Notes to the condensed consolidated financial statements


1.	Independent review by the auditors
	These condensed consolidated results have been reviewed by our joint auditors PricewaterhouseCoopers Inc. and SizweNtsaluba vsp, who have performed their review in accordance with the International Standard on Review Engagements 2410. A copy of their unqualified review report is available for inspection at the registered office of the company.

2.	General information
	MTN carries on the business of investing in the telecommunications industry through its subsidiary companies, joint ventures and associate companies.

3.	Basis of preparation
	The condensed consolidated interim financial information (interim financial information) announcement was prepared in accordance with International Financial Reporting Standards (IFRS’s) IAS 34 – Interim Financial Reporting and in compliance with the Listings Requirements of the JSE Limited and the South African Companies Act (1973), on a consistent basis with that of the prior period.

4.	Accounting policies
	The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2008, as described in the annual financial statements. During the period under review, the Group adopted all the IFRS and interpretations being effective and deemed applicable to the Group. None of these had a material impact apart from IAS 1 (Revised) which resulted in a separate condensed consolidated statement of comprehensive income being included as part of the primary financial statements of the Group. The necessary changes were also made to the condensed consolidated statement of changes in equity as a result.

5.	Headline earnings per ordinary share
	The calculations of basic and adjusted headline earnings per ordinary share are based on basic headline earnings of R7 739 million (2008: R6 328 million) and adjusted headline earnings of R6 776 million (2008: R7 618 million) respectively, and a weighted average number of ordinary shares in issue of 1 862 519 (2008: 1 864 911).

Reconciliation between net profit attributable to the equity holders of the company and headline earnings.

	Six months ended	Six months ended	Financial year ended
	30 June 2009	30 June 2008	31 Dec 2008
	Reviewed	Reviewed	Audited
	Rm	Rm	Rm
Net profit attributable to equity holders	7 630	6 240	15 315
Adjusted for:
Loss on disposal of non-current assets	109	88	288
Basic headline earnings	7 739	6 328	15 603
Adjustment:
Reversal of the subsequent utilisation of deferred tax asset	—	425	441
Reversal of put option in respect of subsidiary
– Fair value adjustment	(553)	520	74
– Finance costs	(292)	404	914
– Minority share of profits	(118)	(59)	(162)
Adjusted headline earnings	6 776	7 618	16 870
Reconciliation of headline earnings per ordinary share (cents)
Attributable earnings per share (cents)	409,7	334,6	821.0
Adjusted for:
Loss on disposal of non-current assets	5,8	4,7	15,5
Basic headline earnings per share (cents)	415,5	339,3	836,5
Reversal of the subsequent utilisation of deferred tax asset	—	22,8	23,6
Reversal of put option in respect of subsidiary	(51,7)	46,4	44,3
Adjusted headline earnings per share (cents)	363,8	408,5	904,4
Contribution to adjusted headline earnings per ordinary share (cents)
South and East Africa	177,3	180,7	385,7
West and Central Africa	291,1	229,9	517,6
Middle East and North Africa	56,5	36,8	77,0
Head office companies	(161,1)	(38,9)	(75,9)
	363,8	408,5	904,4
Number of ordinary shares in issue:
– Weighted average (000)	1 862 519	1 864 911	1 865 299
– At period end (000)	1 839 868	1 865 354	1 868 010

Adjusted headline earnings adjustments

Deferred tax asset

The Group’s subsidiary in Nigeria had been granted a five-year tax holiday under “pioneer status” legislation. On 31 March 2007 MTN Nigeria exited “pioneer status”, and from 1 April 2007 became subject to income tax in Nigeria. A deferred tax asset of R2,5 billion was created during “pioneer status” in respect of capital allowances on capital assets that are only claimable after the company comes out of “pioneer status”. The above resulted in the commencement of the reversal of the deferred tax asset shown as an adjustment of Rnil (2008: R542 million) Rnil excluding minorities (2008: R425 million) to the adjusted headline earnings figure.

As previously disclosed, although the Group has complied with the requirements of IAS 12 in this regard, the board has reservations about the appropriateness of this treatment in light of the fact that no cognisance may be taken (in determining the value of such deferred tax assets) of uncertainties arising out of the effects of the time value of money or future foreign exchange movements. The board therefore resolved to report adjusted headline earnings (negating the effect of the deferred tax asset) in addition to basic headline earnings, to reflect more fully the Group’s results for the period.

Put option in respect of subsidiary

IFRS requires the Group to account for a written put option held by a minority shareholder of one of the Group subsidiaries, which provides them with the right to require the subsidiary to acquire their shareholdings at fair value. Prior to the implementation of IFRS the shareholding was treated as a minority shareholder in the subsidiary as all risks and rewards associated with these shares, including dividends, accrue to the minority shareholders.

