TNM 2008 annual report

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TNM 2008 annual report

  1. 1. Annual Report for the year ended 31December 2008 always with you
  2. 2. TNM is a licensed mobile telecommunicationsoperator in Malawi enjoying 62% and 33% marketshare in post-paid and pre-paid sector respectively.TNM’s “always with you” brand is clearly identifiedas Malawian and portrays best customer valueand service availability. TNM’s principal colourgreen, is fresh and synonymous with Malawi’sprosperity derived from agriculture and theenvironment.TNM offers services and products designed tomeet the needs and desires of its subscribers inMalawi which is primarily divided into price-conscious pre-paid and premium-paying post-paid subscribers
  3. 3. TNM’s growth strategy> Constantly improve and expand infrastructure and capacity;> Grow the depth and availability of telecommunications services;> Promote telecommunications accessibility to Malawians; and> Protect and promote customer loyaltyKey achievements> Successful IPO on the Malawi Stock Exchange +88% growth in subscribers> Refurbishment and upgrade of key infrastructure> Renewal of MK150m TNM Super-league sponsorship> 105 new base stations constructed> Coverage extended to an additional 67 areas> New products and services were introduced> More focused corporate social responsibility
  4. 4. Financial highlights 88% growth in subscribers to 627,000 16% growth in revenues 5% growth in profit after tax 9% decline in EBITDA Revenues���� MK�� 6.7bn�� EBITDA����� MK�� 2.7bn�� Profit after tax���� MK�� 1.5bn�� ARPU����� MK�� 1,032���� ARPU ����� US$�� 7.37�� Shareholders’ funds��� MK�� 6.2bn��� Long-term debt���� MK�� -����� Market capitalisation��� MK�� 33.1bn�� Shares in issue at 31 Dec 2008�� 10,040,450,000�� Earnings per share��� MK�� 0.17�� Market price per share��� MK�� 3.30�� Return on equity���� %�� 25�� EBITDA margin���� %�� 422
  5. 5. Subsciber growth Capital investment Revenue growth Profit before tax 2500 700 000 3500 000 700 000 650 000 600 000 3000 000 600 000 2000 550 000 500 000 2500 000 500 000 MK ’000 MKm MKmMKm 450 000 1500 400 000 2000 000 400 000 350 000 300 000 1500 000 3 000 1000 250 000 200 000 1000 000 2 000 150 000 500 100 000 500 000 1 000 50 000 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 TNM’s investment thesis Through continued improvement of service, growth in subscribers and expansion of its existing mobile network capacity from current core capacity of 1 million subscribers to 1.5 million subscribers by 31 December 2009,TNM offers investors potential for both capital and dividend growth. 3
  6. 6. Financial highlightsOur statement of vision Vision � Always with you Mission 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. sWe 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. The TNM Super League TNM is the proud sponsor of the biggest Football League in Malawi, since 2005, with an unprecedented MK150 million initial three year contract. Football is a game of passion, the most loved sport in the world and Malawi is no exception. It is a game for all.We believe that with carefully crafted sponsorship, we will make a difference to the standards of football in Malawi and touch the Malawians’ lives in ways that will make positive impact socially and economically. The TNM Mug TNM has been a friend to golf for many years. In 2007 TNM cemented this relationship by committing to the sponsorship of the most prestigious tournament in Malawi, the Malawi Open.This tournament, attracts the cream of Malawi golfers. TNM is proud to be associated with this tournament which is instrumental in developing talent in this sport.4
  7. 7. Historical highlights Our journey thus far:-2008 In November 2008TNM successfully raised overMK2.58bn in new capital andlisted on the Malawi Stock 2008 In September 2008, The shareholders in MTL MobileExchange and significantly acquired direct shareholding inexpanded its service offerings TNM2007 In JuneTNM TNMawas re-branded to 2007 withbrand promise,‘always with you’ 2007 In March 2007by TMB’s stake was acquired MTL Mobile2005 In Aprilcustomersrecorded 100,000 2005 TNM 2002 In roaming launched international 2002 TNM2000 In June 2000TNM launched pre-paidservices and in January2001 TNM launched itsSMS service 1996 TNM started commercial operations in January 1996 offering post-paid services with a capacity of 7,0001995 TNM was launchedon 15 December 1995 with 36 subscribers. In the same year capacity was increased to 10,000base transceiver stations covering subscribersBlantyre, Lilongwe, Mzuzu andZomba, the third network inSouthern Africa after SouthAfrica’s MTN and Vodacom 5
  8. 8. Stakeholder communications TNM has identified mechanisms and processes that promote enhanced levels of constructive stakeholder engagement Stakeholders are invited to register on TNM’s investor relations website and opt in to receive e-mail alerts on all corporate communications, regulatory announcements, annual reports, presentations, share prices and other investment related information. TNM encourages feedback from its community at all times. Online annual report����� Interactive online charting always with you Annual Report for the year ended 31December 2008 View our annual report online���� View share charts online Our corporate website: www.tnm.com.mw�� Our investor relations website: www.tnminvestor.com Our dividend policy “TNM expects to distribute between 40 and 60% of its annual profits after tax”TNM expects to distribute 1st interim � Dividend declared: � August ��between 40 and 60% of its annual Share register closed: � September��profits after tax by way of a first Payment:�� Septemberinterim dividend declared in August, 2nd interim � Dividend declared: � December ��a second interim dividend declared Share register closed: � December��in December and a final dividend Payment:�� Januarydeclared at the AGM in May.TNM Final� � Dividend declared: � May ��expects to pay three dividends Share register closed: � May��annually:- Payment date:� June6
  9. 9. ContentsChairman’s statement��� 8Your directors��� 9Management discussion and analysis� 10Executive management�� 19Corporate governance��� 20Director’s annual report�� 23Annual financial statements�� 27Shareholder information�� 48Shareholders’ diary 2008/9�� 54Contact information��� 55Notice of annual general meeting�� 56Form of proxy��� 57 7
