Airtel Networks Zambia Plc Circular to shareholders November 2013

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Airtel Networks Zambia Plc Circular to shareholders November 2013

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Airtel Networks Zambia Plc Circular to shareholders November 2013

  1. 1. THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION IF YOU ARE IN ANY DOUBT AS TO THE ACTION YOU SHOULD TAKE, YOU SHOULD IMMEDIATELY SEEK ADVICE FROM YOUR STOCKBROKER, BANK MANAGER, LEGAL PRACTITIONER, ACCOUNTANT OR OTHER PROFESSIONAL ADVISOR AIRTEL NETWORKS ZAMBIA PLC (LICENSED USER OF THE ‘AIRTEL’ TRADE MARK IN ZAMBIA) [INCORPORATED IN THE REPUBLIC OF ZAMBIA] COMPANY REGISTRATION NUMBER: 38136 SHARE CODE: ATEL ISIN: ZM0000000342 (“Airtel” or the “Company”) CIRCULAR TO SHAREHOLDERS Regarding the PROPOSED INTERNAL RE-ORGANISATION PLAN Sponsoring Broker and Financial Advisor Pangaea Securities Limited (Member of the Lusaka Stock Exchange) (Regulated by the Securities and Exchange Commission) This is an important document and requires your immediate attention 0
  2. 2. Airtel is a public limited company, and in conformity with Part V of the Securities Act (1993), its shares are registered with the Securities and Exchange Commission (“SEC”) and are listed on the Lusaka Stock Exchange (“LuSE”). The purpose of this document is to inform the Company’s Shareholders of the proposed Internal Re-organisation of the Company as related to its tower assets. Circular to Shareholders in respect of: The proposed Internal Re-organisation, more fully described in this Circular, which is based on Bharti Airtel Zambia Holdings B.V.’s (Group) strategic decision to cut costs by reducing capital expenditure on Passive infrastructure in the Company and thereby improve operating efficiencies, and permit management to focus its efforts on the core business of the Company to enhance future profitability to the benefit of all Shareholders. Sponsoring Broker and Financial Advisor Pangaea Securities Limited (Member of the Lusaka Stock Exchange Regulated by the Securities and Exchange Commission) Advocates Ranchhod, Chungu Advocates Date of Issue: 29 November 2013 1
  3. 3. CORPORATE INFORMATION Company Secretary and Registered Office Airtel House Corner of Addis Ababa Drive And Great East Road Stand 2375 P.O Box 320001 Lusaka Zambia Zambian Towers Limited Airtel House Corner of Addis Ababa Drive And Great East Road Stand 2375 P.O Box 320001 Lusaka Zambia Transfer Secretary Corpserve Transfer Agents Plot 3671, House Number 6 Mwaleshi Road P.O Box 37522 Lusaka Zambia Sponsoring Broker and Financial Advisor Pangaea Securities Limited Farmers House, Third Floor Central Park, Cairo Road P.O Box 30163 Lusaka Zambia Auditors Ernest & Young Development House Corner of Cha Cha Cha Road And Katondo Street Lusaka Zambia Advocates Ranchhod, Chungu Advocates, Plot No. 11058, Zimbabwe House, Haile Selassie Avenue, PO Box FW 235, Lusaka 2
  4. 4. CONTENTS PAGE 1. DEFINITIONS 4 2. DETAILS OF THE INTERNAL RE-ORGANISATION PURPOSE OF THE CIRCULAR DESCRIPTION OF THE INTERNAL RE-ORGANISATION TIMETABLE 6 6 6 7 3. DETAILS AND IMPACT OF THE INTERNAL RE-ORGANISATION 8 4. EXTRAORDINARY GENERAL MEETING 11 5. NOTICE OF EXTRAORDINARY GENERAL MEETING 76 6. FORM OF PROXY 77 ANNEXURES I. 31 DECEMBER 2012 FINANCIAL STATEMENTS II. CONFIRMATION OF THE TRANSFER PROCESS OF THE PASSIVE INFRASTRUCTURE BY THE EXTERNAL AUDITORS III. PROFESSIONAL OPINION OF FAIRNESS BY FINANCIAL ADVISOR IV. AIRTEL NETWORKS ZAMBIA MATERIAL CONTRACTS V. AIRTEL NETWORKS ZAMBIA SUMMARY OF MATERIAL LITIGATION VI. TYPICAL TOWER INFRASTRUCTURE VII. OPERATIONAL IMPACT VIII. FINANCIAL IMPACT 3
  5. 5. 1. DEFINITIONS In this document, the following expressions shall have the following meanings unless the context otherwise requires: Act The Securities Act Chapter 354 of the Laws of Zambia Active Infrastructure Active System which is used to radiate Radio signal (2G & 3G) in the defined radius. This signal is used by mobile user to make calls/ data/ SMS. The active system cover Base Transceiver Station, Node B, MUX, Microwave, GSM/ MW antennas, OFC systems. This infrastructure is not being transferred. Airtel or the Company Airtel Networks Zambia Plc, a public limited company incorporated in Zambia, with its registered office at Airtel House, Addis Ababa Road, Rhodes Park, Lusaka, Zambia Articles The Articles of Association of the Company as amended from time to time Board The Board of Directors of Airtel Circular This Circular to Airtel Shareholders dated 29 November 2013, including any annexure, the notice of the EGM and the Form of Proxy Companies Act The Companies Act, Chapter 388 of the Laws of Zambia Competitions and Consumer Protections Commission of Zambia or CCPC The Competition and Consumer Protection Commission of Zambia is a statutory body empowered to safeguards and promote competition and protect of consumers against unfair trade practices established under the Competition and Fair Trading Act Cap 417 of the Laws of Zambia. Controlling Shareholder Bharti Airtel Zambia Holdings B.V., (formerly known as Celtel Zambia Holdings BV) a Netherlands registered company EGM Airtel Extraordinary General Meeting to consider the proposed Internal Re-organisation Form of Proxy The form of proxy attached to this Circular for completion and return in respect of the proposed corporate actions Going Concern Basis Assumption that a business entity will continue to operate in the foreseeable future without the need or intention on the part of management to liquidate the entity or to significantly curtail its operational activities. Internal Re-organisation Proposed technical (including Company exercise that will separate the existing internal telecommunication tower operation department the tower assets) from the core business of the and, for management purposes, re-organise the 4
  6. 6. related Passive Infrastructure of the tower assets into Zambian Towers Limited, a wholly-owned subsidiary of Airtel, and which is the subject of this Circular Listing Requirements The Listing Requirements of the LuSE, as amended from time to time LuSE Lusaka Stock Exchange Pangaea Pangaea Securities Limited, a company incorporated in Zambia and regulated by the Securities and Exchange Commission, is the Company’s sponsoring broker and financial advisor for the proposed Internal Re-organisation Passive Infrastructure Passive systems which are not radiating any signal and are required to operate Active Systems like BTS, Transmission and 3G systems. Passive systems cover following items: Tower (GBT, RTT, Pole), Antenna mount, Gen Set, Battery Banks, Rectifier systems, Grid Supply, Solar System, Fuel Tank, Grounding System, Site Fence and Shelter. This infrastructure is to be transferred. Resolution The Ordinary resolution relating to the proposed Internal Reorganisation authorizing the Directors of Airtel to effect the Internal Re-organisation, as detailed in the notice of the EGM and this Circular SEC The Securities and Exchange Commission of Zambia, a statutory body established under the Securities Act Cap 354 of the Laws of Zambia Shareholder or Shareholders Sponsoring Broker Certified Shareholder(s) owning shares in the Company The Securities Act The Securities Act, Chapter 354 of the Laws of Zambia Transfer Secretary Corpserve Zambia - Share Transfer Agents Zambia Revenue Authority or ZRA The Zambian Government body responsible for collection of revenues in the form of taxes on behalf of the Government established under the Zambia Revenue Authority Act of Cap 321 of the Laws of Zambia. Zambia Information and Communications Technology Authority or ZICTA An autonomous statutory body established by the repealed Telecommunications Act Chapter 469 of 1994 under the name Communications Authority of Zambia (CAZ) but was renamed as ZICTA by the Information and Communications Technology (ICT) Act No 15 of the Laws of Zambia. Zambian Towers Limited or SPV A Special Purpose Vehicle wholly-owned by Airtel Networks Zambia that will manage the tower operations separately from Airtel’s core business. Pangaea Securities Limited 5
  7. 7. DETAILS OF THE TRANSACTION Purpose of the Circular The purpose of this document is to inform the Airtel Shareholders of the proposed Internal Reorganisation and to convene an EGM in order for eligible minority shareholders to consider and, if deemed appropriate, approve the Resolution to effect the proposed Internal Re-organisation in terms of the notice of EGM attached herein. Description of the Proposed Internal Re-organisation Airtel intends to complete an Internal Re-organisation exercise, which for the purposes of management and operating efficiencies, will entail moving the Passive Infrastructure into Zambian Towers Limited, an Airtel wholly-owned SPV. Zambian Towers Limited will operate as a separate entity, following global practices of reducing capital expenditure for Airtel and separately sourcing funds by providing tower sharing and maintenance services to Airtel on a non exclusive basis and to any other company that may require Tower sharing Passive Infrastructure facility in Zambia. Applicable Terms and Conditions of the Internal Re-organisation  Special Condition The implementation of the proposed Internal Re-organisation is subject to the fulfilment of the condition that the Resolution relating to the proposed Internal Re-organisation contained in the notice of the EGM attached to and forming part of this Circular, is duly approved by the eligible minority shareholders.  Rationale for the Proposed Internal Re-organisation In order to capitalise on the opportunities for Tower sharing, Airtel intends to re-organise the Passive Infrastructure into Zambian Towers Limited for the following reasons: i. to cut costs by reducing Passive Infrastructure expenditure in the Company; ii. to improve operating efficiencies; iii. for Airtel management to focus its efforts on the core business of the Company; iv. to enhance future profitability by creating more value out from sharing of Passive Infrastructure and earn incremental revenue for all Shareholders; v. to emphasise the Company’s longer term strategy of maintaining and strengthening its position in the telecommunications market in Zambia; and vi. to access, for a rental charge on an arms length basis, the existing and future Passive Infrastructure that Zambian Towers Limited will construct. 6
  8. 8. Timetable The proposed timetable for completing all the required corporate actions summarised above is as follows: 2013 Circular posted to Shareholders 29 November Notice of EGM published 29 November Airtel EGM 20 December 2014 Publication of the Announcement of Implementation of Internal Re-organisation 2 January 7
