BOTSWANA TELECOMMUNICATIONS CORPORATION ANNUAL REPORT 2009 Botswana Telecommunications Corporation Timelines

BOTSWANA TELECOMMUNICATIONS CORPORATION ANNUAL REPORT 2009 botswana telecommunications corporation timelines

BTC1999 Group records an all time high profit of Pula 75.0 million. BTC Group enters into interconnect and backhaul network agreement with mobile operators. Customer connections increased to 144 195 lines.

BTC Group looses2000 market share. The new billing system creates doubts. BTC’s image slide. Mobile Despite2001 resolution of billing system problems, net profit declines operators sky rocket with to Pula 2.2 million. Wireless technology introduced in the local their connections. loop. BTC Group realises that it has lost significant market share to mobile operators. Introduces pre-paid technology.

IDI of Ireland is invited to steady2002 BTC Group. Restructuring commences with 600 staff retrenched, staff numbers dropping to less than 1,000. Government engages BTC Group for its Rural Development Programme VSAT2003 technology introduced. Measures to (Nteletsa Project). BTC Group records an all improve technology and quality introduced time high loss of Pula 39 million

Profitability returns. Total restructuring2004 cost Pula 162.0 million. International connectivity established through SAT 3 through South Africa. BTC Group endorses Government of Botswana’s ICT plan – Maitlamo Initiatives. BTC2005 adopts Intelligent Network Platforms strategy and refocuses its strategy based on broadband data. Broad band is rolled out with ADSL in Gaborone. Profitability returns to 139.0 million.

Telecommunication liberalisation announcement2006 by the minister responsible for Science, Communication and Technology. BTC2007 Group awarded a Public Telecommunications Operator licence.

BTC Group launches2008 its mobile service under the brand name “be Mobile”

Aggressive2009 rollout of the beMOBILE Network. Successful launch of converged product offering and expansion of broadband to entire Botswana botswana telecommunications corporation contents

Corporate Profile 1 Organisational Structure 2 Vision and Mission 3 Board of Directors 4 Executive Management 6 Chairman’s Report 8 Chief Executive Officer’s Report 12 10 Year Review 16 Business Review 18 Corporate Governance 30 Enterprise Risk Management 50 Brand Management 56 Regulatory Report 60 Human Resources Review 64 Sustainability Reporting 68 Corporate Social Responsibility 74 Environmental Relations and Issues 76 Economic Performance 78 Customer Relations 80 Community Relations 82 Employee Relations 84 Supplier Relations 88 Financial Review 102 Caution Regarding Forward Looking Statements 104 Financial Review and Management Discussion 106 Report of The Finance and Audit Committee 131 Annual Financial Statements 134 botswana telecommunications corporation botswana telecommunications corporation about this report group highlights for the year ended 31 March 2009

net income operating revenue ebidta - Net Operating total assets Sale of Goods and Services Cash Flow Dumela! once again Earnings Before Interest BTC today is a company confidently moving Depreciation and Taxation 160 1000 300 1700 forward, thanks to the essential changes we 140 250 1650 made since 2006. We have now become a leaner 800 120 1600 company striving to be more responsive to our 200 100 600 1550 country’s and customer needs. We are more than 80 150 1500 400

Pula million 60 Pula million Pula million Pula million ever before determined to realise our goal: to be 100 1450 40 the communications company of choice. 200 50 20 1400

0 05 06 07 08 09 0 05 06 07 08 09 0 05 06 07 08 09 1350 05 06 07 08 09 About this Annual Report Year ended 31 March Year ended 31 March Year ended 31 March Year ended 31 March It is that time of the year again when we report Other sales & service Customer premises equipment Data & private circuits on our performance for the financial year. This is Local & access services Telephone - International our twenty-ninth annual report since our humble Telephone - National beginning! In this report, we invite you to share our successes, failures, difficulties, achievements  Group EBIDTA up Pula 89.4 million to  Recommending dividend of 141.4 thebe and our dreams for the future, the way we see it. Pula 268.7 million per share – up 104.0 %.  Profit for the year Pula 118.9 million  Robust balance sheet at Pula 1.65 billion  We are confident about our prospects for 2009/10

Despite the difficult trading conditions in group highlights Botswana resulting from the world economic group financials (Pula millions) down turn, we are pleased to report yet another 2008/09 2007/08 change main Drivers milestone performance for the year 2008/09. Sales 835.9 799.2 + 4.6% New sources such as mobile, data, networks increasing together with stabilisation of traditional fixed and voice lines. Here are some of the Highlights for the year:

EBIDTA 268.7 179.3 + 60.5% An increasingly efficient business with margin  Successful launch of bemobile, our mobile progressions. service coupled with “one tariff structure”  Gross margin at same level as at 53.0 percentage points.  Expansion of broadband to entire Botswana  Operating costs as a percentage of sales down 7.8  Launch of Nteletsa II percentage points to 88.7%.  Sustained financial performance  EBIDTA margin up 9.7 percentage points.

Depreciation and amortisation 151.7 152.9 - 0.8% Managed capital expenditure

Finance income 45.9 59.3 - 22.6% Lower cash balances

Finance expense 21.2 29.2 - 27.4% Lower loans

Net profit / income 118.9 58.3 + 104.1% Reduced restructuring costs botswana telecommunications corporation strategic initiatives and business targets

Area Strategic Initiatives Achievements in 2008/09 Business Target for 2009 / 10

Services Increase revenue streams by Enhanced broadband services; Entry into mobile market and new Strengthen our support for BTC outlets; Set up customer promoting customer retention tariff plans; Free weekend calling for customers; Reduced rate centres where they can get assistance; Offer batteries for high through flat rate schemes; for, between fixed and fixed, and fixed and mobile. usage customers; Focus on customer lifestyle and establish Improve bundled packages; long-term value plays; Customer satisfaction surveys. Special billing plans; Enhanced handsets subsidies.

Network Continue building a superior Expanded metropolitan network; Currently working on Nteletsa II Continue with network availability and quality; Better network network to handle expanded data in northern Botswana; Improved network resilience and reliability management; Developed managed data services. handling ability. through rigourous testing (99.9 % availability).

Tariff New billing plans (flat structures Introduced bundled tariff packages such as dual play By offering further discount services foster long-term for longer-term commitment); (voice and data) triple play (voice, data and mobility) etc. relationship with our customers; Improved handsets which Bundled tariff plans; Loyalty Upgraded internet packages. can handle multiple sims. benefits; Handset subsidisation.

New Business Continuously explore new traffic Mobile services; Additional broadband customers. Mobile services; Additional broadband customers. insensitive growth areas with other service providers such as banks, shopping outlets.

Operating costs Reduce technology and handset Further headcount reduction; Rationalised expenditure; Opex to revenue down - Expenditure to match business containment costs. Shared services. outcomes and strategies with further reductions in real terms; Further savings in opex through better process and accountability; Shared services.

Capital Continue to build superior Rationalised capital expenditure and generate cash for investment. Capital expenditure will continue to maintain quality of expenditure network to achieve service networks. differentiation and competitive advantage.

Transformation Continue business transformation. Business demonstrated resilience; Hold voice revenue stream. One BTC programme. botswana telecommunications corporation corporate profile

Our History BTC Group is a public corporation constituted under the BTC Group’s strategy is sharply focused on leveraging its BTC Act 1980 and later amended in 1996. It’s mandate is leadership in a converged fixed mobile network in three to provide national and international telephony on sound growth areas: voice, data and internet. New services will focus commercial lines. on fixed / wireless / mobile / internet convergence, as well as virtual private networks and advanced data services. From its humble beginning in 1980 with about 6,500 access lines provided mostly by electro mechanical switches linked BTC Group is organised on business and functional lines with by analogue radio microwave systems, today it boasts of decentralised operations in over seventeen offices. BTC Group more than 144,000 access lines all connected by digital also supplies the backbone network to facilitate cellular switches with thousands of kilometers of fibre optic and communications throughout the country. digital microwave technology. An active participator in the development of BTC Group provides services nationally. It has two regional telecommunications in Botswana through it’s support for offices, four districts offices and a number of customer care Government ICT policy – the Maitlamo Initiative - it takes its centres. It also publishes the Botswana Telephone Directory role seriously as a revered and responsible corporate citizen. and provides a countrywide directory assistance service.

BTC Group is run by a Board, appointed in terms of the BTC Act, supported by an Executive Management Committee. BTC Group is known for its corporate governance practices and is in the forefront of fair corporate reporting in Botswana.

Our Business BTC Group’s core business is voice and data services through a broad spectrum of modern network platforms. Currently BTC Group is the only fixed line operator in Botswana. BTC Group provides both national and international voice telephony both fixed line and mobile, toll free services, public payphones, internet wholesale access, data services including leased circuits, private wires, very small aperture terminals (VSATs), managed networks and switched data services, customer equipment etc. In 2008, BTC Group commenced a mobile telephony service under the brand name beMobile. BTC Group provides internet and some managed data services through its subsidiary, Botsnet.

BTC Annualreport2009 0000111011000111 1 botswana telecommunications corporation Organisational structure

members of the board

CHIEF EXECUTIVE OFFICER human resources finance and audit tender committee committee committee

group general manager corporate affairs

group general manager finance

group general manager technology

group general manager operations

group general manager commercial

general manager general manager general manager fixed bemobile broadband

head of internal audit

head of programme management

head of network security and fraud management

company secretary

2 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation vision and mission

OUR CORPORATE VISION Our Mission To be the communications company of choice – focused on Transform Botswana Telecommunications Corporation into delivering exceptional value to our customers, employees and the regional state-of-the art Telecommunications Services shareholders. Provider, while optimising our overall value and growth opportunities as viewed by our customers, stakeholders and OUR VALUES future partners. Respect and Trust We respect and trust each other, treating each other as we Protect and leverage the legacy investment in BTC Group by would like to be treated regardless of differences. implementing strategic commercial and network initiatives designed to converge fixed, mobile, and broadband Ownership and Responsibility services within a seamless, synergistic, and cost-beneficial We take ownership of our objectives within the company, environment, which is comparable to any successful regional accepting responsibility for our actions at all times. telecommunications operator.

Teamwork We operate as indivisible teams at a leadership, functional and cross functional level to achieve corporate strategy.

Performance We are driven to perform in such a way that the commercial and operational goals of the company are achieved.

Leadership Our leaders are the role models of the culture we desire.

Customer Everything we do begins and ends with the customer.

BTC Annualreport2009 0000111011000111 3 botswana telecommunications corporation BOARD OF directors

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4 1110001101110000 BTC Annualreport2009 1. MR. LEONARD MAKWINJA He joined the University of Botswana in 1994 as 7. MR. OABILE MABUSA Chairman (Non-executive) Network Manager, and then became Director (Not in picture) Mr. Leonard Makwinja was first appointed of Information Technology in 2000. He has Member (Non-executive) Chairman of the BTC in April 2006, to lead twenty one years experience in providing Mr. Oabile Mabusa was appointed to the Board the strategic direction of the corporation. leadership in information technology and in 2001. He is an economist and currently works He holds a Master of Science Degree in IT-based services. Mr. Mooketsi, is an Associate at Bank of Botswana as Director in Charge Industrial and Administrative Sciences from Member of The Institute of Engineering and of Banking Supervision. He has also held a City University, UK and Bachelor of Science Technology (IET, UK). number of senior positions in the Ministry of in Mineral Exploration (Honours) from the Local Government. He graduated with a BA University of Cardiff, UK. His extensive career 4. MR. MABUA MABUA (Sociology and Public Administration) at the in management spans over fifteen years, Member (Non-executive) University of Botswana and Swaziland. He also including as the General Manager of Orapa and Mr. Mabua Mabua, the Deputy Permanent holds a post graduate Diploma in Quantitative Letlhakane Mines and as the Deputy Managing Secretary responsible for ICT, in the Ministry Analysis and an MSC in Public Policy Analysis Director of Debswana Mining Company until of Communications, Science and Technology from the University of Southern California, USA. July 2007. Mr. Makwinja is currently a private was first appointed to the Board in April management consultant, and is a member 2006. He has also worked as a Director of the 8. MR. PHADZHA KGALEMANG of the African Banking Corporation Board of Department of Telecommunications and (Not in picture) Directors, as well as a member of the Y- Care Postal Services in the same ministry. He is a Member (Non-executive) Board, a non-governmental agency. telecommunications engineer, and holds a Mr. Phadzha Kgalemang was appointed to Bachelor of Engineering (honours) in Electrical the Board in November 2007. Mr. Kgalemang, 2. MR. THAPELO lippe Systems from Colchester, UK. Prior to joining a lawyer by profession was admitted to Chief Executive Officer (ex-officio member) the Ministry, he worked at BTC in various practice into the courts of Botswana in 1993 appointed October 2008 technical positions including as Chief Engineer. having been a prosecutor since 1975. He Mr. Thapelo Lippe was appointed the Chief is the founder of and managing partner of Executive Officer of BTC in October 2008. 5. MRS. SERTY LEBURU Kgalemang and Associates, one of the premier Mr. Lippe has over 18 years of experience and (Non-executive) Appointed May 2009 law firms established in 1996 and based in has held positions ranging from Microsoft Mrs. Serty Leburu joined the Board in May Francistown. General Manager (13 countries), Orange 2009. An accountant by profession; she is Botswana CEO / Country Manager, Orange currently Executive Director- Finance and Botswana CIO, international consultancies; Chief Operating Officer at Standard Chartered 9. MR. MICHAEL MOTHOBI had multi-region directorial responsibilities Bank. Prior to joining the bank, she had been (Not in picture) managing diverse teams and projects within part of the Diamond Mining Business for 17 Member (Non-executive) varying business sectors; and, has had years. She worked at both Jwaneng mine and Mr. Michael Mothobi was appointed to the full practice / organisation management Botswana Diamond Valuing Company with Board in October 2007. He is an attorney, responsibilities in service delivery. He continues a strong focus on commercial and business admitted and enrolled into the Courts of to hone his managerial, technical, and financial issues. Mrs. Leburu graduated with a Bachelor Botswana since 1979. He was formerly the skills resulting in a proven track record in of Commerce from the University of Botswana coordinator of and lecturer in the Clinical Legal delivering complex solutions / services and and later acquired a professional qualification, Education Programme, Department of Law products in a timely and profitable manner; CIMA. at the University of Botswana. He is also an meeting and often exceeding shareholder and associate member of Botswana Association market expectations. 6. MS. GOITSEONE MOsalakatane of Arbitrators and a member of the Board (Non-executive) Appointed May 2009 of Trustees of Ditshwanelo - an NGO which 3. MR. RATSELA MOOKETSI Ms. Goitseone Mosalakatane joined the champions human rights. Mr. Mothobi is Member (Non-executive) Board in May 2009. The human resource currently a lecturer of Law at the University of Mr. Ratsela Mooketsi joined the Board in April management practitioner is Managing Director Botswana. 2006. He is currently Director of Information of BothoPele Management Consultants. She Technology, University of Botswana. As a served as the Country Director Institute of member of the BTC Board, Mr. Mooketsi Development Management (Botswana). She is currently the Chairman of the Tender has worked for Botswana Housing Corporation Committee. Mr. Mooketsi holds a Master of (BHC), formulating all aspects of human Information Technology from The University of resource policies. Ms Mosalakatane obtained Newcastle - Australia; Bachelor of Engineering a Bachelor of Arts in Social Sciences in Public (Honours) in Telecommunications Systems Administration and Political Science at the Management and Design (Anglia Polytechnic University of Botswana. She holds a Master University); and Bachelor of Science from the of Science in Human Resource Development University of Botswana. from the University of Manchester.

BTC Annualreport2009 0000111011000111 5 botswana telecommunications corporation executive management

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6 1110001101110000 BTC Annualreport2009 1. tHAPELO LIPPE 7. antHONY MASUNGA Chief Executive Officer General Manager, beMOBILE (ex-officio member) Appointed October 2008 8. grant SON 2. keabetswe segole General Manager, Broadband Group General Manager, Technology 9. CHRISTOPHER DISWAI 3. riCHARD MALIKONGWA Head, Programme Management Group General Manager, Corporate Affairs 10. JENNIFER DUBE 4. Loic descamps Company Secretary Group General Manager, Commercial 11. anno tshipa 5. ngele ngele Head, Marketing and Communications Acting Group General Manager, Finance

6. BAMBINO MASOKO General Manager, Fixed

BTC Annualreport2009 0000111011000111 7 botswana telecommunications corporation chairman’s report

BTC Group has developed a new business model that will fit the maturing Botswana communications market and we are steadfastly implementing plans to achieve our goals.

8 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

As Chairman of the BTC Board, it gives me great pleasure to In the fixed line and mobile market, BTC Group has almost humbly present the Corporation’s financial report for the achieved a population coverage ratio of 80% by end of June 2008/09 financial year. 2009. In the mobile network, we have completed 86 base stations with further 74 in the pipeline to be commissioned The year under review was an exceptionally eventful one over the next six months. By then, we would have covered for the Corporation beginning with the launch of our new major parts of the country. This presents a great opportunity beMobile service in Botswana. Over the past decade, mobile for us to take on the competition on an even footing! phones have brought about major changes in how people communicate. We have seized the opportunity to penetrate Towards A new Business Model the industry. I am extremely happy to report that we have BTC Group has developed a new business model that will managed to surpass all our forecasts and expectations for fit the maturing Botswana communications market. We the year, and have become a force to be reckoned with. are steadfastly implementing plans to achieve our goals. Botswana’s mobile market has matured and is estimated Convergence of the network and data markets, together to have around 1.5 million subscribers. While competition with our targeted expansion of mobile and fixed telephony to acquire subscribers has intensified, the diversification of products, will form the corner stone of our overall “4 point customer values and lifestyles are generating a variety of strategy”, paving the way for sustainable growth in the future. growth opportunities. We are of course excited about these We believe we have identified a clear path to a profitable opportunities. and sustainable business model, building on a strong market position. Increased competition resulting in falling prices, rising data speeds and constant innovation continue to make Privatisation communications intensively competitive. It has been The privatisation effort, initiated in 2006 was postponed paramount that we continue to serve every sector of in 2008, due to unfavorable capital markets. Deteriorating Botswana’s economy, from mines to finance, banking to global capital markets mean privatisation transaction can health, transport to logistic, rural to urban, Government to not take place in the present time. Even as the transaction is residential with relevant products and services. postponed temporarily, the Corporation is still undergoing a fundamental transformation towards eventual privatisation. Towards the last quarter of 2008 and the first quarter of 2009, we faced additional challenges that resulted from Financial Performance the world economic slowdown, which led to traffic decline. A sound financial base is fundamental for implementing The economic slowdown is causing business and personal business strategies. Execution of the strategic plan by BTC customers to shop around for the best value. We have Group has resulted in steadily improving financial and responded to this new challenge by offering customers operating results. The progress is supported by a sound complete packages that meet their needs and deliver great overall financial strategy, based on strong liquidity and value for money. our ability to generate free cash flow to fund our financial obligations. Two of our lines of business – managed network and data services – continue to perform well. Broadband remains one of the most popular wideband service for people in Botswana and trends suggest that the Corporation will continue to grow as more and more people take up the service.

BTC Annualreport2009 0000111011000111 9 botswana telecommunications corporation chairman’s report (continued)

Corporate Citizenship In addition Mr Thapelo Lippe was appointed Chief Executive BTC Group is a communications company which operates Officer of BTC effective from 1st October 2008. We look throughout Botswana. We are proud to serve customers that forward to his contribution especially at a time when range from large multinationals and public entities to small competition is high and only innovative leadership will and medium business sector and thousands of families in be successful. There has also been significant changes the most rural parts of of the country. BTC is committed to in the executive committee and on behalf of the Board. I contribute positively to the communities in which we operate congratulate the newly appointed executives and wish them in a socially responsible manner. With our technologies well. and practices, we will help meet the challenge of global integration, and improve the lives of people to promote a Conclusion more inclusive society and enable sustainable economic We have a prudent plan and a clear strategy in place to growth. achieve our operational and financial objectives, all of them aimed at creating value. I would like to thank all our We commit a minimum of 0.5 % of our profits to activities stakeholders for their understanding and support during the that support societies. We invested a total of Pula 1.90 time of change and turmoil in the local economy. million during the past financial year. We believe that being a recognised leader in the field of corporate responsibility contributes to shareholder value. It builds our brand and encourages the best people to work for BTC. It is also a powerful reason for customers to do business with us and stay loyal to the Group.

Board Governance l m makwinja During the year under review, one of our Directors Ms Shirley Chairman of the Board Segokgo retired from the Board. Shirley had been a member of the Board since April 2006 and provided valuable guidance to the Corporation during a period of turmoil. On behalf of the Board, I would like to thank her for impeccable service rendered by her to the Corporation. Two new additional members, Ms Goitseone Mosalakatane and Mrs Serty Leburu, joined the Board with effect from May 2009. I welcome them to the Board and look forward to working with them in the future.

10 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

Convergence of the network and data markets, together with our targeted expansion of mobile and fixed telephony products, will form the corner stone of our overall “4 point strategy”, paving the way for sustainable growth in the future.

BTC Annualreport2009 0000111011000111 11 botswana telecommunications corporation chief executive officer’s report

BTC is developing a new business model that will fit the maturing Botswana communications market and we are steadfastly implementing them to achieve our goals.

12 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

I am honoured to have been appointed as the Chief Executive One company but many product lines Officer (CEO) of BTC on 1st October 2008. My appointment Consolidation is the order of the day. No longer will BTC coincides with a significant turning point in the history of Group deliver different product lines through separate communications in Botswana. The challenge will prove to companies. The global recession and the competitive be daunting but no doubt exciting considering a liberalised landscape calls for reduced operating expenses (OPEX), fleet sector and the ability to leverage technologies towards footed management decisions and a collaborative Team converged solutions / products; while reducing Total Cost of approach efficiently delivering products and services. One Ownership (TCO), benefiting the nation via affordable pricing. stop shops are in line for our present and future customers.

We are at the centre of a global communication revolution. Integration into fewer units also facilitates considerable Current technological breakthroughs will continue changing gains in the brand strategy. Optimised workforce allocation, people’s lives and possibly their lifestyles; including the way will streamline customer contact points and ensure uniform we do business as well. As a 100% citizen owned company, it quality of service irrespective of the service / product. is our responsibility to exploit technological innovation and improvements bringing added value to you, our customers. Let’s not forget our strength – the network The on time, below budget successful completion of the As the CEO, it is my responsibility to demonstrate and reap Trans-Kalahari (national) fiber ring provides a bar none the full potential of our organisation by aligning the business competitive network advantage that will play a significant to customer needs - improved customer service, service role in future business development; thereby increasing our delivery and the introduction of pertinent products/solutions Returns of Capital Employed (ROCE). High quality networks - realising BTC Group’s vision of being the communications are a prerequisite for the provision of national services and are company of choice. a solid foundation for growth initiatives.

New Business Model for BTC The construction of high quality networks is not, itself, a The nation’s highly developed mobile sector is negatively business goal; rather, it is a necessary condition for meeting impacting growth in traditional product based revenue; customer needs. With the introduction of high speed growth will be highly limited. New products and value Universal Mobile Telecommunications Systems (UMTS) propositions are the order of the day to retain and maintain a broadband services, customers will enjoy the full potential of loyal customer base while attracting new customers. the internet whether at home or on the move. The network infrastructure is scalable in order to meet the expected BTC Group is reviewing new lines of business positioning the explosive growth in (customer) traffic. The introduction of the organisation for current market needs. We are shifting from Brobe offering, as an example, are already providing the most a BTC that provided traditional voice services to a company cost effective internet speeds in the market thanks to BTC that is to provide flexible and dynamic mobile and broadband Group’s redundant networks. services; and introduce a managed services portfolio. Again, providing a positive all round customer experience is at the core of the change underfoot; the door on mediocrity is closed.

BTC Annualreport2009 0000111011000111 13 botswana telecommunications corporation chief executive officer’s report (continued)

Rationalising the systems and networks with the view to Cost structure accelerate wireless technologies coupled with upgraded With an unfavourable market economy, it is imperative retail fiber optic infrastructure towards broadband throughput is and wholesale pricing is reduced maintaining a foothold in core to our delivery strategy. BTC Group is currently striving the hyper competitive sector. Per the strategy, management for continuous efficiencies in network operations, workforce is reengineering the entire BTC Group towards a profitable management and security applications. streamlined, cost effective, customer value adding organisation by leveraging human capital and technology; Mobile telephony as part of our new strategy thereby enhancing affordability. During the year under review, BTC Group introduced its mobile telephony service under the beMOBILE brand. No Financial performance doubt a challenging time to introduce mobile services what The above strategies, launched during the second half of the with a liberalised sector, an all but saturated market and the year, are testament to a pertinent, well crafted strategy. stagnant economy. That said, the business unit has beat all performance metrics clearing the set subscriber base by BTC Group achieved revenues of P882 mil (versus a budget more than 20% thanks to tenacity, innovation and supportive of P868 mil) with Operating Expenses of (OPEX) of P762 mil customers. BTC Group will continue investing heavily in (versus a budget of P803 mil) producing Earnings Interest, beMOBILE’s services ensuring nationwide penetration Depreciation and Tax and Amortisation (EBIDTA) of P248.7 mil including rural Botswana facilitated by the Nteletsa II initiative; (versus a budget of P212.8 mil) and Net Profit After Tax (NPAT) and a revamp of Nteletsa I. The flexible Internet Protocol (IP) of 118.9 mil (versus a budget of P64 mil). based Intelligent Network (IN) billing platform employed will facilitate innovative and many first to market solutions / It is paramount to note the results above were realised only in products such as the beFREE offering. More flexible and value second half of the year under review. Below is a comparison added convergent, bundle offerings are in the pipeline. of first half and second half performance illustrating the gains made in six (6) months: Customers aT the centre of our strategy The BTC Group Team is dedicated to improving customer First half (April 2008 - September 2008) satisfaction. We are aware that in an increasingly competitive  Revenue: P399.6 mil (vs. budget of P438 mil) down 9% and demanding marketplace, enhancing every possible  OPEX: P182 mil (vs. budget of P172 mil) interaction we have with our customers, both current overspending by 8% and future, is instrumental towards building long-term  EBIDTA: P106 mil (vs. budget of P129.7 mil) down 18% relationships.  NPAT: P63.9 mil (vs. budget of P50.6 mil) exceed by 26%

The plan is to regroup, restructure and re-energise the second half (October 2008 - March 2009) organisation focusing on the goal of becoming the  Revenue: P436 mil (vs. budget of P383 mil) communications company of choice. We at BTC Group are exceeded by 14% focused on delivering exceptional value to our customers,  OPEX: P156.9 mil (vs. budget of P223 mil) savings of 30% employees and shareholders.  EBIDTA: P142.6 mil (vs. budget of P83 mil) exceeded by 72%  NPAT: P55mil (vs. budget of P13.4mil) exceed by 310%

14 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

Conclusion There have been many challenges ranging from leadership, labour and staff moral issues; and, court cases against the organisation; however there is no challenge too great for achieving our goals on behalf of our shareholders – Batswana.

With the Management Team all but complete, BTC Group will continue to root out inefficiency, poor customer service and all negative legacy pockets throughout the organisation; enabling the renaissance of the Group via cost effective, innovative solutions, products and services.

It is my privilege and honour leading BTC Group; and over the next year, new management and respective divisions will work tirelessly toward delivering customer promise and shareholder value!