  10. 10. Chairman’s statement Dear shareholders and partners, In 2008 TNM proved its ability to innovate by introducing new It gives me great pleasure to report relevant products based on existing on your company in its inaugural and complementary technologies annual report as a listed company such as third-generation or 2.5G on the Malawi Stock Exchange. and GPRS.We plan to continue high levels of infrastructure TNM’s strong Malawian identity investment to enhance quality and was recognised by the record network coverage in 2009 in order support our company received in to remain competitive in a rapidly its initial public offer for growing and increasingly subscription. Over 33,000 competitive industry. stakeholders invested MK2.58bn which was immediately used to The extent of the financial expand and improve access to, and meltdown across the globe and the quality of, our services in indeed the performance of the Malawi. Our growth objectives are Malawi Stock Exchange has been consistent with broader National significantly negative, more so than policies and we have been fortunate expected, but I believe that Malawi’s to operate in a progressive telecommunications sector still environment within which offers a strong investment telecommunications services can opportunity. Our strong brand grow. identity, robust financial performance underpinned by a Our total investment into capacity strong balance sheet, shows that TNM is evolving into a leading and infrastructure of MK3.3bn in provider of telecommunications 2008 has enabled TNM to catch services in Malawi. up on previous years and lay a strong foundation for long-term My appreciation is extended to the growth. In the 12 months to 31 TNM Board, management and the December 2008,TNM recorded a nearly 350 people that constitute 88% increase in subscriber numbers our TNM team. Thank you for to 627,000, a 16% increase in your hard work, commitment and revenue to over MK6.7bn but a belief in the TNM brand. To our 9% decrease in earnings before shareholders, thank you for faith interest, tax, depreciation and in our commitment to provide our amortisation (EBITDA) to nearly services and economic MK2.69bn. Much of TNM’s development across Malawi. investment and subscriber growth TNM always with you occurred during the latter half of the year and revenue slippages occurred upon switch over to our New Generation platforms. Matthews Chikaonda 3 April 20098
  11. 11. Your directorsTNM has a Board Dr. Mathews in USA specialising in Manager for Old Mutualcomprising of six Aurelious Padzuwa mergers, acquisitions and Investment Group (SA) with Chikaonda, 54, Chairman valuations. Mr.Anadkat executive responsibility fordirectors, all of whom and non-executive Director holds chairmanships and Old Mutual Malawi’s assetare non-executive.The Directorates and business management operations,Chief Executive Officer BA (Hons), Dip. Business, interests in a number of regional listed equity MBA, Ph. D. Dr Chikaonda other sectors of the portfolios and a globalof the Company attends served as Assistant and Malawian economy, private equity fund of funds.Board meetings by Associate Professor of principally banking, Mr. Regout also holdsinvitation only. Finance (1988-1991 and manufacturing and property Directorates in a number 1992-94, respectively) at development. of prominent companies in Memorial University of the Malawi economy. Newfoundland in Canada. Mr. Kenneth Hudson In addition to executive Peter Mthuzi, 47, non- Mr. John M. O’Neill, 54, management and corporate executive Director non-executive Director restructuring experience, Dr. Chikaonda has over 14 Bachelor of Commerce, BSc in Mathematics and years experience in Diploma Business Management Sciences, FCA economic management, Administration, Fellow Mr. O’Neill is an Executive policy formulation and Chartered Certified Director of First Merchant implementation at national Accountant. Mr. Mthuzi Bank and his previous level. Dr Chikaonda served currently serves as Chief experience includes a career as Deputy Governor (1994- Corporate Affairs Officer of 17 years with of MTL prior to which he international accountancy 1995) and later as Governor served as MTL’s Interim firm Deloitte, in the UK and (1995-2000) of the Reserve Director of Finance. He has Malawi, including six years Bank of Malawi. In March previously worked for as a partner in its Malawi 2000, he was appointed to Deloitte and Touche and practice. He holds the Cabinet and served in Press Corporation as Head numerous other the Government of Malawi Group Internal Audit. Directorships in companies as Minister of Finance and in various sectors of the Economic Planning until Mr. Pius Percy Mulipa, economy. January 2002. Dr. 55, non-executive Director Chikaonda has been Mrs. Hilda Sheila Chairman of the TNM Bachelor of Arts, Diploma Singo, 43, alternate non- Board since his appointment (Mgt.), MSc (Mgt.) Mr. Mulipa executive Director to thereto on 5th April 2007. is Group Operations Kenneth Hudson Peter In April 2002, Dr Chikaonda Executive in Press Mthuzi was appointed to his Corporation and is present position of Group responsible for the Masters in Business Chief Executive of PCL. operations of seven of the Administration, Bachelor of Press Group’s subsidiary and Commerce,Associate Mr. Hitesh Natwarlal associate companies. He Chartered Management Anadkat, 48,Vice has held various senior Accountant Mrs Hilda Sheila Chairman and non- management positions Singo is currently the Head executive Director within the Press of Finance at MTL where Corporation Group over she previously served as Masters of Business the previous 17 years. Deputy Director of Finance. Administration, Bachelor of She worked with Grain and Science Economics (Hons). Mr. James Adhemar Milling Company as Prior to returning to Malawi Regout, 58 , non-executive Management Accountant, to establish First Merchant Director with Malawi International Bank, Mr Anadkat worked Transport Company as in a corporate finance house Masters of Business Finance Manager and with Administration in Ministry of Finance and Economics Mr. Regout is an Agriculture as Principal experienced portfolio Accountant. She has held manager currently serves as several Directorates and External Investments trusteeships in several organizations. 9
