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Our statement of visionVision        Always with youMission        Our mission is to be "Malawi’s premier mobile company o...
Letter of the Chairman of the Board                      Overview                      The past year saw an aggressive rol...
DividendsTotal dividends of MK 602.4 million (MK0.06 per share) will have been declared andpaid for the year ended 31 Dece...
Your directorsDr. Matthews Aurelious     Mr. Hitesh Natwarlal       Mr. Kenneth Hudson          Mr. Pius Percy Mulipa,Padz...
Mr. John M. O’Neill, 55,    Dr Stephanus Johannes       Dr Harry Sam                 Mr. James Adhemarnon-executive Direct...
Management Letter                    Highlights                    The considerable subscriber growth in 2009 is a clear i...
The Executive Management team prides itself on effective leadership.            When an issue arises the team works togeth...
"TNMs corporate culture is a feeling of personal    empowerment within the company. This is true in terms    of ownership,...
responsible - success is achieved and enjoyed as a team."                        Charles Kamoto, Head of Commercial       ...
Network (Technical)     Our technical achievements for 2009 were truly     outstanding as we successfully completed major ...
"It is important that TNM is a Malawian company; itmeans that we know the country, know the people, andknow the market. It...
"TNM is unique in that all of our technicians are TNM          employees. We dont outsource. This means we are          al...
Our loyalty bonus program continues to lead in the industry. Its                                      ease of use allows c...
"I am very proud to be a TNM Wholesale           Distributer. Whenever we are selling TNM products,           we feel like...
CompetitionThroughout 2009, the telecommunications industry undertookgreat transformations. Fixed line operators that have...
"TNM has been with us through thick and thin. It is an     amazing gift to have such a true friend to the sport.     TNM i...
Corporate Social Responsibility and the Sponsorship               TNM and the Environment               TNM has always emp...
MK180 million.Through a careful and responsible sponsorship, TNM has helpedfootball grow and develop in healthy ways, ensu...
YONECO has a real partnership with TNM. When wesee a social problem arise, we approach TNM and workout solutions together....
The TNM staff are exceptional in their commitment and     excitement. Everyone is passionate about being Malawian.     TNM...
excitement. I think it comes back to being Malawian.Everyone here is so passionate about being Malawian and TNM being a Ma...
Executive management                       Mr. Werner Schrijver, 58, Chief Executive Officer Mr. Werner                   ...
Our management team implements the long term strategyand vision of the company to generate shareholder valueand positive r...
Telekom Networks Malawi Limited       Directors’ report       Report Of Directors       The Directors have pleasure in pre...
Telekom Networks Malawi LimitedDirectors’ Report          (Cont’d)AuditorsDeloitte, Certified Public Accountants, P O Box 1...
Telekom Networks Malawi Limited          Statement Of Directors’ Responsibilities          The Companies Act, 1984, requir...
Telekom Networks Malawi Limited          Statement Of Comprehensive Income          31 December 2009                      ...
Telekom Networks Malawi LimitedStatement Of Financial Position31 December 2009                                            ...
Telekom Networks Malawi Limited          Statement Of Changes In Equity          31 December 2009                         ...
Telekom Networks Malawi LimitedStatement Of Cashflowsfor the year ended 31 December 2009                                  ...
Telekom Networks Malawi Limited          Notes To The Financial Statements          For The Year Ended 31 December 2009   ...
Telekom Networks Malawi LimitedNotes To The Financial Statementsfor the year ended 31st December 20092.   Adoption of new ...
Telekom Networks Malawi Limited          Notes To The Financial Statements                     (Cont’d)          for the y...
Telekom Networks Malawi LimitedNotes To The Financial Statementsfor the year ended 31st December 20093. Significant account...
Telekom Networks Malawi Limited          Notes To The Financial Statements                       (Cont’d)          for the...
Telekom Networks Malawi LimitedNotes To The Financial Statements                   (Cont’d)for the year ended 31st Decembe...
Telekom Networks Malawi Limited          Notes To The Financial Statements                     (Cont’d)          for the y...
Telekom Networks Malawi LimitedNotes To The Financial Statements                    (Cont’d)for the year ended 31st Decemb...
Telekom Networks Malawi Limited          Notes To The Financial Statements                      (Cont’d)          for the ...
Telekom Networks Malawi LimitedNotes To The Financial Statements                       (Cont’d)for the year ended 31st Dec...
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
TNM 2009 annual report
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TNM 2009 annual report

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2009 annual report

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TNM 2009 annual report

  1. 1. Our statement of visionVision Always with youMission Our mission is to be "Malawi’s premier mobile company of choice, offering best in class mobile telecommunication services to people everywhere." Premier means best in terms of: > Customer value > Customer service > Employee talent > Consistent and predictable growth As Malawi’s Premier mobile company we will enable people and businesses to realise their full potential. In doing so, our mobile services will contribute to the growth and development of the Malawi economy.Values Customers We value all our customers and treat them with respect, providing friendly, courteous, knowledgeable and prompt service at all touch points. We never forget that they come to us by choice. We seek and are driven by our customers feedback. We are committed to direct relationships and outperforming the competition with value and a superior customer experience. Integrity We operate with unyielding integrity, obeying all laws and adhering to a stringent code of business conduct. We will not tolerate unethical business conduct by our team members. We will act with integrity and respect towards all. Excellence We continually raise our performance to exceed customer and shareholder expectations. We strive to be the best in quality and in everything we do. People We are an equal opportunity employer and we value, respect and empower our people. Providing an environment where diverse individuals can develop and are expected to perform to their full potential. Teamwork is key; respecting new viewpoints, diversity, building trust, enhancing communications, and sharing best practices to deliver world-class products and services. Malawian Identity We are committed to our roots and our corporate social responsibility, Green or otherwise. We share an infectious sense of mission to make an impact on society and community at large. We reach out to and empower our customers in ways never before possible. Our goal is to develop mobile telecommunication services and offerings that are accessible and within reach of every Malawian. In so doing giving every Malawian the means and ability to reach their full potential and allow them to play a full role in the development of Malawi. 1