T L lippe Chief Executive Officer

BTC Annualreport2009 0000111011000111 15 botswana telecommunications corporation TEn year review for the year ended 31 March 2009

2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Statement of operational data (P 000’s) Sale of goods and services 835,900 799,174 743,843 685,957 641,809 624,638 615,425 605,001 610,683 556,885 Cost of services excluding depreciation 244,017 217,534 214,361 203,015 176,323 170,834 199,051 190,972 212,475 162,842 Selling and distribution costs 12,349 8,599 9,607 9,087 3,767 2,774 2,390 3,321 — 3,980 Employee costs 196,274 190,557 182,027 170,170 158,581 141,326 139,660 134,932 122,775 116,348 Other operating costs, repairs and maintenance net of sundry income 137,299 108,137 101,138 53,267 62,722 77,635 32,068 134,613 115,292 95,139 Earnings before interest, depreciation, taxation and amortisation (EBIDTA) 245,961 274,347 236,710 250,418 240,416 232,069 242,256 141,163 160,141 178,576 Depreciation net of amortisation 151,653 152,806 146,928 128,097 120,860 116,321 117,958 113,201 105,980 93,497 Operating profit 94,308 121,541 89,782 122,321 119,556 115,748 124,298 27,962 54,161 85,079 Investment income / interest income 45,873 60,971 59,526 53,097 46,278 37,661 1,348 1,413 1,625 2,398 Earnings before interest and taxation (EBIT) 140,181 182,512 149,308 175,418 165,834 153,409 125,646 29,375 55,786 87,477 Interest costs (Financing costs) 21,228 29,168 31,337 36,524 33,427 30,921 48,302 53,596 53,635 47,435 Earnings (Net income) before restructuring costs 118,953 153,344 117,971 138,894 132,407 122,488 77,344 (24,221 ) 2,151 40,042 Restructuring costs and retrenchment costs — 95,017 — — 7,177 50,849 111,622 6,879 — — Earnings (Net income) before taxation (EBT) 118,953 58,327 117,971 138,894 125,230 71,639 (34,278 ) (31,100 ) 2,151 40,042

Net operating cash flow * (Pula million) (prior to restructuring costs) 245,961 274,347 236,710 250,418 240,416 232,069 242,256 141,163 160,141 178,576

Capital expenditure 167,727 371,994 125,226 130,392 167,606 94,178 78,266 145,135 131,588 220,281

Balance sheet data (P 000’s) Total assets 1,658,263 1,643,236 1,601,661 1,567,235 1,453,013 1,343,260 1,040,806 1,084,423 1,107,870 1,148,120 Current liabilities (excluding current portion of long-term debts) 194,344 204,887 115,854 104,255 107,118 113,740 211,221 220,789 248,853 281,445 Long-term debts (including current portion, net of protection) 107,273 200,813 238,711 279,473 249,999 233,665 312,762 320,388 328,839 338,852 Development grant and deferred income 228,220 239,301 277,938 297,218 315,786 333,410 95,394 102,648 65,522 66,550 Shareholder’s equity 1,128,426 998,235 969,158 886,289 780,110 662,445 421,429 440,598 464,656 461,273 Earnings ratios Revenue (Turnover) growth (%) 4.6 7.4 8.4 6.9 2.7 1.5 1.7 8.6 9.7 44.2 Earning per share (Pula) 5.7 2.8 5.6 6.6 5.6 4.3 (1.9 ) (1.2 ) 0.1 1.9 EBIDTA margin (%) 29.4 34.3 31.8 36.5 37.5 37.2 39.4 23.3 26.2 32.1 Operating profit to revenue (%) 11.3 15.2 12.1 17.8 18.6 18.5 20.2 4.6 8.9 15.3 Return on average equity (%) 11.2 16.7 12.7 16.7 17.4 13.2 (8.0 ) (6.9 ) 0.5 9.1 Return on average capital employed (%) 9.7 17.2 10.1 12.5 12.3 10.0 1.7 2.6 6.5 11.0 Return on average operating assets (%) 8.5 11.6 9.4 11.6 11.3 8.6 1.3 2.1 4.9 8.7 Other operational data Accees lines connected 144,195 142,282 136,946 132,000 136,463 131,774 142,362 142,600 135,900 123,819 Staff strength 905 1,057 1,067 1,079 1,064 985 1,694 1,754 1,754 1,754 Economic data Inflation (consumer price inflation) 11.70 9.80 7.20 13.80 6.50 6.90 11.30 6.10 7.50 6.90 Value of Pula (1 Pula equals to US $) 0.13 0.15 0.18 0.18 0.21 0.21 0.19 0.15 0.17 0.20

16 1110001101110000 BTC Annualreport2009 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Statement of operational data (P 000’s) Sale of goods and services 835,900 799,174 743,843 685,957 641,809 624,638 615,425 605,001 610,683 556,885 Cost of services excluding depreciation 244,017 217,534 214,361 203,015 176,323 170,834 199,051 190,972 212,475 162,842 Selling and distribution costs 12,349 8,599 9,607 9,087 3,767 2,774 2,390 3,321 — 3,980 Employee costs 196,274 190,557 182,027 170,170 158,581 141,326 139,660 134,932 122,775 116,348 Other operating costs, repairs and maintenance net of sundry income 137,299 108,137 101,138 53,267 62,722 77,635 32,068 134,613 115,292 95,139 Earnings before interest, depreciation, taxation and amortisation (EBIDTA) 245,961 274,347 236,710 250,418 240,416 232,069 242,256 141,163 160,141 178,576 Depreciation net of amortisation 151,653 152,806 146,928 128,097 120,860 116,321 117,958 113,201 105,980 93,497 Operating profit 94,308 121,541 89,782 122,321 119,556 115,748 124,298 27,962 54,161 85,079 Investment income / interest income 45,873 60,971 59,526 53,097 46,278 37,661 1,348 1,413 1,625 2,398 Earnings before interest and taxation (EBIT) 140,181 182,512 149,308 175,418 165,834 153,409 125,646 29,375 55,786 87,477 Interest costs (Financing costs) 21,228 29,168 31,337 36,524 33,427 30,921 48,302 53,596 53,635 47,435 Earnings (Net income) before restructuring costs 118,953 153,344 117,971 138,894 132,407 122,488 77,344 (24,221 ) 2,151 40,042 Restructuring costs and retrenchment costs — 95,017 — — 7,177 50,849 111,622 6,879 — — Earnings (Net income) before taxation (EBT) 118,953 58,327 117,971 138,894 125,230 71,639 (34,278 ) (31,100 ) 2,151 40,042

Net operating cash flow * (Pula million) (prior to restructuring costs) 245,961 274,347 236,710 250,418 240,416 232,069 242,256 141,163 160,141 178,576

Capital expenditure 167,727 371,994 125,226 130,392 167,606 94,178 78,266 145,135 131,588 220,281

BTC Annualreport2009 0000111011000111 17 botswana telecommunications corporation

business review Ever changing markets

18 1110001101110000 BTC Annualreport2009 Although difficult to predict, we are working on a presumption that the future of communications will be driven by ever evolving customer needs, enhanced through different dimensions of convergence, increased mobility and data handling capacity, business review all driven through preferably, a single network.

BTC Annualreport2009 0000111011000111 19 botswana telecommunications corporation

business review

20 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

business review

Although difficult to predict, we are working on a presumption that the future of communications will be driven by ever evolving customer needs, enhanced through different dimensions of convergence, increased mobility and data handling capacity, driven through preferably, a single network.

Worldwide, the lifestyles of customers are changing fast. It is becoming increasingly difficult to predict Changes initially brought about by the technological the future market place with any precision. advancement have been taken over by customer needs In Botswana, the aftermath of the introduction of Public for multiple services with fewer tools. The current mobile Telecommunications Operator licence (PTO) by the handsets include video games, internet access and other Botswana Telecommunications Authority has opened up the location related information such as GPS. The future handsets telecommunications landscape in Botswana. The competition will include much more personalised functions such as felt in the voice telephony market is extending to other shopping and payment schemes, payment terminals, medical services, putting pressure on the market share that BTC terminals etc. In future, rather than lifestyles adjusting to Group has enjoyed thus far. To thrive in such an environment equipment, equipment will adjust to lifestyles – rather than demands an agile, fast moving and innovative organisation to being driven by technology it will be led by needs of people. cope with the complexity of the needs, pressure for cheaper The social and economic transformation of our lives based on price and demand for escalating customer solutions and a knowledge-based society is also fueling the rate of growth performance. This requires an approach to convergence in and innovation in the ICT sector. The communication world communications solutions. As the market place is demanding is becoming increasingly connected. This has been brought converged solutions, BTC Group is modeling itself as a “One about through the choices that we have in technology and stop shop” for all communication needs for customers, by communications. A knowledge-based society no longer introducing bundled services and solutions, combining two restricts itself to technological or geographic boundaries. or more services such as fixed voice, broadband and mobile into attractive price plans. With a complete range of Data, Resulting from such changes, customer’s needs are fast Internet, Voice and Mobility capabilities, BTC Group has never changing including the desire for faster access to services, been more ready than today to meet those challenges. easy to use devices and mobility. With “one person-one number” and future demand for number portability from one Towards a new Business Model network to another, customers will shape tomorrow’s market In the personal communications segment, competition in the rather than telecommunications companies. traditional voice telephony market is fierce and shifting at a faster rate to mobile networks.

BTC Annualreport2009 0000111011000111 21 botswana telecommunications corporation business review (continued)

Customers are also demanding faster service, improved We have sought to increase our competitiveness in these coverage and cheaper prices, resulting in further declining markets by introducing innovative mobile services, expanding revenues with increasing costs. Profitability in this traditional on our Broadband value and driving convergence on our and major business segment is declining. network.

In the corporate and government segment, demand for BTC Group is also focusing on being a true value-added networks that can handle many services including voice services distributor to address the volume IP opportunities and data (end-to-end communications) are escalating. including IP phones, IP-based networks and gateways and IP- Increasingly, corporates and governments are looking for based managed services. The retail arm of BTC Group, Botsnet managed services from a single communications provider has been combined with BTC Group mainline data business. as opposed to multiple communications service vendors. With the implementation of our new network architecture In future, such demand will spill over to other ICT services on a single platform, we are now positioning ourselves as the and will not just be restricted to the communications sector. first operator to provide a converged service –we call it Fixed Further, majority of the corporates in Botswana have not Mobile Convergence. made the transition to IP telephony. This indicates that there is significant opportunity on offer. Relatively, these are To truly understand and get feedback from the customer we untapped potentials for us. need to be in touch with them directly. One of our strategies is to increase the front line contacts we have with customers. Our future growth will have to be gained from services We have 20 centres around the country with further outlets stemming from customer demand – scalable networks – for beMOBILE and Botsnet in the pipeline. converged solutions – mobility – faster data transferability etc. Realising this need, we are making concerted efforts to We will further strengthen our ties with customers by shift the revenue base from the traditional sources to new taking their viewpoint, accurately grasping their needs, and businesses growth areas such as broadband networks, mobile providing tangible value that will satisfy every customer. voice communications, Internet and other personalised Going forward we will continue to enhance the new converged services. We are on the move to develop a new relationship we are forging with our customers and market business model to sustain balanced growth through revenue as a converged service provider. As we work to achieve this, a stimulation and reducing costs. noticeable change will emerge in our capabilities to fulfill ever changing customer’s communications requirements. BTC Group’s ability to embrace change and to welcome the Our strength is providing a quality, dependable service. Information Age through a knowledge-driven society resulted in the creation and launch of a modern network capable of Customer vCentric service providing fixed and mobile, wireline and wireless technology. In the corporate sector, we continue to position ourselves as the leading Managed Services Provider in the market. Our The Group is re-engineering its business with a view of focus in this area has been to free corporates the burden becoming a unified (and converged) communications of capital investment and associated financial pressures provider. The successful launch of BTC Group’s mobile (brand) in communications infrastructure. Our robust network beMOBILE is the first step in pursuit of the BTC Group’s vision of infrastructure and our continued investment in the network becoming the telecommunications provider of choice. Mobility tools, places us in a much more unique position to provide in voice telephony is fundamental to any future growth. end-to-end communications solutions and to achieve operational efficiencies.

22 1110001101110000 BTC Annualreport2009 Key benefits of managed services to corporates will include The traditional handset subsidisation and deposit less tariff reduced costs, including traditional services fees, hardware, IT packages are less relevant in this type of market. BTC Group operations, and transport, ease of adoption of new business is aggressively targeting customers for second phone with processes, increases in levels of support and network attractive tariff packages. Furthermore, the introduction of 3G availability, IT budget will be more stable and predictable with system, faster data transmission will enable web browsing, access to the latest technologies and enhanced skills base, e-mail and terrestrial TV broadcasts. facilitating easier adoption to change and to focus on core business. ADSL Broadband as a service, has continued to perform well despite the low e-market penetration in Botswana. We BTC Group’s managed service offerings include Managed provide these services directly through Botsnet and in a Virtual Private Networks (VPNs), Managed IP Telephony, bundled service through beMOBILE and ‘Brobe’. The already Managed Customer Network etc. IP based network provide a suitable broadband infrastructure. Broadband is now available in all major towns and villages With more than 1,500,000 subscribers, the mobile market in around the country. A Botsnet outlet has been opened in Botswana presents greater challenge for acquisition of new Francistown to aggressively sell broadband services to the customers. This indicates a penetration level of 80 percent. mining industry and other users in the northern part of the However, the mobile phones have become an integral part country as part of our drive to bring Botsnet closure to the of the daily lives of users and have substantial potential to customers. transcend their conventional boundaries and make further advances. The entry into the mobile market at a time when Over the past year, we successfully introduced two bundled the industry is already showing signs of maturity poses a services – a dual play (Fixed Voice and Mobile Voice) and a number of challenges to BTC Group. triple play (Fixed Voice, Mobile voice and Broadband).

BTC Annualreport2009 0000111011000111 23 botswana telecommunications corporation business review (continued)

BTC Group’s bundling strategy is focused on meeting These new NGN platforms will provide voice, data customers’ demands with attractive price points. This is and multimedia communications over a converged IP backed up by roll-out loyalty programs to reward subscribers infrastructure. and offer one-stop customer service centres and consolidated monthly billings. Typically, customer benefits of service NGN of today support the multiple applications, the cost- bundling include added value through discounts and pre- effectiveness in traditional toll/tandem and local voice determined monthly charge, new features and functionalities, services, as well as new and converged multi-media services. single bills and one stop shop convenience. Additionally, they also facilitate new revenue opportunities through faster service provisioning. The changes happening We will continue to provide simple voice telephony through in the mobile telephony market where gains are achieved in beMOBILE for the man on the street to fixed line voice with speed and content handling, will force networks to expand mobility to managed services covering voice, broadband and and become more sophisticated. internet. We are on track to transform BTC Group from a traditional A modern open network fixed line operator into a multi-layered next generation network operator providing both fixed and mobile capability The beginning of full convergence with broadband internet and multi media services on a retail The digital revolution is opening up a world of new and wholesale basis. As BTC Group travels the road towards possibilities. We are investing in our networks, systems and Fixed-Mobile Convergence, the capability of our network services to ensure that we optimise the benefits of this investments will show results through customer satisfaction revolution. The full convergence of all solutions and services and greater financial returns. based on a single IP based multimedia platform through a converged network is on the horizon. Transport Network We have one of the modern transport networks. We have The Enabling Technology – IP Next-Generation completed our new core network which is a unified software Network driven platform. This helps us to deliver services to customers BTC Group’s quest to embrace change and to welcome whether they are delivered over copper or wireless or fibre the Information Age through a knowledge-driven society networks. We are continuing to invest in order to expand drives the initiatives to create and launch a modern network, our fibre networks to all major towns and cities available to capable of providing fixed and mobile, wire line and wireless homes and businesses. This will deliver a range of services technology – all on a single platform. with speeds up to 100 Mb, allowing customers to run bandwidth hungry multiple applications simultaneously. Voice and data traffic continues the transition from circuit- switched networks to next generation IP-based networks for both fixed and wireless access. At the same time, next- generation networks themselves are being re-defined.

24 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

The modernisation of our telephony network continues to be one of the focus areas. We continue to invest in the expansion and modernisation of the access networks in towns and villages.

The national backbone network comprises of high capacity Access Network fibre SDH ring infrastructure around the country. The modernisation of our telephony network continues to be The TransKalahari ring network connecting major towns such one of the focus areas. We continue to invest in the expansion as Gaborone, Jwaneng, Ghanzi, Maun, Orapa and Francistown and modernisation of the access networks in towns and has built-in re-routing capabilities to the previously resisted villages. The introduction of mobile services based on GSM network from Lobatse to Francistown with spur routes to has further enhanced our access capabilities to previously Jwaneng and Orapa to restore traffic once the fibre cable is unconnected outlying villages through Nteletsa II project. cut. This project upgraded the existing microwave network to establish a full national optical fibre ring system hence the VSAT allows BTC Group to extend voice and data coverage network has never been as resilient as it is now. beyond the cable network infrastructure. BTC Group’s VSAT services can be provided beyond the borders of Botswana There are other smaller regional fibre rings connecting towns and currently have a foot print access to cover most parts of in those respective regions and with spur links towards Sub-Saharan Africa. The system supports voice, video and the borders with neighboring countries for international data including internet access. connectivity. Mobile network Metropolitan Area Network The mobile network currently uses 2.5G technology and The MAN is the first commercial Multi-Protocol Label has coverage in most parts of eastern Botswana (80 % of Switching (MPLS) deployment in Botswana and continues to the population) and offering services such as voice, text support the advanced needs of our customers. MPLS brings a messaging and basic data services. In addition, under General number of additional service benefits to corporate customers Packet Radio Services (GPRS), which allows mobile services to who already rely on BTC Group to support their networks. be used for sending and receiving data over radio networks Growth in the advanced multi-service capabilities of the MAN and enabling wireless access to data networks like the continues to drive our customers to increase their reliance internet. With the impeding introduction of 3G networks in on a converged network supported by BTC Group. This gives the coming financial year, we would offer data speeds from Government and enterprises more resources and capabilities 384 Kbps up to 14.4 Mbps, which will provide an alternative to focus on their core business. to customers on the move and fixed customers who require higher data speeds.

BTC Annualreport2009 0000111011000111 25 botswana telecommunications corporation business review (continued)

Botswana’s mobile phone market has moved from an Along those lines, global connectivity continues to expand via expansionary phase to a mature phase. Accordingly, BTC leased capacity on the existing SAT3 undersea cable system Group is taking steps to implement sustainable developments while the government and BTC complete their investments in to achieve growth in the years ahead. various undersea connectivity projects. There is also planned international connectivity through EASSY and WACS undersea Data networks cable projects which are due for completion projects by 2010 The current Managed Data Network (MDN) is built on ATM and 2011 respectively. During 2008/9. BTC Group further infrastructure and extends throughout the country. Services expanded its satellite and terrestrial capacity connecting to currently offered include Leased Lines, Frame Relay, ATM, X25, the rest of the world and reached a key milestone of 320Mbps ISDN and xDSL. BTC Group also provides wholesale Internet of total capacity. This milestone is further enhanced through services through 5 dialup Points of Presence (PoPs) and the 90% of BTC Group’s international connectivity being via high central BotsGate Internet gateway in Gaborone. quality redundant fiber links. Growth in Broadband, Managed services and Tier-1 Internet demand is expected to double International Connectivity the capacity within the next year. This growth will further The completion of our national network expansion has further drive the coming online of various cable investments such as enabled BTC Group to become the interconnecting point and EASSY and WACS. transit for the region.

London

United Kingdom

Portugal

Canary Islands Legend

WACS Cable eassy Cable

Cape Verde Angola Kenya Islands Botswana Lesotho Cameroon Magadascar Congo Mozambique DRC Somalia

Moroni Ghana Sudan Ivory Coast Tanzania Namibia Nigeria Portugal South Africa Togo

26 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

WIRE-LINE INTERNET WIRELESS

uniform customer care interface

rating and billing credit control WIRELESS

convergent bss environment

convergent oss environment

network management system

shared / service specific network elements

internal processes and committed employees Our goal is to shorten the time taken to provide solution BTC Group’s Philosophy and culture has always been to put to the customers or to our internal projects. We are setting our people, our most valued asset, first. Our success depends up simplified processes which can cut down bureaucracy on the people we employ in our organisation being an and help our employees to become more agile in providing effective arm to execute the corporation’s strategy. solutions to our customers. As we become more agile, we can cut down further costs as well as the number of people we In addition to technology innovation, we are working on employ. We continue to train and re-train our core employees the internal processes and operational capability to cut and drive to reduce our cost base. the number of steps in providing the required service. We have significantly shortened delivery times and automated BTC Group values the many loyal partners who contribute processes that can be felt by the customers. A prerequisite across our business with great competence and flexibility in for the efficient customer service is a well functioning supply fulfilling their value propositions. Over the years, we have built chain, an optimised back-office or IT system and committed partnership with a magnitude of associates, whether they be employees. global giants or a local supplier in a remote village.

We have invested more than P 1 million in our billing and BTC Group has, through these partnerships been able to grow customer care systems over the past few years, expanding confidence and provide services to customers. their reach, ensuring higher speeds and positioning to deliver next-generation services more reliably. We are migrating to a The business transitions will come about through various single billing platform with capability to provide a single bill exercises such as process simplification, skills development, to customers including fixed, broadband, mobile, internet and restructuring, service delivery improvements and operational customer equipment services. excellence programs. We are setting about systematically to look at the major processes and to reduce the number of steps in each of our processes either through elimination or automation.

BTC Annualreport2009 0000111011000111 27

botswana telecommunications corporation business review (continued)

global trends - convergence

internet mobile

next generation service provider

fixed multimedia

The future Our goal is to provide excellent service in every market in BTC Group has always looked to grow rapidly into new and which we operate by putting our customers at the center of emerging markets segments; we were amongst the earliest everything we do. Towards this, we are constantly changing movers into IP networks and broadband market; though late our business processes to make substantial improvements in entering the mobile arena, BTC Group continues to make in the delivery of our services. We have made substantial an impact in the market as a quality service operator rapidly gains during the year and are determined to make further gaining market share. improvements in the coming years.

28 1110001101110000 BTC Annualreport2009

The technological transition towards becoming a converged service provider is being managed through the strategic investments into areas such as the Long-haul Fiber routes, Switch Modernisation programmes, Metropolitan Area Network and the Broadband expansion.

Being able to capitalise on growth opportunities is not size Collectively these initiatives and strategies, not far from global dependent but on entrepreneurial spirits and ability to trends, will transform BTC Group into a next generation respond to customer needs. As a niche player we can act service provider which is capable of supporting Botswana’s faster than the really big players and thereby create high ICT development. New services such as Quad-Play, Advanced value for customers and shareholders. IP services, IP VPNs, MPLS, IPTV, VoD and VoIP will become a reality through the technological and business transformation The technological transition towards becoming a converged initiatives. service provider is being managed through the strategic investments into areas such as the Long-haul Fiber routes, The new BTC Group will be one built on growth services Switch Modernisation programmes, Metropolitan Area – both fixed and mobile, video and internet and a new Network and the Broadband expansion. These will further generation of IP-based other business services. Definitely, it facilitate the investment into future technologies such as will look very different from what it is today. 3G (UMTS/EVDO), 4G, WiMAX and IP Multimedia Subsystem (IMS).

The future growth of the organisation will come through the diversified revenue streams of being the overall converged service provider for key customers. This is being achieved through the creation of value-adding business units which focus on solution development and delivery versus traditional connectivity delivery. Additional investments in Mobile voice and data, multimedia distribution or delivery and Internet services enhancements will align BTC Group with the rest of the world.

BTC Annualreport2009 0000111011000111 29 botswanabotswana telecommunications telecommunications corporation corporation

corporate governance

30 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

BTC is committed to the highest standards of business integrity, ethical values and professionalism in all its activities. As an essential part of this commitment, Members corporate of the Board support high standards of Corporate Governance and are governance accountable to the shareholders in this regard.

BTC Annualreport2009 0000111011000111 31 botswana telecommunications corporation

corporate governance

32 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

corporate governance

The introduction of the Public Telecommunications Operators (PTO) Licence introduced new opportunities for BTC Group, allowing for the provision of a telecommunications service whether wired or wireless including mobile cellular services.

BTC Group is committed to the highest standards of MEMBERS OF THE BOARD business integrity, ethical values and professionalism in The governing body of the Corporation is the Board all its activities. As an essential part of this commitment, consisting of the Chairman, the Chief Executive as Members of the Board support high standards of corporate Ex Officio member and members appointed to the governance and are accountable to the shareholders in Board by the Minister of Communications, Science and this regard. Technology in accordance with section 4 of the Botswana Telecommunications Corporation Act. Besides committee levels and internal control governance, BTC Group adheres to the Corporation’s The Board is responsible for setting the direction of founding legislation, the Botswana Telecommunications the Corporation in line with the BTC Act, through the Corporation (BTC) Act (Cap 72:02) of the Laws of Botswana, establishment of key strategic objectives and policies. The other common law provisions of corporate law and Board met on 14 (fourteen) occasions during the financial internationally accepted standards in observing good year 2008/09 to consider various strategic and policy corporate governance. issues and other matters having a material effect on the Corporation’s affairs. By subscribing to best practices on good governance and applying them where feasible, the BTC Board is of Except for the Chief Executive Officer, other members the opinion that it has improved its compliance to those of the Board are non-executive and independent of the principles and codes. BTC Group has over time created management of the Corporation and, between them have and refined its structures so as to comply with the a wide range of experience at senior level. The selection applicable recommendations as laid down in the relevant of Board members is based on their experience in various international codes of corporate governance. disciplines covering Finance, Technology, Economics and General Management or Administration among others. BTC Group understands that adhering to sound principles All members of the Board are considered to be of corporate governance is critical to earning and independent of management and do not have any maintaining the trust of key stakeholders and ultimately conflicts with the organisation. The tenure of Board our performance goals. The methods we employ to Members ranges from three to four years and the achieve our goals are as important as the goals themselves. Members are eligible for re-appointment at the end of The key principles underpinning the governance of the their terms. Corporation are setout in this statement.

BTC Annualreport2009 0000111011000111 33 botswana telecommunications corporation corporate governance (continued)

The BTC Board for the year was constituted by the following members:

Member Position Date and period of Appointment

Mr. Leonard Makwinja Chairman Appointed on 1 April 2006 for three years and re-appointed on 1 April 2009 for three more years.

Ms. Shirley Segokgo Vice - Chairperson Appointed on 1 April 2006 for three years. Retired with effect from 31 March 2009.

Mr. Thapelo Lippe Chief Executive Appointed on 1st October 2008 for Officer (ex-officio) three years expiring on 30 September 2011.

Mr. Oabile Mabusa Member Member since March 2001, re-appointed on 16 September 2007 for three years.

Mr. Mabua Mabua Member Appointed on 1 April 2006 for four years, resigned and reappointed on 01/10/07 for 3 years

Mr. Ratsela Mooketsi Member Appointed on 1 April 2006 for four years.

Mr. Michael Mothobi Member Appointed on 1 October 2007 for three years

Mr. Phadzha Kgalemang Member Appointed on 1 October 2007 for three years

34 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

The Chairman is responsible for leading the Board Responsibilities of the Board and, with the assistance of the Chief Executive Officer, BTC Group is led by a Board that brings leadership, ensures that Members receive timely, accurate and clear commitment and rigour to the business of the information before Board meetings and updates on organisation, as well as its governance in pursuance of its matters arising between meetings. Whilst Members have statutory mandate, ensuring proper and effective control access to the Auditors, Executive Management and to of the Corporation’s business and carrying out periodic such information as is necessary to carry out their duties evaluation of corporate performance. and responsibilities fully and effectively, the Board seeks professional advice as and when necessary. The Board is also responsible for guiding corporate governance by establishing committees and structures The Corporation’s operations are organised on a hierarchy within the organisation in order to assist it in effective of functional units, individual Business to Strategic Business fulfilment of its responsibilities. Units, Regional Operating Units and a Corporate Unit. The individual Group General Managers are accountable for The Board, directly or through its sub-committees: the functional units under their control and the ensuing  Approves the BTC’s corporate strategies, annual responsibility, authority and planning structures, together budgets and business plans; with the limits placed on Executive Management by the  Approves significant capital expenditure projects, Board, ensuring that no one operating body or unit or selection of suppliers and major financial proposals; individual has unfettered powers of decision making.  Assesses the comprehensive system of reporting on The Chief Executive Officer, as the Head of Executive financial and non-financial matters, strategy and other Management, provides leadership and direction to the operational matters; Executive Management.  Ensures compliance with applicable laws and regulations; The Chief Executive Officer is bound by a contract of  Approves acquisitions and divestments; employment with agreed and set targets, which are  Assesses key business risks and monitors management appraised by the Board from time-to-time. of those risks;

BTC Annualreport2009 0000111011000111 35 botswana telecommunications corporation corporate governance (continued)

 Ensures effectiveness of internal control systems; and  Selected suitable accounting policies and applied them  Evaluates and monitors performance of senior consistently; management.  Made judgement and estimates that are reasonable and prudent; Management is required to implement approved plans  Followed applicable International Financial Reporting and strategies and support the Board. Standards; and  Prepared financial statements on a going concern As part of its responsibility, the Board also ensures that basis. BTC makes a fair representation of the financial position, results of operations, statement of changes in equity and Board Committees cash flow statements in conformity with the International The following committees are appointed by the Board to Financial Reporting Standards. The Board has delegated assist in governance of the Corporation: these responsibilities to management of the Corporation. In preparing these financial statements, management on  Finance and Audit Committee behalf of the Board has:  Human Resources Committee  Board Tender Committee

Responsibilities, membership and their activities are discussed below.