  12. 12. Management discussion and analysis The expansion of our core network, coverage roll-out and improvement of new products and services and a very successful IPO underpinned a year that will stand out in TNM’s history Dear stakeholders The expansion of our core network, coverage roll-out and improvement of new products and services and a very successful IPO underpinned a year that will stand out in TNM’s history.While profits and revenues were marginally below prospectus forecast, EBITDA was significantly below that of 2007 but the 42% EBITDA margin is an acceptable industry achievement. Taken within the context of our achievements, 2008 was a satisfying year from many perspectives and my key message to shareholders is that 2008 was a building year and our challenge now is to enhance revenues from our significantly expanded subscriber base. To all my staff and management team thank you for your dedication and diligence during 2008. Subscribers and summary financial results TNM implemented a wide range of initiatives in 2008 to stimulate subscriber growth and improve mobile phone penetration. > Subscriber numbers were marginally above prospectus forecasts > Profit after tax marginally below forecast > Lower cost airtime, increased access and affordability > 627,000 subscribers at 31 December 2008, 88% above the previous year > Market share remained static at 33% > ARPU at MK1,032 or US$7.3710
  13. 13. We implemented a wide range of initiatives in 2008 to stimulate subscriber growth and improve mobile phonepenetration. Key in this strategy was the promotion and sale of low cost handsets (Nokia 1200,TNM T201and TNM T202 handsets) which successfully offered the low end market increased access to our services.Our respective market shares were as follows at 31 December 2008:- Operators� Total� PSTN� Mobile Pre-paid� Mobile Post-paid TNM � 627,611� -� 617,662� 9,949 MTL (Note 1)� 102,000� 102,000� -��� - Zain (Note 2)�1,270,000� -� 1,264,000� 6,000 Total� 1,999,611� 102,000� 1,881,662� 15,949 Note 1 - Source: MTL. ���� Note 2 - Source: Zain Annual Report. PSTN means public switched telephone networkIn the absence of an industry standard definition for “subscriber” the figures above may not be strictlycomparable but prima facie our share of Malawi’s total mobile market is 33% and 62% for pre-paid and post-paid subscribers respectively. Malawi’s mobile lines per 100 inhabitants have risen from 0.7 in 2002 to 14.7as at 31 December 2008. From 1 January 2009 TNM will adopt a more internationally acceptable definitionof subscriber being a customer that generates a mobile revenue earning event within three months. Currentlythe definition adopted uses 6 months.Revenue levels to the end of 2008 were unexpectedly lower resulting in overall performance which wasmarginally below prospectus forecast.Additional information is provided under “Revenue, EBITDA and ARPU”below but our summary financial performance appears below:- Prospectus� ��� Actual��� Forecast� 31 December 2008 � % Revenues �� MK bn� 7.00� 6.70� (4.2)� EBITDA�� MK bn� 2.94� 2.78� (5.4) EBITDA margin�� %� 42� 42� - Profit after tax�� MK bn� 1.60� 1.53� (4.3) ARPU �� MK� 1,140� 1,032� (12.1) ARPU �� US$� 8� 7.37� (10.0)Malawi continued to enjoy a relatively stable economic climate to this annual report date with latest inflationregistering 9.9% at 31 December 2008 and the US$ : MK exchange rate marginally up from 140.32 at 1 January2008 to 140.60 at 31 December 2008. Prime overdraft interest rates ended the year at 19.5%.Revenue, EBITDA and ARPU> Revenue increased by 16%> Significant increase in prepaid customers + 88% offset by declines in average revenue per additional user and ARPU declined from US$10.3 in 2007 to US$7.37 in 2008 accordingly> EBITDA margin declined from 52% to 42% in 2007 and 2008 respectively 11
  14. 14. TNM revenue increased by 16% from MK5.8bn in 2007 to MK6.7bn in 2008 77.0% Prepaid TNM revenue increased by 16% 11.9% Postpaid 2008 from MK5.8billion in 2007 to 9.5% Interconnect revenue MK6.7billion in 2008 and was 1.6% International roaming primarily accounted for by our increased prepaid customer base which benefited from aggressive service expansion campaigns. The high growth in lower income subscribers accordingly reduced ARPU per month from US$10.3 in 73.0% Prepaid 13.2% Postpaid 2007 to US$7.37 in 2008. 11.7% Interconnect revenue 2007 2.1% International roaming The decline in EBITDA margin of 10% from 52% to 42% is explained by the exceptional earnings in 2007 caused by Celtel’s outage, the negative effects of lower revenues toward the end of 2008, increases in direct operational and selling and administration expenses, for example, discounts on handsets and the positive growth in prepaid revenues over 2007’s performance. Direct operational and selling and administration expenses increased during 2008 by just over MK991 million.This was attributed to increased marketing development investments including discounts on handsets and increased staff investment and allowances as a result of an increased employee base and increments.A greater proportion of distribution was carried out through outsourced agents and this increased dealer commissions. In summary, our achieved EBITDA margin of 42% met our prospectus forecast but lower levels of revenues depressed overall EBITDA.12
  15. 15. Our people > Staff complement grew by 35% from 260 in 2007 to 350 in 2008 > Staff development and training initiatives continue > Foreign consultants used as an opportunity to transfer skills Without our dedicated and hard-working team TNM could not have achieved what we did in 2008. Extensive training programs for staff were provided both locally and abroad for the new technologies and equipment installed during 2008. In addition to Malawi based training initiatives, staff attended training programs in France and China and interacted closely with visiting specialist consultants in key areas to maximise knowledge transfer. TNM provided loans to staff to enable them to participate in TNM’s IPO and at 31 December 2008 employees owned 97,390.000 TNM shares under the IPO scheme representing 0.99% of TNM’s issued share capital. > New SMS platform integratedProducts and services > Missed Call Notification successfully launched > Mobile Internet, Multimedia Messaging Service (MMS) and Voice Mail to be launched in early 2009 > Pilot for data, MMS and voicemail commenced Our focus on the distribution of low cost handsets to capture the lower bracket segment was complemented by the introduction of lower and easy value airtime cards of 25 units and 40 units voucher to improve airtime access and affordability. Preparations started for the implementation of Mobile Internet, MMS and Voice Mail, expected to be launched early 2009.TNM upgraded and also introduced a range of VAS platforms, namely:> Missed Call Notification Service > Multi-Media Service > Personalized Ring Back Tones > Short Message Service Centre (SMSC) > Over-The-Air (OTA) Device and Sim Management System > Voice Mail Service > Wireless Access Protocol (WAP) > Successfully completed major upgrades during 2008Network > Constructed 105 new base stations in 2008 > New international satellite gateway installed > Successful migration to New Generation Network (NGN) During 2008 we successfully completed major upgrades and capacity expansions, the highlight being the migration of the Legacy Network to the NGN and the deployment of this cutting edge technology resulted in the integration of the above mentioned new services in our portfoli 13 15