  9. 9. 2. DETAILS AND IMPACT OF THE PROPOSED INTERNAL REORGANISATION Detailed Description of the Proposed Internal Re-organisation Airtel intends to complete an Internal Re-organisation exercise, which for the purposes of management and operating efficiencies will entail moving the Passive Infrastructure into Zambian Towers Limited, an Airtel wholly-owned SPV, for a financial consideration. Zambian Towers Limited will operate as a separate entity, providing tower sharing and maintenance services to Airtel and any other company that may require Tower Passive Infrastructure sharing facility in Zambia. This re-organisation will help to enhance operating efficiencies and separately enable the Company to focus exclusively on its core business, maximising profitability to the benefit of Shareholders. Zambian Towers Limited, as a part of its main business in sharing infrastructure services, will ensure that passive infrastructure will be shared with:  other GSM operators or mobile telephony companies;  other Non – GSM operators like Internet Service Providers (‘ISPs’), Broadcasters for radio and television, Wi max operators; and  other companies in need of Tower sharing facility in Zambia. With the focused effort from Zambian Towers Limited on infrastructure sharing the following outcomes can be achieved by the Company ultimately:     incremental revenue can be earned on the Passive Infrastructure from the proposed Internal Re-organisation of its business; marginal cost on its Passive Infrastructure due to sharing of cost of Passive Infrastructure by GSM operators and Non–GSM operators rather than by Airtel Networks Zambia alone; incremental profitability on undertaking the above business through the proposed Internal Re-organisation of its business; and the proposed Internal Re-organisation is to create more value out of the infrastructure sharing of the Passive Infrastructure and earn incremental revenue. Typical Tower infrastructure Diagrammatic representation is provided in Annexure VI. Expected Impact of the Proposed Internal Re-organisation Operational Impact Zambian Towers Limited will absorb all employees currently aligned to the Passive Infrastructure operations ensuring continuity of the running and management of the infrastructure. Detailed Information of the Operational Impact is provided in Annexure VII. Financial Impact Detailed Information of the Financial Impact is provided in Annexure VIII. 8
  10. 10. Preliminary and Issue Expenses There have been no preliminary expenses related to the proposed Internal Re-organisation. The total estimated expenses of the proposed Internal Re-organisation come to approximately ZMW350,000.00, which includes payments to be made to the various advisors and other service providers required to complete the proposed Internal Reorganisation. Views of the Market Regulators Securities Exchange Commission In an approval granted on 27 November 2013, SEC advised that it has no objection to the Internal Re-organisation on condition that a majority of the independent minority shareholders in attendance in person or by proxy at the EGM and who are eligible to attend and vote at the EGM pass an Ordinary Resolution in favour of the proposed Internal Reorganisation. Lusaka Stock Exchange In an approval granted on 27 November 2013, the LuSE advised that it has no objection to the Internal Re-organisation on condition that a majority of the independent minority shareholders in attendance in person or by proxy at the EGM and who are eligible to attend and vote at the EGM pass an Ordinary Resolution in favour of the proposed Internal Reorganisation. Zambia Revenue Authority In a letter dated 29th October 2013, Zambia Revenue Authority indicated that it had no objection to the proposed Internal Re-organisation and advised the following;  Property Transfer of the Passive Infrastructure would qualify as a nil value and a certificate to that effect is to be issued provided shareholder approval is acquired to effect this transaction.  This transaction does not constitute a taxable supply as Zambian Towers Limited is registered for VAT Competitions and Consumer Protections Commission In a letter dated 25th November 2013, CCPC indicated that it had no objection to the proposed Internal Re-organisation. Zambia Information and Communications Technology Authority Prior to any Ordinary Resolution passed at the EGM being implemented, the Company will ensure necessary intimation of proposed transaction of Internal Re-organisation to ZICTA and obtain necessary acknowledgement. Experts’ Consent Ernst & Young Ernst & Young has given and has not withdrawn its written consent, prior to the issue of this Circular, for its statement to be included in the form and context in which it is in fact included under “Confirmation Of The Transfer Process Of The Passive Infrastructure By The External Auditors” in Annexure II. 9
  11. 11. Pangaea Securities Limited Pangaea Securities Limited has given and has not withdrawn its written consent, prior to the issue of this Circular, for its statement to be included in the form and context in which it is in fact included under “Professional Expert’s Report and Opinion of Fairness” in Annexure III. Confirmation of the Transfer Process of the Passive Infrastructure by the External Auditors The confirmation of the transfer process of the Passive Infrastructure has been provided by the external auditors and summarised in Annexure II. 10
  12. 12. 3. EXTRAORDINARY GENERAL MEETING  An EGM will be held on 20 December 2013 at Taj Pamodzi Hotel Lusaka at 09.00Hours, to deliberate, and if deemed appropriate, approve the Resolution in respect of the proposed Internal Re-organisation.  The notice of the EGM and the Form of Proxy for use by Shareholders who are entitled to attend and vote at the meeting, but are unable to, and wish to be represented thereat, are attached to and form part of this Circular. Duly completed Proxy Forms must be lodged at the registered office of the Company not less than 48 hours before the commencement of the EGM. Board’s View on the Proposed Internal Re-organisation The Board of Directors of the Company, including the sub-committee consisting of the nonexecutive and non-majority shareholder representatives, endorse the proposed Internal Reorganisation plan and concur unanimously with the proposed course of action. We believe this proposed Internal Re-organisation will cut costs by reducing capital expenditure on passive infrastructure in the Company, improve operating efficiencies, and permit management to focus its efforts on the core business of the Company to enhance future profitability to the benefit of Shareholders. Further, we believe this proposed Internal Reorganisation is fully consistent with the Company’s longer term strategy of maintaining and strengthening its position in the telecommunications market in Zambia. We recommend its approval by the eligible minority shareholders and will be seeking approval of the following Resolution at the EGM:  RESOLVED that the proposed Internal Re-organisation plan as fully described in the Circular to Shareholders dated 29 November 2013 is approved and the Board is authorised to take those steps necessary to have it implemented. Directors’ Responsibility Statement The Board has considered the terms and conditions of the Resolution proposed in the notice of the EGM in respect of the proposed Internal Re-organisation and is of the opinion that it is fair and reasonable to Airtel Shareholders. 11
  13. 13. General Financial Information Below is the Company’s summarised financial statement extracts of the last 3 reported financial periods. SUMMARY OF STATEMENT OF COMPREHENSIVE INCOME for the period ended 9Months to 31 December 2012 ZMW' Million Revenue Gross Profit Total Expenses Profit before income tax Income Tax Expense Profit for the Period 15 months to 31 March 2012 ZMW' Million 12months ended 31 December 2010 ZMW' Million 1,262 1,033 (800) 233 (94) 139 1,944 1,669 (1,045) 624 (309) 314 1,462 1,237 (912) 324 (109) 215 SUMMARY OF STATEMENT OF FINANCIAL POSITION as at 31 December 2012 ZMW' Million 31 March 2012 ZMW' Million 31 December 2010 ZMW' Million ASSETS Non Current Assets Current Assets Total Assets 1,656 500 2,156 1,692 479 2,172 1,558 217 1,776 EQUITY AND LIABILITIES Total Equity Non-Current Liabilities Current Liabilities Total Equity and Liabilities 1,170 277 709 2,156 1,240 235 697 2,172 1,029 308 438 1,776 Detailed Information from 31 December 2012 Audited Financial Statements are provided in Annexure I. Material Changes During the previous year, the Company’s financial year end was changed from March to December. Material Litigation The Company’s Litigation is summarised in and attached as Annexure IV providing an accurate representation of the litigation faced by the Company to date. 12
  14. 14. Material Contracts The Company’s License Agreements have been summarised in Annexure IV Documents Available for Inspection The following documents are available for inspection at the registered office of Company between the hours of 8:00 and 17:00, Monday through Friday until the date of the EGM scheduled for 20 December 2013 at Taj Pamodzi Hotel Lusaka at 09.00Hours: • • • • • Articles of Association of the Company; Copies of the license agreements referred to above, under “Material Contracts”; Audited financial statements of the Company for at least the past three years; and Zambia Revenue Authority’s Consent of the proposed Internal Re-organisation. Competitions and Consumer Protections Commission Consent of the proposed Internal Re-organisation. Directors’ Interests in Securities The Company’s Directors have no interests in this regard. Directors’ Interests in Contracts The Company’s Directors have no interests in this regard. Directors’ Service Contracts The Company’s Directors have no service contracts in this regard. Voting At the Extraordinary General Meeting The proposed Internal Re-organisation detailed in this Circular qualifies as a Category 2 Transaction with a related party as prescribed in Section 9, “Transactions“ and Section 10, “Transactions with Related Parties”, of the Listing Requirements of the Lusaka Stock Exchange. Pursuant to the provision of these sections, neither the related party nor any of its associates will be taken into account in determining a quorum at the EGM scheduled for 20 December 2013 to vote the proposed Internal Re-organisation. Further, the votes of the related party and any of its associates will not be taken into account in determining the result of the voting of the EGM in relation to any resolution in connection with the related party Transaction. The EGM is scheduled for 20 December 2013 at Taj Pamodzi Hotel Lusaka at 09.00Hours. Signed at Lusaka on 29 November 2013 on his own behalf and behalf of all the other directors of the Company as duly authorised by the Board. ____________________________________________________________________ NAME: GEORGE SOKOTA DESIGNATION: CHAIRMAN 13
