the Group. The emoluments of executive directors are determined by the Group NRHR & CG committee and approved by the board. No long-term service contracts exist between executive directors and the Company, with the exception of the contract of service between the Group president and CEO and the Company, of which the first contract had commenced on 1 July 2002 and terminated on 30 June 2007. The contract was subsequently renewed at the AGM held on 13 June 2007 until 30 June 2010.

The Group president and CEO will not be renewing his long-term contract of employment which ends on 30 June 2010. However, he agreed with the board to continue in his current role until March 2011.

Directors’ shareholdings and dealings

The interests of the directors and alternate directors in the ordinary shares of the Company were as follows:

† Major subsidiary director
* VP for the MENA region
‡ Company secretary

Directors, major subsidiary directors, VP for MENA region and the company secretary, concluded the following transactions during the financial year under review:

Shareholders are referred to the integrated business report for the year ended 31 December 2008 in which it was also disclosed that Mr PF Nhleko entered into the following trades in 2008 which matured in the current year:

• On 30 October 2008 a call spread was concluded with a commercial bank for 3 500 000 contracts buying a call at a strike price of R122 and selling a call at a strike price of R182 for 30 June 2009.
• On 30 October 2008 a call spread was concluded with a commercial bank for 3 500 000 contracts buying a call strike at a price of R135 and selling a call at a price of R195 for 17 September 2009.

During the year under review, Mr PF Nhleko entered into the following trades which mature in future years:

• On 6 April 2009 a call spread was concluded with a commercial bank for 1 209 026 contracts buying a call at a strike price of R135 and selling a call strike at a strike price of R160 for 18 March 2010.
• On 6 November 2009 a zero cost collar was concluded with a commercial bank for 3 231 047 contracts buying a put at a strike price of R115,18 and selling a call at a strike price of R137,33 for 5 May 2011.