  2. 2. Letter of the Chairman of the Board Overview The past year saw an aggressive rollout of new and innovative products and services. TNM also continues to prioritize the expansion of coverage and capacity with an emphasis on quality, reliability, and efficiency. Despite the worldwide economic downturn and a range of outside factors, including limitations on availability of foreign exchange and fuel shortages, TNM was able to achieve key milestones. In 2009, we were the leader in implementing cutting-edge data services, including GPRS, Edge, and 3.5G. This was a first for TNM and a first for Malawi. TNM built 77 BTS sites, increasing connectivity and mobile phone penetration. We guaranteed a completely redundant core network which improved TNMs accessibility, dependability, and quality. The newly completed Lilongwe technical centre assures absolute geographic redundancy and will serve both the central and northern regions. These redundancy efforts are a part of TNMs comprehensive business continuity plan. TNM undertook a complete and thorough audit to identify areas of needed improvement. We were able to prioritize actions that emphasized quality and reliability.This resulted in TNM proactively identifying and solving problems before they could impact or inconvenience customers. 2009 was an important year in terms of major upgrades and capacity expansions. TNM developed its core network capacity to serve a base of two million subscribers, allowing for substantial future growth with minimum capital outlay. Looking ahead, our focus will be a continued aggressive rollout of coverage and capacity expansion, while at the same time, looking to enhance efficiencies from a cost perspective. The result will be further improvement in availability, reliability, and quality. In the coming year, TNM is looking forward to expanding its commitment to the environment and clean energy with the introduction of hybrid electric power supplies in rural areas. This will result in less reliance on generators and diesel fuel. We continue to value our Malawian identity. As a Malawian company that is successful and capable of delivering services of an internationally competitive standard, we are creating a new model and becoming an industry leader. TNM understands Malawi and the market because we are a part of it. We are making decisions as Malawians, which allows us to better serve our clients.2
  3. 3. DividendsTotal dividends of MK 602.4 million (MK0.06 per share) will have been declared andpaid for the year ended 31 December 2009 as follows:-MK 200.8 million 2t per share was declared and paid in October 2009MK 200.8 million 2t per share was declared in December 2009 and was paid in January 2010.MK 200.8 million 2t to be declared at the upcoming AGMSubscribers and Summary Financial ResultsThe program of network expansion continued through 2009 with an expenditure ofMK4.4billion on new network elements. This included acquisition of a new switch toprovide enhanced capacity and redundancy, commissioning of a further 77 BTS sites,roll out of GPRS/Edge, first to launch 3.5G services in the major cities of Blantyre andLilongwe, electronic voucher distribution and several new value added offerings. Investment in the network and related marketing initiatives has seen a 60%growth in subscriber base from 517,000 (end 2008), representing a 29% market share,to 828,000 (end 2009), representing a 33% market share based on active customerdefinition of chargeable outgoing call activity within 90 days. This translated into a 22%increase in revenues as, not unexpectedly, ARPU declined from US$8.2 to US$6.9which remains healthy in comparison to peer markets.. This translated into a 22%increase in revenues as, not unexpectedly, ARPU declined from US$8.2 to US$6.9which remains healthy in comparison to peer markets.Revenue, EBITDA and ARPUEBITDA margin was also negatively impacted by the cost of mitigating persistent outagesof power supply and a 50% increase in the cost of subsidizing low cost handsets toincrease market penetration. Nevertheless, in absolute monetary terms, 2009 EBITDAwas 6% higher than that achieved in 2008. However, an increase of MK440million indepreciation charge on the companys greatly enhanced fixed asset base and financecharges of MK115 million on local borrowings has seen net profit decline fromMK1.5billion in 2008 to MK1.2billion in 2009.Prospects and Forecast 2010Moving into 2010, TNM continues to invest in network quality, capacity and coverage,positioning itself to further grow its subscriber base. In line with our mission statement,we remain committed to connecting the country and will continue to roll out coveragenetwork to more areas. The 3.5G layer will be made available in more centres, thusproviding subscribers with higher speed data transfer and internet access. We remain focused on increasing the subscriber base, customer retention, andrevenue maximization while maintaining strategic cost control. Despite many challenges,principal among which is limited access to foreign exchange, the company is confidentof delivering real growth in line with expected overall economic growth, and an increasein national telephone penetration levels.Matthews Chikaonda 3 April 2009 3
  4. 4. Your directorsDr. Matthews Aurelious Mr. Hitesh Natwarlal Mr. Kenneth Hudson Mr. Pius Percy Mulipa,Padzuwa Chikaonda, 56, Anadkat, 49, Vice Peter Mthuzi, 48, non- 56, non-executiveChairman and non- Chairman and non- executive Director Director Bachelor ofexecutive Director BA executive Director Bachelor of Commerce, Arts, Diploma (Mgt.),(Hons), Dip. Business, Masters of Business Diploma Business MSc (Mgt.) Mr. Mulipa isMBA, Ph. D. Dr Administration, Fellow Group Operations Administration, BachelorChikaonda served as Chartered Certified Executive in PressAssistant and Associate of Science Economics Accountant. Mr. Mthuzi Corporation and isProfessor of Finance (Hons). Prior to currently serves as Chief responsible for the(1988-1991 and 1992- returning to Malawi to Corporate Affairs Officer operations of seven of94, respectively) at establish First Merchant of MTL prior to which the Press Group’sMemorial University of Bank, Mr Anadkat he served as subsidiary and associateNewfoundland in worked in a corporate MTL’sInterim Director of companies. He has heldCanada. In addition to finance house in USA Finance. He has various seniorexecutive management specialising in mergers, previously worked for management positionsand corporate acquisitions and Deloitte and Touche and within the Pressrestructuring Press Corporation as Corporation Group valuations. Mr. Anadkatexperience, Dr. Head Group Internal over the previous 17Chikaonda has over 14 holds chairmanships and Audit. years.years experience in Directorates andeconomic management, business interests in apolicy formulation and number of other sectorsimplementation at of the Malawiannational level. Dr economy, principallyChikaonda served as banking, manufacturingDeputy Governor and property(1994-1995) and later development.as Governor (1995-2000) of the ReserveBank of Malawi. InMarch 2000, he wasappointed to theCabinet and served inthe Government ofMalawi as Minister ofFinance and EconomicPlanning until January2002. Dr. Chikaonda hasbeen Chairman of theTNM Board since hisappointment thereto on5th April 2007. In April2002, Dr Chikaonda wasappointed to his presentposition of Group ChiefExecutive of PCL.4
  5. 5. Mr. John M. O’Neill, 55, Dr Stephanus Johannes Dr Harry Sam Mr. James Adhemarnon-executive Director Minnar 42 Steve holds Harrisson Gombachika Regout, 59 , non-executiveBSc in Mathematics and a PhD in Engineering 45 , BSc EEng, Dip Eng, Director Masters ofManagement Sciences, from Stellenbosch MSc EEng, PhD Business Administration inFCA. Mr. O’Neill is an University, where he also (Telecommunication). Dr Economics. Mr. Regout isExecutive Director of completed his B.Eng and Gombachika is a senior an experienced portfolioFirst Merchant Bank and M.Eng degrees in Lecturer in manager currently serveshis previous experience industrial/ Mechanical Telecommunication as External Investmentsincludes a career of 17 Engineering. He also Engineering at the Manager for Old Mutualyears with international holds a B.Com Malawi Polytechnic, Investment Group (SA)accountancy firm (honours) degree in University of Malawi.He with executiveDeloitte, in the UK and Finance from the is currently the Dean of responsibility for OldMalawi, including six University of Cape Town Postgraduate Studies and Mutual Malawi’s assetyears as a partner in its and is a CFA charter Research at the management operations,Malawi practice. He holder. He serves on the Polytechnic. He has regional listed equityholds numerous other advisory committee of served in various portfolios and a globalDirectorships in the Engineering faculty University of Malawi private equity fund ofcompanies in various of the University of Committees. Currently funds. Mr. Regout also holdssectors of the economy. Stellenbosch. he is a Senate Directorates in a number Representative of the of prominent companies University Council. In in the Malawi economy. addition he is an external examiner for Masters Degree (Telecommunication Major) thesis at the University of Botswana. He has conducted research and published on various issues of wireless networking both fixed and mobile. 5