  15. 15. ANNEXURE I AIRTEL NETWORKS ZAMBIA DECEMBER 2012 FINANCIAL STATEMENTS 14
  16. 16. CELTEL ZAMBIA PLC ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2012 15
  17. 17. CELTEL ZAMBIA PLC ANNUAL REPORT AND FINANCIAL STATEMENTS for the period ended 31 December 2012 Table of contents Directors’ report Statement of directors’ responsibilities Independent auditor’s report Page 1-2 3 4-5 Financial statements: Statement of comprehensive income 6 Statement of financial position 7 Statement of changes in equity 8 Statement of cash flows 9 Notes to the financial statements 10 – 42 16
  18. 18. CELTEL ZAMBIA PLC DIRECTORS’ REPORT for the period ended 31 December 2012 The directors submit their report together with the audited financial statements for the period ended 31 December 2012, which disclose the state of affairs of the company. Principal activities The principal activity of the company is the provision of cellular radio telecommunication services. There have been no significant changes in the company’s business during the period. Share capital The company has an authorised, issued and fully paid share capital of K1,040 million divided into 5,200 million ordinary shares of 20 ngwee each. Results and dividend The profit for the period of K162,963 million (March 2012: K314,615 million) has been added to retained earnings. The directors recommend the payment of a dividend of K50 per share for the period. Directors The following directors who held office during the period and to the date of this report were non executive, other than the Managing Director: George Sokota Dipak Patel Jayant Khosla Fayaz King Stephen Torode - Chairman - Appointed 16 May 2011 Managing Director – Appointed 1 August 2010 Number of employees and remuneration The total remuneration of employees during the period amounted to K72,004 million (2012: K123,272 million). During the period, 16 outlets were Franchised to Allied Mobile with 67 staff declared redundant. Month April May June July August September October November December Number 378 380 373 374 370 361 354 292 291 17
  19. 19. CELTEL ZAMBIA PLC DIRECTORS’ REPORT for the period ended 31 December 2012 The company has policies and procedures to safeguard the occupational health, safety, and welfare of its employees. Gifts and donations During the period the company made donations of K991 million (2012: K1,893 million). Roaming Roaming revenue is earned from foreign telephony operators when their subscribers utilise the Celtel Zambia Plc network. The company received roaming revenue amounting to K40,472 million (2012: K61,662 million) during the period. Property and equipment The company purchased property and equipment amounting to K191,785 million (2012: K503,577 million) during the period. In the opinion of the directors, the carrying value of property and equipment is not less than their recoverable value. Auditors The auditors, Ernst and Young, have indicated their willingness to continue in office and a resolution for their reappointment will be proposed at the annual general meeting. Statement on corporate governance Celtel Zambia Plc takes the issue of corporate governance seriously. The company’s focus is to have a sound corporate governance framework that contributes to improved corporate performance and accountability in creating long term shareholder value. The Board meets at least four times a year and concerns itself with key matters and the responsibilities for implementing the company’s strategy is delegated to management. The Board of Directors continues to provide considerable depth of knowledge and experience to the business. There is strong focus by the Audit Committee on matters relating to financial operations, fraud, application of accounting and control standards and results. The Audit Committee also meets at least four times in the year. The company has put in place a Code of Conduct that sets out the standards on how staff should behave with all stakeholders. An effective monitoring mechanism to support management’s objective of enforcing the Code of Conduct has been developed and is being used across the company. By order of the Board Nawa Mataa SECRETARY 18
  20. 20. CELTEL ZAMBIA PLC REPORT OF THE DIRECTORS for the period ended 31 December 2012 Directors’ responsibilities in respect of the preparation of financial statements The Zambia Companies Act requires the directors to prepare financial statements for each financial year that present fairly state of affairs of the company as at the end of the financial year and of its profit. It also requires the directors to ensure that the company keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the company. They are also responsible for safeguarding the assets of the company. The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in conformity with International Financial Reporting Standards and the requirements of the Zambia Companies Act. The directors are of the opinion that the financial statements present fairly the state of the financial affairs of the company and of its profit in accordance with International Financial Reporting Standards. The directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of the financial statements, as well as designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement. Nothing has come to the attention of the directors to indicate that the company will not remain a going concern for at least twelve months from the date of this statement. Approval of the financial statements The financial statements of the Company as indicated above, were approved by the directors on ...................................... and are signed on its behalf by: --------------------------------George Sokota Chairman --------------------------------Dipak Patel Director 19
  21. 21. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CELTEL ZAMBIA PLC Report on the financial statements We have audited the financial statements of Celtel Zambia Plc set out on pages 6 to 42, which comprise the statement of financial position as at 31 December 2012 and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the 9 months then ended and the notes, comprising a summary of significant accounting policies and other explanatory information. Directors’ responsibility for the financial statements The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act, 1994 and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those 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 those 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. 20
  22. 22. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Celtel Zambia Plc as at 31 December 2012 and its financial performance and cash flows for the 9 months then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act, 1994. Other reports required by the Companies Act As part of our audit of the financial statements for the 9 months ended 31 December 2012, we have read the directors’ report 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. Ernst & Young Chartered Accountants Henry C Nondo Partner 2013 Lusaka 21
  23. 23. CELTEL ZAMBIA PLC STATEMENT OF COMPREHENSIVE INCOME for the period ended 31 December 2012 Note Revenue 5 Cost of sales 9 months to 31 December 2012 K million 15 months to 31 March 2012 K million 1,262,063 1,944,806 (228,635) Gross profit 1,033,428 Other expenses Distribution costs Administrative expenses Net finance costs 7 (276,155) 1,668,651 8 (632) (367,832) (427,177) (4,673) (16,945) (423,697) (572,706) (31,291) Profit before income tax 9 233,114 624,012 Income tax expense 11 (93,958) (309,397) 139,156 314,615 - - 139,156 314,615 Profit for the period Other comprehensive income Total comprehensive income Earnings per share for the profit attributable to the shareholders of the company (expressed in Kwacha per share) Basic and diluted 12 26.76 60.50 The notes form part of these financial statements. 22
  24. 24. CELTEL ZAMBIA PLC STATEMENT OF FINANCIAL POSITION as at 31 December 2012 Note ASSETS Non-current assets Property and equipment 15 Intangible assets 16 31 December 2012 31 March 2012 K million K million 1,654,203 2,143 1,656,346 1,689,295 2,780 1,692,075 15,224 436,588 47,819 499,631 4,716 444,015 30,698 479,429 2,155,977 2,171,504 13 13 1,040 24,962 1,144,274 1,170,276 1,040 24,962 1,213,618 1,239,620 Non-current liabilities Finance lease liabilities Deferred income tax 22 14 6,279 270,782 277,061 235,045 235,045 Current liabilities Bank overdraft Trade and other payables Current income tax 19/21 20 11 120,072 551,504 37,064 708,640 85,376 468,372 143,091 696,839 985,701 931,884 2,155,977 2,171,504 Current assets Inventories Trade and other receivables Cash and cash equivalents 17 18 19 Total assets Equity and liabilities Equity Share capital Share premium Retained earnings Total equity Total liabilities Total equity and liabilities The financial statements on pages 6 to 42 were approved for issue by the board of directors on ...................................... and signed on its behalf by: --------------------------------George Sokota Chairman --------------------------------Dipak Patel Director 23
  25. 25. CELTEL ZAMBIA PLC STATEMENT OF CHANGES IN EQUITY for the period ended 31 December 2012 Share capital K million Share Revaluation premium surplus K million K million Retained earnings K million Total K million At 1 January 2011 Total comprehensive income Dividend paid for 2010 1,040 - 24,962 - - 1,003,003 314,615 (104,000) 1,029,005 314,615 (104,000) At 31 March 2012 1,040 24,962 - 1,213,618 1,239,620 At 1 April 2012 Total comprehensive income Dividend paid for 2011 Dividend paid for 2012 1,040 - 24,962 - - 1,213,618 139,156 (104,000) (104,500) 1,239,620 139,156 (104,000) (104,500) At 31 December 2012 1,040 24,962 - 1,144,274 1,170,276 The notes form part of these financial statements. 24
  26. 26. CELTEL ZAMBIA PLC STATEMENT OF CASH FLOWS for the period ended 31 December 2012 9 months to 31 December 2012 K million 15 months to 31 March 2012 545,823 240 (5,854) (164,248) 783,596 639 (22,611) (172,266) 375,961 589,358 470 (191,785) 1,371 (503,577) (191,315) (502,206) 6,279 (208,500) (97,768) (104,000) (202,221) (201,768) (17,575) (54,678) Note (114,616) 59,938 (72,253) (54,678) K million Cash flows from operating activities Cash generated from operations Interest received Interest paid Income tax paid 25 11 Net cash generated from operating activities Cash flows from investing activities Proceeds from disposal of equipment Purchase of property and equipment 15 Net cash flows used in investing activities Cash flows from financing activities Repayment of borrowings Repayment of finance lease Dividends paid 22 Net cash flows used in financing activities Movement in cash and cash equivalents Net cash flow Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 19 The notes form part of these financial statements. 25