  16. 16. A total of 105 new base stations were constructed during 2008, the majority (67) of which covered areas in which TNM services were not previously available listed in the table below.The remainder were used to add capacity in the high-density urban areas. No.� Southern Region� No.� Central Region�� No.� Northern Region 1� Bangwe Police�� 1� Chamama��� 1� Bolero 2� Bvumbwe�� 2� Chipoka���� 2� Elephant Tree 3� Cape Maclear�� 3� Chitedze��� 3� Embangweni 4� Chiradzulu Hospital� 4� Chulu ���� 4� Kayerekera mine 5� Chiringa��� 5� Dangaliro��� 5� Lusangazi 6� Fatima��� 6� Dwambazi��� 6� Lwanjati 7� Lirangwe�� 7� Dwangwa��� 7� Manyamula 8� Malekano�� 8� Kapili ���� 8� Mbalachanda 9� Marka��� 9� Kapirinthema��� 9� Mchenga Coal Mine 10� Mayaka��� 10� Kasitu ���� 10� Mchengautuba 11� Milepa��� 11� Livingstonia Beach�� 11� Misuku 12� Mpemba��� 12� Liwaladzi��� 12� Mpamba 13� Mvuu Camp�� 13� Lobi���� 13� Mpata 14� Nambande�� 14� Malilana���� 14� Mpherembe 15� Nasawa��� 15� Muwa���� 15� Mtakisi (Kapolo) 16� Nayuchi��� 16� Nathenje��� 16� Mzuzu Forestry 17� Ngapani��� 17� Ngala���� 17� Phwezi 18� Nkando��� 18� Nkhako miseza ��� 18� Undaninge 19� Nselema�� 19� Nsalu (Kasiya) ��� 19� Usisya 20� Phalula��� 20� Santhe���� 20� Uzumala 21� Phwazi (Chapananga)� 21� State House��� 21� Yesaya Nkosi 22� Sun and Sand�� 23� Tea Research (Mimosa)�� 24� Thekerani 25� Tsangano Turn-off� 26� Zaone���� 27� Zoa We also installed a new international satellite gateway in early 2008 which provided access to all major international carriers resulting in an improvement with the quality and availability.The installation of a redundant transmission network connecting Blantyre to Lilongwe and Mzuzu improved the availability, quality and capacity of our voice circuits. Corporate sales/ services > Increase in corporate account subscribers > Corporate account service levels remain high > Strong loyalty from the corporate sector By paying close personal attention to clients,TNM remains strong in its corporate account management and managed to retain its corporate customer base and gained numbers from the competition during 2008. TNM has been a friend to golf for many years and in 2007 we began sponsoring the most prestigious tournaments in Malawi, the men’s Malawi Open and ladies tournament.  These tournaments attract the cream of Malawi golfers and TNM is proud to be associated with developing talent in this sport. 1714
  17. 17. At the end of the year our coverage of Malawi was as follows:- Chitipa Karonga Lake Malawi Rumphi Bolero Northern Ekwendeni Mzuzu Euthini Nkhata Bay Mzimba Chintheche Edingeni Likoma Lake High network area Medium network area Kasungu Low network area Nkhotakota Lake Central Malawi Ntchisi Mponela Mchinji Dowa Salima Namitete Lilongwe Chipoka Monkey Nathenje Dedza Bay Mangochi Southern Ntcheu Ntaja Balaka Machinga Domasi Mwanza Zomba Lilangwe Namadzi Lunzu Chiradzulu Blantyre Phalombe Chikwawa Mulanje Thyolo N’gabu Nsanje 15
  18. 18. Promotions & marketing > Exciting promotions launched & well supported > Call-for-free, Zeni Zeni, Shop-A-Dream > SMS Bonus promotions A number of promotions were successfully planned and executed during the year to stimulate airtime buying. Call-for-Free, Zeni-Zeni, Shop-a- Dream and SMS bonus promotions all excited the market. TNM launched a shop in Karonga and extended opening hours of key shops for customers’ convenience. Distribution A number of promotions were successfully planned and executed during the year to stimulate airtime buying. Call-for-Free, Zeni-Zeni, Shop-a- Dream and SMS bonus promotions all excited the market. TNM launched a shop in Karonga and extended opening hours of key shops for customers’ convenience. > Distributors doubled from 11 to 22 > Outlets doubled from 5,000 to 10,000 > Flexible distribution and credit facilities to outlet To strengthen market position and service new coverage areas we doubled our distributorships from 11 to 22 country-wide.We increased number of TNM sales outlets from 5,000 to 10,000 and improved responsiveness and product availability by paying closer attention to dealers.We also introduced a flexible distribution & credit facility to chain outlets. Research & Development > Enhanced independent research into customer needs and trends > Expansion into Greenfield areas continues TNM has embraced dependence on independent research to uncover customer needs or wants, market insights and competitiveness through customer and market surveys.Alongside these surveys TNM also carried out demand surveys in green markets and the results demonstrate greater potential for growth. > Support for YONECO implemented in 2008 > TNM renewed support for the TNM Superleague > CSR policies are evolving as we grow Corporate social We recognise that we must integrate social, economic and environmental responsibility (CSR) & responsibilities with our business values and operations to meet the the environment expectations of our stakeholders comprising customers, employees, regulators, investors, suppliers, the community and the environment. Our focus in the future is to concentrate on supporting vulnerable groups in Malawi particularly the youth, young mothers, the disabled and the elderly. We continue to implement more environmentally responsible practices which include alternative energy sources, low power consumption equipment and sharing telecommunications infrastructure. In future we intend to promote responsible disposal of obsolete phones and recharge16 cards and promoting reforestation.