Attendance and Meetings of the Board and Board Committees The Board is required to meet at least four times a year. During the financial year, members of the Board as part of the respective committees attended the following meetings:

Board finance and Human Board Tender Audit resources Committee Committee Committee Mr. Leonard Makwinja Chairman 14/14 — — — Ms. Shirley Segokgo Vice Chairperson 13/14 4/4 8/8 — Mr. Thapelo Lippe CEO 2/2 2/3 Mr. Oabile Mabusa Member 9/14 4/4 — — Mr. Mabua Mabua Member 13/14 — — 2/3 Mr. Ratsela Mooketsi Member 13/14 — — 3/3 Mr. Michael Mothobi Member 12/14 — 6/8 — Mr. Phadzha Kgalemang Member 5/14 — — 1/3

Key (N/N) – number of meetings attended in comparison to total number of meetings entitled to attend

36 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

Remuneration of Members of the Board Except for the Chief Executive Officer, members of the Board are not entitled to monthly or annual salaries. The members of the Board and Sub-committees are paid a sitting allowance.

Member Position Amount (Pula) Mr. Leonard Makwinja Chairman 14,700 Ms. Shirley Segokgo Vice Chairperson 21,000 Mr. Thapelo Lippe Chief Executive Officer — Mr. Oabile Mabusa Member 10,920 Mr. Mabua Mabua Member 12,600 Mr. Ratsela Mooketsi Member 13,440 Mr. Michael Mothobi Member 15,120 Mr. Phadzha Kgalemang Member 5,040

Board Committees The Board is supported by specialist committees as follows: All executive members of the Corporation meet at least fortnightly to consider and review matters of strategic, Executive Management Committee (EXCO) operational and tactical importance. The Board has, subject to pre-defined limits, delegated its executive authority to the Executive Management Finance and Audit Committee Committee (known as EXCO), and headed by the Chief Finance and Audit Committee is responsible for ensuring Executive Officer. The other members of the EXCO that management creates and maintains an effective are Group General Managers responsible for Finance, control environment in the Corporation and that Operations, Corporate Services, Technology, Commercial, management encourages the necessary respect for Business Units General Managers, Head of Public Relations internal controls amongst employees. The Committee and Marketing, Corporation Secretary and Head of is comprised of three Board members and the Chief Programme Management. Executive Officer.

Management is responsible for proposing strategic alternatives to the Board and will be accountable for the implementation of strategies, policies and other decisions approved by the Board. EXCO manages the business and affairs of the Corporation, implements strategic decisions, prioritises the allocation of capital, technical and human resources and establishes best management practices.

BTC Annualreport2009 0000111011000111 37 botswana telecommunications corporation corporate governance (continued)

This responsibility is achieved through: In particular, the Committee:  Assessing the policies and procedures of the  Deliberates and decides on policy issues relating to Corporation to ensure that the accounting systems and remuneration and benefits, salaries, bonuses related controls are adequate and functioning  Determines, for Board approval, the remuneration effectively. policy for all BTC staff  Identifying major risk to which the Corporation is  Determines targets and objectives for any performance exposed and verify that the related internal control related pay schemes systems are adequate and functioning effectively  Recommends specific remuneration packages for staff  Reviewing the financial statements of the Corporation  Recommends to the Board appointments for to provide assurance that financial disclosures Senior managers made by the management portray the Corporation’s financial conditions, results of operation and long term Ms. Segokgo chaired the committee whilst the other commitments; members of the Committee are Mr. Mothobi, Mr. Mooketsi  Overseeing both the internal and external audit and Mr. Lippe. process, together with reviewing the effectiveness of both auditors. The Human Resources Committee met eight times  Reviewing non-audit services provided by the external during the year. auditors.  Monitoring all legal and regulatory compliance Board Tender Committee  Monitoring compliance with the Corporation’s Code The responsibility of the Board Tender Committee is of Conduct to ensure that all tenders within the authority of the Board are addressed in a transparent and procedural Members of the Finance and Audit Committee for the year manner to enhance an effective control environment under review were Mr. Mabusa, Ms. Segokgo and in the Corporation’s procurement process and that the Mr. Lippe. Board encourages the necessary respect for control by Management and employees of the Corporation. The Finance and Audit Committee met four times during the year under reporting. The Board Tender Committee comprises of selected members of the Board. Representatives of both internal and external auditors attend these meetings, and have direct access to the The Board Tender Committee has the authority to Chairman of the committee. deliberate and decide on tenders in excess of P 5 million. In order to expedite the business operations, tenders human resources committee below the value of P 5 million have been delegated to The Committee is responsible for ensuring that all matters a sub-committee consisting of management and the relating to remuneration and benefits of the Corporation’s outcomes of the tender evaluations and adjudications are employees are decided under the authority of the Board reported to the Board Tender Committee on a periodical and that it keeps abreast of developments in the market basis. place, with regard to remuneration and benefits. The Committee is comprised of three Board members and three ex-officio management members.

38 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

BTC Annualreport2009 0000111011000111 39 botswana telecommunications corporation corporate governance (continued)

Members of the Board Tender Committee during the GOING CONCERN reporting year were Mr. Mooketsi, Mr. Mabua, Mr. Kgalemang and Mr. Lippe The financial statements have been prepared on a going concern basis. Having made relevant enquiries, the Board The Board Tender Committee is also responsible for: has a reasonable expectation that the Corporation has  Making recommendations to management on ways adequate resources to continue in operational existence to improve procurement procedures and policies for the foreseeable future.  Monitoring implementation of projects for which tenders have been approved INTERNAL CONTROLS  Ensuring adherence to Corporate Governance Standards The Board, through its Finance and Audit Committee,  Ensuring that the Corporation complies to relevant is responsible for the effectiveness of the Corporation’s legislations and regulatory requirements systems of internal controls and has established a  Reviewing any complaints, pending litigations or continuous process for identifying, evaluating and regulatory proceedings relating to tenders managing significant risks faced by the Corporation. Key business risks are reviewed periodically by the Committee, Adhoc Committees with formal reviews of the full internal control environment Adhoc Committees are appointed by the Board, as and performed annually. Where areas of improvement are when necessary, to consider specific issues before the brought to the Committee’s attention, steps are taken to submission of the Board for a final decision. The Board, as it embed internal control and risk management into the finds necessary, determines the terms of reference for such operations of the business. The Board regularly reviews committees. the process, which has been in place throughout the year and up to the date of the approval of this report, which is APPOINTMENT OF SENIOR MANAGEMENT in accordance with - Code of Best Practices in Corporate Governance – set out in this report. The Chief Executive Officer is appointed by the Minister responsible for Communications Science and Technology The systems are designed to provide reasonable based on the recommendation by the Board. Usually assurances to the integrity and reliability of the financial solicitations for senior positions are made through statements and other operational information. Such local print media. All senior management positions are systems of internal controls are designed to manage approved by the Board. rather than eliminate the risks of failure to meet business objectives, providing reasonable but not an absolute APPROVAL OF ANNUAL FINANCIAL STATEMENTS assurance against material loss or misstatement.

The financial statements of the Corporation were reviewed Based on the information received from the management by the Finance and Audit Committee, approved by the and the Internal Audit Department, the Board was of Board and were signed accordingly on behalf of the the opinion that the systems of internal controls can be Corporation by the Chairman and the Chief Executive. reasonably relied upon, and that there was no material or fundamental breakdown in the system of internal control during the year under review.

40 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

Whilst no system of internal control can provide absolute Board. Continuing actions are taken throughout the year assurance against material misstatements or loss, the to embed risk management and internal controls into the Corporation’s systems are designed to provide the Board day-to-day operations of the Corporation. with reasonable assurance that the procedures in place are operating effectively. The key elements of the system of In relation to potential major contracts or acquisitions, internal control are delegation, operations, planning and external advisors, together with senior management empowerment, competence, monitoring and reporting, within the Corporation, are appointed under clearly and Internal Audit. defined scopes to carry out commercial, financial and legal due diligence. The Board is kept fully up to date with any Delegation issues arising during such due diligence. The overall financial objectives of the Corporation are agreed by the Board, which delegates day-to- Competence day responsibility to management. There is a clear It is the Corporation’s policy to continually strengthen organisational structure, detailing lines of authority and the effectiveness of the system of internal control by control responsibilities. There are defined operating and recruiting, developing and managing employees of the capital spend authorisation limits in place. highest calibre and matching their skills to the appropriate disciplines. Formal policies and procedures are in place, including the documentation of key systems and rules relating to the Staff skills are maintained both by a formal recruitment delegation of authority. This allows for the monitoring process and a performance appraisal system, which of controls and restricts the unauthorised use of the identifies skill gaps and training needs. Corporation’s assets. Monitoring Results and Management Reporting All major procurements are subject to a formal All reporting of financial and other results is carried out authorisation procedure, with a Board Tender Committee as an effective monitoring mechanism; actual results comprising the members of the Board overseeing the are compared against the annual plans and against the major awards. historical trends in the previous years.

Operations, Planning and Empowerment Internal Audit Function A rolling three year corporate planning process that BTC Group has an independent Internal Audit function facilitates and encourages the involvement of staff which administratively reports directly to the Chief through Annual Plans that articulate strategies at Executive, with a dual reporting responsibility to the Functional, Individual Business Units, Strategic Business Finance and Audit Committee. The Internal Audit process Units, Departments, Regional and corporate offices provides an assurance that significant risks are subject to ensure employee empowerment. Employee participation periodic reviews and control processes are in place and improves the sense of ownership, the reduction of weaknesses are identified and mitigated. The Internal bureaucracy and speedy decision making. Audit Department has an Internal Audit Charter setting out the independence of the function, which has been Key policies, processes and control procedures are adopted by the Finance and Audit Committee and signed communicated throughout the Corporation. Non- by the Chairperson of that committee. compliance is reviewed and any areas of weaknesses identified are addressed and promptly reported to the

BTC Annualreport2009 0000111011000111 41 botswana telecommunications corporation corporate governance (continued)

External Auditors STAFF REMUNERATION In terms of the BTC Act, the Auditor General of Botswana The Corporation has an employee remuneration policy has been empowered to carry out the audit of the formulated in wide consultations with its employees. Corporation. Under a special dispensation, he has Remuneration issues are negotiated with the two delegated the power to Ernst & Young, a firm of Certified registered unions and there are general consultations Public Accountants. with other employees not represented by the union. The Board is charged with the responsibility of approving RISK REVIEW AND CONTROL remuneration packages on the recommendation of the In addition to the above, the Board has, through the Remunerations and Benefits Committee. involvement of an Enterprise-wide Distributed Risk Management Programme, endeavoured to ensure that PENSION FUND control systems, designed to safeguard the Corporation’s The Corporation’s Staff Pension Fund – the BTC Staff assets and maintain proper accounting records that Pension Fund – is a defined contribution fund. This fund facilitate the production and availability of reliable is controlled by trustees who are Corporation and Union information, are in place and are functioning as planned. members. The trustees make investment decisions based on the recommendation of the fund managers. The The programme ensures that wider range of risks, arising assets of the fund are kept separately from those of the as a result of the Corporation’s diverse operations, are Corporation. The fund can only be used in accordance with effectively managed in support of the uninterrupted its rules and for no other purpose. communications services to Botswana and the creation and preservation of shareholder wealth. The significant ETHICS business risks to the Corporation, financial, operational Members of the Board and staff are required to conduct and compliance, which could undermine the achievement themselves according to the highest ethical standards. The of the Corporation’s business objectives are identified, Corporation strives at all times to make relevant disclosures mitigation actions are established and risk owners of information to stakeholders in a transparent manner. appointed. Business risks are reviewed on a semi-annual basis. COMPLIANCE WITH LAWS AND LEGAL REQUIREMENTS The Board is conscious of its responsibility and is INDUSTRIAL RELATIONS AND EMPLOYEE unequivocally committed to upholding ethical behaviour REPRESENTATIVES in conducting its business. The Board, through the The Corporation’s staff, other than those in the Corporate Legal Department and Finance Division, strives management cadre, are entitled to join one of the two to ensure that the businesses of the Corporation comply registered staff unions. Regular consultative meetings with the laws and regulations of Botswana. between management and the two registered trade unions are conducted regularly to share relevant information and consult on a number of staff issues to foster good employer / employee relationships.

42 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

REGULATORY AFFAIRS AND ACCOUNTABILITY RELATIONSHIP WITH GOVERNMENT

In terms of the amended Telecommunications Act of The Corporation, through the Chief Executive Officer’s 1996, the Corporation is issued with a license to carry office, maintains an active dialogue with various out public telecommunications services in Botswana. In Government Ministries and Departments. Concerns raised terms of the Act and the license conditions, the Botswana by the various Ministries, Departments and Offices are Telecommunications Authority has power to approve discussed, actioned and addressed appropriately. tariffs (i.e price control) related to local and national telephony services and to request the Corporation to provide certain financial information related to these services.

RELATION WITH THE COMMUNITY

The Board is ever conscious of the principles of good citizenship and the operational dimensions of the Corporation’s social programmes. The Corporation ensures that, resources permitting, the needs of the society are linked to the Corporation’s business and social objectives.

BTC Annualreport2009 0000111011000111 43 botswana telecommunications corporation corporate governance (continued)

The Code on Corporate Governance: compliance statement

In an attempt to improve the corporate governance principles and to enhance the Board’s accountability, the Corporation has voluntarily decided to subject itself to world class codes on corporate governance. The statement below, which was based on the codes published by the Financial Reporting Council of the United Kingdom, measures the degree of it’s compliance to the respective codes. The Corporation has complied with the Codes of Best Practice throughout the financial year ended 31 March 2009, other than with the exceptions stated below:

Code of Best Practice - principles Compliance with / exception to the Code of Best Practice

A BOARD MEMBERS AND ACCOUNTABILITY A.1 the Board Partially Complied Every company should be headed by an BTC is headed by a Board appointed in terms of the BTC Act, effective Board, which is collectively responsible with the responsibility to run the Corporation’s affairs on for the success of the company. a sound commercial basis. The Board set the strategic direction and approves matters relating to senior management changes, staff remuneration policies, business plans, annual budgets, major contracts etc.

A.2 Chairman and Chief Executive Complied There should be a clear division of responsibilities There is clear separation between the duties and at the head of the company between the running responsibilities of the Chairman and the Chief Executive. of the Board and the executive responsibility for The Chairman, appointed in terms of the BTC Act does not the running of the company business. No one have executive powers except to direct the Board on their individual should have unfettered powers decisions. The division of powers is set out in the BTC Act, of decision. Board Charter and the Shareholders Contract.

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A.3 Board balance and independence Partially Complied The Board should include a balance of executive Seven of the eight members of the Board are non- and non-executive directors (and in particular executive and are appointed to the Board by the Minister independent non-executive directors) such that responsible for BTC Group to represent the wider no individual or small group of individuals can stakeholder fora. A non-executive member is selected as dominate the Board’s decision taking. the Vice Chairperson. No member of the staff other than the Chief Executive sits on the Board. At the same time, the Board has to be completely independent of management to ensure full and accurate disclosure of information. Their opinions carry significant weight in the decision making process, both operational and financial, and they are free from any business or personal relationships that could interfere with their independent judgement.

Board balance can also be interpreted to mean a balance of capabilities. The non-executive members of the Board contribute a wide range of skills and experience, forming a strong and independent element within the Board. The non-executive members of the Board receive only a nominal sitting allowance for services rendered, have served for less than eight years. Except for two members of the Board, none of the other members have been ex-employees of the Corporation at any time. Only one of such members has been in the employment of the Corporation during the last five years.

A.4 appointment to the Board Partially Complied There should be a formal, rigorous and There is no Nomination Committee in place to lead the transparent procedure for the appointment of process of appointment of members of the Board. From new directors to the Board. time to time, the Minister responsible for BTC appoints the members of the Board from a list of candidates submitted by the Corporation. A new practice currently put in place will ensure that future appointments will be made by the Minister on the recommendation of a list of candidates submitted by Public Enterprises Evaluation and Privatisation Agency (PEEPA) which in turn selects such candidates through a public invitation process.

BTC Annualreport2009 0000111011000111 45 botswana telecommunications corporation corporate governance (continued)

The Code on Corporate Governance: compliance statement (continued)

A.5 information and professional development Complied The Board should be supplied in a timely manner The Board ensures that a new member is properly with information in a form and of a quality inducted and that members obtain sufficient professional appropriate to enable it to discharge its duties. advices, both from internal and external sources. All directors should receive induction on joining the Board and should regularly update and The Board meets at least quarterly to consider matters put refresh their skills and knowledge. before them. All matters discussed at the Board meetings are supported by written and / or oral presentations to make informed decisions. The Board has been inducted at various times.

The Board’s Secretary is responsible to the Board for ensuring that its procedures are followed.

A.6 performance Evaluation Partially Complied The Board should undertake a formal and The Chief Executive is set with targets against which the rigorous annual evaluation of its own performances are evaluated annually. However, the Board performance and that of its committees and has not set targets for itself so far. individual directors.

A.7 re-election Partially Compliant All directors (members) should be submitted for The members of the Board are usually appointed for a re-election at regular intervals, subject to period of four years by the Minister and, generally hold continued satisfactory performance. The Board office for the entire period unless he/she resigns for any should ensure planned and progressive reason. At the end of the initial period, the Board may refreshing of the Board. recommend renewal of the member’s appointment to the Minister responsible. Generally, a person is restricted to serve no more than two terms of four years.

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B tHE LEVEL AND MAKE-UP OF REMUNERATION – BOARD MEMBERS AND SENIOR EXECUTIVE

B.1 remuneration policy Non-compliant levels of remuneration should be sufficient to Only the Chief Executive, who is a member of the Board, attract, retain and motivate directors of the is entitled to remuneration paid on a monthly basis. quality required to run the company successfully, All other members of the Board are only entitled to but a company should avoid paying more than is nominal sitting allowances. There are no incentive plans necessary for this purpose. A significant in force relating to the performance of the Corporation. proportion of executive director’s remuneration BTC Group believes that, although it is not a market leader should be structured so as to link rewards to in terms of staff rewards and remuneration in Botswana, corporate and individual performance. its remuneration schemes are sufficient to attract qualified and competent persons to its management level.

There are no set notice periods for non-executive members whilst the Chief Executive Officer is expected to offer a minimum period of three months notice in the event of resignation.

B.2 procedure Complied There should be a formal and transparent The rewards and remuneration for the Chief Executive procedure for developing policy on executive and senior management staff members are set by the remuneration and for fixing the remuneration Remuneration Committee and approved by the Board of packages of individual directors. No director Directors, and are in line with the normally approved should be allowed in deciding his or her own salaries and rewards packages of the Government of remuneration. Botswana’s Incomes Policy. On the other hand, the Board members sitting allowances are set by the Government.

BTC Annualreport2009 0000111011000111 47 botswana telecommunications corporation corporate governance (continued)

The Code on Corporate Governance: compliance statement (continued)

C aCCOUNTABILITY AND AUDIT

C.1 financial reporting Complied The Board should present a balanced and BTC complies with all applicable International Financial understandable assessment of the company’s Reporting Standards, Botswana Telecommunications Act position and prospects. and other relevant legislation.

C.2 internal control Complied The Board should maintain a sound system of The Board through the Finance and Audit Committee internal control to safeguard shareholders’ ensures that the internal controls and risk management investment and the company assets. practices are aimed to safeguard its assets and resources.

C.3 audit committee and auditors Complied The Board should establish formal and The Board through its Finance and Audit Committee transparent arrangements for considering how ensures that basic internal controls principles which they should apply the financial reporting and culminate in good financial reporting are adhered to. internal control principles and for maintaining The appointment of external auditors is sanctioned by the an appropriate relationship with the company’s Auditor General of Botswana and ensures that sufficient auditors. independence is maintained. The relationship with the external auditors is good.

d relatiONS WITH SHAREHOLDERS

D 1 dialogue with institutional shareholders Complied There should be dialogue with shareholders BTC has a specific department to deal with the based on the mutual understanding of objectives. shareholder, the Government of Botswana and its various The Board as a whole has responsibility for organs. ensuring that satisfactory dialogue with the shareholders takes place. The Chairman and members of the Board have sufficient access to the Minister responsible to discuss any matters of mutual concern. There is always satisfactory dialogue between the Corporation and its shareholder.

D.2 Constructive use of AGM Not complied / Not applicable The Board should use the AGM to communicate BTC’s founding document, which is an Act of Parliament, with investors and to encourage their does not require calling of a General Meeting with its participation. shareholder. However, in terms of the Act, the Annual Reports are submitted to Parliament with in 180 days from the financial year end.

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BTC Annualreport2009 0000111011000111 49 botswana telecommunications corporation

enterprise risk management

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BTC Group as an important player in the telecommunications sector in Botswana and faces a multitude of risks. Understanding and managing these risks is therefore important for the Group to achieve it’s goals. Managing risks is part of our corporate culture.

BTC Risk Philosophy BTC Group recognises that an effective risk management The enterprise-wide risk management is mainly distributed process is fundamental to achieving its business goals. The among the following functions: Corporation is aware that business opportunities can be enhanced through better management of risk. The Risk distributed risk management Management process therefore aims to ensure that a more framework inter-dependent and more explicit connection exists between managing the business and managing the risk. BTC Group Network security also believes that it can manage risk only if its employees are Network Fraud equipped to manage risk. The Group believes that it is the corporate culture which facilitates the enterprise wide risk Access Control management process. Physical Security Management

revenue assurance The Corporation also recognises that in order to add value to its business, it needs to take business risks. There are risks End-to-End Revenue Assurance in every activity it is involved in. Business risks that carry no Credit Risk Management compensating gains are therefore avoided or minimised. BTC financial Group’s view is that it is not possible to eliminate the risks entirely and therefore systems should be designed to manage Financial Risk and Insurance Portfolio risk rather than to eliminate the risk of failure; such systems Economic and Market Risks providing only reasonable and not absolute assurance. network services

Responsibility Business Continuity Risks The Board through the Finance and Audit Committee Disaster Recovery Management is ultimately responsible for the Corporation’s system of internal control and risk management and for reviewing the HUMAN RESOURCES effectiveness of those systems. BTC Group has adopted a Safety, Health and Environment Distributed Enterprise-wide Risk Management Framework where risks are managed within the major functional regulatory departments. The Head of Internal Audit is responsible for Regulatory Risk Management ensuring that all business risks are assessed, included in the Risk Register and managed on an ongoing basis.

BTC Annualreport2009 0000111011000111 51

botswana telecommunications corporation enterprise risk management (continued)

BTC group’s Risk Management Process In order to manage risk, BTC Group identifies and analyses  What is the cost of control and does the benefit risks it faces, ranks them by the likelihood of occurrences exceed the cost? and significance of consequences, and determines the most  What are the early warning mechanisms? effective ways to manage the risk universe. The Group’s  Internal Audit Department carry out continuing Headline Risk Register groups the risks into five broader assessment of the risk/s, management and control, and categories for reporting purposes: market / business, their Internal Audit reports to Management, and the technology, operational, compliance and financial risks. Finance and Audit Committee on the status of specific areas identified for improvement. High Level Risk Assessment takes place as an integral part  The Finance and Audit Committee, on behalf of the of the Corporation’s annual strategic planning phase. These Board, considers the effectiveness of the operation of are followed up by more detailed systematic analysis and internal control procedures in the Corporation by identification at business unit or departmental levels. reviewing reports from the Internal Audit department and from the external auditors. The Risk Management Programme at BTC Group embodies  Control strategies usually considered are: the following steps:  Accepting the risk  Discussion of the Corporation’s vision and strategic goals  Transferring the risk to a third party so that they are well understood by all senior managers.  Elimination of the risk by adopting an Exit Strategy  Identifying the events (or risks) that could positively or  Building controls into operational process, additional negatively impact on the achievement of the strategies. quality control or by involving top staff in managing  The likelihood of frequency and consequence / impact the risk of the events (or risks) on the Corporation’s operation,  Avoiding the risk in other ways profitability and it’s image and the likelihood of such  Some of the routine processes that are part of the normal events detected through the existing internal controls day-to-day operations to early identify, prevent and and processes. control risk/s are:  Maintaining a Risk Register for the Corporation.  Disaster Recovery Plans  The headline risks, being the most hierarchical in the risk/s  Safety Awareness Programmes structure, are tested for the following:  Environmental Impact Assessments  What is the likelihood of occurrence / frequency of  Planned and Preventive Maintenance Programmes such risks?  Compliance and Assurance Audits  What will be the consequence or impact of such  Regular Monitoring of the Market and Financial occurrences? Indicators  Should the Corporation accept the risk/s?  Internal and External Audit reviews  What control measures could be adopted to avoid or  Structured training mitigate the gross risk/s?  Who is accountable for managing the risk and maintaining and managing the control measures?  What is the residual risk/s that remains a risk after the application of control measures?

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HEADLINE RISK REGISTER The following table summarises the identified headline risk/s, the brief description of the identified risk/s, the consequence fo each risk and the Corporation’s policy on mitigating such risk/s.

Headline Risk risk Description Consequence of Risk Objectives of BTC to Mitigate Risk

MARKET / Strategies and Planning Inability to achieve Impact on growth Continuous planning BUSINESS RISKS Risk. business objectives. prospects and profitability. and review processes.

Economic and Market Weak economic conditions Impact on operations, New and innovative Risk (Weaker economy, will result in weaker demand. profitability, cash flow and services, efficient credit lack of infrastructure) lack of infrastructure, lack of uncertainty in collecting policy better credit market and lack of access to receivables. management. new human resources

Competition Risk Further liberalisation can loss of customers and Tariff plans which (Liberalisation) create competition for our revenue without provide value for money fixed network services, loss of compensating savings in and longer term voice and data traffic to other costs leading to adverse commitment. operators and VoIP. effect on profitability.

TECHNOLOGY Technology Risk Rapid technologies changes Effect on new business Deploying the RISKS can cause network to be opportunities, continuity appropriate cost efficient outdated. Delays in of business, work technology for regulatory approvals for new processes and costs. competitive advantage. technologies can cause delays in newer services.

Network Risk Network fraud and disasters loss of revenue and Fraud free networks and can cause loss of business, profitability; and adverse adequate disaster assets and revenue. effect on business recovery plans. continuity.

BTC Annualreport2009 0000111011000111 53 botswana telecommunications corporation enterprise risk management (continued)

Headline Risk risk Description Consequence of Risk Objectives of BTC to Mitigate Risk

OPERATIONAL Brand Image / Effect on Corporate Image loss of customers and Apply best practices, RISKS Reputation Risk Brand and Image. enterprise value. transparency in dealings and building goodwill with all stakeholders.

Business Continuity Risk Continuity of business under lack of customer Develop Disaster threat following disasters. satisfaction, loss of Recovery Plans. customers and profitability.

Internal Process Risk Delays in implementing new Effects on Internal Control Develop World Class processes. and smooth operation Best Practices.

Transformation Risk Failure of transformation loss of customers will lead Target significant growth processes can cause loss of to loss of revenue and in new business areas. customers. profitability.