  27. 27. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 1. General information Celtel Zambia Plc is incorporated in Zambia under the Zambia Companies Act as a public limited company, and is domiciled in Zambia. The address of its registered office is: Airtel House Corner of Addis Ababa Drive and Great East Road, Stand 2375 P.O. Box 320001 Lusaka Zambia 2. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (a) Basis of preparation The financial statements are prepared in compliance with International Financial Reporting Standards (IFRS). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Zambia Kwacha (K), rounded to the nearest million. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3. Change of accounting date These financial results are based on nine (9) months to 31 December following the change in accounting date from 31 March to 31 December. 26
  28. 28. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 2.1 New standards and interpretations b) New standards and interpretations effective in 2012 A number of new standards, amendments to standards and interpretations are mandatory for the period ended 31 December 2012, and have been adopted by the Company where relevant to the Company’s operations. IFRS 1 Severe hyperinflation and removal of fixed dates for first-time adopters – amendment to IFRS 1 This IFRS amendment provides guidance on how an entity should resume presenting IFRS financial statements when its functional currency ceases to be subject to severe hyperinflation. This amendment is effective for annual periods beginning on or after 1 July 2011 There is no impact on the 2012 financial statements IFRS 7 Transfers of financial assets – amendment to IFRS 7 Before the Standard was revised entities had the option to capitalize or expense borrowing costs relating to qualifying assets. This option is no longer available. The amendment to IFRS 7 requires that additional quantitative and qualitative disclosures relating to transfers of financial assets under certain scenarios. This amendment is effective for annual periods beginning on or after 1 July 2011 There is no impact on the 2012 financial statements IAS 12 Deferred taxes: Recovery of underlying assets – amendment to IAS 12. The amendment introduces a rebuttable presumption that deferred tax on investment properties measured at fair value be recognised on a sale basis. The presumption can be rebutted if the entity applies a business model that would indicate that substantially all of the investment property will be consumed in the business, in which case an own-use basis must be adopted. This amendment is effective for annual periods beginning on or after 1 January 2012 There is no impact on the 2012 financial statements 27
  29. 29. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 2.1 New standards and interpretations (Continued) b) New relevant standards issued not yet effective The following Standards have been issued or revised and will become effective for December 2013 yearend annual financial year IFRS 10 Consolidated financial statements IFRS 10 creates a new, broader definition of control than under current IAS 27 and as resulted in SIC 12 being withdrawn. IFRS 10 does not change the consolidation process; rather it changes whether an entity is consolidated by revising the definition of control. The revised definition of control will require consideration of aspects such as defacto control, substantive vs. protective rights, agency relationships, silo accounting and structured entities when evaluating whether or not an entity is controlled by the investor. This standard is effective for periods beginning on or after1 January 2013. There is no expected impact on the Company’s financial statements once adopted IFRS 11 Joint arrangements IFRS 11 replaces IAS 31 and SIC 13 and refers to IFRS 10’s revised definition of ‘control’ when referring to ‘joint control’. Under IFRS 11 a joint arrangement (previously a ‘joint venture’ under IAS 31) is accounted for as either a: - joint operation – by showing the investor’s interest/ relative interest in the assets, liabilities, revenues and expenses of the joint arrangement; or joint venture – by applying the equity accounting method. Proportionate consolidation is no longer permitted. Under IFRS 11 the structure of the joint arrangement is not the only factor considered. This standard is effective for periods beginning on or after 1 January 2013. There is no expected impact on the Company’s financial statements once adopted 28
  30. 30. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 2.1 New standards and interpretations (Continued) IFRS 12 Disclosure of interests in other entities The new standard applies to entities that have in interest in subsidiaries, joint arrangements, associates and/ or structured entities. This standard is effective for periods beginning on or after 1 January 2013. There is no expected impact on the Company’s financial statements once adopted IFRS 13 Fair value measurement IFRS 13 describes how to measure fair value where fair value is required or permitted to be used as a measurement basis under IFRS (with certain standards being excluded from the scope of IFRS 13. Under IFRS 13 fair value is presumed to be an ‘exit price’. New disclosures related to fair value measurements are also introduced. This standard is effective for periods beginning on or after 1 January 2013. There is no expected impact on the Company’s financial statements once adopted IAS 1 Presentation of items of other Comprehensive income (amendment to IAS 1) The amendment to IAS 1 requires that items presented within OCI be grouped separately into those items that will be recycled into profit or loss at a future point in time, and those items that will never be recycled. This standard is effective for periods beginning on or after 1 July 2012. There is no expected impact on the Company’s financial statements once adopted IAS 19 Employee benefits (revised) The ‘corridor approach’ currently allowed as an alternative basis in IAS 19 for the recognition of actuarial gains and losses on defined benefit plans has been removed. Actuarial gains and losses in respect of defined benefit plans are now recognised in OCI when they occur. For defined benefit plans, the amounts recorded in profit or loss are limited to current and past service costs, gains and losses on settlements and interest income/ expense. The distinction between short-term and other long term benefits will be based on the expected timing of settlement rather than the employee’s entitlement to the benefits. In many instances this is expected to have a significant impact on the manner in which leave pay and similar liabilities are currently classified. This standard is effective for periods beginning on or after1 January 2013 There is no expected impact on the Company’s financial statements once adopted 29
  31. 31. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 2.1 New standards and interpretations (Continued) IAS 27 Separate financial statements (consequential revision due to the issue of IFRS 10) IAS 27, as revised, is limited to the accounting for investments in subsidiaries, joint ventures and associates in the separate financial statements of the investor. This standard is effective for periods beginning on or after 1 January 2013. There is no expected impact on the Company’s financial statements once adopted IAS 28 Investments in associates and joint ventures (consequential revision due to the issue of IFRS 10 and 11). The revised standard caters for joint ventures (now accounted for by applying the equity accounting method) in addition to prescribing the accounting for Investments in associates. This standard is effective for periods beginning on or after1 January 2013. There is no expected impact on the Company’s financial statements once adopted IFRS 7 Financial Instruments - disclosures The amendments to this standard provide additional disclosures that are similar to current United States GAAP requirements. This standard is effective for periods beginning on or after1 January 2013 There is no expected impact on the Company’s financial statements once adopted 30
  32. 32. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 2.1 New standards and interpretations (Continued) a) New and amended pronouncements that will become effective subsequent to the December 2013 year-end IFRS 9 Financial instruments – Classification and measurement This, the first phase of the IASB’s project to replace IAS 39 in its entirety, addresses the classification and measurement of financial instruments. Amendments published in October 2010 incorporate the existing derecognition principles of IAS 39 directly into IFRS 9. Financial assets All financial assets are initially measured at fair value. Subsequent measurement of debt instruments is only at amortised cost if the instrument meets the requirements of the ‘business model test’ and the ‘characteristics of financial asset test’. All other debt instruments are subsequently measured at fair value. All equity investments are subsequently measured at fair value either through other comprehensive income (OCI) or profit and loss. Embedded derivatives contained in non-derivative host contracts are not separately recognised. Unless the hybrid contract qualifies for amortised cost accounting, the entire instrument is subsequently recognised at fair value through profit and loss. Financial liabilities For liabilities measured at fair value through profit and loss, the change in the fair value of the liability attributable to changes in credit risk is presented in OCI. The remainder of the change in fair value is presented in profit and loss. All other classification and measurement requirements in IAS 39 have been carried forward into IFRS 9. This standard is effective for periods beginning on or after1 January 2013 There is no expected impact on the Company’s financial statements once adopted . 31