  19. 19. From 2005 we have been the proud sponsor of the biggest football league in Malawi amounting to MK50 million annually.This was by far the biggest sponsorship in the history of Malawian football.At a time when football sponsorship experienced apathy due to hooliganism and poor administration, TNM’s sponsorship has transformed the landscape of football in Malawi evidenced by improvements by the Malawi National team. Football is a game of passion, the most loved sport in the world and Malawi is no exception.We believe that with carefully crafted sponsorship, we will make a difference to the standards of football in Malawi and touch the Malawians’ lives in ways that will impact positively both socially and economically.Competition > Aggressive competition continues > Price wars were avoided, where possible, through product positioning > TNM’s strong Malawian brand continues to be a strategic asset By introducing wireless phones in 2008 MTL entered the fixed mobile market.TNM also experienced aggressive competition from Zain particularly on pricing of both handsets and local and international calling rates. In its interest,TNM avoided the price war tactfully by positioning itself differently In July 2008 MACRA awarded Global Advanced Integrated Networks (GAIN – trading as G Mobile) a third mobile licence. Access Communications Limited, the second national fixed network operator in Malawi, was awarded an operating license by MACRA in July 2008, the same month that MACRA advertised its intention to award a fourth mobile licence and accordingly, invited bidders. Management expects G Mobile to launch their network and Access Communications to commence operations in fourth quarter of 2009. During the year MACRA confirmed its intention to migrate to a 10 digit numbering format by March 2009 which will increase the current 1 million available numbers per mobile operator to 10 million numbers. The new numbering plan is expected to be effective 1 April 2009.The new numbering format for TNM subscribers is 088 x xxx xxx, replacing 08 xxx xxx and 04 xxx xxx. For example 08 123 456 becomes 088 8 123 456 and 04 123 456 becomes 088 4 123 456.The international calling format to Malawi will now be +265 88 8 123 456 /+265 88 4 123 456; alternatively 00 265 88 8 123 456 / 00 265 88 4 123 456. MACRA is currently reviewing all operators’ licences to ensure they are appropriate to the operating environment.. 17
  20. 20. Prospects & revised > Subscribers planned to double forecast for 2009 > Revenue base expansion from new subscribers is a key objective In 2009 TNM plans a 100% expansion of its customer base through services improvement and low cost handsets.The majority of our planned network expansion initiatives are to focus on expanding network coverage in new markets. Data services and other revenue enhancing initiatives will be launched in 2009 to open up new revenue streams particularly internet service and data products. In December 2008 shortages of foreign currency began to inhibit capital investment and operational initiatives, particularly our ability to import handsets. Furthermore in the last quarter of 2008 telecommunications operators experienced a marked slow down in revenues as a result of cautious consumer spending patterns. Our competitors also implemented vigorous price reductions on handsets. Market commentators have expressed concern over the possibility of exchange rate devaluation in 2009.These issues and the prospect of the third licensed operator commencing operations in 2009 remain a cause of concern as we intend to continue our successful 2008 strategies in 2009. The Board has taken a prudent view of these latest developments and accordingly the forecast issued at our IPO is replaced by earnings guidance based on earnings per share within a range of between MK0.16 and MK0.18 per share for the year ending 31 December 2009. TNM Always with you Werner Schrijver Chief Executive Officer18
  21. 21. Executive managementOur management team implements thelong term strategy and vision of thecompany to generateshareholder value and positiverelations with stakeholders Mr. Werner Mr. David Chetty, Mr. Charles Schrijver, 57, Chief 44, Chief Technical Kamoto, 34, Head - Executive Officer Officer Commercial Mr.Werner Schrijver Mr. David Chetty holds a Mr. Charles KamotoThe CEO, Mr.Werner holds a Bachelor of Arts National holds a Bachelor ofSchrijver, is assisted by in Business Telecommunications Business Administration.five senior management Administration and has Diploma and a National He joined the Companyemployees. been commercially Higher Diploma in Post- as Branch Executive in responsible for three School Education and 2000 and has international mobile since 1984 has subsequently held the telecommunications experience in start up posts of Sales and start-ups having worked telecommunications Marketing Manager and for such companies as T- companies and has Head of Marketing/Acting Mobile International,Tele worked in senior Chief Commercial Officer Denmark International management positions during his 8 years’ and KPN Telecom with MTN, Celtel, experience in the mobile International. In both the Swedtel and Nokia in phone industry. B2B and B2C markets, Africa and the Middle East Mr. Schrijver has had Mrs. Christina more than 20 years Mr. Macleod Duncan Mwansa, 35, Head- experience managing Matandika, 39, Chief Legal & Corporate large units (1,000 Financial Officer Affairs employees plus) at board level. Mr. Macleod Matandika Mrs. Christina Mwansa holds a Masters in holds a Bachelor of Laws Business Administration Honours Degree from and is a an accountant Chancellor College, from the polytechnic. He University of Malawi. She joined the company at its joined the Company in commencement as the 2000 as Legal Officer and Operations Accountant later the same year was up to 1998. He has wide appointed Company experience in the mobile Secretary. She has been industry and has been a licensed legal part of the growth of the practitioner for over 10 company. Prior to his years. appointment as Chief Financial Officer in April 2008 he worked as a Management Accountant Obituary:TNM’s Head of Human Resources Bester Kumbani passed away on 9 November 2008. Condolences are extended to his family and colleagues. 19