  6. 6. Management Letter Highlights The considerable subscriber growth in 2009 is a clear indication of the potential of mobile telephony in Malawi. More importantly, it demonstrates the confidence these new customers have in TNM. This growth has been driven by intense programs on network coverage and quality, introduction of innovative products and services, further expansion of our distribution network with the highest service/availability levels possible and, above all, the dedicated staff. For all the achievements during the year I would like to “thank you” all at TNM, it would not have been possible without you. TNMs strongest resource is the dedication and talent of its staff. The members of the TNM team make this company what it is and allow us to grow, mature, and become an industry leader. Our People "TNMs corporate culture is a feeling of personal empowerment within the company. This is true in terms of ownership, in terms of decision making, in terms of engagement, and perhaps most importantly, in terms of mutual respect. TNM has been identified as one of, if not the top place to work in Malawi. We are proud that with the exception of two expatriate executives, Malawians run this company." David Chetty, Chief Technical Officer. As stated above TNM’s strongest resource is the talent and dedication of its staff. The members of the TNM team make this company what it is and allow us to grow, mature and become an industry leader.6
  7. 7. The Executive Management team prides itself on effective leadership. When an issue arises the team works together to solve problems harmoniously and by prioritizing the needs of the company. There is intense staff engagement at all levels, which results in a strong work ethic and feeling of being part of a team. TNM has a clear open-door policy, a receptive forum for ideas, and an intentional lack of bureaucracy. We focus on development and training, enabling all of our staff to expand skills and fostering initiative. This year we have prioritized investing in staff capacity and in building knowledge expertise both at home and abroad. "Being a team means you have acommon purpose, common values, that youhave cohesion and are all moving in thesame direction. It means that success inbusiness is shared - no one here feels thatone person is responsible - success is achievedand enjoyed as a team." This included a staff fact-finding missions to both France and China. Extensive training from foreign specialists maximizes knowledge transfer and results in superior competence in new technologies and equipment. TNMs Human Resource Department is mid-way through a two year strategic initiative focusing on three areas: talent management, staff engagement, and the creation of an enabling environment. Our entire staff participated in an employee satisfaction survey and we achieved an outstanding 65% satisfaction level, clearly demonstrating that employee satisfaction is at a record high. We also implemented the Paterson Based Grading System, which allowed us to take an over-arching, comprehensive look at each position description and evaluate and improve each one. The new system has resulted in greater staff engagement and retention. We have also rolled out a Balanced Scorecard which allows each staff member to evaluate his/her contribution to the companys mission. This is one of the most prominent systems in the world, and because it is not yet common among other Malawian companies, it makes TNM an industry leader in performance management. Finally, one of the most exciting initiatives undertaken this year is the Staff Wellness programme. Activities range from HIV/AIDS counseling to stress management and healthy eating. This is just one more innovative way that we encouraged healthy living amongst the TNM family. "Being a team means you have a common purpose, common values, that you have cohesion and are all moving in the same direction. It means that success in business is shared - no one here feels that one person is 7
  8. 8. "TNMs corporate culture is a feeling of personal empowerment within the company. This is true in terms of ownership, in terms of decision making, in terms of engagement, and perhaps most importantly, in terms of mutual respect." David Chetty, Chief Technical Officer8
  9. 9. responsible - success is achieved and enjoyed as a team." Charles Kamoto, Head of Commercial Products and Services "It is important that TNM is a Malawian company; it means that we know the country, know the people, and know the market. It means that we can develop products tailor made for Malawi. It allows us to be more innovative and deliver products that our customers need and want." - Reuben Kocherani, Regional Distribution ManagerDeveloping products and services withIntegrity means promising something andbeing able to deliver The key focus in 2009 was in data services. In a rapidly changing world and competitive industry, significant investment has been placed into ensuring high quality services and up to date technologies. In the first part of 2009 TNM launched GPRS services, which enabled it to develop solutions for Corporate and individual needs giving TNM opportunity to grow. The launch of GPRS made the access of internet easier as it has enabled customers to use their handsets to connect to the world. This is especially true with the We are proud that youth, who are now able to access popular social websites such as facebook, with ease and at affordable rates. The with the exception youth has been an important consideration in the launch of two senior of products launched in 2009. executives, This led TNM to launch such services as SMS fun and caller tunes. On the Corporate front the launch Malawians run this of GPRS allowed TNM to launch windows mobile in company. November 2009. This is the ideal solution for many corporate executives who are always on the go. Through Windows Exchange Server, users are able to connect and synchronise with their Windows based mail, calendar and Office pragrams As TNM aims to be the leader in broad band connectivity services and in December 2009, TNM became the first mobile operator to launch 3g services. The launch means TNM can now offer cutting edge services such as video calls, video and music streaming, high speed wireless internet access services 4-5 times faster than 2.5g and any other ISP provider on the market. With a maximum connection speed of 3.6 megabits per second TNM’s internet connection will transform the data service market in Malawi as well as contribute to the development of the country. "Developing products and services with Integrity means promising something and being able to deliver." - Daniel Makata, Strategy and Planning Manager. 9
  10. 10. Network (Technical) Our technical achievements for 2009 were truly outstanding as we successfully completed major upgrades and capacity expansions. We introduced a new multi- vendor strategy that includes Alcatel as well as Huawei. The Legacy Alcatel network was fully replaced with NGN and further capacity upgrades for Huawei NGN are planned. Huawei Call Server and Media Gateway were commissioned and there was a Huawei OCS trial. Through Huawei, we were able to introduce 3.5G. Phase 1 of 40 Node Bs will be completed in early 2010 and this past year saw the completion of the Lilongwe Technical Centre. We also established Optima, Connect and Asset from AirCom and completed Phase 2 of Swap out. There are a total of 77 new BTS sites and 50 Capacity Upgrades. New SMSC resulted in value added services platforms and there was full redundancy of both the core and the transmission networks. We are also proud to have introduced a real time network performance monitoring system. In terms of connectivity, we strengthened our quality and reliability through the International Satellite Gateway and now offer higher bandwidth and internet speed through our connection to the SEACOM Cable running via Mozambique. "TNM is unique in that all of our technicians are TNM employees. We dont outsource. This means we are always on call; it means that we are efficient and that we can immediately respond to problems and find effective solutions." - Fyness Zulumbi, NSS Senior Technician Sales and Services "Let me tell you what it means to be customer-centric: all of our decisions are driven by the customer. New products, new pricing, new networking - all of it is first put to a customer focus group. When we have something new, we offer it because we know firsthand that there is demand for it, not because it might be the new hot technology." - Daniel Makata, Strategy and Planning Manager TNM promised growth and expansion and we delivered. TNM maintained above 60% market share on Post Paid (handset based long term contracts) through a successful, proactive, major account approach. In the past year, we tripled the number of Points of Sale, achieving a 95% service level. TNM also took the lead in third party distribution and we maintain a hugely competitive position within the corporate and high-end segment of the mobile market, as well as the mixed and low-end segment.10