IAS 32 requires that in the circumstances described above:
	(a)	the present value of the future redemption amount be reclassified from equity to financial liabilities and that the financial liability so reclassified subsequently be remeasured in accordance with IAS 39;
	(b)	in accordance with IAS 39, all subsequent changes in the fair value of the liability together with the related interest charges arising from present-valuing the future liability are to be recognised in the income statement; and
	(c)	the minority shareholder holding the put option no longer be regarded as a minority shareholder but rather as a creditor from the date of receiving the put option.
Although the Group has complied with the requirements of IAS 32 and IAS 39 as outlined above, the board has reservations about the appropriateness of this treatment in light of the fact that:
	(a)	the recording of a liability for the present value of the future strike price of the written put option results in the recording of a liability that is inconsistent with the framework, as there is no present obligation for the future strike price;
	(b)	the shares considered to be subject to the contracts are issued and fully paid up, have the same rights as any other issued and fully paid up shares and should be treated as such; and
	(c)	the written put option meets the definition of a derivative and should therefore be accounted for as a derivative. In which case the liability and the related fair value adjustments recorded through the income statement would not be required.

		Six months	Six months	Financial Year
		ended	ended	ended
		30 June	30 June	31 Dec
		2009	2008	2008
		Reviewed	Reviewed	Reviewed
		Rm	Rm	Rm
6.	Capital expenditure incurred	15 504	10 311	28 263
7.	Contingent liabilities and commitments
	Contingent liabilities – upgrade incentives	250	1 013	504
	Operating leases	756	917	801
	Finance leases	520	1 393	554
	Other	633	84	541
8.	Commitments for property, plant and equipment and intangible assets
	– Contracted for	23 260	12 686	11 410
	– Authorised but not contracted for	3 625	11 816	26 257
9.	Cash and cash equivalents
	Bank balances, deposits and cash	19 503	27 058	26 961
	Call borrowings	(587)	(1 054)	(1 365)
		18 916	26 004	25 596
10.	Interest-bearing liabilities
	Call borrowings	587	1 054	1 365
	Short-term borrowings	9 551	10 196	11 125
	Current liabilities	10 138	11 250	12 490
	Long-term liabilities	25 537	29 313	29 100
		35 675	40 563	41 590

11.	Other non-current liability
	The put option in respect of the subsidiary arises from an arrangement whereby the minority shareholders of the Group’s subsidiary have the right to put their remaining shareholding in the subsidiary to Group companies. On initial recognition, the put option was fair valued using effective interest rates as deemed appropriate by management. To the extent that the put option is not exercisable at a fixed strike price the fair value will be determined on an annual basis with movements in fair value being recorded in the income statement.
12.	Business combinations
	Acquisitions
	During the period under review, certain subsidiaries of the Group acquired the following entities:
	(a) An additional 59% in iTalk, a cellular service provider, was acquired in January 2009
	(b) 100% of Verizon, an internet service provider, was acquired in February 2009
	The accounting for the acquisition of Verizon South Africa has been determined on a provisional basis as elected under IFRS 3 – to finalise asset and liability fair values and therefore allocated goodwill, within 12 months subsequent to the acquisition date.

	Carrying
	amount on
	acquisition	Total fair
	date	value
	Rm	Rm
The assets and liabilities arising from the acquisitions are as follows:
Property, plant and equipment	106	106
Other non-current assets	95	95
Investments	1	1
Cash and cash equivalents	95	95
Net working capital	42	42
Long-term borrowings	(118)	(118)
Taxation	7	7
Other liabilities	(56)	(56)
Net asset value	172	172

Purchase consideration	2 107
Fair value of net assets acquired	172
Goodwill	1 935

13.	The acquisition of 100% of Newshelf
	MTN purchased the entire issued ordinary share capital of Newshelf from the PIC. The Newshelf acquisition was affected by way of a specific issue of shares to the PIC and the specific repurchase by MTN of 243,5 million MTN shares held by Newshelf. The transaction was concluded in May 2009. MTN acquired the Newshelf shares at an effective discount to market value and intends to apply a significant portion of this effective discount to future participants in a BEE transaction as an incentive to invest in that transaction. The board remains fully committed to implement a BEE transaction as soon as conditions become conducive.
14.	Post balance sheet events
	The board is not aware of any matter or circumstance arising since the end of the reporting period, not otherwise dealt with herein, which significantly affects the financial position of the Group or the results of its operations or cash flows for the period ended.