  22. 22. Corporate governance > “TNM’s Board of Directors is responsible to shareholders for creating and delivering sustainable shareholder value” > “Good corporate governance practice is an important ingredient in creating and sustaining shareholder value and ensuring that behaviour is ethical, legal and transparent.” Board structure and TNM’s Board is responsible to shareholders for creating and delivering policies sustainable shareholder value through management of the Company’s business.TNM’s Board therefore determines TNM’s strategic objectives and policies to deliver long-term value and provide overall strategic direction within a framework of rewards, incentives and controls. The Board is committed to ensuring that TNM conforms with the major principles of modern corporate governance namely, accountability, integrity, and transparency as contained in the King’s Report on Corporate Governance 2002 and the Code of Best Practice for Corporate Governance in Malawi. TNM’s unitary Board structure comprises 6 non-executive Directors whose responsibilities are set out in a formal charter. Dr. Mathews Chikaonda is TNM’s non-executive Chairman. Internal control The Board of Directors is responsible for TNM’s systems of internal control.These systems are designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements and to safeguard, verify and maintain accountability of its assets and to detect and minimise significant fraud, potential liability, loss and material misstatement while complying with applicable laws and regulations. In carrying out these responsibilities, the Board considers what is appropriate for the Company’s business and reputation, the materiality of financial and other risks inherent in the business and the relative costs and benefits of implementing specific controls. The Board also seeks to ensure that management strikes an appropriate balance between promoting long-term growth and delivering short-term objectives within its system of internal controls to provide assurance of effective and efficient operations, internal financial controls and compliance with law and regulation. Board meetings The Board holds formal meetings and periodic strategic sessions at least four times a year and reviews its governance practices continually and which may from time to time be amended to ensure that TNM adopts and successfully implements sustainable business practices. Special board meetings may be convened on an ad hoc basis, when necessary, to consider issues requiring urgent attention or decision. During the year under review, 8 Board meetings were held. Attendance� � ����� Attendance Record % Dr. Matthews Chikaonda��� 7 / 8 ��� � 88 Mr. Hitesh Anadkat���� 8 / 8 ���� 100 Mr. Kenneth Mthuzi���� 8 / 8 ���� 100 Mr. Pius Mulipa����� 7 / 8���� 88 Mr. John O’Neill����� 8 / 8 ���� 100 Mr. James Regout���� 4 / 8 ���� 5020
  23. 23. Committees The Board is authorised to form committees to assist in the execution of its duties, powers and authorities.The Board has 2 standing committees, namely, the Audit Committee and the Appointments and Remuneration Committee.The Terms of Reference and composition of the committees are determined and approved by the Board. The Board of TNM has established an Audit Committee and an Appointments and Remuneration Committee whose Chairmen, Mr. Kenneth Mthuzi and Mr. Hitesh Anadkat respectively, report formally to the Board. The Audit Committee’s role is ensuring proper management of the business operations in compliance with statutory obligations, policies, procedures, regulations and prudent business practices.The committee also reviews and evaluates the Company’s financial and accounting policies, evaluates the work and findings of internal audit, evaluates the external auditors and reviews the financial statements of the Company for recommendations to the Board for approval. Members of the Audit Committee and their respective attendance records are as follows: Attendance ����� ����� Record % Mr. Kenneth Hudson Peter Mthuzi (Chairman)�� 100 Mr. John Michael O’Neill��� 100 The Appointments and Remuneration Committee determines and agrees with the Board the framework or broad policy for the remuneration of staff.The remuneration packages of Mr Schrijver and Mr Chetty are incorporated within a management contract between TNM and Greenhurst Inc. No Director or manager is involved in any decisions regarding his or her own remuneration. Members of the Appointments and Remuneration Committee and their respective attendance records are as follows: Attendance ����� ����� Record %� Mr. Hitesh Natwarlal Anadkat (Chairman)�� 100 Mr. Pius Percy Mulipa���� 100Directors interests As provided by the Companies Act 1984 and the Company’s Articles of Association, the Directors are bound to declare any time during the year, in writing whether they have any material interest in any contract of significance with the Company, which could have given rise to a related conflict of interest. No such conflicts were reported for this year. TNM has adopted detailed policies and procedures covering the regulation and reporting of transactions in securities of TNM by Directors and officers. 21
  24. 24. Directors interests As provided by the Companies Act 1984 and the Company’s Articles of Association, the Directors are bound to declare any time during the year, in writing whether they have any material interest in any contract of significance with the Company, which could have given rise to a related conflict of interest. No such conflicts were reported for this year. TNM has adopted detailed policies and procedures covering the regulation and reporting of transactions in securities of TNM by Directors and officers. Sustainability practices During 2008 we expanded into communities that previously had no telecommunications access.With this growth comes responsible management of social, economic and environmental aspects of our operations. During 2009 we will be defining and formulating policies with respect to our commitment to this socio-economic growth of communities in which we operate. Our goal is to enhance universal access for customers and improve the general quality of life of Malawian communities and partner individuals, communities and businesses to achieve this. Communication Our Annual General Meeting (AGM) will provide a useful interface with individual shareholders, many of whom are also TNM customers.The Chairman of the Board and the Chief Executive Officer are available at the AGM to answer questions and receive feedback. Information about TNM is maintained and available to shareholders on and investors are able to receive notification of the AGM by way of opt-in email in addition to postal notification. We also report formally to shareholders twice a year when our half- year and full-year results are announced. Presentations on results and strategic progress to institutional investors, analysts and the media are presented by the CEO and his management team.Typically these presentations and, where applicable, summary transcripts of any material issues discussed at these meetings, are made available on as soon as possible thereafter. Regulation We enjoy a constructive relationship with MACRA, Ministry of Finance and MRA and have worked closely with Government and other �� stakeholders on telecommunications related matters during 2008.22