HUMAN Human Resources Risk loss of talented people, Effect on Morale and Moral Involvement in HIV/AIDS RESOURCES RISK reduction in morale, Issues, Compensation Costs, Awareness Campaigns. Epidemics, HIV/AIDS control). Corporate Image, Most sought after Productivity, Growth and employer. Performance.

COMPLIANCE legal and Regulatory Significant price control and Effect on business To be a compliant RISKS Risk other regulatory controls may opportunities, growth, organisation. reduce our market share, investor climate, decision competitive position and making cost, planning and future profitability. financial implications.

Environmental, Health Occupational diseases, Injuries Effects on Costs, Image, Safer working and Safety Risk & Environmental impairment. Performance at Work. environment and be socially responsible.

FINANCIAL & liquidity, Capital and High cost of capital or even Effects on Investment, Managing capital at CREDIT RISKS Financial Risk non-availability of capital. Costs of operation and optimum level. continuity of business.

Credit Risk Risk of lack of revenue Effects on business Well managed credit collections. profitability and business policy. continuity.

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brand management

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The Corporation’s fixed line customers are connected to the access network through wired and wireless connections which in turn links to the core network, which manages the calls set up, transfer of data and collects the billing information.

Technology, Resources, Trademarks and Brands be upgraded to 3G technology capable of transmitting high speed data for most parts of the country. Currently, the network Technologies (which is referred to as the General Packet Radio Services – BTC Group’s network infrastructure is fundamental to its GPRS) offers voice, text messaging and data services including capability to provide fixed and mobile voice and data services those of IP based network services, which enables access to and other point-to-point and point-to-multi-point network data networks such as the internet. With the introduction of 3G connections. The Corporations fixed line customers are technology, it will offer increased mobile data traffic to facilitate connected to the access network through wired and wireless additional service offerings such as high speed internet and connections which in turn links to the core network, which email access, video telephony, music downloads etc. manages the calls set up, transfer of data etc. and collects the billing information. BTC Group operates a superior core Licences national transport network which covers most parts of the BTC Group’s key technologies and resources include the Public country with sufficient redundancy capable of transmitting Telecommunications Operator (known as PTO) licence it holds almost unlimited amount of traffic. and its infrastructure which makes it possible for it to provide a seemless, superior, quality service. This licence enables it to beMobile, BTC Group’s mobile arm that provides the provide a wide range of services including fixed and mobile customers with mobility, came into operation in April 2008. networks, wireline and wireless communications and supply The network which currently works on a 2.5G technology and delivery of various telecommunications services. (through Global System for Mobile – GSM network) will soon

key lines of business

international services, managed broadband fixed & mobile infrastructure, services interconnect

 ADSL  Voice calling  International voice  Traditional data  Mobile data  Messaging  Internet  IP-VPN  Internet  Leased lines  Metro ethernet  National interconnect

BTC Annualreport2009 0000111011000111 57 botswana telecommunications corporation brand management (continued)

Trademarks and Brands BTC Group has continued to focus on delivering a consistent superior quality service, which differentiates itself from other operators in terms of reliability and costs. These are the values on which the BTC Group’s brands are being built on. We believe that our trademarks are important for our success. The table below is a list of our trademarks and the respective Companies which own them:

Brand Name Brand Brand Owner Brand values Brand strategy Description

BTC Botswana Innovative, resourceful, We will rebuild our brand and Telecommunications willing to take risk, provide strengthen our ties with our Corporation communications for all. customers. We will continue to drive innovations and aspire to become a Corporation that is admired for service excellence.

Botsnet Botsnet (Pty) Ltd, a Being closer to the As an ISP within BTC Group we 100 % owned subsidiary customers and delivering a maintained top position of BTC Group. global solution which stands in the market with our market out in the market place. share which mainly leveraged on the broadband connections. In particular the small business segment delivered the best ever results for the year, benefiting from a new strategy which brought Botsnet closer to the customers. We will continue to focus on delivering propositions that make BOTSNET- Broadband Solutions stand out in the market place with our mandate to ensure that internet service is accessible to all. As in the past, we will also continue to aggressively embark on the e-literacy and e-business initiatives.

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Brand Name Brand Brand Owner Brand values Brand strategy Description

beMobile beMOBILE, a 100 % Can do – we want to deliver Through our direct and owned subsidiary of on our promise. indirect distribution channels BTC Group. Young – We are a young we will reach most of the and responsive brand with customers wherever they a young culture. are situated. With a fully Leading – we aspire to be resourced and 24hr call centre, market leaders and we are able to at all times challenge the competition. provide a unique and SIMPLICITY, INNOVATION, refreshing service experience EFFECIENCY and VALUE to to our customer. its customers. Our dominant We reach customers through colour, green, symbolises blitz at urban malls, GROWTH, HARMONY, engagement of villages FRESHNESS, and FERTILITY. through traditional structures such as the Kgotla and most significantly through the soccer platform. Our tariff packages including the popular “free on-net weekend calls”.

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regulatory report

60 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

The introduction of the Public Telecommunications Operators (PTO) Licence opened new opportunities for BTC Group, allowing provision of a telecommunications service whether wired or wireless including mobile cellular services.

REGULATION IN BOTSWANA The implementation of the New Licensing Framework, The Group is planning ahead and has started laying the Service-Neutral Licensing, transformed the ground work for Fixed – Mobile Convergence (FMC). The BTC telecommunications sector in Botswana. The introduction Group network is being upgraded to an Internet Protocol (IP) of the Public Telecommunications Operators (PTO) Licence based Platform or Next-Generation Network (NGN). opened new opportunities for BTC Group, allowing provision of a telecommunications service whether wired or wireless Botswana Telecommunications Authority (BTA) including mobile cellular services. BTA continues to regulate the telecommunications market. The Telecommunications Authority, among others things, BTC group’s Regulatory Policy develops and implements regulations in order to create BTC Group is committed to full compliance with the a level playing field, promote competition, enhance regulatory framework in which it operates, in order to availability of a wider range of services and, above all, meet the provisions of the Telecommunications Act 1996, ensures that the customer’s interests are protected and (amended in 2004) and the PTO Licence (the Licence) under upheld. Such regulations take the form of Licence Conditions which BTC Group operates, the Corporation through the and Directives issued by the BTA from time to time to all Office of the Company Secretary, continues to closely monitor telecommunications operators and service providers in and ensure compliance to the Licence Conditions. Botswana.

The Service Neutral Licensing Framework The BTA from time to time engages BTC Group and other BTC Group now operates in a more liberalised environment stakeholders on issues intended to develop frameworks for as the service neutral Public Telecommunications Operators the efficient running of the sector. The Registration of Prepaid Licence (PTO Licence) allows the Group and the other two Mobile Subscribers commenced in September 2008 and all operators to provide public telecommunications services of existing prepaid subscribers are required to be registered by any description, which includes any service provided over a 31 December 2009. Mobile Cellular, fixed wired or wireless network. Universal Service and Access We have unified all its operations under a single umbrella. The Government through the Ministry of Communications The BTC Group will facilitate efficient service delivery. Botsnet Science and Technology (MCST) has embarked on a nation- and beMOBILE now operate as business units under the BTC wide exercise to provide telephony and related services, Group. BTC Group views itself, in future, as a service provider utilising GSM technology to underserved communities of choice offering a broad range of telecommunications throughout Botswana through a project called Nteletsa II. products and services on a unified or converged network.

BTC Annualreport2009 0000111011000111 61 botswana telecommunications corporation regulatory report (continued)

The country has been divided into four areas (Area1 to 4) The collaboration includes areas such as research, award of and the Corporation has been awarded a tender to build and prizes and a Master of Science (MSc Electrical and Electronic operate a network in Areas 1, 2 and 3. BTC Group has started Engineering) scholarship to a deserving graduate in Electrical implementation in Area 2, and the area comprises 62 villages and Electronic Engineering. The scholarship is open to in the Kgalagadi, Kweneng, Kgatleng and Southern Districts. Botswana citizens only and the identification of the recipients A ground breaking ceremony was held in Maubelo village, is carried out by UB. Kgalagadi District, on 13 February 2009 to symbolise the commencement of the project. Privatisation of BTC Privatisation of BTC Group was approved by the Government Price Regulations in accordance with the PEEPA privatisation masterplan. Under the PTO Licence, price controls are in place for public Pursuant to such approval, PEEPA was appointed to switched telephony call charges, including mobile cellular undertake the transaction on behalf of the Government as it charges (both national and international) and exchange line only has advisory but not implementation/executory powers rentals whilst the fixed network services such as leased lines in privatisation matters. PEEPA then contracted International and VPNs are subject to market forces. According to the Finance Corporation (IFC), a member of the World Bank, as a Licence, all new services and tariffs shall be approved by the transaction advisor for privatisation of BTC Group. BTA. The Way Forward Regulatory Activities It is BTC Group’s view that whatever form of privatisation During the year, BTC Group made applications in regards to a that may be proposed or recommended should recognise number of promotions and business remodelling which were the efficiency of the current network operated by BTC Group approved by the Authority. and its sustainability in the post privatisation era to ensure the realisation of the national Information Communication Market Competition Technologies (ICT) goals and objectives as well as the Vision Competition in the international call market intensified 2016 Pillars. over the past year. The other PTOs’ have commissioned International Gateways thus enabling them to directly route international calls to and from their networks. Competition in the mobile cellular market has intensified with the launch of BTC Group’s Mobile network, beMOBILE.

Corporate Social Responsibility The Corporation is and continues to be committed to Corporate Social Responsibility, and one such activity during the past year is the continuing collaboration with the University of Botswana (UB) established through a Memorandum of Understanding signed on 08 June 2006.

62 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

BTC Annualreport2009 0000111011000111 63 botswana telecommunications corporation

human resources review

64 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

The revised organisational structure was approved by the Board of Directors in January 2009 and is organised on business and functional lines with a staff establishment of nine hundred and five (905). BTC Group’s strategic aim remains to be “the most sought after employer” in Botswana.

In a bid to realise the new business model, the Group Year Ended 31 March made a strategic decision to converge all its businesses 2009 2008 2007 under one organisational management structure. BTC Group’s traditional business unit (the fixed network), and Total employees the new mobile unit beMOBILE and retail Internet Service at 31 March 905 1,057 1,067 Provider (ISP) arm, Botsnet, which was previously run as a — Men 579 699 709 separate company were brought together as part of the BTC — Women 326 358 358 Group. This resulted in the Corporation having to review its organisational structure to streamline the functions, staffing Productivity and competency requirements for the different business units Revenue per employee 910 756 697 within the Group. Value created by employee 574 514 465 Average employee cost The revised organisational structure was approved by the (excl restructuring) 219 180 170 Board of Directors in January 2009 and is organised on business and functional lines with a staff establishment of nine hundred and five (905). BTC Group’s strategic aim The revenue per employee and the value creation increased remains to be “the most sought after employer” in Botswana. substantially, by over 20%, depicting the determined change to the new Business Model. Average costs, excluding In a competitive market and complex technological world, retrenchment costs, too increased by 21.6 per cent to Pula developing and retaining talented human resources remains 219,000. This was expected and reflects the technological a strategic imperative and a challenge. The Corporation is market in which we are operating where we need to reward focussing on acquisition and retention of talented resources staff at market rates. The human resources market is no longer through its own development programmes and recruitment local as the mobility of educated and talented work force is in the open market. now global.

The staff complement as at 31 March 2009 was 905, a Staff Turnover reduction from last year’s 1057. Almost 99 per cent of our A total of 77 employees exited the Corporation during the staff is local. Out of the 905 staff at the end of the year, year under review, more than half of them on retrenchment. 326 (36.02%) were women and 579 (64%) were men. The This represented a labour turn over of 9 per cent. Excluding Corporation is an equal opportunity employer. the retrenchment and dismissal, the labour turnover remained within acceptable industrial norm.

BTC Annualreport2009 0000111011000111 65 botswana telecommunications corporation HUMAN RESOURCES review (continued)

Resignations deatH end of Contract dismissal retirement retrenchments 18 5 9 4 0 41

Safety, Health and Environment Performance Management, Recognition and The development of the Safety, Health and Environment Rewards program is taking shape with the initial draft of the SHE policy During the year under review the Board of Directors approved and procedures document completed. Training of over 200 a rewards strategy with a view to improving the Corporation’s employees in basic first aid and fire safety has been achieved. ability to attract retain and motivate its key talents. The A successful commemoration of the Health and Wellness strategy speaks to both short term and long term rewards week was realised with more than 50% of employees doing strategies and its implementation has seen the recognition various health tests. and celebration of significant milestone achievements by employees. Union Management Relations The industrial relations climate has been stable but Pension experienced some difficult times. This could possibly be BTC Group operates a non-contributory pension scheme for attributed to the delay in finalising the negotiations with the all permanent staff. BTC Staff Pension Fund is a contribution Union. Quarterly meetings between Management and the defined and benefit scheme, where the pensions will be two registered trade unions are conducted to share relevant based on the performance of the Fund. At 31 March 2009, the information and consult on a number of staff issues to foster fund stood at Pula 217.8 million with 1489 beneficiaries. good employer/employee relationships. The table below indicates the age demographic of beneficiaries as at 31 March 2009

membership profile Age Analysis

300

250

200 Active Members Deferred Members

150

Number of Members 100

0 25 30 35 40 45 50 55 60 65 >65 Ages of Members

66 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

The Industrial Class Employees are governed by the labour The Corporation also partnered with external service legislation which entitles them to severance pay for service in providers such as 3M, Torque-IT, Alcatel Lucent, Ericsson and excess of five years, claimable every five years and calculated Commonwealth Telecommunication Organisation to conduct on a cumulative basis. Adequate provisions for these liabilities in-house training as part of the technical staff development are made in the Financial Statements. It is optional for strategy. Industrial Class staff to convert their employment status to permanent and pensionable. In addition, the BTC Training School also conducts a significant amount of training in access network and Training switching courses, through internal instructors; to ensure that The Corporation continues to strive to provide training our employees and outsourcing partners have the necessary that is targeted to identified business needs aligned to the competencies to operate and maintain our network. This Corporation’s strategic direction as well as development includes the administration of City and Guilds examinations of one of its most valued assets, its human resources. for internal and external candidates. Training was achieved in accounting, computing and other professional training programmes such as CIMA, ACCA, Cisco and Microsoft. Further training was realised in Next- Generation Networks, Operating Systems Administration, Juniper Networks and others.

The Corporation spent P2.1 million on training distributed across divisions as indicated below.

Percentage Distribution of Training Expenditure for the year 2008/09

CEO Office 15% Commercial 26% Finance 6% Operations and Technology 41% Corporate Affairs 12%

BTC Annualreport2009 0000111011000111 67 botswanabotswana telecommunications telecommunications corporation corporation

sustainability reporting

68 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

BTC Group’s technology provides infrastructure for enabling environmental improvements throughout the Botswana economy. Services such as Internet, teleconferencing, videoconferencing, sustainability electronic commerce, and medi- conferencing are prime examples of the reporting Group’s technologies that directly and indirectly reduce energy and material consumption.

BTC Annualreport2009 0000111011000111 69 botswana telecommunications corporation

sustainability reporting

70 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

sustainability reporting

We believe that an efficient and dependable telecommunications system in Botswana is essential for the sustained economic success and human progress of this country. Information technology and telecommunications bring direct and indirect benefit to the community and the environment in which we live.

Sustainable Development Leadership commitment Sustainable corporate practices are getting recognition all We are optimistic when it comes to developing a sustainable over the world. Corporations’ growth not only hinge on its future for our country. We believe that we hold the power economic operations but also on the often less obvious social to deliver a world of shared promises to our children and and environmental aspects. Good sustainability reporting is generations that follow us. Delivering on that promise will gaining stature in Botswana as various stakeholders such as not be easy. It requires an active approach to sustainable Governments, consumer groups, suppliers, employees, public development. We must see to it that we run our businesses agencies are increasingly interested in BTC Group’s conduct in ways that sustain the vital resources that enable us and the of its business in the environment in which we live. future generation to come to live in this planet.

We believe that an efficient telecommunications system in Sustainability Integration – step by step Botswana is essential for the sustained economic success and BTC’s technology provides infrastructure for enabling human progress of this country. Information technology and environmental improvements throughout the Botswana telecommunications bring direct and indirect benefit to the economy. Services such as Internet, teleconferencing, community and the environment in which we live. On the videoconferencing, electronic commerce, and medi- whole, BTC Group is one of the significant facilitators in the conferencing are prime examples of BTC Group’s environmental sustainability initiatives in Botswana and a technologies that directly and indirectly reduce energy and lowest consumer of natural resources. material consumption.

Accordingly, in this report, prepared in line with the Global The Group’s belief is that environmental protection and Reporting Initiative (GRI), we review our commitment to ICT preservation of the natural systems is part of doing business development in Botswana, our practices and, in deed our and needs to be managed systematically under a continuous achievement thus far in meeting those commitments. improvement process. From the inception, this has been “part of our way of operations”.

BTC Annualreport2009 0000111011000111 71 botswana telecommunications corporation sustainability reporting (continued)

The process contains principles that support our Working towards sustainability makes a lot of sense for the commitment, varying from exercising due diligence to Corporation. BTC Group has always been in the forefront of meeting or exceeding environmental legislations that applies demonstrating its commitment to being a good Corporate to us, preventing pollution and promoting cost-effective Citizen. By demonstrating the benefits of our success, we will initiatives that minimise resources and waste. We continue to set standards in Botswana for other businesses to follow and commit to the improvements in developing our operations encourage them to also take steps towards sustainability. to become a major supporting player in the environmental Our principle, as a technology outfit, is that we support sustainability initiatives in Botswana. This is a step by step sustainable development in every facet of our operations, integration initiative. bearing in mind that people are at the centre of concern for sustainability. Through mindful application of the advances To do this, we will meet or exceed all relevant legislation and offered by technology in the industry, we work hard to regulations, and build on our current commitments, which promote self awareness and mutual understanding of the include respect for the environment, commitment to future need for sustainable development in Botswana. The aim is generations and above all provide benefits to the society in to achieve an ecologically sustainable country, region and a which we operate in. world for the future generations.

Creating a different kind of company For the Corporation, sustainable development means also creating good environmental and social results which are financially supportable. BTC Group will pursue its business in a profitable, safe and ethical manner, at the same time, demonstrating environmental awareness and social responsibility.

72 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

BTC Annualreport2009 0000111011000111 73 botswana telecommunications corporation sustainability reporting (continued)

Corporate Social Responsibility

Our Commitment Business and our Mission BTC Group is a leading telecommunications provider in As a major supplier and provider of communications Botswana, with a vision to provide world class service at services to Botswana, BTC Group plays a pivotal role in affordable rates. BTC Group has a strong commitment to the development of the country’s telecommunications its customers, shareholders, employees and, in a wider infrastructure. We recognise that telecommunications is context, society. We are proud that, we have continuously a major driver in the socio and economic development of fulfilled our responsibility over the years with pride and Botswana. We are a dedicated partner to the Government dedication by demonstrating to be a responsible corporate of Botswana to achieve its ICT vision (Maitlamo Initiative) citizen. as part of its Vision 2016 programme, and supports the development of a telecommunications infrastructure that Of course, for Group, corporate citizenship starts with reaches the remotest parts of the country. running a successful communications company; producing the right solutions for customer needs, creating BTC and Vision 2016 - Connected: jobs for the citizens, generating financial return for the Educated and Informed Nation shareholder and keep investing the profits in new projects Botswana’s National Information and Communications to create a sustainable telecommunications infrastructure. Technology (ICT) vision through it’s ‘Maitlamo’ initiatives aim to make Botswana a globally competitive, Our commitment to being a good corporate citizen goes knowledgeable and information society where lasting beyond the economic realms of our operation. Today, our improvements in social, economic and cultural stakeholders look to us for leadership to make a difference development is achieved through effective use of ICT by in the communities in which we operate. the year 2016.

BTC Group is committed to advancing education, The Government of Botswana planned to achieve these strengthening communities and improving lives. Through through: our philanthropic initiatives and partnerships, BTC Group  Creation of an enabling environment for the growth supports projects that create opportunities particularly in of an ICT industry in the country; the field of education.  Provision of universal service and access to information and communication facilities in the country; and,  Making Botswana a Regional ICT Hub so as to make the country’s ICT sector globally competitive.

74 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

As Botswana is currently in the early stages of its national As part of this initiative, almost all secondary schools ICT programme, levels of ICT in homes, communities and throughout the country have been connected with businesses are relatively low, and ICT in healthcare, education broadband (ADSL) network coupled with internet services. and Government remain in their formative years. BTC Group Further, plans are also in the pipeline to connect the has committed itself to support the initiatives, in collaboration primary schools to broadband in the near future. This with Government of Botswana, through the provision of an would be in-line with Vision 2016 - on providing an enabling network environment to connect communities, educated and informed nation that can only be achieved businesses, residential homes, Government offices, schools, by giving the young children the opportunity to access hospitals and clinics anywhere in the country. information in a modernised way.

BTC Group has built superior quality networks linking major Further, through Nteletsa Project a number of rural villages centres around the country. Botswana has been credited which did not have communications have been brought by international institutions as having one of the best into service (see community relations). superior quality overall telecommunications infrastructure. The Group is continuing to build the backhaul networks, We are leading the internet revolution in Botswana. based on fibre connectivity to carry broadband traffic to Through the international connectivity via our earth station most towns and villages. The existing fibre routes, the new and links through South Africa we connect Botswana to Metropolitan Area Network, the ADSL connectivity in most the world. In the near future, with the completion of the cities and proposed Trans Kalahari Networks supplemented Eastern and Western African undersea cables, in some of by the satellite links through VSAT services will form the which, we have taken a stake, we will bring even much backbone of the grand architecture. The already available higher capacity internet bandwidth to our door step. copper and wireless access connections, currently in excess of 250,000 lines, will complete connectivity. BTC Annualreport2009 0000111011000111 75 botswana telecommunications corporation sustainability reporting (continued)

environmental relations and issues

Environmental relations and issues Environmental Impact Assessment of We are committed to operating in a way that advances Telecommunications Developments sustainability and reduces the environmental impact. We The Corporation’s policy is to comply with all relevant carry out Environmental Impact Assessment for all major legislation, particularly the Environmental Impact projects where communities in the areas are consulted, Assessment Act. Environmental Impact Assessment Studies informed and their consent received before a project is are conducted involving all stakeholders before any major undertaken. project are implemented.

Sustainability Evolution - Our Strategy Over the years, in whatever we do, we are mindful of Our commitment to the evolution of the sustainability the environment in which we operate - be it digging up concept is guided by continuous improvements in: trenches, cable installations or siting a microwave tower on  Eliminating waste and encouraging recycling of all a hill top. All our developments take into account minimal materials we use; destruction to the environment.  Increasing eco-efficiency by optimising resources use;  Stimulating and using innovation, emerging Product Approval technologies and alternative, renewable resources; BTC Group’s products and services are type approved  Harnessing, where feasible, renewable energy sources by BTA, the regulator. Where we sell or lease third party such as solar; products such as customer equipment, mobile phones etc,  Using innovative and lower impact environmentally are based on already type approved suppliers holding valid friendly products; and, certificates.  Disposing responsibly the products containing environmentally destructive substances. Equipment Standards BTC Group’s own equipment and materials used in its Making the Connections network are standardised; and based on the technical The Corporation respects the environment and is mindful specifications approved by the BTC Tender Committee. of the support programmes designed to encourage BTC Group procures this equipment from typed approved environmental awareness and protection through effective suppliers based on international certification on radio resource management, energy efficiency, waste minimisation frequency emissions, other environmental hazards etc. BTC and recycling initiatives. We ensure that our systems and Group’s network, equipment and products have very little processes are environmentally friendly and the operations impact on the environment, including climate change, and products cause the minimum detrimental impact to the pollution, ozone layer depletion and radio activity. In environment. We believe that we have an obligation towards contrast, BTC products and services normally help reduce future generations to have in place, processes that are both the impact of the above. environmentally sound and sustainable.

76 1110001101110000 BTC Annualreport2009 Waste minimisation BTC Group is mindful of its waste. Most equipment, such as vehicles, furniture, generators amongst others are disposed through public auction after its economical use. Computers are often refurbished and distributed to schools and the needy. Faulty customer equipment and excess materials to requirements on projects are recovered, serviced and reused.

Recycling of materials Through our established programmes, we recover and sell copper and fibre cables, batteries, oil, used phones and integrated circuit boards etc. We believe that every material we recover and recycle can have some effect on the global resources utilisation initiatives.

Further all packaging materials such as wooden crates, boxes, cable drums are also disposed of through auctions or other environmentally acceptable ways.

Energy Consumption Our systems do not consume significant amounts of electricity. BTC Group’s power needs are carefully supplied giving priority to cost, dependability and back-up requirements. The Group has also been a pioneer in using solar energy in Botswana, particularly in the microwave repeater towers and fibre optic repeater stations in remote parts of Botswana. Recently, with the increased theft of solar panels and disruptions to the service, the Group was forced to switch to continuous power supplies.

K kilowatt Hours (Kwh’s) Value in Pula percentage Direct consumption 10,807,800 2,918,000 61% Indirect consumption 7,045,200 1,903,000 39% Total 17,853,000 4,821,000 100

Water Consumptions BTC Group’s equipment and systems use minimal water. The following table summarises the water consumption for the year.

K kilolitre (Kl) Value in Pula percentage Direct consumption 2,100 23,000 7% Indirect consumption 30,300 324,000 93% Total 32,400 347,000 100

BTC Annualreport2009 0000111011000111 77 botswana telecommunications corporation sustainability reporting (continued)

Economic Performance - Shareholders and Providers of Capital

Value creation BTC Group’s aim is to create value for its shareholders, customers and employees. The Group’s revenue from sale of goods and services for the year was Pula 835.9 million. The Group’s value addition has grown from Pula 461.4 million in 2004/05 to Pula 527.5 million in 2008/09. Of the value created during the year, Pula 219.0 million was paid to staff as salaries costs whilst a further Pula 22.7 million was reserved for redundancy cost. The Government received Pula 16.6 million and Pula 29.7 million in the form of licence fees and dividend respectively.

value added statement 2009 2008 2007 2006 2005 P’000 P’000 P’000 P’000 P’000 Sale of goods and services 835,900 799,173 743,843 685,957 641,809 Interest income 45,873 59,252 59,526 53,097 46,278 Bought out cost of services (354,246 ) (315,049 ) (307,547 ) (247,970 ) (226,704 ) Value added 527,527 543,376 495,822 491,084 461,383 Employee cost (219,035 ) (285,574 ) (182,027 ) (170,170 ) (165,758 ) Depreciation (151,653 ) (152,933 ) (146,928 ) (128,097 ) (120,860 ) Licence fees (16,658 ) (17,374 ) (17,559 ) (17,399 ) (16,108 ) Earnings before interest and tax (EBIT) (after retrenchment) 140,181 87,495 149,308 175,418 158,657 Interest (21,228 ) (29,168 (31,337 ) (36,524 ) (33,427 ) Earnings 118,953 58,327 117,971 138,894 125,230 Dividend (29,738 ) (14,582 ) (29,493 ) (34,724 ) (31,308 ) Retained earnings 89,215 43,745 88,478 104,170 93,922 Number of employees 905 1,057 1,067 1,079 1,064 Revenue per employee 910 756 697 636 603 Value created per employee 574 514 465 455 434

78 1110001101110000 BTC Annualreport2009 In fixed communications, we already cover a population base of over 80%. beMOBILE, our mobile product, launched with a very aggressive network deployment strategy. At its launch it covered the main A1 trunk from Ramatlabama to Ramokgwebana as well as all the major towns and villages.