  11. 11. "It is important that TNM is a Malawian company; itmeans that we know the country, know the people, andknow the market. It means that we can develop productstailor made for Malawi. It allows us to be more innovativeand deliver products that our customers need and want." 11
  12. 12. "TNM is unique in that all of our technicians are TNM employees. We dont outsource. This means we are always on call; it means that we are efficient and that we can immediately respond to problems and find effective solutions." Fyness Zulumbi, NSS Senior Technician This year also saw the introduction of voucher-less recharge facilities, including ATM, Points of Sale devices, and mobile to mobile top up. This is an exciting new venture that increases ease of service for customers and promotes positive mobile practices. Promotions and Marketing Two key promotions stand out in 2009 the first being the "Pompo -pompo". In this promotion Subscribers received a bonus of 10 percent when they recharged their airtime. We are very proud of our Loyaltybonus Program. It’s simple to use, efficient,and it gives back to our devoted customers.This adds value to everyday communication. We pride ourselves on doing that littlebit extra. Today we take pride that Pompo – Pompo has become a household name. We also held a CONCAF SMS promotion where subscribers were automatically entered to win tickets to the CONCAF games in South Africa.12
  13. 13. Our loyalty bonus program continues to lead in the industry. Its ease of use allows clients to benefit from their bonuses without restriction. Customers are automatically credited every sixteenth day. This programme benefits customers and will further ensure customer retention. DistributionWilma Chalulu, Public Relations and "I always strive for excellence. I am results driven. To achieveSponsorship Manager excellence in distribution, our strategy is everywhere all the time. That is excellence." - Tom Kaponda, Distribution Manager Strengthening market position and increasing area coverage in 2009 meant a close analysis of our distribution strategy. This resulted in many innovative improvements and fine-tuning our distribution policies and procedures. In particular, we decentralized our distribution management systems. The introduction of three regional managers has resulted in increased output, improved responsiveness, and enhanced overall management. In 2009, we increased our number of distributors to 30, from 22 in 2008. We also increased our retail dealers from 5,000 in 2008 to over 12,000 in 2009. Another outstanding development was the introduction of the wholesale channel, which fills the gaps between sales visits in rural areas. With a total of 168 wholesalers, TNM increases its availability of services and can truly be everywhere all the time. This new programme allowed for an automatic penetration of TNM airtime in the wholesale market. Finally, we were able to introduce EVD and bank ATMs, including NB, Standard Bank, NBS, IndeBank, EcoBank, and FMB. This results in greater access to TNM products and ease of use for customers. "I know all of our Distributers. I know their names. I know their cell phone numbers. They call me anytime they need something, any time of day, even on the weekends. We make sure that we mean TNM, always with you. Thanks to our team and our distributers, we are always with you." - Reuben Kocherani, Regional Distribution Manager Research and Development (PP - IT, Customer Operations) "I have a passion for customer service. When customers call, I put myself in their shoes. I understand where they are coming from and then work to find a solution. TNM is a pioneer in quality customer service and I love being a part of that." - Maggie Bisani, Team Leader, Call Center TNM understands that when products and services are similar, it is the customer service that sets us apart from the competition. Exceptional customer service delivery gives us a competitive edge and differentiates us from the competition. Excellent customer service is paramount to our success. One of the most important developments this year has been the deployment of our new Customer Relationship Management tool, Maximizer. 13
  14. 14. "I am very proud to be a TNM Wholesale Distributer. Whenever we are selling TNM products, we feel like we are selling our own products.It makes me happy to be a part of the TNM family."The key function of Maximizer is the creation of a customer database that will automatically trackand follow-up on all customer concerns. This technology is completely unique to TNM and willallow cutting-edge, customized customer service. This year saw the development of SIM card swap,enabling customers who lose their handset or SIM card to replace it without the hassle of changingphone numbers. We are also in the process of updating our call centre with a new Asterisk communicationsplatform, which will result in better tools and a greater ability to monitor call traffic. Asterisk providesvoice recording technology that will allow staff to perform quality assurance evaluation. It can alsogenerate a diverse range of statistics that will help direct future improvement activities. TNM continues to embark on aggressive research initiatives that uncover customer needsand wants, market trends, and competitive positioning through customer and market surveys. Thisresearch is an important tool for discovering potential areas for subscriber growth and marketpenetration. "There are so many examples of our excellent customer service but a recent one standsout. One of our customers has been with us for several years. We have seen his business growand expand and have been with him every step of the way. A few months ago, he switched fromprepaid to post paid and was out in the field meeting with suppliers. Suddenly he found his servicecut off as he had used all of his credit for the month. He used a colleagues phone to call us andwithin minutes, literally minutes, his credit had been extended and he was back in business." - DanielChidzanja, Customer Relations14
  15. 15. CompetitionThroughout 2009, the telecommunications industry undertookgreat transformations. Fixed line operators that have traditionallyfocused on data and telephony started moving towards greatermobility. At the same time, the mobile phone industry venturedinto data services with the launch of high speed mobile broadbanddata services. While this past year was characterized by growth drivenby low-cost handsets in rural areas, there was an introduction ofvalue added services (VAS) ranging from high speed mobileinternet to caller tunes. This shift is changing the industry landscapeas VAS are becoming integral business tools. In terms of market competition, the third largest mobileoperator did not roll out its network by the established deadline.This limited competition to two mobile operators. The fourthand fifth largest operators had their licenses revoked, leaving roomfor further market growth. TNM is proud to have gained significant market share inthe past year, owed in great part to increased network coverage,attractive tariffs, and a focus on portfolio quality and reliability. 15
  16. 16. "TNM has been with us through thick and thin. It is an amazing gift to have such a true friend to the sport. TNM is unique in this sponsorship as they committed generously when other companies shied away. They saw the wisdom in investing in football and we have not disappointed them. TNM is football in this country." Walter Nyamilandu Manda, President of the Football Associate of Malawi16