  25. 25. Director’s annual reportThe Directors have pleasure in submitting their report together with the audited financial statements for theyear ended 31 December 2008.Incorporation and Telekom Networks Malawi Limited is a company incorporated in Malawiregistered office under the Malawi Companies Act, 1984 company number 4029.The address of its registered office is:- Fifth Floor, Livingstone Towers. Glyn Jones Road. P.O. Box 3039 Blantyre MalawiNature of the business The company is engaged in providing telecommunication services in accordance with its licence issued by Malawi Communications Regulatory Authority (MACRA).Financial performance The results and state of affairs of the company are set out in the accompanying income statement, balance sheet, statement of changes in equity, cash flow statements and notes to the financial statements which include a summary of significant accounting policies.Directorate and Secretariat Directors and Company Secretary who served during the year are listed below: Dr. Matthews Chikaonda� Chairman� Mr. Hitesh Anadkat�� Vice Chairman Mr. Kandi Padambo �� Director (up to 30 April 2008) Mr. Pius P. Mulipa �� Director Mr. James Regout�� Director Mr. Steve Minaar �� Alternate to Mr. James Regout Mrs Ruth Audrey Lemani� Director (Resigned 17 July 2008) Mr. John M. O’Neill �� Director Mr. Ken Mthuzi �� Director Mrs. Hilda Singo �� Alternate to Mr. Ken Mthuzi Mrs. Christina Mwansa�� Company SecretaryCorporate Governance The company continues to embrace and abide by the main principles of modern corporate governance as contained in the Cadbury Report and the King Report. In this regard, the company has at Board level, a Board Audit Committee and a Board Appointments and Renumeration Committee.The committees comprise non-executive directors.Dividend During the year total dividend of MK881 million was declared. MK360 million was paid in May 2008 and MK320 million was paid in October 2008 and the balance of MK201 million which was decalred in December 2008 was payable in January 2009.Auditors At the forthcoming Annual General Meeting the directors will make an appropriate recommendation to the members with regard to the appointment of auditors for the year ending 31 December 2009. BY ORDER OF THE BOARD DIRECTOR�� DIRECTOR 23 3 April 2009
  26. 26. Controlling shareholder By virtue of its shareholding and a mutual voting agreement with other non-public shareholders Press Corporation Limited (PCL) is the ultimate holding company of TNM comprising a total beneficial direct and indirect interest in TNM, of 32.72% comprising a direct shareholding of 10.46% and an effective interest of 22.26% held through subsidiary,Telecom Holdings Limited. PCL is a Malawi Stock Exchange-primary listed and London Stock Exchange-secondary listed diversified holding company. MTL, a public limited company, is currently the sole provider of domestic and international fixed telecommunications services in Malawi providing telephone, data, leased line and internet access services to an estimated 110,000 customers. MTL is owned 20% by the Government of Malawi and 80% by Telecom Holdings Limited, a company in which PCL holds 62.6% equity interest. Material resolutions The authorised share capital of TNM was restructured on 4 September 2008 by increasing the share capital by MK51.618m from MK350m to a total of MK401.618m comprising 10,040,450,000 ordinary shares of 4 tambala each. On 4 September 2008 the following special resolutions were passed by TNM’s shareholders:- > TNM’s authorised share capital of MK350,000,000 comprising 35,000,000 ordinary shares of nominal value MK 10.00 each were sub-divided into 8,750,000,000 ordinary shares of 4 tambala each. > The authorised share capital of the Company was increased to MK 401,618,000 comprising 10,040,450,000 ordinary shares of 4 tambala each by the creation of an additional 1,290,450,000 ordinary shares of 4 tambala each ranking pari-passu with the existing shares in the capital of the company. Review of results Review of financial results and the activities of TNM are contained in the reports of the Chairman, the CEO and the annual financial statements. Directors’ emoluments Directors emoluments and related payments for the year ended 31 and related payments December 2008 Name��� Position� Amount ���� (MK million) Dr. Matthews Chikaonda*� Chairman� 1.030 Mr. Hitesh Anadkat �� Vice Chairman 1.030 Mr. Ken Mthuzi*�� Director� 0.958 Mr. James Regout*�� Director� 0.780 Mr. Pius P. Mulipa* �� Director� 1.030 Mr. John M. O’Neill�� Director� 1.030 Mr. Steve Minaar *�� Alternate to��� Mr. James Regout 0.035 Mrs. Hilda Singo*�� Alternate to ��� Mr. Ken Mthuzi 0.071 Mrs. Ruth Audrey Lemani� Director� 0.526 Mr. Kandi Padambo�� Director� 0.390 TOTAL��� � 6.880 Note: * These fees were not paid direct to the individuals but to the respective shareholders they represent24
  27. 27. Distributions to Prior to the intended declaration of a final dividend of 2t per share atshareholders the AGM total dividends of MK 521 million 5t per share (MK 0.05) were declared and paid during the year as follows:- MK 320 million �� 3.17t per share paid in October 2008 MK 201 million �� 2t per share declared in December 2008 was ���� paid in January 2009 TNM will have distributed a total of MK722m dividends following the declaration and payment of the final dividend of 2t per share for the year ended 31 December 2008.Control of un-issued share TNM’s ordinary share capital is fully issued and paid.capitalInterests of Directors The Directors are in aggregate non-beneficially interested in ordinary shares of the Company by virtue of their positions as Directors of shareholders of TNM. Directors’ shares in TNM held directly and indirectly are as follows:- Name��� Number of shares� Number ��� indirectly held � directly held Dr. Matthews Chikaonda� 448,700��� - Mr. Hitesh Anadkat�� Note 1��� Note 1 Mr. Ken Mthuzi �� 75,200��� 78,800 Mr. Pius P. Mulipa �� 30,000��� 287,990 Mr. John M. O’Neill �� Note 1 ��� Note 1 Mr. James Regout�� -��� - Mrs. Hilda Singo�� 85,000��� 228,300 Note 1: Both Mr. John Michael O’Neill and Mr. Hitesh Natwarlal Anadkat are beneficially interested through indirectly held part shareholdings of themselves or of their immediate family members in Livingstone Telecommunication Holdings Limited’s holding of 1.296bn TNM shares.Statement of Directors’ The Malawi Companies Act, 1984, requires the Directors to prepareresponsibilities financial statements for each financial year which give a true and fair view of the state of affairs of the company as at the end of the financial year and of the operating results for that year. The Malawi Companies Act, 1984, requires the Directors to ensure the company keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to ensure the financial statements comply with International Financial Reporting Standard (IFRSs) and the provisions of Malawi Companies Act, 1984. In preparing the financial statements, the Directors accept responsibility for the following:- 25