  33. 33. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 2.1 New standards and interpretations (Continued) IAS 32 Offsetting financial assets and financial liabilities (amendments to IAS 32) The amendment clarifies the meaning of the entity currently having a legally enforceable right to set off financial assets and financial liabilities as well as the application of IAS 32 offsetting criteria to settlement systems (such as clearing houses). This standard is effective for periods beginning on or after 1 January 2014. There is no expected impact on the Company’s financial statements once adopted IFRS 7, IFRS 9 Mandatory effective date and transition disclosures (amendments to IFRS 9 and IFRS 7) (b) Mandatory effective date for IFRS 9 is 1 January 2015. Amendments to IFRS 7 depend on when IFRS 9 is adopted and affect the extent of comparative information required to be disclosed. This standard is effective for periods beginning on or after 1 January 2015. Revenue recognition Turnover comprises revenue from operations arising from billing customers for monthly subscription, airtime usage, connections and reconnection fees and sale of sim cards, handsets and accessories and interconnection revenue. Revenue comprises the fair value of the consideration received or receivable for the sale/provision of goods and services in the ordinary course of the company’s activities. Revenue is shown net of value-added tax (VAT), excise duties, discount and rebates. The company recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the company and when specific criteria have been met for each of the company’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. (i) Sales of services are recognised in the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a percentage of the total services to be provided; 2. Summary of significant accounting policies (continued) (ii) Sales of goods are recognised in the period in which the company delivers products to the customer, the customer has accepted the products and collectability of the related receivables is reasonably assured; (iii) Interest income is recognised on a time proportion basis using the effective interest method. 32
  34. 34. (c) Segment Reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. (d) Functional currency and presentation of foreign currencies The financial statements are presented in Zambian Kwacha, being the currency of the primary economic environment in which the company operates (the functional currency). Transactions in foreign currencies are converted into Zambia Kwacha using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the statement of comprehensive income within ‘finance income or cost’. (e) Property and equipment All categories of property and equipment are initially recorded at cost. GSM switching equipment is subsequently shown at market value, based on valuations by external independent valuer, less subsequent depreciation. All other property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Increases in the carrying amount arising on revaluation are credited to a revaluation surplus reserve in equity. Decreases that offset previous increases of the same asset are charged against the revaluation surplus; all other decreases are charged to the statement of comprehensive income. Each year the difference between depreciation based on the revalued carrying amount of the asset (the depreciation charged to the statement of comprehensive income) and depreciation based on the asset’s original cost is transferred from the revaluation surplus to retained earnings. 33
  35. 35. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 2. Summary of significant accounting policies (continued) (e) Property and equipment (continued) Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognizes such parts as separate component of assets with specific useful lives and provides depreciation over their useful life. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are recognised in profit or loss as incurred. Where assets are installed on the premises of customers (commonly called Customer premise equipment -“CPE”), such assets continue to be treated as property, plant and equipment as the associated risks and rewards remain with the group and the management is confident of exercising control over them. Gains and losses arising from retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss on the date of retirement and disposal. Assets are depreciated to the residual values on a straight-line basis over the estimated useful lives. The assets' residual values and useful lives are reviewed at each financial year end or whenever there are indicators for review, and adjusted prospectively. Land is not depreciated. Estimated useful lives of the assets are as follows: Categories Buildings Network equipment Computer equipment Office furniture and equipment vehicles Leasehold improvements Customer Premises equipment Years 20 3 – 20 3 2–5 3–5 Remaining period of the lease or 10/20 years, as applicable, whichever is less 5-6 34
  36. 36. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 2. Summary of significant accounting policies (continued) (f) Asset retirement obligation Asset retirement obligations (ARO) are provided for those operating lease arrangements where the Group has a binding obligation at the end of the lease period to restore the leased premises in a condition similar to inception of lease. ARO are provided at the present value of expected costs to settle the obligation using discounted cash flows and are recognised as part of the cost of that particular asset. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the decommissioning liability. The unwinding of the discount is expensed as incurred and recognised in the income statement as a finance cost. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset. (g) Accounting for leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. Leases of property, plant and equipment where the Company has substantially all risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of fair value of the leased property and present value of minimum lease payments. (h) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined by the weighted average cost method, and includes all expenditure incurred in bringing the inventories to their present value and condition, but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the selling expenses. (i) Receivables Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. A provision for impairment of receivables is established when there is objective evidence that the company will not be able to collect all the amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the present value of expected cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the statement of comprehensive income. (j) Payables Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 35
  37. 37. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 2. Summary of significant accounting policies (continued) (k) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method; any differences between proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings. 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 statement of financial position date. (l) Share capital Ordinary shares are classified as ‘share capital’ in equity. Any premium received over and above the par value of the shares is classified as ‘share premium’ in equity. (m) Cash and cash equivalents Cash and cash equivalent includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. (n) Employee benefits 1. Retirement benefit obligations The company operates a defined contribution scheme for all its employees. The company and all its employees also contribute to the National Pension Scheme Fund, which is a defined contribution scheme. A defined contribution plan is a retirement benefit plan under which the company pays fixed contributions into a separate entity. The company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions to the defined contribution schemes are charged to the statement of comprehensive income in the year in which they fall due. 2. Other entitlements The estimated monetary liability for employees’ accrued gratuity and annual leave entitlement at the statement of financial position date is recognised as an expense accrual. 36
  38. 38. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 (o) Income tax Income tax expense is the aggregate of the charge to the statement of comprehensive income in respect of current income tax and deferred income tax. Tax is recognised in the statement of comprehensive income unless it relates to items recognised directly in equity, in which case it is also recognised directly in equity. Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with the Zambian Income Tax Act. Deferred income tax is recognised using the balance sheet liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, the deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted at the statement of financial position date and are expected to apply when the related deferred income tax liability is settled. (p) Intangible assets Expenditure incurred in order to acquire licences is capitalised and amortised using the straight-line method over their useful lives. Intangible assets are not revalued. (q) Dividends Dividends payable to the company’s shareholders are charged to equity in the period in which they are declared. 3. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including experience of future events that are believed to be reasonable under the circumstances. (i) Critical accounting estimates and assumptions The company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions 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. Receivables Critical estimates are made by the directors in determining the recoverable amount of impaired receivables. Factors taken into consideration in making such 37
  39. 39. judgements include historical trends and the number of days a debt is past its due date for payment. The carrying amount of impaired receivables is in Note 18. 3. Critical accounting estimates and judgements (Continued) (ii) Critical judgements in applying the entity’s accounting policies In the process of applying the company’s accounting policies, management has made judgements in determining:  the classification of financial assets and leases  whether assets are impaired. 4. Financial risk management objectives and policies The company’s activities expose it to a variety of financial risks: Market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance, but the company does not hedge any risks. Financial risk management is carried out by the finance department under policies approved by the Board of Directors. Market risk (i) Foreign exchange risk The company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from future commercial transactions, and recognised assets and liabilities. Currency exposure arising from liabilities denominated in foreign currencies is managed primarily through the holding of bank balances in the relevant foreign currencies. At 31 December 2012, if the Kwacha had weakened/strengthened by 5% against the US dollar with all other variables held constant, post tax profit for the period would have been K987 million (2012: K987 million) lower/higher, mainly as a result of US dollar denominated trade receivables, payables and borrowings. (ii) Price risk The company does not hold any financial instruments subject to price risk. 38