  17. 17. Corporate Social Responsibility and the Sponsorship TNM and the Environment TNM has always emphasized being "green", believing that while Malawi is one of the most beautiful countries in the world, we are suffering from environmental degradation. This year, TNM demonstrated its commitment to environmental responsibility through two CSR programmes. The first is a tree planting initiative, Every Child Plant a Tree Programme, in partnership with Heritage Environmental Trust. Sixteen schools were selected in Zomba for the pilot programme and TNM provided trees for every child in these schools. Together with the youth, TNM staff helped plant the thousands of trees, giving us an opportunity to teach these children about grassroots development, sustainable growth, and Malawis inherent beauty. Our staff is so committed to ourcorporate and social responsibility projects that they actually fight over who gets toparticipate. Everyone wants to beassociated with our various programmes. The most exciting element of the project is that we are imparting values and helping Malawian youth acquire habits that will lead to a healthier and more beautiful country. The programme was successful and TNM will continue to support such initiatives helping to keep Malawi forever green. Our second environmental CSR programme was to create environmental awareness within the city of Blantyre. At the end of a month long Sanitation awareness campaign, TNM donated dustbins to the city, hoping to encourage a promotion of environmental issues. The dustbins were placed strategically around the city in an effort to keep Blantyre clean. TNM hopes to build on this programme, create Clean Campaigns and further beautify Blantyre. TNM Super League TNM is the proud sponsor of the largest Football League in Malawi. TNM began its relationship with Malawian football in 2005 when we signed an unprecedented MK150 million three year contract. TNM was able to come in at a time when Malawian football was really in need and Malawians were unable to support the game they love most. Without TNMs commitment, there was a chance that on a Corporate Sponsorship level, the sport would become extinct. The sponsorship has been incredibly successful and fruitful and this year, we signed an additional three year contract worth 17
  18. 18. MK180 million.Through a careful and responsible sponsorship, TNM has helpedfootball grow and develop in healthy ways, ensuring that the sportis played with honor and integrity. We believe that football bringspeople together; it cuts across the fabric of our society, and unitesMalawi. Malawi is passionate about footballand TNMs sponsorship is a way to giveback to the people who make us successful.Football in this country is moving forward and we are gettingrecognition on an international level. This year, Malawi qualifiedfor the Africa Cup of Nations for the first time in twenty-fiveyears. The Super League provides a platform from which talentedplayers can excel and be recognized internationally. This League is a chance to thank our supporters and giveback to our fellow country men and women. "TNM has beenwith us through thick and thin. It is an amazing gift to have sucha true friend to the sport. TNM is unique in this sponsorship asthey committed generously when other companies shied away. They saw the wisdom in investing in football and wehave not disappointed them. TNM is synonymous with football.TNM is football in this country." - Walter Nyamilandu Manda,President of the Football Associate of MalawiGolfTNM has been a friend to golf for many years. In 2009 we wereagain proud to be associated with the prestigious Malawi Open– the biggest golf tournament in Malawi. The quarterly mugsponsorships also continued in Blantyre and Lilongwe Golf Clubs.We believe these Sponsorships will strengthen the brand andfoster loyalty.Earthquake VictimsTNM is part of a larger community. When we see our fellowMalawians in trouble, it is our duty to contribute and to help inany way we can. When the earthquake hit Karonga in December,TNM was there, on the ground, assessing needs and distributinggoods. As the biggest need was for shelter, TNM donated largefamily tents and also contributed airtime so that both communitymembers and emergency workers could easily communicate. Intotal, TNM contributed MK 1.5 million worth of goods and servicesto those in need. This was a short term project but one that made adifference and emphasized TNMs commitment to the largerMalawian family."The TNM staff are exceptional in their commitment and18
  19. 19. YONECO has a real partnership with TNM. When wesee a social problem arise, we approach TNM and workout solutions together. YONECO is supported on everylevel by TNMs staff, all the way to the CEO who makespersonal appearances at YONECO events and programmes. 19
  20. 20. The TNM staff are exceptional in their commitment and excitement. Everyone is passionate about being Malawian. TNM is a truly Malawian company, not only looking at Malawi today, but Malawi in the future.20
  21. 21. excitement. I think it comes back to being Malawian.Everyone here is so passionate about being Malawian and TNM being a Malawian company andthey are ready to give back." – Mpezenji Gonani, Human Resources Officer.YONECOYONECO, or Youth Net and Counseling, is a national non-profit, non-governmental organizationcreated in 1997. Its vision is a self-reliant HIV/AIDS free society that respects democratic valuesand principles. YONECO focuses on several areas, including Youth Development, which includeseconomic development, youth leadership, health, and education. The Care and Support programmeoffers innovative initiatives that promote self-reliance through material and psychological support. YONECO has also developed a Human Rights and Democracy programme intended topromote public service and accountability, civic education, political participation and human rightsmonitoring.YONECOs Women and Children programme promotes womens education, economicempowerment, and health. Within this programme, YONECO has partnered with TNM to establishthe first national Tithandizane Helpline, a free phone line that connects youth to professionalcounselors who can provide information on sexual and reproductive health, human rights, HIV/AIDS,and respond to reports of child abuse.TNM is a profit driven companybut they realize that they owe theirsuccess to the Malawian peopleand they are eager to invest theirprofits back into the community - into the future of the country, andthe future is young people.The Helpline receives more than two hundred calls every day. TNM provides the airtime, allowingthe helpline to remain free for callers. TNM further demonstrated its commitment to this issue bysponsoring the Fifth Africa Regional Child Helpline Consultation Conference in September of 2009. YONECO has a real partnership with TNM. When we see a social problem arise, YONECOcan approach TNM and work out solutions together. We work together to support initiatives onthe ground and react quickly. YONECO is supported by every level of TNMs staff, all the way tothe CEO who makes personal appearances at YONECO events and programmes’” - MacbainMkandawire, Executive Director, YONECO. As stated on the cover of this 2009 Annual Report: “We promised expansion and growth.We delivered”. I can guarantee you that all at TNM will continue to do so in the years to come.On behalf of the team,Werner Schrijver Chief Executive Officer 21
  22. 22. Executive management Mr. Werner Schrijver, 58, Chief Executive Officer Mr. Werner Schrijver holds a Bachelor of Arts in Business Administration and has been commercially responsible for three international mobile telecommunications start-ups having worked for such companies as T-Mobile International,Tele Denmark International and KPN Telecom International. In both the B2B and B2C markets, Mr. Schrijver has had more than 20 years experience managing large units (1,000 employees plus) at board level. Mr. David Chetty, 45, Chief Technical Officer Mr. David Chetty holds a National Telecommunications Diploma and a National Higher Diploma in Post-School Education and since 1984 has experience in start up telecommunications companies and has worked in senior management positions with MTN, Celtel, Swedtel and Nokia in Africa and the Middle East Mr. Macleod Duncan Matandika, 40, Chief Financial Officer Mr. Macleod Matandika holds a Masters in Business Administration and is an accountant from the Polytechnic. He joined the company at its commencement as the Operations Accountant up to 1998. He has wide experience in the mobile industry and has been part of the growth of the company. Prior to his appointment as Chief Financial Officer in April 2008 he worked as a Management Accountant. Mr. Charles Kamoto, 35, Head -Commercial Mr. Charles Kamoto holds a Bachelor of Business Administration and currently undertaking an MBA program. Mr. Kamoto has over 9 years experience in the Telecommunications arena. Having joined the Company as Branch Executive in 2000.He has held a range of positions during his tenure 6 of which has been in excecutive management. Mrs. Christina Mwansa, 36, Head- Legal & Corporate Affairs Mrs. Christina Mwansa holds a Bachelor of Laws Honours Degree from Chancellor College, University of Malawi. She joined the Company in 2000 as Legal Officer and later the same year was appointed Company Secretary. She has been a licensed legal practitioner for over 10 years. Mr. Patrick Mtamba, 36, Head - Human Resources & Administration Mr. Patrick Mtamba hold a Bachelor of Business Administration. He joined TNM in 2009 and has extensive experience in Human Resource Management & Administration.22