  28. 28. > Maintenance of proper accounting records; > Selection of suitable accounting policies and applying them consistently; > Making judgments and estimates that are reasonable and prudent; > Compliance with applicable accounting standards, when preparing financial statements, subject to any material departures being disclosed and explained in the financial statements; and > Preparation of financial statements on a going concern basis unless it is inappropriate to presume the company will continue in business. The Directors’ responsibilities includes, designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of these financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The Directors have made an assessment of the company’s ability to Approval of Financial The financial statements of the company, were approved by the Board of Statements Directors on 3 April 2009 and are signed on its behalf by: BY ORDER OF THE BOARD DIRECTOR���� DIRECTOR 3 April 200926
  29. 29. Independant AuditorsReport 27
  30. 30. Balance sheet as at 31 December 2008 In thousands of Malawi Kwacha 2008 2007 Assets Note Property, plant & equipment 14 5,798,154 3,092,949 Intangible assets 15 35,756 40,583 Total non-current assets 5,833,910 3,133,532 Inventories 16 179,218 108,562 Trade and other receivables 17 1,073,998 344,698 Amount due from related companies 18 7,112 221 Cash and cash equivalents 19 1,534,366 832,138 Total current assets 2,794,694 1,285,619 Total assets 8,628,604 4,419,151 Equity Share capital 20 401,618 350,000 Share premium 20 2,346,921 - Retained earnings 3,457,314 2,808,158 Total equity 6,205,853 3,158,158 Liabilities Deferred tax liabilities 21 284,892 193,415 Employee benefit liabilities 22 70,118 40,903 Total non current liabilities 355,010 234,318 Trade and other payables 23 1,337,362 543,975 Deferred income 30 213,436 149,002 Dividend payable 29 200,809 - Income tax liabilities 316,134 333,698 Total current liabilities 2,067,741 1,026,675 Total liabilities 2,422,751 1,260,993 Total equity and liabilities 8,628,604 4,419,151 The note on pages 31 to 52 are an integral part of the financial statements. Auditors report is on page 27.28
  31. 31. Income Statement for the year ended 31 December 2008 In thousands of Malawi Kwacha 2008 2007 Note Revenue 7 6,701,931 5,771,254 Direct operational costs 8 (2,788,062) (2,421,309) Gross profit 3,913,869 3,349,945 Other income 9 92,615 19,439 Selling and administrative expenses 10 (1,822,951) (1,198,037) Results from operating activities 2,183,533 2,171,347 Finance income 11 42,201 43,494 Finance expenses 11 (3,473) (13,505) Net finance income 38,728 29,989 Profit before income tax 2,222,261 2,201,336 Income tax expense 12 (692,296) (748,827) Profit for the period 1,529,965 1,452,509 Earnings per share Basic earnings per share (MK) 13 0.17 0.17 Statement of Changes in Equity for the year ended 31 December 2008 In thousands of Malawi Kwacha Share capital Share premium Retained earnings Total 2007 Balance at 1 January 2007 350,000 - 2,175,649 2,525,649 Profit for the year - - 1,452,509 1,452,509 Dividend declared - - (820,000) (820,000) Balance at 31 December 2007 350,000 - 2,808,158 3,158,158 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 6,205,853The note on pages 31 to 52 are an integral part of the financial statements. Auditors report is on page 27. 29
  32. 32. Cash flows statement for the year ended 31 December 2008 In thousands of Malawi Kwacha Note 2008 2007 Cash flows from operating activities Cash receipts from customers 6,541,323 6,350,365 Cash payments to suppliers and employees (3,684,702) (2,624,872) 2,856,621 3,725,493 Interest paid 11 (884) (12,146) Income tax paid (618,383) (722,733) Net cash from operating activities 2,237,354 2,990,614 Cash flows to investing activities Interest received 11 42,201 43,494 Acquisition of property, plant and equipment 14 (3,300,033) (1,367,556) Purchase of software 15 (5,396) (46,858) Proceeds from sale of property, plant and equipment 9,563 8,177 Net cash used in investing activities (3,253,665) (1,362,743) Cash flows from / (to) financing activities Proceeds from issue of share capital 20.3 2,398,539 - Dividends paid 29 (680,000) (820,000) Repayment of loans - (178,380) Net cash from (used in) financing activities 1,718,539 (998,380) Net increase in cash and cash equivalents 702,228 629,491 Cash and cash equivalents at 1 January 832,138 202,647 Cash and cash equivalents at 31 December 19 1,534,366 832,138 Additional statutory requirement Increase (decrease) in net working capital 468,009 (113,634) The note on pages 31 to 52 are an integral part of the financial statements. Auditors report is on page 27.30
  33. 33. Notes to the financial statements1. Reporting entity Telekom Networks Malawi(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. Basis of preparation 2.1 Statement of compliance These 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. The financial statements were authorised for issue by the Board of Directors on 3 April 2009. 2.2 Basis of measurement The financial statements have been prepared on the historical cost basis, except for financial instruments at fair value through income statement which are measured at fair value. The methods used to measure fair values are discussed further in Note 4.1. 2.3 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. 2.4 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 recognized in the period in which the estimate is revised and in any future periods affected. Judgments made by management in the application of IFRS’s that have significant effect on the amounts recognized in the financial statements are discussed in note 4.2 to the financial statements.3. Significant accounting policies The principal accounting policies adopted in the preparation of these financial statements as set out below, have been consistently applied to all periods presented. 31

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