BTC Group employs 905 staff all over the country whilst Network Coverage creating indirect employment opportunities to a much In fixed communications, we already cover a population larger community. The Group’s staff numbers, did base of over 80%. beMOBILE, our mobile product, however, decline due to its restructuring programme launched with a very aggressive network deployment which was necessitated by the technological changes and strategy. At its launch it covered the main A1 trunk from market forces. Ramatlabama to Ramokgwebana as well as all the major towns and villages. By the end of the year it should have Infrastructure Investments covered at least 80% of the population. BTC Group’s main line of business requires substantial investment in telecommunications infrastructure. Over Total Quality Culture the years, the Group has invested billions of Pula on The Group is a pioneering organisation in promoting a infrastructure. The asset base of the Corporation relating to total quality culture in Botswana. telecommunications network currently stands at Pula1.9 billion.

Rural Telecommunications Network BTC Group in partnership with the Government of Botswana has embarked upon telecommunications projects in rural areas which are considered not to be economically viable. These projects are called ‘Nteletsa’ under which the Government of Botswana and BTC jointly fund based on an agreed cost sharing scheme. The amounts provided by the Government of Botswana are considered as grants. So far, the Group has received Pula 250.0 million for Nteletsa related projects as grants.

BTC Annualreport2009 0000111011000111 79 botswana telecommunications corporation sustainability reporting (continued)

customer relations

Best and Fair Business Practice BTC Group is committed to best and fair business practice BTC Group also participates in a number of Trade Fairs in as outlined in the Corporation’s Value statement. This also Botswana as part of its customer and society educational guides the Corporation in its dealings with customers campaigns. We also use ‘blitz’ at urban malls and engage by providing policy guidelines for the provision and villages through their traditional structures, such as disconnection of services. The Group is also mindful of its the Kgotla, in promoting some of our products mainly prices and strives to maintain its affordability to most of its beMobile. customers whilst remaining profitable. Customer care and after-sales service Wherever we do business, we see ourselves as members As a brand that is responsive and provides innovative of the local society, and as a good corporate citizen, and unique products, customer care is in the forefront of we actively contribute to the communities and the our customer care centres. We are able to service clients environment. right across the country with BTC and beMOBILE products and services. With a fully resourced and 24hr call centre, Products and services servicing our clients, we provide a unique and refreshing BTC Group basic products (voice telephony and internet) service experience to our customers. We operate a 24 hour are available in most population centres across Botswana. fault reporting service. The availability of these services can be obtained almost instantaneously and the delivery period for these services Pricing have been curtailed. Once the creditworthiness of a Tariffs for our main products are in the BTC Telephone customer is assessed positive, there are no barriers for Directory. A detailed tariff guide is available from our obtaining basic telephone services. Prepaid services are service centres nationwide, or from our website available for fixed and mobile telephony services. www.btc.bw. Changes in tariffs are regularly published in the media. Charges are mostly usage related and hence Building customer confidence easily understood. They take into account the affordability We have continued to benchmark ourselves against of customer groups. It has special packages for old age the world’s best communications operators to create a pensioners whilst low income communities are, where culture within the Corporation that is customer focused, possible, covered via mobile phones and payphones. quality conscious, innovative, enterprising and most of all responsible for its action.

80 1110001101110000 BTC Annualreport2009 Customer Complaints Customer complaints are received via the 24 hour our clientele and provide the largest footprint. This is call centres or any one of our offices. Such complaints in-line with our objective of providing converged services can range from service delivery to service level, billing through leveraging its expansive infrastructure and queries, misuses and abuses. There is a procedure in use ensuring that the first real fruits of convergence would for registering and resolving complaints. Most customer also be felt at the service level. On the indirect channel, complaints are resolved within 72 hours of receipt. There the Group has dealers that distribute the prepaid products is also an escalation process for those irate customers and service across the whole country and it is our intention who need further investigations such as abuse of phones, to ensure that Batswana are adequately and timeously vandalism etc. serviced. As we expand our network, the distribution channel would continue to grow commensurate with our Distribution Network coverage. One of the cornerstones of the BTC and beMOBILE products are the availability and accessibility of their Customer Information Sharing products and services in all corners the country. Our aim is to offer our customers the best technological The procedure for obtaining any one of the Group’s solutions at affordable prices. We hold a number of operational areas are set out in the Botswana Telephone seminars, product launches, information sharing forums Directory. such as Trade Fairs and Expos etc. These gatherings give us an opportunity to understand the customer requirements, On the direct distribution front, our outlets countrywide emerging technological trends, level of customer and two beMOBILE branded stores in Gaborone serve satisfaction and dissatisfaction and give us insights into areas where we need further improvements.

BTC Annualreport2009 0000111011000111 81 botswana telecommunications corporation sustainability reporting (continued)

community relations

Community Involvement We perceive community relationship as a core  At the BTC Annual Golf Day, which coincided with competency that adds value to our business. This includes fund raising for Sponsor a Child Trust, at which event building critical relationships, contributing to the well the Corporation matched the funds raised by Pula being of the communities, developing corporate image 40,000; and enhancing corporate reputations.  Through its employees, we have identified the needy causes in the society and provided assistance. As a leading corporate citizen, during the year, the Group participated in a variety of community related initiatives: Giving back to the Community  We sponsored the Botswana Premier Soccer In our special emphasis to communities, we believe the league to the tune of Pula 5.0 million. future of our country is being determined today by our This unprecedented level of sponsorship has increased ability to enable our children to reach their full potential. soccer awareness among all ages of the society; As part of this initiative, we carried out the following  We have donated Pula 1.35 million over a three year activities: programme to the UB Foundation as part of the Co-operation and Mutual Assistance Programme  Through its Internet arm, Botsnet, has donated between UB and the Corporation to promote research website solutions to two Non-Governmental and development in telecommunications related fields; Organisations - Gabane Home Based Care Centre and  The Group continues to participate in events and Mosadi - celebrating women through the arts. fora to promote economic growth and attract  The Group has also supported primary school investment into the country. The Group partly sponsored walks. sponsored the first ever Local Enterprise Authority –  Through BTC Directory Cover design competition, Small Micro and Medium Enterprises fair and we develop and nurture the talents of artists participated at the Botswana Confederation of in Botswana. Commerce, Industry and Manpower (BOCCIM)  The Group has donated over 200 computers so far to Northern Trade Fair and the Botswana Consumer Fair. schools all over the country. The Corporation is also the  In the context of learning, the Corporation takes proud sponsor of the National Mathematics and proactive role in the skills development of Batswana Science Fair conducted nationwide. with more focus in the area of Information and Communications Technology. During the year, the Group participated at the World Telecommunications Day celebrations at Kaudwane and donated eight computers to the community.

82 1110001101110000 BTC Annualreport2009 Corporate communications play an integral and vital role in disseminating information on the Corporation whether on our performance or on our principles and policies to our stakeholders.

Supporting sport Rural telecommunications development BTC Group through its mobile network, beMOBILE Botswana has a small population that is spread across actively supports sport by sponsoring the Premier Football a vast country. Where feasible BTC Group utilises its League to the tune of P5 million over a three year period. resources to provide services to remote villages that have The biggest sponsorship in the annals of Botswana football a population of 250 or more. So far, the Group under the has seen the game become very competitive to rival Nteletsa Project, has connected almost 200 villages around some of the top leagues. The league is now exciting and the country. Currently we have signed another contract for intriguing. the provision of telecommunications to a further sixty two villages in the south-western part of Botswana. In motor sport, beMOBILE sponsored local racing hero, Atang Makgekgenene, in the Annual Toyota 1000 Desert These projects were a partnership between the race, the only Motswana in the sandmaster category, Government of Botswana and BTC Group where the made the nation proud. Government funds the capital cost, whilst maintaining the infrastructure on an ongoing basis. The cost of the projects Promoting the Arts is in excess of Pula 240 million. The Group donated P20 000 to Thapong Visual Arts Centre. In collaboration with the centre, the Group sponsored Network for public purposes a competition to the tune of P20 000 inviting artists to Specifically BTC Group provides payphones, both cash design the cover for the 2010 Phone Book Directory. The and prepaid in urban and rural areas. However, with the Group also supports musicians by affording them an advent of mobile telephony, the usage of these phones opportunity to share the platform and showcase their has drastically reduced. talent during promotions. Disseminating corporate information State-of-the-art technology to Botswana Corporate communications play an integral and vital role BTC Group‘s aim is to bring state-of-the-art technology in disseminating information on the Corporation, whether where possible at affordable prices with an aim of on our performance, or on our principles and policies to achieving a balance between economy, ecology and our stakeholders. Dedicated public relations teams manage society. In the telecommunications world today, it the flow of information to the media, the public, the is important to be a provider of the latest and solid customers and the other stakeholders. Customer service technological solutions to all customers in keeping with representatives through our front offices liaise with the world standards. customers in a friendly way. The Corporation website is ably managed by the public relations teams ensuring that a continuous flow of information reaches every stakeholder and interested party within and outside Botswana.

BTC Annualreport2009 0000111011000111 83 botswana telecommunications corporation sustainability reporting (continued)

employee relations

Employment policy and employee involvement The Corporation employees are key to the success of BTC Group is an equal opportunity employer. Its rewards the business and, as a result, the Corporation pursues structure is competitive and matches the market. employment practices which are designed to attract, retain Temporary and casual employees are remunerated similar and develop this talent to ensure the corporation retains to permanent staff but without benefits such as housing its strong market position with motivated and satisfied allowance, transport concessions, pensions benefit, employees. medical insurance etc. There are no differences in salary between male and female staff with similar responsibilities. The Executive Committee (EXCO) takes responsibility for employment matters and has established suitable policies Training and development and guidelines. Wherever possible, the Corporation seeks Our priority is to develop a comprehensive needs based to benchmark itself against industry best practice. futuristic training programme. Apart from the job related skills development, the Corporation also conducted a It is the Corporation’s intention to give all staff an number of seminars, workshops and courses aimed to opportunity to share in the future success of the business. provide employees with broader personal development Through the privatisation programme, BTC Group hopes and improve their quality of life. that a suitable Employee Share Option Plan (ESOP) will be achieved. In the telecommunications field where skills are relatively in short supply, BTC Group is committed to enhancing BTC Group adheres to all human rights legislation and local skills through provision of technical and management upholds all human rights practices enshrined in Botswana training. Since its inception, the Corporation has spent labour legislation. Specifically, the Corporation’s minimum millions training engineers, accountants, business age for recruitment of permanent staff is eighteen years. graduates and artisans. The Group runs its own training school. Rewards and remuneration The Executive Committee in conjunction with the Human Safety and health Resources Committee, continuously reviews the reward We bear social responsibility towards our employees and incentive schemes. The Performance Appraisal by promoting safety and health in the workplace. System has already been implemented with a 360 degree A Health and Safety Committee is currently being feedback from peers and subordinates. The output from formed to which the heads of departments will appoint the Performance Appraisal System is used as input for staff representatives. As such, all staff will have equal training employees and enhancing the reward system. opportunity to be represented in such initiatives.

84 1110001101110000 BTC Annualreport2009 Staff welfare and development Information sharing In support of our HR policy and development of Employees receive regular updates on corporate teamwork, we believe that sport plays an important role. performance and developments through various formal Participating at national level, we field teams for soccer, and informal channels of communication, including the netball and volleyball. The Corporation also promotes Corporation’s website (intranet). This website contains all inter-country sporting competitions amongst Botswana, Group policies, functional procedures, forms, statutory Lesotho, Swaziland and Namibia. We also make the information, job advertisements and other human creation of social interaction among employee families a resources issues. priority, a factor we think impacts positively on employee motivation. Stakeholder relations We value the opportunity to engage in dialogue with key Contribution to HIV/AIDS related activities stakeholders. Stakeholder engagement is increasingly BTC Group is a founding member of the Botswana recognised as creating value and contributing to the Parastatal Aids Forum and also has an active Aids organisation’s resilience, choosing the right technology awareness programme in the work place. The Group helps identify opportunities and create products and commemorated the World AIDS day through the concept improves performance and better risk management. of Wellness Expo to promote employee wellness, to know their HIV/AIDS status and to discourage stigmatisation in We are in continuous consultation with our stakeholders, the workplace. the Government of Botswana through a number of its organs, the Ministry of Science, Communications Employee behaviour and Technology, the Public Enterprises Evaluation BTC Group strictly adheres to a code of ethical business and Privatisation Agency (PEEPA), Botswana conduct. All employment contracts are governed by Telecommunications Authority etc, to name a few. elaborate Conditions of Employment which prohibit any Through ongoing open dialogue and relationship of corrupt behaviour, accepting substantial gifts and money trust, integrity and respect, we chart the progress of the laundering. Corporation during the most critical times.

Staff retrenchment Government As a result of changes in the market and business, certain The Government of Botswana is the only stakeholder rationalisation in human resources is necessary. All staff of BTC. Under the current structure, BTC reports to the retrenchments are adequately discussed with relevant Ministry of Communications, Science and Technology stakeholders, such as Unions, Board, Ministry of Labour which directs BTC in terms of overall communications before final decisions are made. So far, the Corporation’s industry policy decisions. A senior member of the Ministry retrenchments have been voluntary with the consent of is a member of the Board. the affected employees. Privatisation issues are co-ordinated by the Public Enterprise Evaluation and Privatisation Agency (PEEPA).

Matters relating to regulations are dealt with through the Botswana Telecommunications Authority (BTA).

BTC Annualreport2009 0000111011000111 85 botswana telecommunications corporation sustainability reporting (continued)

Membership to national and international bodies Corporate annual reporting BTC is a member of Botswana Confederation of Commerce, BTC Group gives priority to the way it reports to the public. Industry and Manpower. The Group also participates The annual report covers strategies and direction, business in activities of the International Telecommunications review, corporate governance, financial and management Union and Commonwealth Telecommunications analysis, trends and analysis, annual financial statements Union as Botswana representative through Botswana and, of course the sustainability report. Telecommunications Authority. The Corporation sets good reporting standards to improve Stakeholder contacts overall corporate reporting in Botswana. The table below summarises our contacts with key stakeholders, frequency of our contacts and issues discussed.

Internet and international connectivity In a challenging environment, ADSL Broadband as a service has continued to perform well despite the low e-market penetration, adding almost 500 broadband customers each year. To date, broadband has a total of 3900+ standard broadband ADSL customers (through Botsnet) and almost 1300 Brobe bundle contract customers. Like for like revenue growth has increased due to the fact that more IP based value added services were introduced and they all leverage on the current Broadband infrastructure. The customer base has grown year on year, in highly competitive markets.

Stakeholder type of contact frequency Key Issues Government Meetings On a required basis Policy matters, privatisation etc PEEPA Meetings Quarterly Privatisation BTA Meetings and discussions On a daily basis Regulatory matters Community Meetings On a required basis Community matters, environmental issues and assessments Customers Personal contacts Daily Customer relations Suppliers Personal contacts Daily Supplier relations Employee Personal contacts Daily Employee relations

86 1110001101110000 BTC Annualreport2009 BTC Annualreport2009 0000111011000111 87 botswana telecommunications corporation sustainability reporting (continued)

supplier relations

Suppliers of technology are our prime supporters with In the financial markets, we have worked with nearly all whom we continuously engage to assess the market for banking institutions in Botswana – such as Barclays Bank, newer technologies and solutions. Standard Chartered Bank, First National Bank and Stanbic Bank who have throughout the years helped us with funds Building sustainable alliances and partnerships for various developments. BTC Group’s growth has depended greatly on our ability to initiate and build successful partnerships, forging highly Supporting small and medium size enterprises valued relationship with a multitude of associates. Whether and service providers it is global giants or a local supplier of a service in a remote BTC Group procurement policy encourages local village, sustainability of relationships plays a pivotal role in manufacturers and service providers through a well our quest to provide world class service. This philosophy defined and documented local preference scheme, where has enabled us to forge, secure and maintain unique price preferences are given based on the level of local partnerships throughout our existence. value addition and citizen participation.

Our customers are varied, from major Governmental It is also the Group’s procurement policy that certain Departments to an individual in a rural village and construction and maintenance contracts are offered to businesses to residential. We have served them all with citizen contractors whenever possible. These span across dedication and equity. the fields of network construction and maintenance to non-core asset maintenance. The Corporation believes Our Valued Business Partners cover a wide range of that through its engagement with small and medium size suppliers, principals, agents and institutions and these enterprises, it can empower them in their quest for growth relationships are built over a number of years. From our and sustainability. initial relationship with Cable & Wireless to our latest, there lies a host of names – Ericsson, Alcatel, Siemens, Cisco, We encourage citizen empowerment, where we employ a Huiwei, Nera, Airspan, Alviron, Sun Systems, HP, Comverse preference scheme in purchasing goods and supplies. By NEC, Mitel etc. buying local goods and services, we promote an efficient supply industry.

88 1110001101110000 BTC Annualreport2009 BTC Annualreport2009 0000111011000111 89 botswana telecommunications corporation sustainability reporting (continued)

The Global Reporting Initiatives (GRI) G 3 Index

The Global Reporting Initiatives (GRI) provides a generally accepted framework for reporting on an organisation’s economic, environmental and social performance. BTC Group has used the GRI Sustainability Reporting Guidelines (G3) in the development of our 2009 Sustainability Report. This index provides a comprehensive listing of the GRI indicators reported by the Corporation. We have also used the telecommunications sector supplements on social and environmental performance. This index is used as a checklist for compliance and refers to this Sustainability Report 2009, as well as the other sections of the Annual Report 2009.

The various sections of this Annual Report are classified under:  Corporate Profile  Performance Highlights  Ten Year Review and Time Line  Board and Management Resume  Chairman’s and Chief Executive’s Reports  Corporate Governance Report  Business Review  Risk Management Report  Brand Management Report  Regulatory Report  Human Resources Report  Corporate Sustainability Report  Management Discussion and Financial Analysis  Financial Statements

We have self assessed our report as A

C C + B B + a a + Mandatory Self declared Yes Optional Third party checked No GRI checked No

90 1110001101110000 BTC Annualreport2009 Profile

Criteria Contents Where to find it?

1 strategy and analysis 1.1 Statement from the Chairman  Chairman’s Statement Corporate Report and Chief Executive  Chief Executive’s Report 1.2 Description of key impacts, risks  Vision 2016 and BTC Sustainability Report and opportunities  New business model Business Review  Key targets and performances 2 Organisational profile 2.1 Name of the organisation Botswana Telecommunications BTC Corporate Profile Corporation 2.2 Primary brands, products Communications products BTC Corporate Profile and / or services and services 2.3 Operating structure BTC Organisation Chart BTC Corporate Profile 2.4 location of the organisation’s Gaborone BTC Corporate Profile headquarters 2.5 Number and name of countries Botswana BTC Corporate Profile with operations 2.6 Nature of ownership and 100% State owned enterprise BTC Corporate Profile legal form 2.7 Market served Entire Botswana covering business, BTC Corporate Profile government and individuals 2.8 Scale of operating organisation  Number of employees BTC Corporate Highlights,  Net sales Management Discussion and  Total capitalisation Financial Analysis  Quantity of products and services provided  Breakdowns of assets, sales / revenue, cost structure, employees 2.9 Significant changes during Entry into mobile, expansion of Business Review Management the reporting period broadband and internet, decline in Discussion and Financial Review voice telephony revenue, staff reduction etc 2.10 Awards received Best Corporate Reporting Annual Report

BTC Annualreport2009 0000111011000111 91 botswana telecommunications corporation sustainability reporting (continued)

Profile (continued)

Criteria Contents Where to find it?

3 report parameters 3.1 Reporting period 1 April 2008 to 31 March 2009 About the Annual Report 3.2 Date of most recent 31 March 2008 previous report 3.3 Reporting cycle Annual About the Annual Report 3.4 Contact point Chief Executive Officer About the Annual Report 3.5 Report scope and boundary Stakeholder expectations About the Annual Report 3.6 Boundary of the report Only the operations covered by BTC About the Annual Report 3.7 limitation of scope / boundary Some market trade sensitive data About the Annual Report may be excluded from these reports 3.8 Basis for reporting on None excluded About the Annual Report subsidiaries, joint ventures, outsourced operations etc 3.9 Data measurement techniques Only internationally accepted About the Annual Report and basis of calculations industry principles and practices are used 3.10 Restatements None, unless disclosed in About the Annual Report these reports 3.11 Significant changes in reporting None, unless disclosed in About the Annual Report (scope, boundaries, these reports measurement methods etc) 3.12 location of the Standard  Strategy and analysis Annual Report 2009 Disclosures  Organisational profile  Report parameters  Governance, commitments and engagements  Disclosure of management approach  Core performance indicators  GRI additional indicators  GRI sector supplement indicators

92 1110001101110000 BTC Annualreport2009 Criteria Contents Where to find it?

4 governance, commitment and engagement 4.1 Governance structure BTC organisation, board and Corporate Governance Report sub-committees, management structure 4.2 Chair of the highest Chairman’s and Chief Executive Corporate Governance Report governance body Officer responsibilities Board Members Profile 4.3 Highest Governance body and Independence of the members Corporate Governance Report its composition – independence of the board 4.4 Mechanism for stakeholders  Shareholder relations BTC Sustainability Report and employees to provide  Employee feed back mechanisms recommendations or direction  Stakeholder relations to the Board 4.5 Senior management  Board compensation Corporate Governance Report compensation and  Chief Executive compensation organisational performance  Senior management compensation 4.6 Avoidance of conflict of interest  Disclosure requirements Corporate Governance Report 4.7 Process for appointment  Board member appointment Corporate Governance Report to Board (expertise) process 4.8 Vision, Mission and Applicability and relevance to BTC Sustainability Report Value Statements organisation 4.9 Boards procedure for overseeing  Board meetings Corporate Governance Report and management of economic,  Performance management and environmental and social frequency performance  Corporate Sustainability Reporting Committee 4.10 Process for evaluating  Performance management Corporate Governance Report Board performance and frequency 4.11 Precautionary approach Risk identification and management Risk Management Report or principles process 4.12 Externally developed economic, licence conditions and fulfilment BTC Regulatory Report environmental and social charters, principles and other initiatives and BTC’s compliance

BTC Annualreport2009 0000111011000111 93 botswana telecommunications corporation sustainability reporting (continued)

Profile (continued)

Criteria Contents Where to find it?

4 governance, commitment and engagement (continued) 4.13 Membership and participation in BTC is a member of Botswana BTC Sustainability Report industry, national and Confederation of Commerce, Industry international advocacy bodies and Manpower. BTC through BTA participates in International Telecommunications Union, Commonwealth Telecommunications Fora. 4.14 Stakeholder groups and  Community and civil society BTC Sustainability Report engagements  Customers BTC Human Resources Report  Stakeholders and providers of capital  Suppliers  Employees, workers and trade union 4.15 Basis for identification and Value and impact to BTC and the BTC Sustainability Report selection of stakeholders for country engagement 4.16 Approach to stakeholders Continuous, and as and when BTC Sustainability Report engagement (frequency necessary and contents) 4.17 Key issues and concerns from None BTC Sustainability Report stakeholders and resolution

94 1110001101110000 BTC Annualreport2009 labour practices and decent work

Criteria Contents Where to find it?

employment LA1 Total labour force and breakdown Total labour force at 31 March Human Resources Report 2009 was 905 LA2 Employee turnover by age, A total of 77 left the employ of BTC. Human Resources Report group, gender and region This amounted to 9% LA3 Benefits provided to full-time Temporary employees are not entitled BTC Sustainability Report employees that are not provided for any additional benefits such as to temporary or part-time pensions, medical insurance, employees travelling concessions etc. labour Management Relations LA4 Percentage of employees 584 of the 905 employees belong to BTC Human Resources Report covered by collective bargaining staff unions covered under collective agreements bargaining LA5 Minimum notice periods Minimum notice periods are set out BTC Human Resources Report regarding operational changes, in the BTC’s Conditions of Service. including whether it is specified usually, sufficient time is given in in collective agreements case of involuntary terminations Occupational Health and Safety LA6 Percentage of total workforce Currently a Health and Safety BTC Sustainability Report represented in formal joint Committee is being formed. management – worker health Heads of Departments can nominate and safety committees that help representatives to this Committee, monitor and advise on as such, entire staff has equal chance occupational health and safety of getting appointed to such initiatives programmes LA7 Rates of injury, occupational diseases, lost days and absenteeism and number of work related facilities by region LA8 Education, training, counselling, BTC AIDS Policy BTC Sustainability Report prevention and risk control BTC Retrenchment Policy BTC Human Resources Report programmes in place to assist workforce members, their families, or community members regarding serious diseases

BTC Annualreport2009 0000111011000111 95 botswana telecommunications corporation sustainability reporting (continued)

labour practices and decent work (continued)

Criteria Contents Where to find it?

Occupational Health and Safety (continued) LA9 Health and Safety topics covered Health and Safety BTC Sustainability Report in formal agreements with trade Collective Labour Agreements unions training and Education LA10 Average hours of training per Data currently not available year per employee by category LA11 Programmes for skills BTC Training Programme BTC Sustainability Report management and lifelong learning that supports the continued employability of employees and assist them in managing career endings LA12 Percentage of employees All staff are subject to performance BTC Human Resources Report receiving regular performance reviews and career development reviews diversity and Equal Opportunity LA13 Composition of governance BTC does not practice diversity BTC Human Resources Report bodies and breakdown of based policies employees per category according to gender, age group, minority group membership, and other indicators of diversity LA14 Ratio of basic salary of men to BTC Salary Structure BTC Human Resources Report women by employee category

96 1110001101110000 BTC Annualreport2009 society performance indicators

Criteria Contents Where to find it?

Community SO1 Nature, scope and effectiveness All major projects are environmentally BTC Sustainability Report of any programmes and practices assessed for impact prior to that assess and manage the commissioning of the project impacts of operations on There are no practices that assess and communities, including entering, manage the impact of every operation operating and exiting Corruption SO2 Percentage and total number of Internal Audit function closely BTC Ethical Values business units analysed for risk monitors all organs of BTC for any BTC Conditions of Service related corruption risk relating to corruption BTC Human Resources Policies BTC’s ethical values do not tolerate corruption SO3 Percentage of employees trained All staff are expected to adhere to BTC Ethical Values in organisation’s anti-corruption BTC’s Human Policies and Conditions BTC Conditions of Service policies and procedures of Service BTC Human Resources Policies SO4 Action taken in response to Depending on the severerity of BTC Conditions of Service incidents of corruption offence an employee may be reprimanded or terminated public Policy SO5 Public policy position and BTC as a State Owned Entity, fully participation in public policy subscribes to Government Policies development and lobbying As such lobbying is not relevant SO6 Total value of financial and in-kind None contributions to political parties, politicians and related institutions by country anti-competitive Behaviour SO7 Total number of legal actions for None anti-competitive behaviour, anti- trust, and monopoly practices and their outcomes Compliance SO8 Monetary value of significant fines None and total number of non-monetary sanctions for non-compliance with laws and regulations

BTC Annualreport2009 0000111011000111 97 botswana telecommunications corporation sustainability reporting (continued)

product responsibility performance indicators

Criteria Contents Where to find it?