  23. 23. Our management team implements the long term strategyand vision of the company to generate shareholder valueand positive relations with stakeholders Mr. Charles Kamoto, Mr. Patrick Mtamba, Mrs. Christina Mwansa, Mr. Werner Schrijver, Mr. Macleod Duncan Matandika, Mr. David Chetty 23
  24. 24. Telekom Networks Malawi Limited Directors’ report Report Of Directors The Directors have pleasure in presenting their report and the audited financial statements of Telekom Networks Malawi Limited for the year ended 31 December 2009. Nature Of Business The company is engaged in providing telecommunication services in accordance with its licence issued by Malawi Communications Regulatory Authority (MACRA). Registered Office Telekom Networks Malawi Limited is a company incorporated in Malawi under the Malawi Companies Act, 1984. It was listed on the Malawi Stock Exchange in November 2008. The address of its registered office is, Livingstone Towers, Fifth Floor, Glyn Jones Road, P. O Box 3039, Blantyre, Malawi. Financial Performance The results and state of affairs of the company are set out in the accompanying statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes to the financial state- ments which includes a summary of significant accounting policies. Directorate And Secretariat Directors and Company Secretary who served during the year are listed below: Prof. Dr. Matthews Chikaonda Chairman Mr. Hitesh Anadkat Vice Chairman Dr. Harry Gombachika Director Dr. Stephanus Minaar Director Mr. Ken Mthuzi Director Mr. Pius P. Mulipa Director Mr. John M. O’Neill Director Mr. James Regout Director Mr. Jonathan Larcombe Alternate to Mr. James Regout Mrs. Hilda Singo Alternate to Mr. Ken Mthuzi Mrs. Christina Mwansa Company Secretary Corporate Governance The company continues to embrace and abide by the main principles of modern corporate governance as contained in the Cadbury and the King Reports. In this regard, the company has at Board level, a Board Audit Committee and a Board Appointments and Remuneration Committee. The Committees comprise Non- Executive Directors. Dividends During the year a total dividend of K602.4 million was declared. K200.8 million was paid in July 2009 and K200.8 million was paid in October 2009. The balance of K200.8 million which was declared in December 2009 was paid in January 2010.25
  25. 25. Telekom Networks Malawi LimitedDirectors’ Report (Cont’d)AuditorsDeloitte, Certified Public Accountants, P O Box 187, Blantyre, have signifiedtheir willingness to continue in office and a resolution is to be proposed at theforthcoming Annual General Meeting in relation to their appointment as audi-tors in respect of the year ending 31 December 2010.BY ORDER OF THE BOARD_________________________ _________________________DIRECTOR DIRECTOR 26
  26. 26. Telekom Networks Malawi Limited Statement Of Directors’ Responsibilities The Companies Act, 1984, requires the directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the company as at the end of the financial period and of the operating results for that period. The Act also requires the directors to ensure the company keeps proper accounting records which disclose with reasonable accuracy the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act, 1984. In preparing the financial statements the directors accept responsibility for the following: • Maintenance of proper accounting records; • Selection of suitable accounting policies and consistent application thereof; • Making judgements and estimates that are reasonable and consistently applied; • Compliance with applicable accounting standards when preparing financial statements; and • Preparation of financial statements on a going concern basis unless it is inappropriate to presume that the company will continue in business in the foreseeable future. The directors also accept responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to maintain adequate systems of internal control to prevent and detect fraud and other irregularities. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the company and of its operating results, so far as concerns the members of the company. DIRECTOR: ________________________________________ DIRECTOR: ________________________________________27
  27. 27. Telekom Networks Malawi Limited Statement Of Comprehensive Income 31 December 2009 Note 2009 2008 K’000 K’000 Revenue 7 8,205,000 6,701,931 Direct operational costs 8 (3,918,473) (2,788,062) Gross profit 4,286,527 3,913,869 Other income 9 74,299 92,615 Selling and administrative expenses 10 (2,481,630) (1,822,951) Results from operating activities 1,879,196 2,183,533 Finance income 11 59,082 42,201 Finance expenses 11 (180,802) (3,473) Net finance (expense)/income (121,720) 38,728 Profit before income tax 1,757,476 2,222,261 Income tax expense 12 (542,689) (692,296) Profit for the year 1,214,787 1,529,965 Other comprehensive income - - Total comprehensive income for the year 1,214,787 1,529,965 Earnings per share Basic earnings per share (MK) 13 0.12 0.1729
  28. 28. Telekom Networks Malawi LimitedStatement Of Financial Position31 December 2009 2009 2008 Note K’000 K’000AssetsNon-current AssetsProperty, plant and equipment 14 9,231,585 5,798,154Intangible assets 15 98,890 35,756Total non-current assets 9,330,475 5,833,910Current AssetsInventories 16 181,956 179,218Trade and other receivables 17 1,565,062 1,073,998Amount due from related companies 18 8,216 7,112Bank and cash balances 19 642,042 1,534,366Total current assets 2,397,276 2,794,694Total Assets 11,727,751 8,628,604Capital And LiabilitiesEquityShare capital 20 401,618 401,618Share premium 2,346,921 2,346,921Retained earnings 4,069,674 3,457,314Total equity 6,818,213 6,205,853Non-current LiabilitiesDeferred tax 21 434,456 284,892Long-term portion of interest bearing loans22 427,523 -Employee bene t liabilities 23 106,892 70,118Total non-current liabilities 968,871 355,010Current LiabilitiesBank overdraft 9 1,703,085 -Current portion of interest bearing loans 22 14,742 -Dividend payable 24 200,809 200,809Deferred income 25 260,850 213,436Trade and other payables 26 1,682,157 1,337,362Income tax liabilities 79,024 316,134Total current liabilities 3,940,667 2,067,741Total liabilities 4,909,538 2,422,751Total Equity And Liabilities 11,727,751 8,628,604The nancial statements were approved and authorised for issue by the Boardof Directors on 19 March 2010 and were signed on its behalf by:………………………………… …………………………………....Director Director 30
  29. 29. Telekom Networks Malawi Limited Statement Of Changes In Equity 31 December 2009 Share Share Retained Capital premium earnings Total K’000 K’000 K’000 K’000 2008 Balance at 1 January 2008 350,000 - 2,808,158 3,158,158 Profit for the year - - 1,529,965 1,529,965 Issue of share capital 51,618 2,346,921 - 2,398,539 Dividend declared - - (880,809) (880,809) Balance at 31 December 2008 401,618 2,346,921 3,457,314 6,205,853 2009 Balance at 1 January 2009 401,618 2,346,921 3,457,314 6,205,853 Profit for the year - - 1,214,787 1,214,787 Dividend declared - - (602,427) (602,427) Balance at 31 December 2009 401,618 2,346,921 4,069,674 6,818,21331
  30. 30. Telekom Networks Malawi LimitedStatement Of Cashflowsfor the year ended 31 December 2009 Note 2009 2008 K’000 K’000Cash flows from operating activitiesCash receipts from customers 7,786,733 6,541,323Cash payments to suppliers and employees (4,998,190) (3,684,702)Net cash generated from operations 2,788,543 2,856,621Interest paid 11 (115,678) (884)Income tax paid (630,235) (618,383)Net cash generated by operating activities 2,042,630 2,237,354Cashflows to investing activitiesInterest received 11 59,082 42,201Acquisition of property, plant and equipment 14 (4,459,951) (3,300,033)Purchase of software 15 (77,990) (5,396)Proceeds from sale of property, plant and equipment 982 9,563Net cash used in investing activities (4,477,877) (3,253,665)Cash flows (to) /from financing activitiesProceeds from issue of share capital - 2,398,539Dividend paid 24 (602,427) (680,000)Proceeds from loans 442,265 -Net cash (used in)/ generated from financing activities (160,162) 1,718,539Net (decrease) /increase in cash and cash equivalents (2,595,409) 702,228Cash and cash equivalents at beginning of year 1,534,366 832,138Cash and cash equivalents at end of year 19 (1,061,043) 1,534,366Additional statutory requirement(Decrease) /increase in net working capital (2,270,344) 468,009 32