  40. 40. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 4. Financial risk management objectives and policies (Continued) (iii) Cash flow and fair value interest rate risk The company’s only interest bearing financial liability was the long term loan 2010 which was at variable rate, and on which it was therefore exposed to cash flow interest rate risk. The company regularly monitors financing options available to ensure optimum interest rates are obtained. At 31 December 2012, if effective interest rates on borrowings had been 2% higher/lower with all other variables held constant, post tax profit would have been of KNil (2012: KNil) lower/higher. Credit risk Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or fail to pay amounts due causing financial loss to the company and arises from cash equivalents and deposits with financial institutions and principally from credit exposures to customers relating to outstanding receivables. For banks and financial institutions, only reputable institutions are used. The company does not have significant concentrations of credit risk on the retail side since 99.5% of its customers are on the prepaid plan and majority of the distributors /dealers are primarily on cash basis, or their credit is covered by a bank guarantee. (iv) Cash flow and fair value interest rate risk (Continued) The interconnection between the company and other telecommunications operators (both local and foreign) is on credit basis and the number of credit days is governed by the agreement between the parties. The utilisation of credit limits is regularly monitored. The amount that best represents the company’s maximum exposure to credit risk at 31 December 2012 is made up as follows: 31 March 2012 Note 31 December 2012 K million K million Cash and cash equivalents Trade receivables Receivables from related companies Other receivables 19 18 26 18 44,832 289,273 20,746 11,666 30,698 262,336 12,161 249,737 366,517 554,932 39
  41. 41. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 4. Financial risk management objectives and policies (Continued) Collateral is held for some of the above assets namely distributors with bank guarantees of K17,000 million as at 31 December 2012. All receivables that are neither past due nor impaired are within their approved credit limits, and no receivables have had their terms renegotiated. None of the above assets are either past due or impaired except for the following interconnect amounts in trade receivables (which are due within 30 days of the end of the month in which they are invoiced): 31 March 2012 31 December 2012 K million K million Past due but not impaired: - by up to 30 days 12,816 44,209 - by 31 to 90 days 29,580 11,386 - by 91 days and over 16,404 1,578 Total past due but not impaired 57,173 58,800 Receivables individually determined to be impaired: Carrying amount before provision for impairment loss Provision for impairment loss 289,273 (99,002) 262,336 (80,219) Net carrying amount 190,271 182,117 40
  42. 42. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 4. Financial risk management objectives and policies (continued) Liquidity risk (continued) Prudent liquidity risk management includes maintaining sufficient cash balances, and the availability of funding from an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, the finance department maintains flexibility in funding by maintaining availability under committed credit lines. The table below analyses the company’s financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant. Less than 1 year K million Between 1 Between 2 Over 5 and 2 and 5 years years years K million K million K million At 31 December 2012: - trade and other payables - Finance leases 551,504 - 6,279 - At 31 March 2012: - borrowings (excluding finance leases) - finance leases - trade and other payables 468,372 - - - Capital management The 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 to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may limit the amount of dividends paid to shareholders, issue new shares, or sell assets to reduce debt. The company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity plus net debt. 41
  43. 43. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 .4 Financial risk management objectives and policies (continued) (i) Credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Note Trade and other receivables Cash and cash equivalents 31 December 2012 K’million 436,588 (72,252) 444,015 (54,678) 364,336 (a) 18 19 31 March 2012 K’million 389,337 Impairment losses The aging of trade receivables at the reporting date was: 31 December 31 March 31 March 2012 K’million Gross amount 30 days 60 days 90 days and above 31 December 2012 K’million Impaired 2012 K’million Gross amount 2012 K’million Impaired 154,896 49,030 85,347 5,786 8,477 84,739 155,276 33,542 73,504 6,715 73,504 289,273 99,002 262,322 80,219 42
  44. 44. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 4 Financial risk management objectives and policies (continued) (ii) Liquidity risk The following are the contractual maturities of financial liabilities. 31 December 2012 Financial liabilities Total Carrying amount K’million Within 1 yr K’million Longer than 5 yrs Between 1-2 yrs K’million Between 2-5 yrs K’million - - - K’million Trade & other payables Related company payables Bank overdraft Income tax payable 540,609 540,609 10,895 120,072 51,516 10,895 120,072 51,516 - - - Total 723,092 723,092 - - - Total Carrying amount K’million Within 1 yr K’million 465,419 - 465,419 - - - - 2,952 85,376 143,091 2,952 85,376 143,091 - - - 696,838 696,838 - - - 31 March 2012 Financial liabilities Trade other payables Loans Related company payables Bank overdraft Income tax payable Longer Between Between than 5 1-2 yrs 2-5 yrs yrs K’million K’million K’million Total 43
  45. 45. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 4 Financial risk management objectives and policies (continued) (iii) Currency risk Exposure to currency risk The company’s exposure to foreign currency risk was as follows: 31 December 2012 K’million Cash & cash equivalents Trade receivables Trade payables 31 March 2012 K’million (26,497) 58,983 (254,048) (36,724) 28,697 (11,709) (221,562) (19,736) The following significant exchange rates applied during the period: Average Rate US$1 31 December 2012 ZMK 5,206 31 March 2012 ZMK 5,250 44
  46. 46. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 4 Financial risk management objectives and policies (continued) During 2012 the company’s strategy was to maintain a gearing ratio below 10%. The gearing ratios at 31 December 2012 and 31 March 2012 were as follows: 31 December 2012 K million Total borrowings Less: cash and cash equivalents 31 March 2012 K million 120,072 47,819 85,376 30,698 72,252 54,678 Total equity 1,194,085 1,239,620 Total capital 1,266,337 1,294,298 Gearing ratio 6% 4% Net debt 5. Revenue Analysis of revenue by category: Airtime revenue Value added services Interconnection income Roaming revenue Handsets sales Connections Subscriptions Other income Discount 1,017,126 106,493 104,611 40,473 72,667 11,456 1,245 998 (93,006) 1,580,985 187,900 179,825 61,662 54,618 13,560 27,698 608 (162,050) 1,262,063 1,944,806 45
  47. 47. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 6. Segment Reporting Management has determined the operating segments based on the reports reviewed by the Executive management committee that are used to make strategic decisions. The committee considers the business as a single geographical segment, Zambia. The products available to customers are not deemed to be operating segments and are available throughout Zambia. The reportable operating segment derives its revenue primarily from the sale of voice and data services to subscribers of the network and to foreign telephony operators when their subscribers utilise the Celtel Zambia network. Other revenue consists of connection and subscription charges and sale of mobile handsets to customers. The executive management committee assesses the performance of the operating segment based on a measure of EBITDA. The breakdown of the revenue from all services is shown in note 5. Roaming revenue is earned from foreign telephony operators when their subscribers utilise the Celtel Zambia network. The company received roaming revenue amounting to K40,472 million (2012: K61,662 million) during the period. 7. Other expenses 31 December 2012 31 March 2012 K million K million Interest income Net foreign exchange losses, other than on borrowings and cash and cash equivalents Gain on disposal of equipment 240 639 (878) 6 (18,923) 1,339 (632) (16,945) 46
  48. 48. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 8. Net finance costs Interest expense Net foreign exchange gains on borrowings and cash and cash equivalents Net finance costs 9. 31 December 2012 K million 31 March 2012 K million (5,854) (22,611) 1,181 (4,673) (8,680) (31,291) Profit before income tax The following items have been charged in arriving at the profit before income tax: 31 December 31 March 2012 2012 K million K million Depreciation on property and equipment (Note 15) Operating lease rentals expensed Receivables – provision for impairment losses Write down of inventories Employee benefits expense Auditors’ remuneration 10. 226,413 26,938 17,540 3,651 79,402 839 274,917 32,901 8,798 8,252 123,272 1,507 Employee benefits expense The following items were included within the employee benefits expense: 31 December 2012 31 March 2012 K’million K’million 4,405 1,615 8,194 2,864 Current income tax Deferred income tax (Note 14) 83,966 9,992 275,930 33,467 Income tax expense 93,958 309,397 Aon Zambia Pension Fund Administrators Limited National Pension Scheme Authority 11. Income tax expense 47