Customer Health and Safety PR1 lifecycle stages in which health and safety impacts of products and services are assessed for improvements and percentage of significant products and services categories subject to such procedures PR2 Total number of incidents of None BTC Regulatory Report non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycles, by type of outcome products and Service Labeling PR3 Type of product and service None. BTC’s products are adequately Website www.btc.bw information required by described in product brochures, BTC Product Brochures procedures and percentage of leaflets and the BTC Telephone BTC Telephone Directory significant products and services Directory subject to such information requirements PR4 Total number of incidents of None non-compliance with regulations and voluntary codes concerning product and service information and labelling by types of outcomes PR5 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction

98 1110001101110000 BTC Annualreport2009 telecommunication sector specific indicators

Criteria Contents Where to find it?

internal Operations IO1 Capital investment in Information available for country Financial Review and telecommunications network Management Discussion infrastructure broken down by country / region IO2 Net costs for service providers The current BTC licence conditions do BTC Regulatory Report under the Universal Service not impose any universal service Obligation when extending obligation service to geographical locations and new low-income groups, which are non-profitable. Describe relevant legislative and regulatory mechanism IO3 Practices to ensure health and BTC’s working procedures adhere to BTC Human Resources Report safety of field personnel involved industry accepted standards on BTC Sustainability Report in installations, operation and Health and Safety including adequate maintenance of masts, base protection against exposure to radio stations, laying cables and other frequency outside plant. Related health and safety issues include working at heights, electric shock, exposure to EMF and radio frequency fields and exposure to hazardous chemicals

BTC Annualreport2009 0000111011000111 99 botswana telecommunications corporation sustainability reporting (continued)

telecommunication sector specific indicators (continued)

Criteria Contents Where to find it?

internal Operations (continued) IO4 Compliance with International BTC customer premises equipment BTC Sustainability Report Commission on Non-Ionising and handsets are type approved by Radiation Protection (INCIRP) BTA, or relevant international and standards on exposure to radio regional standards (such as ICASA) frequency (RF) emission from setting standards to which the handsets industry subscribe The equipment used in the network are in accordance with the BTC standards or those which are approved in the industry IO5 Compliance with International BTC Sustainability Report Commission on Non-Ionising Radiation Protection (ICNIRP) guidelines on exposure to radio frequency *(RF) emission from base stations. IO6 Policies and practices with respect None to Specific Absorption Rate (SAR) of handsets. IO7 Policies and practices on the An Environment Impact Assessment BTC Sustainability Report sitting of masts and transmission (EIA) is carried out involving all sites including stakeholder stakeholders prior to commencement consultation, site sharing, and of construction. The installation of initiatives to reduce visual impacts. such masts and transmission lines are Describe approach to evaluate subject to approval by the relevant consultations and quantify where Government bodies. possible. IO8 Number and percentages of All sites are owned by BTC. BTC Sustainability Report stand-alone sites, shared sites, and sites on existing structures.

100 1110001101110000 BTC Annualreport2009 Criteria Contents Where to find it?

providing Access PA1 Policies and practices to enable BTC’s operations are carried out along BTC Sustainability Report the deployment of commercial lines which require that telecommunications infrastructure services are only provided to and access to telecommunications economically viable areas. The Group, products and services in remote however, in agreement with the and low population density areas Government, is implementing rural (explanation of a business model development programmes in low applied) population and uneconomical areas under a capital grant system PA2 Policies and procedures to There aren’t any barriers for services BTC Sustainability Report overcome barriers for access and except for availability of network use of telecommunications resources products and services including: language, culture, illiteracy, and lack of education, income, disabilities, and age. PA3 Policies and practices to ensure BTC products and services are BTC Sustainability Report availability and reliability of available in most population centres. telecommunications products Certain specialised services are catered and services and quantify, where for based on the basic demand and possible, for specified time periods justifiable solutions and location and downtimes PA4 Quantify the level of availability Most basic products are available to BTC Product Bouquet of telecommunications products most population (over 90%). However, BTC Telephone Directory and services in areas where BTC certain specialised products such as operates broadband, network services are only available in the major towns PA5 Number and types of Low income users have access to BTC Tariff Policy telecommunications products prepaid products where no rentals BTC Telephone Directory and services provided and used are set with no barrier to entry by low and no income sectors of the population PA6 Programmes to provide and BTC’s services are part of essential maintain telecommunications services during disaster relief. BTC is products and services in committed to provide free services emergency situation and for during such periods. disaster relief.

BTC Annualreport2009 0000111011000111 101 botswanabotswana telecommunications telecommunications corporation corporation

financIal review

102 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

This Financial Review and Management Discussion reviews the results of operation, performance and financial conditions for the year ended 31 March 2009 in comparison with the previous two years. It explains the performances of various business segments using a variety of measures. It provides commentary on the revenue, the operating profit financIal review performance, asset basis, financing and capital structures of the Corporation.

BTC Annualreport2009 0000111011000111 103 botswana telecommunications corporation

caution regarding forward looking statements

104 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

caution regarding forward looking statements

Good Corporate Governance and stock market regulations Factors that could cause actual results to differ materially from encourage companies to disclose forward looking statements our expectations expressed in or implied by our forward- on objectives, plans, strategies, financial conditions and looking statements include: general economic conditions; results of operations, cash flow and business outlook. These failure to achieve our business objectives; the intensity of statements are forward looking because they are based competitive activity; our ability to respond to technological on our current expectations, estimates and assumptions changes and rapidly offer new products and services; effects about the markets we operate in, the Botswana economic affecting the functionality of, and our ability to protect, environments and our ability to attract and retain customers maintain and replace, our networks, information technology to manage network assets and operating costs. (IT) systems and software: labour disruptions; the potential adverse effects on our internet business of the significant A statement we make is forward looking when it uses what increase in broadband demand; our ability to raise capital we know and expect today to make a statement about the needed to implement our business plan; the consummation future. Forward looking statements may include words such of the privatisation initiatives of the Government of Botswana; as aim, anticipate, assumption, believe, could, expect, goal, litigation and changes in laws and regulations etc. guidance, intend, may, objective, outlook, plan, seek, should, strategy, strive, target and will. Forward-looking statements are provided in this document for the purpose of allowing investors and others to get Forward-looking statements, by their nature, are subject to a better understanding of our operating environment. numerous risks and uncertainties and are based on several However, readers are cautioned that it may not be assumptions which give rise to the possibility that actual appropriate to use such forward-looking statements for any results could differ materially from our expectations expressed other purpose. in or implied by such forward looking statements and that our objectives, strategic priorities and business outlooks may It is important to know that: not be achieved. As a result, we cannot guarantee that any  Forward looking statements in the BTC’s 2009 annual report, forward-looking statement will materialise. including Financial Review and Management Discussion describe our expectation as at 21 September 2009. Risks that could cause our actual results to materially differ  Our actual results could be materially different from what from our current expectations are discussed throughout this we expect if known and unknown risks affect our Financial Review and Management Discussion as well as in business, or if our estimates or assumptions turn out to be the section on Risk Management. inaccurate. As a result, we cannot guarantee that any forward looking statement will materialise and, accordingly, you are cautioned not to place undue reliance on these forward looking statements.

BTC Annualreport2009 0000111011000111 105 botswana telecommunications corporation FINANCIAL REVIEW and management discussion

 Forward looking statements do not take into account This review is focused principally on the trading results of the effects that the transactions or non-recurring or BTC Group before specific items. Specific items (such as other special items announced or occurring after the Restructuring Costs, one-off retrenchment expenses etc.), by statements are made, may have on our business. For virtue of their size or nature, are excluded where necessary example, they do not include the latest liberalisation, because they are predominantly transitional in nature. This licencing or privatisation arrangements and their impact is also consistent with the way that financial performance on BTC, sale of assets or businesses, acquisitions assets is measured by management as it allows a meaningful write-downs or other changes announced or occurring comparison to be made of the operating results of the after forward-looking statements are made. The financial Corporation. impacts of such transactions and non-recurring and other special items can be complex and necessarily depends These financial statements, analysis and data include on the facts particular to each of them. Accordingly, the the operations of BTC including that of beMobile and its expected impact cannot be meaningfully described in the subsidiary Botsnet (Pty) Ltd. The subsidiary is involved abstract or presented in the same manner as known risks in internet retailing. beMobile, the BTC’s arm of mobile affecting our business. telephony commenced its services in May 2008. Hence, this  We disclaim any intention and assume no obligation to is the first year in which the revenue and operating costs are update and forward looking statements even if included in the financial statements. information becomes available as a result of future events or for any other reason. Our Business BTC is licensed as a Public Telecommunications Operator This Financial Review and Management Discussion, reviews which enables the Corporation to offer services of any kind the results of operation, performance and financial conditions connected with public telecommunications. Currently, the for the year ended 31 March 2009 in comparison with the Group is the one of the leading providers in Botswana of previous two years. It explains the performances of various voice telephony, both, fixed and mobile as well as national business segments using a variety of measures, some of and international, internet wholesaling and retailing, data which are not defined under IFRS, and therefore termed services, virtual private networks and customer equipment to as ‘non-GAAP measures’. It provides commentary on the residential, government and business customers. revenue, the operating profit performance, asset basis, financing and capital structures etc. of the Corporation and BTC Group’s main business is managed along the lines of analyses it over operating segments or line of business / revenue sources being national and international switched activities for the past three years. It also analyses the risks telephone services, local access service, data (including associated with the business, its view on those risks and the internet wholesaling) and provision of customer equipment. actions that are taken by the Corporation. These divisions are designed to assist management in comparing meaningfully the operating results and financial performance. In order to better manage customers, they are grouped along size and type resulting in both small and medium enterprises, large corporates and government as well as residential users.

106 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation

Operating Results The Corporation’s results for the past three years are summarised below:

2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Sales of goods and services 835.9 799.2 743.8 4.6% 7.4% Interest 45.9 59.2 59.5 (22.4% ) (0.3% ) Revenue 881.8 858.4 803.4 2.7% 6.8% Cost of sales (396.3 ) (370.7 ) (367.7 ) 6.9% 0.8% Gross profit 485.5 487.7 435.7 (0.4% ) 11.9% Other Income 23.2 21.6 1.2 7.4% 1700.0% Selling and distribution costs (12.4 ) (8.6 ) (9.6 ) (44.2% ) (10.4% ) Administrative expenses (233.6 ) (220.2 ) (201.2 ) 6.1% 9.4% Other expenses (122.6 ) (98.1 ) (76.7 ) 1.7% 27.9% Operating profit 140.1 182.5 149.3 (10.6% ) 22.2% Financing costs incl preference dividend (21.2 ) (29.2 ) (31.5 ) (27.4% ) (7.3% ) Profit before staff retrenchment costs 118.9 153.3 117.8 (7.5% ) 30.1% Restructuring costs — (95.0 ) — (76.0% ) — Profit attributable to ordinary shareholders 118.9 58.3 117.8 (104.1% ) (50.5% ) Basic earnings per notional ordinary share (thebe) 565 277 560 Diluted earnings per notional ordinary share (thebe) 52 26 52

BTC Annualreport2009 0000111011000111 107 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Review of Results The telecommunications revenue continued to grow during The operating costs, which include the cost of sales, selling the financial year 2008/09. The revenue growth also reflected and distribution, administrative and other expenses increased the shifting revenue sources, both retail and wholesale, as to Pula 742.1 from Pula 697.6 million (2007/08) and Pula 655.2 well as between voice and data. We are on course to create million (2006/07). This reflects a healthy operating margin of a entirely new business model for BTC Group in the coming 15.9 per cent as compared to 10.2 per cent and 11.9 per cent year. Overall costs too have come down from the previous in the previous years. Although, the costs increased by 6.4 per year reflecting a net profit of Pula 119.0 million as opposed to cent, the results achieved are remarkable given the trading Pula 58.3 million in the previous year. conditions experienced for most part of the year.

BTC Group’s revenue from product sales grew by Pula 36.8 BTC recorded a net profit of Pula 118.9 million (before million to Pula 835.9 million for the year, despite the difficult retrenchment cost) down from Pula 153.3 million in the trading conditions owing to the world economic decline. The previous year, reflecting a decrease of 7.5 per cent. This is rate of growth was impressive, reflecting an increase of 4.6 impressive and reflects the potential for future profitability. per cent. During the year, the stakeholder equity surpassed Pula 1.0 Gross profit margin, excluding interest income, totaled Pula billion mark for the first time. Total stakeholder’s equity and 485.5 million (55.1 percent) from Pula 487.71 million (2007/08) reserves now amounts to Pula 1,127.0 million (2008 – Pula (53.6 per cent). The gross profit margin has remained above 996.8 million and 2007 – Pula 968.0, as compared to the 50.0 percent during the last three years, which is impressive. assets of Pula 1,658.3 million (2008 – Pula 1,643.2 million The growth in the products revenue and the stability in and 2007 – Pula 1,601.7 million). In line with the progressive the gross profit margin demonstrate that the exercise of dividend policy of the stakeholder, this reflects an improving re-balancing of tariffs carried over the last four years has capitalisation ratio (or debt equity structure) for the achieved its main aim. corporation.

Sales of Products and Services BTC’s revenue sources include voice (both national and international calls), network (local access and data services including managed data network, ADSL and internet bandwidth wholesaling and retailing) and sale and rental of customer equipment.

2009 2008 2007 % change Sale of Goods and Services P mill P mill P mill 09:08 08:07 Voice revenue – national calls 250.5 264.3 268.3 (5.2 ) (1.5 ) – international calls 132.2 168.1 198.5 (21.3 ) (15.3 ) Total voice revenue 382.7 432.4 466.8 (11.5 ) (7.4 ) Network revenue – local access 94.2 83.5 59.2 12.8 41.0 – data and private circuits 249.9 202.3 133.3 23.1 51.8 Total network revenue 344.1 285.8 192.5 20.4 48.5 Equipment sales and rentals 65.8 52.9 44.9 24.4 17.8 Other services 43.4 27.9 39.6 55.5 (29.5 ) Total revenue 835.9 799.2 743.8 4.6 7.4

108 1110001101110000 BTC Annualreport2009 Total product revenue rose to a record Pula 835.9 million, up 4.6 per cent from last year. This is impressive, given the global trend where revenue streams of traditional operators are under pressure.

835.9 15 13 799.2 (14) 48 (36) 11 P milli o n

2007/08 Telephone Telephone Local Data CPE Other 2008/09 Revenue National International access circuits Revenue

Network revenue which comprises the local access and data networks now accounts for 41.2 per cent depicting a significant shift demonstrating the new business model BTC Group is trying to achieve. The fact that the Group was able to grow its revenue around 5 – 7 per cent over the last two years in a competitive market indicates the resilience and the quality of services it provides. The Corporation is quite pleased with this trend considering the severe competition it faces from the other licensed operators, including the other two public telecommunication operators.

The comparative revenue distribution is as follows

operating revenue revenue source Sale of Goods and Services

900 800 700

600 Telephone - national 30% 500 Telephone - international 16% 400 Local and access services 11%

Pula million 300 Data and private circuits 30% 200 Customer premises 100 equipment 8% 0 2005 2006 2007 2008 2009 Other sales and services 5% Year ended 31 march

Other sales and services Local and access services Customer premises equipment Telephone - international Data and private circuits Telephone - national

BTC Annualreport2009 0000111011000111 109 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Voice call and line income Voice calls comprising the national and international call income is still the main source of income for BTC Group. Although, the income from voice calls decreased by 11.5 per cent, nearly half of all of the income, 57.1 per cent, is derived from these sources.

2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Voice revenue – national calls 250.5 264.3 268.3 (5.2 ) (1.5 ) – international calls 132.2 168.1 198.5 (21.3 ) (15.3 ) Network revenue – local access 94.2 83.5 59.2 12.8 41.0 Total voice revenue 476.9 515.9 526.0 (7.5 ) (1.9 )

The drop in voice calls was expected. The introduction of mobile services reduced the impact of the drop in the national call income. The tariff rebalancing exercise where the local access rentals were increased to compensate for the reduction in the call charges also caused the voice call income to drop. Furthermore, due to the competition, some of the prices had to be dropped or bundled together with other services, resulting in a drop in revenue. On a national level, BTC Group still offers the cheapest tariff with a superior voice quality as compared to the other operators.

International call income comprises of outgoing calls originated on BTC network and terminating charges for incoming calls from international operators and from the mobile networks. The world over, the advent of Voice Over Internet (VoIP), the international call income has suffered significant reductions. The trend continued in Botswana as well with the international call income decreasing by 21.3 per cent to Pula 132.2 million. A similar decline of 15.3 per cent was experienced last year. This trend is expected to continue for the foreseeable future.

The international telephone call income as a percentage of all revenue reduced to 15.8 per cent as compared to 21.0 per cent and 26.7 per cent in the previous two years respectively. With the new carrier capacities and internet based communications, further reduction is anticipated.

The access income increased by 12.8 per cent during the current year to Pula 94.2 million (2008 – Pula 83.5 million and 2007 – Pula 59.2 million). This was anticipated as the rebalancing of tariffs was expected to increase the access income whilst reducing the local call income.

The number of fixed access lines has remained at around 144,195. The fixed lines are still the dependable and faster communication platform for ADSL, Metropolitan Area (fibre) Network and the rural network.

In the voice market, we are seeing strong uptake from packages that bring together calls, lines, broadband and mobile through our bundled pricing.

110 1110001101110000 BTC Annualreport2009 Network service and Data revenue Network service revenue includes local access rentals, data networks including managed data network, ADSL and internet bandwidth wholesaling and retailing.

2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Network revenue - data and private circuits 249.9 202.3 133.3 23.1 51.8 Total network revenue 249.9 202.3 133.3 23.1 51.8

During the year, data revenue increased significantly, principally driven by the demand for ADSL and Internet. The new business model will have data services as the core of its development and revenue source.

The income from data services registered a growth of 23.1 per cent and now accounts for 29.9 per cent (2007/08 – 25.3 per cent) of the overall revenue. High-speed internet access service provided through digital subscriber line (ADSL) technology for residential, Government and business customers was the main contributor in this revenue stream.

BTC Group remained Botswana’s preferred broadband (including DSL) and internet service provider. During the year under review, we included mobile broadband to this array of service. We also reduced the entry level prices and increased bandwidth size for existing customers, effectively reducing the internet prices.

In Botswana, we are still the leading provider of wholesale network services to internet service providers, major commercial companies and the Government. We play a major role in helping other mobile operators manage their connections between their base stations.

The Group considers data services as one of its future growth areas. BTC Group is establishing itself as a leading provider of managed network solutions that will enable our wholesale customers to serve their customers well. For that reason, the Corporation continues to invest in its broadband networks, expanding their capacity and reach. This expenditure, together with the increase in revenue, demonstrates the Corporation’s targeted shift from being a simple voice telephony provider to a composite solution provider where broad band networks are likely to be a leading revenue base in future.

Other Income Sources The other income sources comprise of sale and renting of customer premises equipment and other miscellaneous services.

2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Equipment sales and rentals 65.8 52.9 44.9 24.4 17.8 Other services 43.4 27.9 39.6 55.5 (29.5 ) Total revenue 109.2 80.8 84.5 4.6 7.4

BTC Annualreport2009 0000111011000111 111 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Operating costs Operating Costs comprise costs of services and goods sold, direct selling and distribution costs, net employee costs (costs of retrenchments shown separately), depreciation and other operating costs. In this analysis, depreciation of equipment directly involved with the services provided and those which are in the ancillary functions are accumulated and included separately. Further, as the amortisation of development grants are linked to the costs of equipment, they are subtracted from the depreciation charge.

The total operating costs including retrenchment costs and net of development grants for the year was Pula 741.6 million as compared to Pula 770.9 million in the previous year (see table below). However, excluding the costs of retrenchment, the overall costs accounted for Pula 718.8 million which compared favourably with that of the previous year (2007/08 – Pula 675.9 million), growth of which is below the level of inflation. Management of costs is a significant element in the new business model.

2009 2008 2007 % change

Operating costs P mill P mill P mill 09:08 08:07 Cost of goods and services 244.0 217.5 214.4 12.2 1.5 Selling and distribution 12.3 8.6 9.6 43.0 (10.4 ) Net employee costs 196.3 190.6 182.0 3.0 4.7 Depreciation 151.7 152.9 146.9 (0.8 ) 4.1 Other Operating Costs 137.3 106.3 101.1 7.7 5.1 Operating costs prior to restructuring 741.6 675.9 654.0 6.3 3.3 Restructuring costs — 95.0 0.0 (76.0 ) 0.0 Total operating costs 741.6 770.9 654.0 (3.8 ) 17.9

Almost all categories of operating costs were contained within reasonable limits, and within the overall increase in the average inflation of 12.0 per cent.

cost structure cost structure

900 120 800 100 700 600 80 500 % 60 400

Pula million 300 40 200 20 100

0 2005 2006 2007 2008 2009 0 2005 2006 2007 2008 2009 Year ended 31 march Year ended 31 march

Restructuring costs Employee costs Restructuring costs Employee costs Interest costs Selling and Distribution Interest costs Selling and Distribution Other operating costs Cost of service / goods Other operating costs Cost of service / goods Depreciation net of Depreciation net of amortisation amortisation

112 1110001101110000 BTC Annualreport2009 Cost of goods and services Cost of goods and services as indicated above comprise mainly of costs directly attributable to international carriers and national operators on outbound and transit calls, licence fees and space segment rentals and other equipment and material costs (depreciation excluded).

Payment to international and national carriers and operators increase by Pula 17.9 million to Pula 163.7 million (an increase of 12.2 per cent). The other category of costs which increased significantly was space segment rentals increasing from Pula 6.2 million to Pula 11.2 million as a result of purchase of increased bandwidth.

Net Employee Costs Despite reduction in staff numbers, net employee costs at Pula 196.3 million, after capitalisation for capital jobs, increased by Pula 5.7 million or 3.0 per cent from the previous year. The increase was similar to the one in the previous year and was as a result of salary adjustments, staff movements, promotions and filling up of vacant positions.

The total number of employees at end of March 2009 was 905 as compared to 1,057 a year ago.

Retrenchment costs During the year, the Corporation completed its retrenchment plan with 148 employees who opted to terminate their services on a voluntary basis.

Selling and distribution costs The direct selling and distribution costs only accounted for Pula 12.3 million in comparisons to Pula 8.6 million in the previous year.

Depreciation The charge comprises of depreciation of land and building, plant and machinery directly related to providing services and other equipment. The following is an analysis of the respective depreciation charge.

2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Land and building 3,269 3,822 3,348 (14.5 ) 14.2 Plant and machinery 148,982 149,361 149,970 (0.2 ) (0.2 ) Other equipment 21,203 19,679 10,532 7.8 86.9 Less: amortisation of development grant (21,801 ) (19,928 ) (16,922 ) 9.4 17.8 Total charge 151,653 152,934 146,928 0.9 4.08

BTC Annualreport2009 0000111011000111 113 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Depreciation of plant and machinery is a significant part of the operating costs and indicates the capital intensity of the operations. BTC Group is currently rationalising its investments through vendor partnerships, life cycle costing, competitive purchasing in capital assets with a view to reduce the costs applicable to purchase of equipment.

Other operating costs This category of costs includes other repairs and maintenance expenses on non-telecommunications equipment and other operating expenses including consultancy and legal costs, impairment provision relating to customer account balances etc. The other operating costs amounted to Pula 114.5 million (2007/08 – Pula 106.3 million).

The main reason for the increase in other operating expenses was attributable to additional impairment provision on customer account balances, consultancy costs relating to privatisation, mobile service and other performance improvement initiatives. These costs are essential and will result in benefits accruing to the Corporation in the coming years.

Gross, Operating and Net income and margins The following table summarises the gross, operating and the net margins.

2009 2008 2007 % change

P mill P mill P mill 09:08 08:07 Gross margin (excl interest income) – in Pula 440.2 428.7 382.6 2.7 12.0 % 52.7 53.6 51.4 Operating margin prior to restructuring costs (excl interest income) – in Pula 94.3 123.3 89.8 (5.0 ) 37.3 % 11.3 18.0 12.1 Operating margin after restructuring costs (excl interest income) – in Pula 94.3 28.2 89.8 234.4 (68.6 ) % 11.3 3.5 12.1 Net margin – in Pula 118.9 58.3 118.0 104.1 (50.6 ) % 14.2 7.3 15.9

Gross margin The gross margin excluding interest income posted a steady performance, reflecting a healthy 52.7 per cent (2007/08 – 53.6 percent and 2006/07 – 51.4 percent). This performance of achievement above 50.0 per cent is encouraging and reflects the pricing policies adopted by the Corporation. BTC Group was able to maintain this trend despite the tariff rebalancing and the severe competition it faced during the past three years.

Operating margins The operating margin before retrenchment costs, decreased to Pula 118.9 million as compared to Pula 123.3 million in the previous year. Expressed as a percentage of revenue, this improved to 11.3 per cent as compared to 3.5 per cent in the previous year. The total operating costs as a percentage of total telecommunications services income was 88.7 per cent in the current financial year as compared to 96.5 per cent in the previous year.

114 1110001101110000 BTC Annualreport2009 The operating margin after retrenchment costs was Pula 94.3 million in the current year as compared to Pula 28.2 million in the previous year.

operating income margins (Before interest income and restructuring costs) (Gross, Operating and Net Margins)

140 60.0%

120 50.0% 100 40.0% 80 % 30.0% 60

Pula million 20.0% 40

20 10.0%

0 2005 2006 2007 2008 2009 0.0% 2005 2006 2007 2008 2009 Year ended 31 march Year ended 31 march

Gross margin Operating margin Net margin

Interest Income and Financing costs

Interest income The interest income declined to Pula 45.9 million as compared to Pula 59.3 million and Pula 59.0 million in the previous years, resulting from the reduced bank balances. The bank balances averaged Pula 400 million yielding approximately 11.5 per cent per annum.

The cash position decreased due to the increased level of capital expenditure on the projects such as the Trans Kalahari Fibre Optic Network, BTC mobile network and the eastern and western international cable projects.

The income received and the corresponding cash balances can be analysed as follows for the two years:

2009 2008 2007 % change Interest earned on P mill P mill P mill 09:08 08:07 – on short term deposits 45.9 59.3 55.8 (22.6 ) 6.3 – on Bank of Botswana Certificates 0 0 3.7 0 (100.0 ) Total Interest Income 45.9 59.3 59.5 (22.6 ) (0.3 )

Cash balances – Cash at bank 83.8 62.4 193.4 (67.7 ) (67.7 ) – Cash at bank (short term deposits) 315.9 341.7 401.3 (14.9 ) (14.9 ) Total cash balances 399.7 404.1 594.7 (32.0 ) (32.0 )

BTC Annualreport2009 0000111011000111 115 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Financing cost The financing cost, at Pula 21.2 million, compared with Pula 29.2 million in the previous year was within budget. This comprises of Pula16.5 million (2008 – Pula 22.1 million) on account of the unwinding of interest costs on the interest free loan from the Government of Botswana, not involving any movement of funds. The balance of Pula 4.8 (2008 – Pula 6.9 million) was on account of the Corporation’s long term bonds.

2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Profit before financing costs (P mill) 140.2 87.5 149.3 60.2 (14.8 ) Financing costs (P mill) 21.2 29.2 31.5 (27.4 ) (14.1 ) Net Income after financing costs (P mill) 119.0 53.3 117.8 123.3 (15.0 ) Interest Cover (times) Profit before financing costs: interest 6.6 3.0 4.7

Net income before financing costs stood at P 140.2 million and the interest cover recorded of 6.6 times indicates that the Corporation is generating sufficient revenues to cover interest expenses.

There were no exceptional finance expenses resulting from application of International Accounting Standard (IAS 39)

Other Income Other income contribution to revenue accounted from disposal of properties, plant, machinery and equipment. The other income accounted for only Pula 1.4 million for the year.

Capital expenditure Capital expenditure for the year under review was Pula 167.7 million much lower than the previous year of Pula 372.0 million. With the completion of the Trans Kalahari Fibre Optic Project, most part of the expenditure for the current year was on the mobile network and Intelligent Network platforms.

The capital expenditure expressed as a percentage of the cash available during the year amounted to 46.6 per cent as compared to 125.6 per cent and 194.5 per cent in the preceding two years, indicating that the balance (i.e. 53.4 per cent) was financed through cash resources accumulated over years. The expenditure also expressed in multiples of Earnings before Interest, Depreciation, Taxation and Amortisation (EBIDTA) accounted for 0.5 times dropping from 1.9 times in the previous years. We achieved a capital expenditure at 46.6 per cent of revenue as compared to 17.6 per cent and 15.6 per cent the previous two years. The completion of the Trans Kalahari Project and investment in the mobile network contributed to this exceptionally high figure. Future capital expenditures will, however, be targeted to previously set range of 25% - 40 % of the revenue depending on the cash generated through the business.