  31. 31. Telekom Networks Malawi Limited Notes To The Financial Statements For The Year Ended 31 December 2009 1. General Information Telekom Networks Malawi Limited (TNM) is a company domiciled in Malawi and incorporated under the Malawi Companies Act, 1984 Cap.46:03. The address of the company’s registered office is Livingstone Towers, Fifth floor, Glyn Jones Road, P O Box 3039, Blantyre. The company was listed on the Malawi Stock Exchange on 3 November 2008. The company primarily is involved in the provision of telecommunication services in accordance with its licence issued by Malawi Communications Regulatory Authority (MACRA). 2. Adoption Of New And Revised International Financial Reporting Standards In the current year, the company has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (the IFRIC) of the IASB that are relevant to its operations and effective for annual reporting periods beginning on or after 1 January 2009. The following new and revised standards and interpretations have been adopted in the current period: • IAS 1 Presentation of financial statements has been substantially rewritten, with many changes in terminology, including changes to the titles of individual financial statements and is effective for periods beginning on or after 1 January 2009; • The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk. • Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs on qualifying assets during the period of construction and is effective for financial statements for periods beginning on or after 1 January 2009. • IFRS 2 Share-based Payments has been amended to clarify the definition of vesting conditions and the accounting treatment of cancellation by the counterparty to a share-based arrangement and is effective for periods beginning on or after 1 January 2009. • IFRS 8 is a disclosure standard that has resulted in a redesignation of the company’s reportable segments. • Disclosures in these financial statements have been reviewed to reflect the IASB’s clarification (as part of improvements to IFRSs (2009)) that the disclosure requirements in standards other than IFRS 5 do not generally apply to non-current assets classified as held for sale and discontinued operations.33
  32. 32. Telekom Networks Malawi LimitedNotes To The Financial Statementsfor the year ended 31st December 20092. Adoption of new and revised International Financial Reporting Standards (Cont’d) • The amendments (part of improvements to IFRSs’ (2009)) specify that only expenditure that result in a recognised asset in the statement of financial position can be classified as investing activities in the statement of cash flows. Consequently, cash flows in respect of development costs that do not meet the criteria in IAS 38 intangible asset for capitalisation as part of internally generated intangible asset (and, therefore, are recognised in profit or loss as incurred) are reclassified from investing to operating activities in the statement of cash flows. • As part of Improvements to IFRS’ (2008) , IAS 38 has been amended to state that an entity is permitted to recognise a prepayment asset for advertising or promotional expenditure only up to the point at which the entity has the right to access the goods purchased or up to the point of receipt of services. Mail order catalogues have been specifically identified as a form of advertising and promotional activities. • IFRIC 13 Consumer Loyalty Programmesaddresses the accounting by entities that operate, or otherwise participate in, customer loyalty programmes for their customers and is effective for periods beginning on or after 1 January 2009; and • There have also been terminology changes and clarifications as part of the IASB annual improvements project, to: IAS 7, IAS 8, IAS 10, IAS 16, IAS 18, IAS 19, IAS 20, IAS 23, IAS 27, IAS 28, IAS 31, IAS 32, IAS 36, IAS 38, IAS 39, IAS 40, IFRS 3, IFRS 5 and IFRS 7, and are effective for periods beginning on or after 1 January 2009. Apart from the changes to IAS 1 Presentation of financial statements and IFRS 7 Financial Instruments Disclosures, all the above amendments did not have any impact on the company’s financial statements. At the date of authorisation of these financial statements, the following relevant Standards and Interpretations were in issue but not yet effective: • IFRS 9 Financial Instruments: Classification and Measurement.This Standard introduces new requirements for the classification and measurement of financial assets and is effective for periods beginning on or after 1 January 2013. Key features are as follows: Financial assets are required to be classified into two measurement categories; those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. This standard is effective for periods on or after 1 January 2013. This amendment is expected to have a significant impact on the financial statements; • IFRIC 17 Distributions of Non-cash Assets to Owners provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders and is effective for periods beginning on or after 1 January 2010. This amendment will not have any impact on the company’s financial statements; and 34
  33. 33. Telekom Networks Malawi Limited Notes To The Financial Statements (Cont’d) for the year ended 31st December 2009 • IFRIC 18 Transfers of Assets from Customers addresses the accounting by recipients for transfers of property, plant and equipment from ‘customers’. The recipient should recognise the asset at its fair value on the date of the transfer, with the credit recognised as revenue in accordance with IAS 18 Revenue and is e ective to transfers of assets from customers received on or after 1 July 2009. This amendment will not impact on the company’s financial statements. 3. Significant accounting policies Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and the provisions of the Malawi Companies Act, 1984. Basis of preparation The financial statements are prepared in terms of the historical cost convention. No other procedures have been adopted to reflect the impact on the financial statements of specific price changes or changes in the general level of prices. The principal accounting policies are set out below. 3.1 Functional and presentation currency These financial statements are presented in Malawi Kwacha, which is the company’s functional currency. All financial information presented in Malawi Kwacha has been rounded to the nearest thousand. 3.2 Use of estimates and judgements The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Judgements made by management in the application of IFRS’s that have significant effect on the amounts recognised in the financial statements are discussed in note 4.2 to these financial statements. 3.3 Foreign currency Transactions in foreign currencies are converted to Malawi Kwacha at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are converted to Malawi Kwacha at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss, except for those capitalized into property, plant and equipment under policy note 3.4 (vi). Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are converted using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are converted to Malawi Kwacha at foreign exchange rates ruling at the dates the fair value was determined.35
  34. 34. Telekom Networks Malawi LimitedNotes To The Financial Statementsfor the year ended 31st December 20093. Significant accounting policies (Cont’d)3.4 Property, plant and equipment (i) Recognition and measurements Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost of self-constructed assets includes the cost of material and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. (ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefit embodied within the part will flow to the company and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation No depreciation is provided for land. Depreciation is recognised in the profit or loss on a straight line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives of assets for current and comparative periods are as follows:- • Buildings 20 years • Equipment and machinery 8-15 years • Furniture & fittings 5 years • Other equipment 5 years • Motor vehicles 5 years (iv) Determination of residual values and useful lives The assets’ residual values useful lives and depreciation method are reviewed and adjusted, if appropriate, at each reporting date. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. (v) Gains and losses on disposal Gains and losses on disposals of an item of property, plant and equipment are determined by comparing the proceeds with the carrying amount of the item and are recognised net within “other income” in the statement of comprehensive income. (vi) Interest and exchange losses on loans Interest and exchange losses on loans which are utilised for the construction of qualifying property, plant and equipment are capitalised until the commissioning of the related asset after which they are dealt with in profit or loss. Qualifying assets are those that necessarily take a substantial period of time to get ready for their intended use or sale. 36