  49. 49. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 11. Income tax expense (continued) The tax on the company’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: 31 December 2012 K million Profit before income tax Tax calculated at the statutory income tax rate of 40% Tax effect of: Expenses not deductible for tax purposes Foreign exchange gains of capital nature disallowed Under/(over) provision from prior period Income tax expense Current income tax movement in the statement of financial position financial position At the start of the period Current income tax charge Under/(over) provision Payments during the period At end of the period 31 March 2012 K million 233,115 624,012 93,246 249,605 434 278 93,958 12,952 (2,498) 49,339 309,397 143,091 83,966 (25,745) (164,248) 37,869 275,930 1,858 (172,266) 37,064 143,091 Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Income tax returns have been filed with the ZRA for the year ended 2009 and 2010. Quarterly payments for the period ended 31 December 2012 were made on the due dates during the period. 12. Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the period. There were no potentially dilutive shares outstanding at 31 December 2012 or 31 March 2012. Diluted earnings per share are therefore the same as basic earnings per share. 31 December 31 March 2012 2012 K million K million Profit attributable to the equity holders of the company Weighted average number of ordinary shares Basic earnings per share (Kwacha) 139,156 5,200 314,615 5,200 26.76 60.50 48
  50. 50. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 13. Share capital Number of shares (million) Ordinary shares (K million) Share premium (K million) Balance at 31 December 2012 5,200 1,040 24,962 Balance at 31 March 2012 5,200 1,040 24,962 The total authorised number of ordinary shares is 5,200 million with a par value of K0.20 per share. All issued shares are fully paid. 14. Deferred income tax Deferred income tax is calculated using the enacted income tax rate of 40% (2010: 35%). The movement on the deferred income tax account is as follows: 31 December 2012 K million 31 March 2012 K million At start of period Impact of change of tax rate from 35% to 40% Charge to statement of comprehensive income (Note 11) Over provision from prior period 235,045 9,992 25,745 203,136 28,855 4,612 (1,558) At end of period 270,782 235,045 Deferred income tax assets and liabilities, deferred income tax charge/(credit) in the statement of comprehensive income, and deferred income tax charge/(credit) in equity are attributable to the following items: 49
  51. 51. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 14 Deferred income tax (continued) Impact Under/ of increase (over) in tax rate 1 April provision K million K million K million Charged/ (credited) to P/L 31 December K million K million Period ended 31 December 2012 Deferred income tax liabilities Property and equipment: 268,424 Deferred income tax assets Other temporary deductible differences Unrealised exchange losses (23,234) (10,145) Net deferred income tax liability 235,045 26,156 - 13,128 307,708 - (14,069) 10,933 (37,299) 373 25,745 - 9,992 270,782 8,489 32,484 8,549 268,424 (594) 31,890 (5,391) 3,158 (10,145) 258,279 (3,035) 1,454 (23,234) 28,855 4,612 235,045 4 (415) Period ended 31 March 2012 Deferred income tax liabilities Property and equipment: Unrealised exchange (losses)/ gain Deferred income tax assets Temporary deductible differences 218,902 (12,110) 7,950 206,792 16,439 (3,656) (17,997) Net deferred income tax liability 203,136 (1,558) 50
  52. 52. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 15. Property and equipment Buildings K million Cost or valuation: At 1 January 2011 Additions Transfers Disposal Adjustment 31 March 2012 136,929 (107,992) 28,937 Switching equipment K million Fixture, fittings & office equipment K million Motor vehicles K million 1,667,860 18,974 484,323 2,171,157 212,504 99,158 311,662 164,427 26,258 190,685 18,252 116 (9,142) 9,226 246,090 484,603 (609,855) 120,838 2,446,062 503,577 (9,142) (107,992) 2,832,505 2,171,157 164,723 (337,735) 311,662 (488) 337,735 190,685 37,058 - 9,226 - 120,838 185,392 (201,780) - 2,832,505 191,785 (488) - Finance Telecom lease Asset equipment K million K million - Capital work in progress K million Total K million At 1 April 2012 Additions Transfers Disposal Adjustment 28,936 - 6,393 31 December 2012 28,937 6,393 1,998,145 648,909 227,743 9,226 104,449 3,023,802 20,165 - 605,185 135,173 114,063 17,023 - 891,609 3,299 (14,205) - 105,277 - 132,902 - 32,303 - 1,136 (9,111) - - 274,917 (9,111) (14,205) 9,259 - 710,462 268,075 146,366 9,048 - 1,078 - 108 - 188,920 - 25,934 - 98 - - At 31 December 2012 10,337 108 899,382 278,326 172,300 9,146 - 1,369,599 Net book value: At 31 December 2012 18,600 6,285 1,098,763 370,583 55,442 81 104,449 1,654,203 At 31 March 2012 19,678 - 1,460,695 43,587 44,319 178 120,838 1,689,295 Depreciation At 1 January 2011 Charge for the period Disposal Adjustment At 31 March 2012 Charge for the period Disposal - 10,275 (24) 1,143,210 226,413 (24) 51
  53. 53. A schedule listing of the properties as required by section 193 and the second schedule of the Zambia Companies act, 1994 is available for inspection by the members or their authorised representatives at the registered office of the company. 52
  54. 54. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 16. Cost Intangible assets Cellular licence ISP licence K million K million Total K million At 1 January 2011 Additions 4,309 - 125 - 4,434 - At 31 March 2012 Additions 4,309 - 125 - 4,434 - At 31 December 2012 4,309 125 4,434 Amortisation At 1 January 2011 Charge for the period 539 990 125 - 664 990 At 31 March 2012 Charge for the period 1,529 637 125 - 1,654 638 At 31 December 2012 2,166 125 2,291 Net book value At 31 December 2012 2,143 - 2,143 At 31 March 2012 2,780 - 2,780 53
  55. 55. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 17. Inventories 31 December 2012 K million Merchandise held for sale Less provision 31 March 2012 K million 19,967 (4,743) 12,946 (8,230) 15,224 4,716 The cost of inventories recognised as an expense and included in ‘cost of sales’ amounted to K102 billion (2010: K101 billion). 18. Trade and other receivables Trade receivables Less provision for impairment losses 289,273 (99,002) 262,336 (80,219) Prepayments Receivables from related companies (Note 26) Other receivables 190,271 213,905 20,746 11,666 182,117 245,111 12,161 4,626 436,588 444,015 The carrying amounts of the above trade receivables, receivables from related companies and other receivables approximate to their fair values. Movements on the provision for impairment of trade receivables are as follows: At start of period Provision for the period Exchange difference 80,219 17,540 1,243 73,178 8,798 (1,757) At end of period 99,002 80,219 During 2009, Celtel and Zamtel reached an agreement over their dispute relating to the interpretation of certain clauses contained in the interconnection agreement entered into by the two parties on 27 October 1998. The interpretation of these clauses impacted the rates used in determining the cost of mobile traffic between the two networks. The Companies agreed that each party would not claim from each other any debts or liabilities existing at the date of agreement. 54
  56. 56. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 The consequence of this agreement has been that the company has written off all amounts owing from Zamtel amounting to K79 billion against the provision made. This agreement has further meant that a net VAT liability, originally estimated to be K12.6 billion has crystallized into an actual liability of K3.6 billion in line with the agreement between mobile service providers and the Zambia Revenue Authority (ZRA) dated 5 February 2008. 19. Movement in cash and cash equivalents 31 December 2012 31 March 2012 K million K million Cash and cash equivalents Bank overdrafts Movement during the period K million 47,819 (120,072) 30,698 (85,376) 17,121 (34,696) (72,253) (54,678) (17,575) For the purposes of the cash flow statement, cash and cash equivalents comprise the cash in hand, and deposits held at call with the bank. 20. Trade payables Amounts due to related companies (Note 26) Accrued expenses Deferred income Other payables 31 December 2012 K million 31 March 2012 K million 93,186 10,895 385,367 57,889 4,167 104,012 2,952 302,330 47,829 11,249 551,504 Trade and other payables 468,372 The carrying amounts of the above payables and accrued expenses approximate to their fair values. 21. Bank overdraft The company has overdraft facilities up to a limit of K50,000 million and $11 million. The facilities are annual facilities subject to review. The company had overdrawn amounts as at the period end of K42,161 million and US$8.5 million (2012:K47,506million and US$7.2 million). The overdraft limit was not exceeded at any time during the period. 55
  57. 57. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 22. Borrowings Gross finance lease liabilities – minimum lease payments: 31 December 2012 K’million 31 March 2012 K’million 6,279 - - 6,279 - Not later than 1 year Later that 1 year and not later than 5 years Later than 5 year Future finance charges on finance leases The present value of finance lease liabilities is as follows: Not later than 1 year Later that 1 year and not later than 5 years Later than 5 year - 6,279 23 6,279 - - Contingent liabilities As disclosed in note 18, the VAT liability on interconnect revenue between Celtel and Zamtel crystallized in 2009 and became payable to the ZRA in line with the agreement dated 5 February 2008. The delayed recognition and settlement of the VAT liability attracts penalties and interest from the ZRA. The directors have appealed to the Commissioner General of the ZRA to waive these penalties and interest. No liability has therefore been recognized in respect of the potential penalties and interest that the ZRA would charge based on the directors strong belief that their appeal will be successful as this case is similar to that of VAT on interconnect charges between Celtel, MTN and Cell Z in 2008 where penalties and interest charged were waived upon successful appeal. Were the ZRA to reject the appeal, the company would have to pay K10 billion. The company is party to various litigation in which it is a defendant. Having obtained legal advice, the directors are of the view that the resolution of these cases will not result in any material financial loss. 56
  58. 58. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 24 Commitments Capital commitments Capital expenditure contracted for at the statement of financial position date but not recognised in the financial statements is as follows: 31 December 2012 31 March 2012 K million K million Balance as at 31 March/31 December 150,032 112,674 Operating lease commitments At the statement of financial position date, the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: 31 December 2012 K million 29,810 124,329 113,003 28,395 118,533 184,295 267,142 Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years 31 March 2012 K million 331,223 Operating lease payments represent rentals for properties where base stations are situated, which are payable by the company. Leases are negotiated for an average term of 5 years and rentals are fixed for an average of 5 years. 57