116 1110001101110000 BTC Annualreport2009 2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Cash flow available for investment during the year (Pula mill) 162.4 173.3 157.2 (6.3% ) 10.2% Capital Expenditure (Pula mill) 167.7 372.0 125.2 (54.9% ) (197.1% ) Self-financing ratio (%) 96.8% 46.6% 125.6% EBIDTA (Pula mill) 268.7 179.3 236.9 60.5% (24.3% ) EBIDTA : Capital expenditure multiple 1.60 0.5 1.9 Capital Expenditure to operating revenue (%) 19.4% 46.5% 16.8%

The amount of “cash flow available for investment during the year” is arrived at after taking into account the financing income and costs, the proceeds from sale of property, plant and equipment and the repayment of loans.

net income ebidta - net operating cash flow (Earnings before interest Depreciation and taxation)

160 300 140 250 120 200 100 80 150 60 Pula million Pula million 100 40 50 20

0 2005 2006 2007 2008 2009 0 2005 2006 2007 2008 2009 Year ended 31 march Year ended 31 march

Creation of shareholder value and return on shareholder’s funds One of BTC Group’s stated objectives is for a comparable market based return on the shareholder’s funds, with potential for future growth.

Return on shareholders funds Shareholder’s equity, at end of 31 March 2009, was Pula 1,127.0 million as compared to 2008 - Pula 967.9 million and 2007 - Pula 967.9 million. This reflect a growth of approximately 16.4 per cent a year over the previous year and an average of 9.0 percent per annum increase over the last three years. The stakeholder’s, the Government of Botswana’s dividend policy helps BTC Group to achieve this growth as 75 per cent of the net profit is retained in the Corporation.

Return on average shareholder’s equity increased from 5.9 per cent in 2007/08 to 11.2 per cent in 2008/09. As the capital base increase and the earnings get diluted, the return on shareholder’s funds is likely to come under pressure. The challenge for the Corporation is to find alternative and new sources of revenue growth which could maintain or increase the profit margin.

BTC Annualreport2009 0000111011000111 117 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Basic earnings per share (including retrenchment costs) increased from 277 thebe to 565 thebe per share whilst the diluted earning per share also increased from 26 thebe to 52 thebe this year. The improved performance has brought back the previous trend in earnings which took a dip owing to high retrenchment costs.

Earnings, dividends and share value Net income attributable to Government of Botswana on ordinary shares for the current financial year was Pula 118.9 million as compared to Pula 58.3 million and Pula 117.8 million in the previous two years.

As per the Government directive, the Corporation will pay a dividend totalling 25 per cent of the profit. On that basis, a dividend of P 29.7 million will become payable (141 thebe per ordinary share basic) in the financial year 2009/10. An additional payment of Pula 0.2 million (8 thebe per share) is payable on the preference shares.

Return on capital employed and total assets Return on average Capital Employed decreased to 7.6 per cent, down from 7.9 per cent. The current return is well below the target of estimated weighted average cost of capital of the Corporation, at 18.0 per cent. The return on total assets also decreased from 7.0 per cent to 6.7 per cent during the year. These ratios are calculated on average balances and based on the net income prior to financial costs. It is always the aim of the Corporation to achieve a return of 18 % on its capital employed.

Financing and Capital Management BTC’s financing strategy remained unchanged during the financial year – i.e. to provide adequate resources for expansion. The investment in capital assets was financed by grants from the government and from the internally generated cash. Hence, no new loans were acquired.

Cash flow The Corporation continues to remain cash positive. The cash provided by the operation was Pula 210.5 million as compared to Pula 201.7 million in the previous year. BTC Group’s operational strength is demonstrated by its ability to generate on average Pula 200 million of cash flow from operations per year over the past few years.

However, owing to heavy capital expenditure this year, the Corporation suffered a deficit in its free cash flow for the first time in the last four years. However, its operational capability to generate cash flow combined with the well-managed conservative debt structure ensures that BTC Group has significant capital capacity that can be tapped quickly and effectively as new opportunities emerge.

2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Net cashflow from operations 210.5 201.7 187.2 4.4 7.7 Net cash flow used in investing activities (120.4 ) (311.0 ) (64.0 ) (61.3 ) (385.9 ) Free cash flow 90.1 (109.3 ) 123.2 82.4 (188.7 ) Cash flow from financing activities (95.4 ) (89.0 ) (91.3 ) 7.2 (2.5 ) Increase or decrease in cash resources (5.4 ) (198.3 ) 31.9 97.3 (721.6 )

118 1110001101110000 BTC Annualreport2009 free cash flow roce Return on Capital Employed (prior to restructuring costs) 400 10

300 8

200 6

100 %

Pula million 4 0

2 -100

-200 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Year ended 31 march Year ended 31 march

Free Cash Flow ROCE Capex

Liquidity Cash flows provided by operating activities of continuing operations, prior to working capital changes and dividend payment, totalled Pula 200.9 million (2008: Pula 230.1 million).

BTC Group believes that its internal resources coupled with the unutilised borrowing capacity, is sufficient to finance its operating requirements, anticipated capital expenditure, and dividend payments during the financial year 2009/10.

2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Long term debt including current portion 107.3 200.8 238.7 (46.5 ) (15.9 ) Total Shareholders Equity 1,127 996.8 967.9 13.0 3.0 Total Capital Employed 1463.9 1438.3 1485.9 1.8 (3.2 ) Total Assets 1658.3 1643.2 1601.7 0.1 2.6 Gearing (Debt to Equity ratio) % 9.5 20.1 24.7 Solidity (Equity to total assets) % 68.0 60.7 60.4

BTC Annualreport2009 0000111011000111 119 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Financial Position The total debt, including that payable within a year, decreased by Pula 93.5 million from Pula 200.8 million in March 2008 to Pula 107.3 million in March 2009, mainly as a result of the payment of a major loan from the Government of Botswana and the repayment of the bond amounting to Pula 50.0 million.

The total interest bearing debt as at 31 March 2009, inclusive of the short-term portion, was 9.5 per cent of the shareholders equity, an improvement from 20.1 per cent from the previous year. It is the Corporation’s objective to contain the level of debt and the resulting gearing (or leverage) within 25 % of equity.

The solidity, which reflects the financing of the assets of the Corporation, expressed as the ratio of total shareholder’s equity to total assets, was 68.0 per cent as at 31 March 2009 as compared to 60.7 % in the previous year, reflecting a healthy financing structure.

The Corporation’s recorded current liabilities (excluding current portion of loan term loans) was Pula 183.5 million, as at end of the financial year. The current assets however, maintained at the same level as that of the previous year at Pula 592.7 million. The cash and cash equivalents also remained at the same level at Pula 399.7 million whilst the trade and other receivables decreased by 14.8 per cent or Pula 22.5 million to Pula 128.5 million. Various assets and liabilities including cash and short-term debt can fluctuate significantly on a month-to-month basis depending on short-term liquidity needs.

capital structure capitalisation ratio

2000 100

80 1500

1000 % 40 Pula million 500 20

0 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Year ended 31 march Year ended 31 march

Shareholders equity Shareholders equity Grants and deferred revenue Grants and deferred revenue Debt Debt

120 1110001101110000 BTC Annualreport2009 Net debt BTC financial positions have been strong over the past few years with the company not operating with any net debt.

2009 2008 2007 % change P mill P mill P mill 09:08 08:07 Long-term debt including current portion 107.3 200.8 238.7 (46.5 ) (15.9 ) Cash and bank 83.8 62.4 193.4 34.3 (67.7 ) Short-term deposits 315.9 341.7 401.3 (7.5 ) (14.9 ) Total cash and short-term deposits 399.7 404.1 594.7 (1.1 ) (32 ) Net debt Nil Nil Nil

BTC Group’s debts will be maturing within the next two years and expected to be settled fully. The Group has no current plans to defer or negotiate any new debts.

Off-Balance Sheet Arrangements As discussed in the financial statements, there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Corporation’s financial conditions, changes in financial position, results of operation, liquidity, capital expenditure or capital resources with the exception of the following:  Operating leases (note 23)  Capital commitments and guarantees (note 22)  Banking facilities (note 20.2.1)

Retirement Benefit Costs and Pension Fund As stated in the financial statements, the Corporation operates a defined contribution pension fund called BTC Staff Pension Fund for its eligible citizen employees. The pension fund is a separate legal entity managed by trustees appointed by the BTC Board and staff union representatives. The Corporation contributes to the fund 14 per cent of the pensionable earnings of the members with member’s contributions limited to voluntary basis to the pension fund directly. Pension contributions on behalf of employees are charged to income statement in the year to which they relate to and as the related service are provided.

BTC Group also set aside 14 per cent of the pensionable earnings for those staff who were transferred from the Government of Botswana to BTC on 1 April 1980, the date of commencement of the Corporation. These staff members opted to remain under a separate Government pension plan which was a defined benefit plan. In March 2008, the Group made a final settlement to the Government of Botswana an amount of Pula 29.5 million being the liability in respect of these staff members.

At the balance sheet date, the Group has no further financial obligations to the staff except for any unpaid current contributions.

BTC Annualreport2009 0000111011000111 121 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Financial Risk Management Interest rate risk management BTC Group holds financial instruments mainly to finance its BTC Group has interest bearing financial assets and financial operation; to finance capital development; for the temporary liabilities which exposes it to interest cash flow or fair value investment of short term funds; and to manage currency and volatility. As far as possible, the Group locks its interest rates to interest rate risks that may arise. Pula denominated fixed rate loans.

The Group’s principal financial liabilities comprise bonds, At the end of the year, the Corporation’s loans consist of preference shares, trade payables and government loans. The interest free loans of Pula 120.0 million from the Government main purpose of these financial liabilities is to raise finance for of Botswana and a fixed rate (13.75 per cent). There were no the Corporation’s operations. BTC Group has various financial significant loans obtained during the year. At the same date, assets such as trade receivables and cash and short-term the Corporation’s assets which are subject to interest rate deposits, which arise directly from its operations. risk amounted to Pula 83.8 million of cash and bank balances (variable interest rate deposits) and Pula 315.9 million in BTC Group has a centralised treasury operation whose short-term deposits. primary role is to manage liquidity, funding, investments and manage risks that may arise from interest rate and currency During the year, the Group received Pula 45.9 million in exchange rate. interest income whilst the interest expenses amounted to Pula 21.2 million. The volatility arising from 1 per cent change The main risks arising from the Corporation’s financial in either direction of the interest rate could increase or instruments are cash flow, interest rate risk, liquidity risk, decrease the net interest income by Pula 3.1 million. foreign currency risk and credit risk. Credit risk management Foreign exchange risk management BTC Group’s exposure to credit risk arises mainly from its A significant proportion of BTC Group’s current revenue is trading related receivables and liquid funds with banks. invoiced in Botswana Pula, and a significant element of our Trade receivables (Pula 117.8 million at end of March 2009) operations and costs arise within Botswana. The Corporation consists of a large number of customers, spread across diverse undertakes certain transactions denominated in foreign industries and geographical areas. Management has a credit currencies with international operators and other foreign policy in place and the exposure to credit risk is monitored on suppliers. As a result, an exchange rate risk exist when an ongoing basis. fluctuations in currency rates occurs. BTC Group hedges part of the risk by holding foreign currency (US Dollar) deposit BTC Group does have significant credit risk exposure to single accounts. counterparty or groups of counter parties having similar characteristics (being the Government of Botswana and The Corporation is mainly exposed to South African Rand, US its various operating agencies). However, the Government Dollar and SDR (Special Drawing Rights). At the end of the possesses high credit rating. year, the net exposure to foreign currencies amounted to Pula 48.4 million with a 10 per cent increase or decrease in all rates On the other hand, the credit risk on liquid funds (Pula 399.8 to have an effect equivalent to Pula 4.8 million. million) is similarly limited because the counterparties are banks with high credit ratings assigned by international credit BTC Group’s exposure to foreign currency liabilities and assets rating agencies. are set out in note 26.3 of the Annual Financial Statements.

122 1110001101110000 BTC Annualreport2009 Liquidity risk management BTC Group ensures that its liquidity is maintained by entering The inability to reduce expenses and contain our costs in the into short and medium term financial instruments to support required areas could harm our business. Additional measures operational and other funding requirements. Short-term to contain costs and reduce expenses may be undertaken if funding requirements are reviewed on a monthly basis revenues and market conditions do not continue to improve. through cash flow forecasts. At end of March 2008, the A number of factors could preclude us from successfully Corporation also had Pula 70.0 million in un-drawn facilities bringing the costs and expenses in line with our revenues, with various banks (see note 20.2.1 – Annual financial such as our inability to accurately forecast business and statements). demand or deterioration of our revenue. If we are unable to continue to reduce expenses and contain costs, this could In the coming year, BTC Group is planning to retire loans harm our operating results. totaling Pula 60.0 million with Government of Botswana from its cash resources. Privatisation The Honourable Minister for Communications, Science Risks that Could Affect BTC Business and Technology’s announced that the Corporation is to be privatised. The method suggested for privatisation includes a Strategies, Plans and Operation selection of a suitable Strategic Equity Partner (SEP) up to the The Group plans to achieve its business goals through various limit of 49 per cent of the controlling interest. Although, the strategies. Our strategic direction involves significant changes details of the plans are yet to be implemented, selection of a in our internal process, how we service the customers and suitable SEP who has the same vision and business goals are building of the converged network platforms to develop and important. With up to 49 per cent of the controlling interest, offer services. the management is likely to be in the hands of this SEP. The selection of a partner remains key as the intention should be Our market is unpredictable and characterised by rapid in harmony with that of the Government. technological changes and evolving standards, and, if we fail to address changing market conditions, our business The privatisation also includes share offerings under an and operating results will be harmed. Because of the above Employee Share Option Plan under which they will be able reasons, it is difficult to predict its potential size of future to obtain up to 5 per cent of the share offer. In the event of a growth rate. Our success in generating revenues in this dispute with employees as to the allocation of this tranche, market will depend on, among other things: services could be disrupted and this will have a negative  Maintaining an up-to-date technology in the provision impact on the image, operations and profitability of the Group. of services;  Maintaining and enhancing our relationship with our Further, privatisation of the Corporation will also result in customers; and, taxation on BTC Group’s future profits and this will have a  Our ability to accurately predict and develop our product significant impact on the profitability and the free cashflow range to meet the industry standards. available for the Corporation.

Our future success depends on our ability to increase the revenue volumes from existing and new products and decrease our costs to offset the anticipated declines in the telecommunications tariffs and, if we are unable to realise greater volumes of traffic and lower costs, our operating results may suffer.

BTC Annualreport2009 0000111011000111 123 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Economic and Market Condition We are exposed to risks associated with worldwide economic We expect BTC Group will be able match some of these slowdowns and related uncertainties. Our business is strengths of existing and proposed entrants through better dependent on the major business customers whose demand prices and quality. It is difficult to predict the extent of is driven by the general economic conditions. During periods competition at this early stage. Whilst competition may of a decline in economic growth and commercial activity, improve business climate it will also affect some of our the demand for our products may decline. Weak economic existing lines of business. conditions may negatively affect our profitability and cash flows from operation resulting from weaker demand and Increased competition will also lead to declines in the prices uncertainty in collecting receivables. that can be charged and expected to lead to further price declines in the future. The competitive factors suggest that Competition BTC’s voice calls volume will further decline in the future. We face intense competition from existing licensed operators The voice calls revenue expressed as a percentage of total (traditionally identified as mobile). With the introduction revenue declined from 62.8 percent two years back to 54.1 of service neutral licences (i.e. Public Telecommunications percent last year and to 45.7 percent this year. The trend is Operator Licence), existing licensed operators and new expected to continue although the gains in be-Mobile could entrants may enter the market in the international telephony limit this decline. Revenue too reflected a decrease from Pula and Voice Over Internet (VoIP) segments. Some of these 466.8 million two years back to Pula 432.5 million last year and services do not require significant capital outlays. Technology to Pula 382.7 in the current year. substitutions, for VoIP in particular, has reduced barriers to entry in the industry. This will allow new players to enter Price declines will also could limit our ability to acquire new the market with relatively lower investments in financial, subscribers to our mobile network, and retention of existing marketing, personnel and technological resources to rapidly subscribers, or may lead to diminishing Average Revenue Per launch new products and gain market share. In fact, the Customer (ARPU) or an increase in costs and expenses. operators have already begun to offer international telephony independent of BTC networks and introduced 3G mobile Furthermore, in the mobile market, if the Number Portability network which can carry higher capacity of data. Although becomes mandatory, we could lose customers to other BTC Group has just entered the mobile market, Botswana networks whilst also providing the opportunity to gain has also achieved one of the highest penetration rates in customers from other operators. terms of mobile phones and, it will not be easy to break into such market. Some of these competitors will also have In the event of further significant decline in the future, this better flexibility in corporate governance and in pricing their will lead to reduced economies of scale in those lines of products and services at competitive rates. businesses and, in turn, higher costs and lower margins. The Corporation’s strategies are to mitigate these declines In the mobile sector, the competition in the market may by shifting to new growth businesses for newer services, become fierce if Mobile Number Portability is implemented. such as broadband data and internet. The Group has also This could mean that we may lose some of the existing introduced bundled packages which offer significant benefit mobile customers to other operators. Other operators to customers. If the legacy services decline faster than the rate have also introduced new products and services including of growth of our newer services, our financial performance 3G handsets, fixed rate subscriptions, installment sales for could be negatively and materially affected. handsets etc.

124 1110001101110000 BTC Annualreport2009 Technological Changes Technologies are prone to become obsolete. Introduction Whilst we have obtained insurance to cover most potential of new technologies could be delayed for reasons beyond losses, after reviewing the costs and limitations associated BTC’s control such as regulatory approval or availability of with such insurances. We can not assure you that our existing technology and radio spectrum in the market we operate. system of insurance coverage will be adequate against all Substantial investments usually need to be made before possible losses. new technologies prove to be commercially viable. There is significant risk that the current regulations could delay launch There have been instances in which millions of computers of new services and restrict the Group’s ability to market worldwide were infected by viruses through the internet. these services (eg. pricing procedures, bundling or marketing Similar incidences could occur on our network. If such events restrictions etc). occurs, our systems could fail and may take time to clean up the systems. This could lead to customers loosing confidence BTC Group is in the process of moving their core circuit- in our services and could leave us. We have put in place based infrastructure to IP technology. As part of this move, measures to detect such violations, however, these can not The Group may also plan to discontinue certain services prevent all such unauthorised attacks. that are based on the current infrastructure. In some cases, this could be delayed or prevented by regulatory actions. If Recently, thefts of cable and solar panels have been the Corporation is not able to offer these new technological common occurrences at BTC. BTC Group’s operations are changes or discontinue with the services as planned, they will also dependent on timely replacement and maintenance of not be able to achieve improvements expected. networks and equipment. Any of these events could cause our operations to be seriously disrupted. There is no assurance that we will be successful in developing, implementing and marketing new technologies, products, Customers concerns services or enhancements in a reasonable time, or that they Media and other reports have suggested that electric wave will have a market. There is also no assurance that efficiencies emissions from wireless handsets may adversely affect the will increase as expected. New products or services that use health of mobile phone users. While these reports have or evolving technologies could make our existing products not been conclusive, the customer perception of wireless unmarketable or can cause their prices to fall. telecommunications health risks could adversely affect our financial conditions if customers decide to abandon our Network Security services. BTC Network performance depends on how well it is maintained and protected from misuse. If our network or Changes in Laws and Regulations facilities were to experience catastrophic loss, our operations The Botswana telecommunications industry has been would be seriously harmed. The network is proned to fire, undergoing regulatory reform in many areas. Because we natural disasters, power loss, hacking, and computer viruses, operate on radio frequency spectrum allocated by the cyber attacks, hacking, unauthorised access act of wars and Botswana Telecommunications Authority, our operations terrorism and thefts. Any such occurrences could completely particularly the mobile telephone is highly susceptible to any disrupt our operations, delay service delivery and result in changes. It is difficult to predict with certainty if any of the large expenses to repair or replace the facility. above changes, and if they are made, the extent to which our business will be affected.

BTC Annualreport2009 0000111011000111 125 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Supply Arrangements Performance Improving Processes and Cost Containment We depend on limited source suppliers for some of the key We use a number of rolling forecasts based on anticipated components of our network, which makes us susceptible to demand from customers. It is very important that we supply shortages or price fluctuations that could adversely accurately predict both the demand for our products and affect our business. Although, we have developed long term the lead times required to provide the necessary solutions. partnership arrangements with some of these suppliers, there We depend on our suppliers for most of our equipment, is no guarantee that we will obtain the required equipment in installation and software. If we underestimate the lead times a timely manner in the future. We may experience difficulties for delivery or if the suppliers experience problems with the in identifying alternative sources of supply for our equipment delivery, it may negatively impact on our revenue, business or or we would experience further delays in identifying an operating results. alternative source of supply. The Corporation continues to implement a number of Radio Spectrum Allocation processes and productivity improvement programmes Our operations critically depend on radio spectrum allocation expected to speed up service delivery and its quality to by the Botswana Telecommunications Authority, the customers and reduce or contain costs of operation. Many amount of frequency spectrum made available to BTC could improvement plans require capital expenditure to implement negatively affect our ability to maintain and improve our new systems and automate existing processes. There is service quality. One of the principal limitations on a cellular no assurance that these investments will be effective in communications network’s capacity is the availability of radio delivering the planned productivity improvements. spectrum it needs. If any limitations are placed on them, our service quality may decline causing capacity limitations and Reputation low call completions. BTC Group’s reputation should be the Corporation’s most valuable asset; loss of that reputation could be its greatest Software and System Upgrades risk. Bad reputation can affect raising capital, loss of customers Many aspects of the Group’s business including, but not and revenue, loss of licence to operate or public boycott of limited to, the provision of telecommunication services products etc. Loss of reputation could also create employee and customer billing, depend to a large extent on various apathy and could make recruitment and retention of talented IT systems and software, which must be improved and people difficult. We mitigate this risk by building goodwill, updated on a regular basis and replaced from time to time. using best practices, ensuring transparency, complying with The implementation of system and software upgrades laws and regulations. and conversions is a very complex process, which may have several adverse consequences including billing errors Human Resources and delays in customer service. Any of these events could We depend on skilled personnel to operate our business significantly hurt our customer relationships and businesses effectively in a rapidly changing market, and if we are unable and have a material and adverse effect on our image and to retain existing or hire additional personnel when needed, results of operation. our ability to develop and sell our products could be harmed which in turn will affect our ability to grow our business.

126 1110001101110000 BTC Annualreport2009 Revenue Generation Our future success depends on our ability to develop and An increased level of debt financing could lower our credit successfully introduce new and enhanced products that meet ratings, increase our borrowing costs and give us less the needs of our customers. Our current range of products flexibility. Our ability to raise finance depends on our ability to address a broad range of customer needs but the demand access capital markets and the syndicated loan market. The for our current products is uncertain. Future revenue growth cost of funding depends largely on market conditions, and will depend to a great degree on continued technological the outlook for our business and credit ratings. solutions and introduction of new or enhanced products. If this does not continue, sales of our products may decline and If our credit ratings are down graded, our cost of funding our business will be harmed. could significantly increase. There may also be internal policy limitation of the lender on the amount they will be able to Some of the new markets BTC Group is entering such as offer. BTC Group has unused and renewable credit facilities mobile are mature ones and it will be difficult to break into with various financial institutions (see note 20.2.1 of the them. Only service quality and pricing can provide significant Annual Financial Statements 2009). There is no assurance that breakthrough. There is no guarantee that the Group will these facilities will be renewed on the same or favourable achieve its desired predictions in terms of revenue and profits. terms.

A significant amount of revenue earned by the Group comes Litigation, Regulatory Matters and Changes in laws from a small number of major customers. If we lose contracts The Corporation operates under a Public Telecommunications with these major customers and cannot replace them, it Operator (PTO) Licence issued in 2006, valid for a period could have a material and negative effect on our financial of up to 15 years and renewable subject to conditions results. prevailing at that time. Decisions by the regulators (Botswana Telecommunications Authority) regarding the granting, Liquidity Management amendment, or renewal of licences, approval of pricing for In general, BTC Group can finance the capital needs in four ways: products and services can have impact on the Corporation’s  From cash generated by operations future operations. In addition, decisions by regulators and  Borrowing from commercial banks and Government new legislation, such as those relating to international (debt financing) roaming charges and call termination rates, could affect the  Borrowing in the capital markets (debt financing) pricing for such services and the overall revenue.  From Government for development of rural areas Pending or future litigation, regulatory initiatives or regulatory BTC Group’s plan is to generate enough cash from rulings could have a material and negative impact on BTC operations to pay for capital expenditure and dividends. If Group’s business, operating results and financial condition. the actual results are different from the business plan or if the assumptions in the business plan change, the Group Changes in assumptions underlying the carrying values may have to raise money through Government Funding or of BTC Group’s assets could result in impairment debt financing (i.e. issuing debt instruments or borrow from The carrying values of the Group assets are based on certain syndicated bank loans). This could have material and negative assumptions including whether they can be supported by impact on the cashflow from operations. the net present value of future cash flows derived from such assets. An annual review is carried out to determine whether In the coming year, BTC Group plans to redeem its long the underlying assumptions which are made in arriving at the standing bond as it has become expensive with the changes net carrying values are appropriate. in the market interest rates.

BTC Annualreport2009 0000111011000111 127 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

This includes assessment of discount rates and long-term With the advent of new products and services worldwide, the growth rates, future technological developments and the telecommunications market in Botswana is expected to grow timing and quantum of future capital expenditure as well as even further. the revenue streams that arise from the assets. This will be evidenced by the demand for high speed internet Whilst impairment does not involve any cash flow, it does access, proliferation of consumer end products which result in a non-cash-charge in the income statement. As such, uses broadband and the introduction of various solutions no assurance can be given that the future impairments would combining fixed line and mobile communications. not affect the profitability of BTC Group. BTC Group is on the right path. It has superior quality Accounting Policies and estimates networks and access coverage. The strategy which the Under International Financial Reporting Framework, we are Corporation put in the recent past is beginning to pay off. As required to make estimates when we account for and report we go forward, some traditional revenue sources will shrink. assets, liabilities, revenues and expenses, and to disclose The Group hopes that its strategies based on Fixed-Mobile contingent assets and liabilities in our financial statements. Convergence will yield the right services and revenue. The We are also required to continually evaluate the estimates Corporation will also continue to move forward on internal that we use. process reforms which will transform its business and financial capabilities by improving operating efficiency and expanding We base our estimates on past experience and on into new line of businesses. other factors that we believe are reasonable under the circumstances. Because this involves varying degrees of About Forward Looking Statements judgement and uncertainty, the amounts currently reported Good Corporate Governance and stock market regulations in the financial statements could, in future, prove to be encourage companies to disclose forward looking statements inaccurate. on objectives, strategies, financial conditions and results of operations and cash flow. These statements are forward We consider the estimates described in this section to be an looking because they are based on our current expectations, important part of understanding our financial statements estimates and assumptions about the markets we operate because they rely heavily on management judgement and in, the Botswana economic environments and our ability to are based on factors that are highly uncertain. attract and retain customers to manage network assets and operating costs. It is important to know that: FUTURE PROSPECTS  Forward looking statements in the BTC’s 2009 annual report, BTC Group’s revenue expectations for the year ahead reflect including Financial Review and management discussion its drive for growth, particularly in broadband services, describe our expectation as at 21 September 2009. internet and mobile communications. We hope to make  Our actual results could be materially different from what the foundation for the fixed-mobile convergence during we expect if known and unknown risks affect our the coming year, which will enable the Group to provide a business, or if our estimates or assumptions turn out to be number of new products. Capital expenditure will include inaccurate. As a result, we can not guarantee that any completion costs for mobile network and the upgrade of forward looking statement will materialise and, Next-Generation Network. The Free Cash Flow too is expected accordingly, you are cautioned not to place undue to return to positive territory. reliance on these forward looking statements.