  35. 35. Telekom Networks Malawi Limited Notes To The Financial Statements (Cont’d) for the year ended 31st December 2009 3. Significant accounting policies (Cont’d) 3.4 Property, plant and equipment (vii) Capital work in progress Capital work in progress is an integral part of property, plant and equipment and measured at cost. Cost includes all expenditures directly attributable to the asset under construction. Capital work in progress is not depreciated until it is available for use upon which it is capitalized to its relevant class of property, plant and equipment. 3.5 Intangible assets Computer software acquired by the company is recognised initially at cost. Cost includes all directly attributable costs in order to bring the asset into a state for its intended use. Computer software is measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it related. Amortisation is recognised in the profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for use. The estimated useful life for current and comparative periods for acquired computer software is 5 years. 3.6 Impairment of non-financial assets At each financial position date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the statement of comprehensive income. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the statement of comprehensive income.37
  36. 36. Telekom Networks Malawi LimitedNotes To The Financial Statements (Cont’d)for the year ended 31st December 20093. Significant accounting policies (Cont’d)3.7 Inventories Inventories are measured at the lower of cost and net realisable value.The cost of inventories is based on the average cost principle and includes expenditure incurred in acquiring the inventories, conversion costs and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.3.8 Trade receivables Receivables are measured at amortized cost using the e ective interest method less any allowance made for impairment of these receivables. Allowance for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of contracts.3.9 Cash and cash equivalents Cash and cash equivalents includes cash on hand, call deposits with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are disclosed as current liabilities on the statement of nancial position.3.10 Income tax Current and deferred tax are recognised as an expense or income in pro t or loss, except when they relate to items that are recognised outside pro t or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside pro t or loss, or where they arise from the initial accounting for a business combination. Current tax Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Taxable income di ers from pro t as reported in the statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Deferred tax Deferred tax is provided using the liability method, providing for temporary di erences between the carrying amounts of assets and liabilities for nancial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary di erences the initial recognition of assets or liabilities that is not a business combination a ect neither accounting nor taxable pro t.The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable pro ts will be available against which the asset can be utilized. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax bene t will be realised. 38
  37. 37. Telekom Networks Malawi Limited Notes To The Financial Statements (Cont’d) for the year ended 31st December 2009 3. Significant accounting policies (Cont’d) Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the company intends to settle its current tax assets and liabilities on a net basis. 3.11 Provisions A provision is recognised in the statement of financial position when the company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks speci c to the liability. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Restructuring A provision for restructuring is recognised when the company has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Costs relating to the ongoing activities of the company are not provided for. Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the company recognises any impairment loss on the assets associated with the contract. Warranties A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. 3.12 Earnings per share The calculation of basic earnings per share is based on the profit for the period attributable to ordinary shareholders and the weighted average number of shares in issue during the period. Where new equity shares have been issued by way of capitalization or subdivision, the profit is apportioned over the shares in issue after the capitalization or subdivision and the corresponding figures for all earlier periods are adjusted accordingly. 3.13 Revenue recognition Revenue, which excludes value added tax, represents the fair value of the consideration received or receivable for services provided and accessories sold. The main categories of revenue and bases of recognition are: Air time usage Revenue from prepaid, postpaid and international roaming telephone service is recognised when airtime is used by the customer.39
  38. 38. Telekom Networks Malawi LimitedNotes To The Financial Statements (Cont’d)for the year ended 31st December 20093. Significant accounting policies (Cont’d)3.13 Revenue rocognition(Cont’d) Starter packs, sim cards and other Revenue on starter packs, sim cards and other sales is recognised on the date all risks and rewards associated with the sale are transferred to the purchaser. Revenue on other services is recognised upon the performance of the contractual obligation. Deferred income Deferred income consists of the value of unused airtime on prepaid service recharge vouchers sold to customers.3.14 Employee benefits Pension obligations - Defined Contribution Plan The company contributes to an independently managed defined contribution pension plan. Obligations for contributions to defined contribution plans are recognised as an expense in the statement of comprehensive income as incurred. Once the contributions have been made, the company has no further payment obligations. Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.3.15 Financial instruments 3.15.1 Financial assets Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity investments’, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL. 40
  39. 39. Telekom Networks Malawi Limited Notes To The Financial Statements (Cont’d) for the year ended 31st December 2009 3. Significant accounting policies (Cont’d) 3.15 Financial instruments 3.15.2Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial. 3.15.3Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each financial position date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the statement of comprehensive income. With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the statement of comprehensive income to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. 3.16 Financial liabilities and equity instruments 3.16.1Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.41
  40. 40. Telekom Networks Malawi LimitedNotes To The Financial Statements (Cont’d)for the year ended 31st December 20093. Significant accounting policies (Cont’d)3.16 Financial liabilities and equity instruments 3.16.2Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. 3.16.3Financial liabilities Financial liabilities are classified as either financial liabilities at ‘FVTPL’ or ‘other financial liabilities’. 3.16.4Financial liabilities at Fair Value Through Profit or Loss Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. A financial liability is classified as held for trading if: • it has been incurred principally for the purpose of repurchasing in the near future; or • it is a part of an identified portfolio of financial instruments that the company manages together and has a recent: (i) Actual pattern of short-term profit-taking; or (ii) It is a derivative that is not designated and effective as a hedging instrument. A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: • such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or • the financial liability forms part of a company of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the company’s documented risk management or investment strategy, and information about the company is provided internally on that basis; or • it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. 3.16.5Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. 42

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