  59. 59. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 25. Cash generated from operations Reconciliation of profit before income tax to cash generated from operation: 31 December 2012 K million Profit before income tax Adjustments for: Unrealised exchange (gains) / losses on borrowings Unrealised exchange (gains)/losses on finance lease Impact of change in accounting policy for building lease from finance lease Interest income Interest expense Depreciation Amortisation of intangible assets Profit on sale of property and equipment Changes in working capital:  trade and other receivables  inventories  trade and other payables Cash generated from operations 233,114 31 March 2012 K million 624,012 - (169) - (1,950) (240) 5,854 226,413 637 (6) (12,976) (639) 22,611 274,917 990 (1,339) 7,427 (10,508) 83,132 (297,962) 6,747 169,354 545,823 783,596 26. Related party transactions The company is owned by Bharti Airtel Zambia Holdings BV (BAZHBV) which has 96.4% control of the shares. The remaining 3.6% are owned by public investors through the Lusaka Stock Exchange (LuSE). The following transactions were carried out with related parties: i) Purchase of goods and services Bharti Airtel International B.V Fellow subsidiaries 31 December 2012 K million 31 March 2012 K million - 64,634 - - 64,634 58
  60. 60. The following balances arising from transactions carried out with related parties were outstanding at the statement of financial position date: 59
  61. 61. CELTEL ZAMBIA PLC NOTES TO THE FINANCIAL STATEMENTS for the period ended 31 December 2012 26 Related party transactions (continued) ii) Receivable from related parties 31 December 2012 K million 31 March 2012 K million 20,746 12,161 Fellow subsidiaries iii) Payable to related parties Bharti Airtel International B.V Fellow subsidiaries (226) 11,121 87 2,865 10,895 2,952 16,048 - 22,852 - 16,048 22,852 794 1,048 iv) Key management compensation Salaries and other short-term employment benefits Termination benefits v) Directors’ remuneration Fees for services as a director No provisions for impairment losses have been required in 2011 and 2010 for any related party receivables. 27 Dividends proposed and paid 31 December 2012 K million Dividends for 2010/2009: K20 per share Dividends paid for 2012,2011/2010 Dividends payable 364,000 (208,500) 31 March 2012 K million 104,000 (104,000) 155,500 - 2012 K million 2012 K million 260,000 104,000 Proposed for approval at the Annual General Meeting Dividends for 2012: K50/K20 per share 60
  62. 62. 28 Post balance sheet events No material events or circumstances have arisen between the accounting date and the date of this report which materially affects the financial position of Celtel Zambia Plc as reflected in these financial statements. . 61
  63. 63. ANNEXURE II CONFIRMATION OF THE TRANSFER PROCESS OF THE PASSIVE INFRASTRUCTURE BY THE EXTERNAL AUDITORS 62
  64. 64. 63
  65. 65. 64
  66. 66. Below is the value of the Passive infrastructure as as of 30 September 2013: 65
  67. 67. ANNEXURE III PROFESSIONAL OPINION OF FAIRNESS BY FINANCIAL ADVISOR 66
  68. 68. Member of the Lusaka Stock Exchange 28 October 2013 Board of Directors Airtel Networks Zambia Plc Airtel House Corner of Addis Ababa Drive And Great East Road Stand 2375 P.O. Box 320001, Lusaka Dear Sirs, RE: OPINION OF FAIRNESS ON PROPOSED INTERNAL RE-ORGANISATION PLAN This letter provides the Opinion of Fairness from Pangaea Securities Limited on the proposed Internal Re-organisation being considered by Airtel Networks Zambia Plc (”Airtel” or the “Company”). From our perspective, the key element in making a determination on the reasonableness of the proposed Internal Re-organisation plan from the perspective of the Shareholders is based on anticipated incremental value that will accrue to the Company from a combination of; i) cost cutting measures, ii) operating efficiencies, and iii) a renewed focus on the core business of the Company. This should increase profitability, which could positively impact both the share price and the ability of the Company to pay dividends, to the benefit of shareholders. For the reasons specified below, pertaining to this proposed plan and no further action beyond its implementation, the proposed Internal Re-organisation is both fair and reasonable and represents good value for both the Company and its Shareholders. (i) (ii) (iii) (iv) Reduction in costs. By reducing the number of internal business units managed by the Company, the proposed Internal Re-organisation will inevitably result in cost reductions as the costs of maintaining an extra technical department will be eliminated; Increased profitability. Subsequent to the reduction in costs and operating efficiencies, the retained year end profits to be utilized for either growth projects and / or shareholder dividends based on the Board’s decision will add value to the Company; Management Focus. Management will be able to focus its undivided energies on the core business of the Company, which should further enhance operating efficiencies and profitability; and Accessibility. Able to access the existing and future Passive Infrastructure owned by Zambian Towers Limited at a rental charge on an arms length basis. We trust this opinion meets the requirement of the Board of Directors. Sincerely, Pangaea Securities Limited PANGAEA SECURITIES LIMITED 3RD Floor, Farmers House at Central Park, Cairo Road, P.O. Box 30163, Lusaka, 10101, Zambia Tel: (260 1) 220707 / 238709 / 238710 Fax: (260 1) 220925 Email: ps@pangaea.co.zm.com 67
  69. 69. ANNEXURE IV AIRTEL NETWORKS ZAMBIA MATERIAL CONTRACTS Airtel Networks Zambia Plc has the following Material Contracts:  Network Stations Management Services(NWSM) with IBM This contract entails the environment standards for the NWSM machines and software which IBM will support during the term of the contract and Bharti Airtel retains financial responsibility to ensure all machines and software products are deemed current.  Active Managed Serviced Agreement with Nokia Siemens Tietoliikenne OY (Zambia Branch) nd dated 22 August 2012 This agreement outlines the terms and conditions of the management and maintenance of “Base sites” (2G and 3G Sites) in each territory by Nokia Siemens Tietoliikenne OY.  Passive Managed Service Agreement with Nokia Siemens Tietoliikenne OY (Zambia Branch) nd dated 22 August 2012 This agreement outlines the terms and conditions of the complementary services with regards to the management and maintenance of “Base sites”(2G and 3G Sites) in each territory by Nokia Siemens Tietoliikenne OY.  Hardware, Software Repair and Technical Support Services related to 2G, 2.5G and 3G UMTS RAN Telecom Equipment Agreement with Nokia Siemens Tietoliikenne OY (Zambia Branch) th dated 5 April 2012 This contract is an agreement between the two parties in which Bharti Airtel and its affiliates are entitled to place Purchase Orders to procure Hardware, Software Repair and Technical Support Services from Nokia Siemens Tietoliikenne.  th Call Centre Master Service Agreement with Tech Mahindra Limited dated 10 March 2011 This agreement outlines the terms and conditions of the relationship between Airtel Networks Zambia Plc and Tech Mahindra Limited with regards to the outsourcing of the Call Centre being managed by Tech Mahindra Limited on behalf of Airtel Networks Zambia Plc.  Hardware, Software Repair and Consultation Services Agreement for 2G/2,5G Telecom rd Network Equipment with Ericsson AB, BO Zambia dated 3 December 2012 This contract guides the relationship between Airtel Networks and Ericsson with regards to the Hardware, Software Repair and Consultation Services for 2G/2,5G Telecom Network Equipment provided by Ericsson to Airtel. 68
  70. 70. ANNEXURE V AIRTEL NETWORKS ZAMBIA SUMMARY OF MATERIAL LITIGATION 69
  71. 71. 28 October 2013 The Chief Executive Officer Pangaea Securities Limited Farmers House Central park Cairo Road Lusaka Dear Sir, MATERIAL LITIGATION Further to the circular to shareholders being prepared please note the latest position regarding material litigation involving Airtel. Bascom Enterprises Limited & Others Vs Bharti Airtel Zambia BV, Celtel Zambia plc and Securities and Exchange Commission (SEC). Claim: In this case, the Plaintiffs are former shareholders who exercised their right to sell when the mandatory offer was made. They have commenced this action seeking the following from Court: i. ii. iii. iv. An Order to compel BAZH to disclose the value paid by them for the acquisition of 78.9% shares in Celtel Zambia Plc; An order for the recalculation of the fair market value per share of all Celtel Zambia Plc shares as at the 28th June 2010. An order for payments of the difference of the value found in (1) and (2) above and the K710 already paid to the plaintiffs. Damages against SEC for breach of statutory duty owed to the Plaintiff’s. Yours Sincerely, AIRTEL NETWORKS ZAMBIA Plc Nawa Mataa COMPANY SECRETARY 70
  72. 72. ANNEXURE VI TYPICAL TOWER INFRASTRUCTURE Below is a diagrammatic representation of typical Tower Infrastructure: 71
  73. 73. ANNEXURE VII OPERATIONAL IMPACT Below is a summary of the Operational impact from the Proposed Internal Re-organisation: Particulars Current structure Proposed Internal Re-organised Structure Airtel Networks Zambia Towers Zambia Plc Limited Airtel Networks Zambia Owner of assets Airtel Networks Zambia Airtel Networks Zambia Zambian Towers Limited Nature of assets Active Base Transceiver Station (‘BTS’), Microwave, GSM Antenna, Radio Equipment and Switch. Base Transceiver Station (‘BTS’), Microwave, GSM Antenna, Radio Equipment and Switch. No ownership of active infrastructure Passive Tower & Civil work, Diesel Generator, Battery, Grid Connection, Solar equipment, Air conditioner, Shelter and Security fencing. No ownership of passive infrastructure Tower & Civil work, Diesel Generator, Battery, Grid Connection, Solar equipment, Air conditioner, Shelter and Security fencing. Business Operations Telecommunication services: Mobile Telephony Telecommunication services: Mobile Telephony Telecommunication services: Infrastructure sharing Product Revenue from voice and Data Revenue from Voice and Data Revenue from Sharing of Towers Customers Mobile phone subscribers Mobile phone subscribers GSM operators in Zambia, Internet Service provider, Wi max operators, Radio broadcasters, Television broadcasters Government bodies – requiring tower infra Holding Company 72
  74. 74. Below is a diagrammatic representation of the structure of shareholding before and after the Proposed Internal Re-organisation; Below is the Organisational structure of Key employees of Zambian Towers to be incorporated from Airtel Networks Zambia after the Internal Re-organisation 73

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