128 1110001101110000 BTC Annualreport2009  Forward looking statements do not take into account We believe, the financial markets and analysts use EBIDTA the effects that the transactions or non-recurring or other to measure a company’s ability to service debt and to meet special items announced or occurring after the statements other payment obligations, or as a common valuation are made may have on our business. For example, they do measurement in the industry. EBIDTA is composed of not include the latest liberalisation, licencing or operating income plus income from investments and privatisation arrangements and their impact on BTC, depreciation and amortisation. sale of assets or businesses, acquisitions assets write-downs or other changes announced or occurring Results before Restructuring Costs after forward-looking statements are made. The financial BTC Group use operating income / profit before restructuring impacts of such transactions and non-recurring and other costs to assess the operating performance of the Group’s special items can be complex and necessarily depends ongoing business without the effects of restructuring and on the facts particular to each of them. Accordingly, the other items. We exclude these items because they affect the expected impact can not be meaningfully described in comparability of the financial results and could potentially the abstract or presented in the same manner as known distort the analysis of trends on business performance. risks affecting our business.  We disclaim any intention and assume no obligation to Free Cash Flow update and forward looking statements even if The term free cash flow is an important indicator of the information becomes available as a result of future events financial strength and performance of our business because or for any other reason. its shows how much cash is available to repay debt and reinvest in the Corporation. This is the cash from operations Risks that could cause our actual results to materially differ less capital expenditure. from our current expectations are discussed throughout this Financial Review and Management Discussion and as well as Net debt in the section on Risk Management. Net debt consist of loans and other borrowings (both current and non-current), less current asset investments and cash and The following terms do not have any standardised meanings cash equivalents. The Corporation considers net debt to be an prescribed by the International Financial Reporting Standards. alternative performance measure as it is not defined in IFRS. These terms are consistently used in the BTC Annual Reports The measures indicate the net indebtedness that provides from year to year. an indicator of the Group’s overall balance sheet strength. It is also a single measure that can be used to assess both the EBIDTA cash position and the indebtedness. Earnings before Interest, Taxation, Depreciation and Amortisation (EBIDTA) is considered by the Group as one of the important indicators measuring the operating performance of our business without the effects of amortisation, depreciation, restructuring costs as well as non-operating factors, such as the historical costs of capital assets. EBIDTA, also sometimes known as ‘Operating Cash Flow’ allows us to compare our operating performance on a consistent basis.

BTC Annualreport2009 0000111011000111 129 botswana telecommunications corporation FINANCIAL REVIEW and management discussion (continued)

Adoption of International Financial Reporting Standards (IFRS) BTC Group’s financial statements have been prepared consistently with those used in the previous years and in compliance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the interpretations issued by the International Financial Reporting Interpretation Committee of the IASB.

The following is a summary of operating results for the year for the major business lines.

F fixed Line M mOBile Broadband 2009 2009 2009 Revenue 826.8 9.6 15.3 Other income 68.9 0.0 0.2 Operating expenses (757.2 ) (61.7 ) 7.7 Finance charge (21.2 ) 0.0 0.0

Net profit / (Loss) 117.4 (52.1 ) 1.6

Consolidated assets / equity 1,646.5 11.8 4.7

Capital expenditure 167.2 0.2

130 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation report of the finance and audit committee

Membership Role, responsibilities and terms of reference The Finance and Audit Committee is a committee of the The Committee’s role is to assist the Board in the effective Board and comprises in majority the non-executive members discharge of its responsibilities for financial reporting and and selected external experts who are independent of the internal control. management and free from any business or other relationship which could interfere with the exercise of their independent The Committee operates within agreed terms of reference as judgment. set out in the Corporate Governance report on page 37.

During the year, membership of the Committee was as The Committee’s, during the commencement of the financial follows:- year to the date of this report carried out the following:  Reviewed the annual and interim financial statements Mr. Oabile Mabusa and other formal announcements on Corporation’s Chairman financial performance; Ms. Shirley Segokgo  Reviewed the Corporation’s accounting policies; Member  Monitored and reviewed the Corporation’s systems Mr. Thapelo Lippe of internal control and risk management including Chief Executive Officer, appointed 1st October 2008 the Risk register;  Reviewed and approved the Corporation’s Internal All of the above with the exception of the Chief Executive Audit Plan and reporting; Officer are considered by the Board to be ‘independent’.  Discussed and oversaw the relationship with the The Board considers that Mr. Mabusa has relevant financial external auditors, including the approval of their experiences. remuneration, agreeing the scope of audit engagement, assessing their independence, monitoring the provision The Committee invites others, including external auditors, of non-audit services, and considering their reports on the Chief Internal Auditor, the General Manager Finance and the Corporation’s financial statements and systems of other Managers to attend its meetings as appropriate. internal control and risk management; The Board Secretary is the Secretary to the Committee.  Reviewed the Corporation’s Strategic and Business Plan, and; Meetings  Reviewed and approved Corporation’s financing plans During the period under review the Committee met four for the year. times. Details of attendance at each meeting are shown in the Corporate Governance report on page 36. Internal audit The Internal Audit Department’s activities and conducts The external and internal auditors have unrestricted access to are governed by an audit charter agreed by the Board. The the Committee. Chief Internal Auditor reports to the Chief Executive Officer and has adequate access to this Committee and the Board. The Committee has continued to review the requirement and effectiveness of the internal audit function within the Corporation. The Internal Audit Department provides reports on its activities to the Committee and Board on a quarterly basis.

BTC Annualreport2009 0000111011000111 131 botswana telecommunications corporation report of the finance and audit committee (continued)

Independence of external auditors Ernst & Young were appointed as external auditors in 2005 under a mandate given by the Auditor General of Botswana. The auditors have direct access to the Committee should they need to raise any concerns.

The Committee keeps under review the relationship with the external auditors including;  The independence and objectivity of the external auditors, taking into account the relevant regulatory requirements and the relationship with the auditor as a whole, including the provision of non-audit and consulting services; and  Consideration of audit fees and any fees for non-audit and consulting services.

The Committee monitors and recommends to the Board the provision of non-audit and consulting services by the auditors, and ensures that the provision of such services does not impair the external auditor’s independence and objectivity. During the year, no such services were offered by the external auditors.

The Committee considers its own performance during the year as satisfactory.

Mr. O. Mabusa Chairman of the Finance and Audit Committee Date: 21 September 2009

132 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation financial index for the year ended 31 March 2009

Board Approval of the Annual Financial Statements 134 Report of the Independent Auditors 135 Consolidated Income Statement 136 Consolidated Balance Sheet 137 Consolidated Cash flow Statement 138 Consolidated Statement of Changes in equity 139 Accounting Policies 140 Notes to the Consolidated Financial Statements 156 botswana telecommunications corporation consolidated cash flow statement for the year ended 31 March 2009

Notes 2009 2008 P’000 P’000 CASH FLOWS FROM OPERATING ACTIVITIES: Operating profit before working capital changes 20.1 200,850 230,073 Working capital adjustments: Increase in inventories (22,488 ) (13,036 ) Decrease/(increase) in trade and other receivables 22,467 (14,666 ) Increase in trade and other payables 24,439 28,923 Cash generated from operations 225,268 231,294 Ordinary dividend paid to Government 14 (14,582 ) (29,447 ) Interest on preference shares paid 14 (184 ) (184 ) Net cash from operating activities 210,502 201,663

CASH FLOWS USED IN INVESTING ACTIVITIES: Investment to expand operations: Purchase of property, plant and equipment 7 (167,727 ) (371,994 ) Proceeds from disposal of property, plant and equipment 1,410 1,793 Interest income 4.1 45,873 59,252 Net cash used in investing activities (120,444 ) (310,949 )

CASH FLOWS FROM FINANCING ACTIVITIES: Grants received during the year 15 35,625 — Finance costs 4.2 (21,044 ) (28,984 ) Repayment of long term borrowings 16 (110,000 ) (60,000 ) (95,419 ) (88,984 )

Decrease in cash and cash equivalents (5,361 ) (198,270 ) Net foreign exchange difference 1,003 7,666 Net cash and cash equivalents at beginning of the year 404,076 594,680 Cash and cash equivalents at end of the year 20.2 399,718 404,076 annual financial statements

BTC Annualreport2009 0000111011000111 133 botswana telecommunications corporation BOARD APPROVAL OF THE ANNUAL FINANCIAL STATEMENTS

The Members of the Board are responsible for the annual The financial statements have been prepared on the financial statements in accordance with International going concern basis, since the Members of the Board Financial Reporting Standards. have every reason to believe that the Corporation has adequate resources in place to continue in operation for the The independent auditors are responsible to give an foreseeable future. independent opinion on the fairness of the annual financial statements based on their review of the affairs of the Against this background, the Members of the Board accept Corporation. responsibility for the financial statements and the information on pages 136 to 185 which were approved on 21 September The Finance and Audit Committee, which consists of three 2009 are signed on its behalf by members of the Board and the Chief Executive Officer, meets at least twice a year with the internal and external auditors, as well as members of senior management, to evaluate matters concerning accounting, internal controls, auditing and financial reporting.

The Members of the Board, supported by the Finance and L M MAKWINJA Audit Committee, are satisfied that management introduced Chairman and maintained adequate internal controls to ensure that dependable records exist for the preparation of the annual financial statements, to verify and maintain accountability of assets of the Corporation to prevent and detect mismanagement and loss of the assets of the Corporation. Nothing has been brought to the attention of the Board to reasonably indicate any breakdown in the functioning of THAPELO lippe these controls, procedures and systems have occured during Chief Executive Officer the period under review.

134 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation report of the independent auditors

TO THE MEMBERS OF BOTSWANA TELECOMMUNICATIONS An audit involves performing procedures to obtain audit CORPORATION PURSUANT TO SECTIONS 20(2) AND (3) OF evidence about the amounts and disclosures in the financial THE BOTSWANA TELECOMMUNICATIONS CORPORATION ACT statements. The procedures selected depend on the (CAP 72:02) auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether We have audited the accompanying consolidated financial due to fraud or error. In making those risk assessments, the statements of Botswana Telecommunications Corporation, set auditor considers internal controls relevant to the entity’s out on pages 136 to 185, which comprise the balance sheet preparation and fair presentation of the financial statements as at 31 March 2009, and the income statement, statement of in order to design audit procedures that are appropriate in changes in equity and cash flow statement for the year then the circumstances, but not for the purpose of expressing an ended, and a summary of significant accounting policies and opinion on the effectiveness of the entity’s internal control. other explanatory notes on behalf of the Auditor General. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of Members of the Board’s Responsibility for the accounting estimates made by management, as well Financial Statements as evaluating the overall presentation of the financial The Corporation’s Members of the Board are responsible statements. for the preparation and fair presentation of these financial statements in accordance with International Financial We believe that the audit evidence we have obtained is Reporting Standards and in compliance with the Botswana sufficient and appropriate to provide a basis for our audit Telecommunications Corporation Act (CAP 72:02). opinion.

This responsibility includes: designing, implementing and Opinion maintaining internal controls relevant to the preparation In our opinion, the consolidated financial statements present and fair presentation of financial statements that are free fairly, in all material respects, the financial position of the from material misstatement, whether due to fraud or error; consolidated Corporation as of 31 March 2009, and of its selecting and applying appropriate accounting policies; and financial performance and its cash flows for the year then making accounting estimates that are reasonable in the ended in accordance with International Financial Reporting circumstances. Standards and in the manner required by the Botswana Telecommunications Corporation Act (CAP 72:02). Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatement. Certified Public Accountants Date: 24 September 2009

2nd Floor, UN Place Khama Crescent PO Box 41015 Gaborone, Botswana

BTC Annualreport2009 0000111011000111 135 botswana telecommunications corporation consolidated income statement for the year ended 31 March 2009

Notes 2009 2008 P’000 P’000 Sale of goods and services 1 835,900 799,174 Interest income 4.1 45,873 59,252 Revenue 881,773 858,426 Cost of services and goods sold 2.1 (396,268 ) (370,717 )

Gross Profit 485,505 487,709 Other Income 3 23,211 21,644 Selling and distribution costs 2.2 (12,348 ) (8,599 ) Administrative expenses 2.3 (233,620 ) (220,163 ) Other Expenses 2.4 (122,567 ) (193,096 )

Operating profit 140,181 87,495

Finance costs 4.2 (21,228 ) (29,168 )

Profit for the year 118,953 58,327

Attributable to Government of Botswana 118,953 58,327

Earnings per notional ordinary share: Basic (thebe): 6 565.5 277.3

Diluted (thebe): 6 52.0 25.5

Dividend per notional share 141.4 69.3

136 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation consolidated balance sheet At 31 March 2009

Notes 2009 2008 P’000 P’000 ASSETS Non current assets Property, plant and equipment 7 1,049,961 1,029,852 Deferred lease 8 15,844 16,586 1,065,805 1,046,438 Current assets Inventories 9 64,271 41,783 Trade and other receivables 10 128,469 150,936 Cash and cash equivalents 20.2 399,718 404,076 592,458 596,795

Total assets 1,658,263 1,643,233

EQUITY AND LIABILITIES Capital and reserves Notional Share Capital 11 21,919 21,919 Equity application account 12 207,858 207,858 Revaluation reserve 13 69,621 45,855 Accumulated profits 827,612 721,184 1,127,010 996,816 Non current liabilities Development grants 15 134,894 121,070 Long term borrowings 16 47,273 90,813 Preference shares-liability portion 11 1,416 1,416 Deferred revenue 17 93,326 118,231 276,909 331,530 Current liabilities Trade and other payables 18 183,494 153,202 Provisions 19 10,666 51,501 Interest payable on preference shares 14 184 184 Current portion of long term borrowings 16 60,000 110,000 254,344 314,887

Total equity and liabilities 1,658,263 1,643,233

BTC Annualreport2009 0000111011000111 137 botswana telecommunications corporation consolidated cash flow statement for the year ended 31 March 2009

CASH FLOWS FROM FINANCING ACTIVITIES: Grants received during the year 15 35,625 — Finance costs 4.2 (21,044 ) (28,984 ) Repayment of long term borrowings 16 (110,000 ) (60,000 ) (95,419 ) (88,984 )

138 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation consolidated statement of changes in equity for the year ended 31 March 2009

Notional Equity Share Application Revaluation Accumulated Notes Capital Account Reserve Profits Dividends Total P’000 P’000 P’000 P’000 P’000 P’000 Balance at 1 April 2007 21,919 207,858 47,912 690,247 — 967,936

Depreciation transfer for land and buildings 13 — — (2,057 ) 2,057 — — Net income and expense for the year recognised directly in equity — — (2,057 ) 2,057 — — Profit for the year — — — 58,327 — 58,327 Total income and expense for the year — — (2,057 ) 60,384 — 58,327 Ordinary dividend declared — — — (29,447 ) 29,447 — Ordinary dividend paid during the year — — — — (29,447 ) (29,447 )

Balance at 31 March 2008 21,919 207,858 45,855 721,184 — 996,816

Depreciation transfer for land and buildings 13 — — (2,057 ) 2,057 — — Revaluation adjustment arising during the year 13 — — 25,823 — — 25,823 Net income and expense for the year recognised directly in equity — — 23,766 2,057 — 25,823 Profit for the year — — — 118,953 — 118,953 Total income and expense for the year — — 23,766 121,010 — 144,776 Ordinary dividend declared 14 — — — (14,582 ) 14,582 — Ordinary dividend paid during the year 14 — — — — (14,582 ) (14,582 )

Balance at 31 March 2009 21,919 207,858 69,621 827,612 — 1,127,010

BTC Annualreport2009 0000111011000111 139 botswana telecommunications corporation accounting policies for the year ended 31 March 2009

PRESENTATION OF FINANCIAL STATEMENTS The financial statements are presented in Botswana Pula. Subsidiaries are fully consolidated from the date of The functional currency is also the Botswana Pula. All values acquisition, being the date on which the Corporation are rounded to the nearest thousand (P’000) except when obtains control, and continue to be consolidated until the otherwise indicated. date that such control ceases. Control is achieved where the Corporation has the power to govern the financial and CORPORATE INFORMATION operating policies of an investee enterprise so as to obtain Botswana Telecommunications Corporation is incorporated benefits from its activities. and domiciled in Botswana. The headquarters is situated at Megaleng, Khama Crescent, Gaborone, Botswana. Change in accounting policy The accounting polices adopted are consistent with BASIS OF PREPARATION those of the previous year, except that during the The financial statements have been prepared on a current financial year the Corporation has adopted and historical cost basis, except as modified by the revaluation implemented the following standards and amendments to of certain financial instruments to fair value and the standards that are mandatory for financial years on or after revaluation of certain assets as indicated in the notes 1 January 2008. below, and on the going concern basis. The changes in accounting policies result from the Statement of compliance adoption of the following new standards and amendments The financial statements have been prepared in to the standards: compliance with the International Financial Reporting Standards (IFRS) issued by the International Accounting IFRIC12, ’Service Concession Arrangements’ Standards Board (‘’IASB’), interpretations issued by The interpretation provides guidance on the recognition the International Financial Reporting Interpretations and measurement of the various aspects of service Committee (IFRIC) and the requirements of the Botswana concession arrangements from an operator’s perspective. Telecommunications Corporation Act (Cap 72.02). The interpretation is not applicable to the Corporation.

Basis of consolidation IFRIC 14, ‘The Limit on a Defined Benefit Asset, The consolidated financial statements comprise the Minimum Funding Requirements and their interaction’ financial statements of the Corporation and its subsidiary as The interpretation provides guidance on assessing at 31 March each year. the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how The accounting policies of the subsidiary are in line with the pension asset or liability may be affected by a those of the Corporation. statutory or contractual minimum funding requirement. This interpretation does not have any impact on the All intra - group balances, income and expenses and Corporations’ financial statements as only defined unrealised gains and losses resulting from intra-group contribution scheme is offered by the Corporation. transactions are eliminated in full on consolidation.

140 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

IFRS 7 (Amendment), ‘Financial Instruments: Disclosures’ The standard clarifies that a financial asset or liability that The standard requires that in the event of reclassification is part of a portfolio of financial instruments managed of Financial Assets, additional disclosures are required and together with evidence of an actual recent pattern of short include the following: term profit taking is included in such a portfolio on initial The amount reclassified into and out of each category. recognition. The amendment also removes the example The carrying amounts and fair values of all financial of a segment where hedge accounting is to be applied assets reclassified in the current or previous reporting at segment level so that the guidance is consistent with periods. If the financial asset has been reclassified based IFRS 8, ‘Operating segments’, which requires disclosure for on the ‘rare circumstances’, exception, details of those segments to be based on information reported to the chief circumstances. The fair value gain or loss recognised operating decision maker. The standard also requires the in profit or loss for the reporting period in which use of the revised effective interest rate, rather than the reclassification occurs and in the previous period. In the original effective interest rate when re-measuring a debt period of reclassification and in subsequent periods until instrument on the cessation of fair value hedge accounting. the financial asset is derecognised, the gain or loss that T h e C o r p o r a t i o n d o e s n o t i n t e n d e a r l y a d o p t i n g would have been recognised in profit or loss had the financial asset not been reclassified, and the actual gain, IAS 1 (Amendment), ‘Presentation of Financial Statements’ loss, income and expense recognised in profit or loss. This amendment clarifies that some rather than all financial The effective interest rate and estimated cash flows the assets and liabilities classified as held for trading in entity expects to recover as at the date of reclassification accordance with IAS 39, ‘Financial instruments: Recognition of the financial asset. The amendments are effective 1 and measurement’ are examples of current assets and J u l y 2 0 0 8 a n d a r e n o t a p p l i c a b l e t o t h e C o r p o r a t i o n . liabilities respectively not automatically classified as current in the balance sheet. International Financial Reporting Standards (IFRSs) issued but not yet effective during the year. IFRS 5 (Amendment), ‘Non-current assets held-for-sale and The IASB issued amendments to some of its standards in discontinued operations’ (and consequential amendment May 2008 as part of the Board’s annual improvements to to IFRS 1, ‘First-time adoption’) effective 1 July 2009. standards. They become effective on 1 January 2009. The The amendment clarifies that all of a subsidiary’s assets Corporation does not intend early adopting any of the and liabilities are classified as held for sale if a partial sale listed items. Changes and potential impacts are highlighted plan results in loss of control. Relevant disclosure should as follows: be made for this subsidiary if the definition of discontinued operation is met. A consequential amendment to IFRS 1 IAS 39 (Amendment), ‘Financial instruments: Recognition states that these amendments are applied prospectively and measurement’ effective from 1 July 2009 from the date of transition to IFRSs. These amendments are This amendment clarifies that it is possible to have not expected to have any impact on the activities of the movements into and out of the fair value through profit corporation. or loss (FVTPL) category where a derivative commences or ceases to qualify as a hedging instrument in cash flow or net investment hedge. The definition of financial asset or financial liability at fair value through profit or loss as it relates to items that are held for trading is also amended.

BTC Annualreport2009 0000111011000111 141 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

IAS 16 (Amendment), ‘Property, Plant & Equipment’ (and IAS 29 (Amendment), ‘Financial Reporting in consequential amendment to IAS 7, ‘Statement of cash Hyperinflationary Economies’ effective from 1 January flows) applicable for periods beginning on or after 1 2009. January 2009. The change revises the reference to the exception to The change requires that the term ‘net selling price’ be measure assets and liabilities at historical cost, such replaced with ‘fair value less cost to sell’, to be consistent that it notes property, plant and equipment as being an with IFRS 5 and IAS 36, Impairment of Assets. The change example, rather than implying that it is a definitive list. is not expected to have any impact on the operations The Corporation does not operate in a hyperinflationary of the Corporation. The amendment also requires that economy and therefore this change is not expected to entities whose ordinary activities comprise renting and have any impact on its operations. subsequently selling the assets, present the proceeds from the sale of those assets as revenue and should transfer IAS 31 (Amendment), ‘Interest in Joint Ventures’ (and the carrying amount of the assets to inventories when the consequential amendments to IAS 32 & IFRS 7) effective assets become held for sale. A consequential amendment from 1 January 2009. to IAS 7, states that cash flows arising from the purchase, The amendment requires that where an investment in rental and sale of those assets are classified as cash flows joint venture is accounted for in accordance with IAS 39, from operating activities. The change will not have an only certain rather that all disclosure requirements in IAS impact on the operations of the Corporation because 31 need to be made in addition to disclosures required none of the Corporations’ activities comprise renting and by IAS 32, ‘Financial Instruments: Presentation’, and IFRS 7, subsequently selling assets. ‘Financial Instruments: Disclosures’. The amendment will not have an impact on the operations of the Corporation as IAS 36 (Amendment), ‘Impairment of assets’ there are no interest held in joint ventures. The standard requires that where fair value less cost to sell is calculated on the basis of discontinued cash flows, IAS 19 (Amendment), ‘Employee benefits ‘ effective disclosures equivalent to those for value-in-use calculation from 1 January 2009. should be made. These amendments are not expected to The amendment clarifies that a plan amendment that be relevant in the current financial year. results in a change in the extent to which benefit promises are affected by future salary increases is a curtailment, IAS 27 (Amendment), ‘Consolidated and Separate Financial while an amendment that changes benefits attributable S tatements’ E ff e t i v e d a t e i s 1 J a n u a r y 2 0 0 9 . to reductions in benefits related to past services (negative The amendment states that, when a parent entity past service cost) and to exclude reductions in benefits accounts for a subsidiary at fair value in accordance related to future services that arise from plan amendments. with IAS 39 in its separate financial statements, the The definition of return on plan assets has been amended treatment should continue when the subsidiary to state that plan administration costs are deducted in the is subsequently held for sale. The change will not calculation of return on plan assets only to the extent that b e a p p l i c a b l e t o C o r p o r a t i o n i n t h e c u r r e n t p e r i o d . such costs have been excluded from measurement of the defined benefit obligation. The distinction between short term and long term employee benefits will be based on whether benefits are due to be settled within or after 12 months of employee service being rendered.

142 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

The amendment revises the definition of short-term IAS 41, (Amendment), ‘Agriculture’ effective from and other long-term employee benefits to focus on the 1 January 2009 point in time at which the liability is due to be settled. The standard requires the use of a market based IAS 37, ‘Provisions, contingent liabilities and contingent discount rate where fair value calculations are based on assets, requires contingent liabilities to be disclosed, not discounted cash flows and the removal of the prohibition recognised. IAS 19 has been amended to be consistent. on taking into account biological transformation This amendment will have no impact on the Corporation’s when calculating fair value. The Corporation is not financial statements or position as only defined involved in any agricultural activities and therefore contribution scheme is offered by the Corporation. t h e c h a n g e b e a r s n o r e l e v a n c e t o i t s o p e r a t i o n s .

IAS 38 (Amendment), ‘Intangible assets’ effective IAS 23 (Amendment), ‘Borrowing costs’ from 1 January 2009. The definition of borrowing costs has been amended The amendment requires that expenditure on advertising so that interest expense is calculated using the effective and promotional activities should be recognised as an interest method defined in IAS 39 ‘Financial instruments: expense when the Corporation has the right to access Recognition and measurement’. This eliminates the the goods or has received the service. The amendment inconsistency of terms between IAS 39 and IAS 23. The deletes the wording that states that there is rarely, if ever, adoption of the amendment in future will have no support for the use of a method of amortisation than the material financial impact on the financial statements of the straight line method. The Corporation intends to review Corporation. all its advertising and promotional contracts to determine the point at which the Corporation has the right to access IAS 28 (Amendment), ‘Investment in associates’ (and the goods or has received the service, as well as determine consequential amendments to IAS 32, ‘Financial the best method to reflect the pattern of consumption of Instruments: Presentation’, and IFRS 7, ‘Financial future benefits. instruments: Disclosures’) effective from 1 January 2009. The amendment requires that where an investment in IAS 40 (Amendment), ‘ Investment Property’ (and associate is accounted for at fair value in accordance consequential amendments to IAS 16) effective from 1 with IAS 39, only the requirement of IAS 28 to disclose January 2009. the nature and extent of any significant restrictions on The amendment requires that property that is being the ability of the associate to transfer funds to the entity constructed or developed for future use as an investment in the form of cash or repayment of loans applies. The property, be classified as investment property. If an entity amendment is not expected to be relevant for the activities is unable to determine the fair value of an investment of the Corporation. property under construction, but expects to be able to determine its fair value on completion, the investment IAS 20 (Amendment), ‘Accounting for government grants under construction will be measured at cost until such time and disclosure of government assistance’ effective from 1 as fair value can be determined or construction is complete. January 2009. The amendment will have no impact on the Corporations’ The amendment requires that the benefit of a below operations as there is no investment properties held by the market rate or non interest government loan should be Corporation. accounted for as a government grant in accordance with IAS 20.

BTC Annualreport2009 0000111011000111 143 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

Interest is to be imputed on loans granted with below The effects of IAS 21, ‘The effects of changes in foreign market interest rates, thereby being consistent with IAS 39. exchange rates’, do apply to the hedged item. This The amendment will have an impact on the Corporation’s interpretation is not expected to be relevant for the operations as the grants received from the Government are activities of the Corporation. interest free, however the changes will only be applicable to grants received in the future. IFRS 8 (Amendment), ‘Operating Segments’ effective from 1 January 2009. IFRIC 13 - Customer loyalty programmes This standard is required to be applied for annual periods This interpretation is required to be applied for annual beginning on or after 1 January 2009. The amendment periods beginning on or after 1 July 2008, The interpretation requires that segments should be disclosed based states clearly that it applies to customer loyalty award on the information that management uses to make credits that an entity grants to its customers as part of decisions about operating matters. The standard sets out a sales transaction, that is a sale of goods, rendering of requirements for disclosure of information about an entity’s services or use by a customer of entity assets. It applies to operating segments and also about an entity’s products & schemes whereby the award credits offered to customers services, the geographical locations in which it operates, derive from a past transaction. This means that it does not and its major customers. IFRS 8 further requires the entity apply to the distribution of ‘’money off ‘’ vouchers or other to disclose factors used to identify the entity’s operating schemes that do not involve an initial sales transaction. segments and type of products and services from which There were no loyalty programmes as at year end. each operating segments derives its revenues. The impact of the interpretation is currently being evaluated. IFRIC 15-Agreements for the construction of real estate This interpretation is required to be applied for annual IAS 23 (Amendment), ‘Borrowing costs’ effective from 1 periods beginning on or after 1 January 2009. IFRIC 15 January 2009. standardises accounting practice across jurisdictions for the The revision to IAS 23 removes the option of immediately recognition of revenue by real estate developers for sales of recognising the borrowing costs as an expense, that are units, such as apartments or houses, ‘off plan’, that is before directly attributable to the acquisition, construction or construction is complete. The fundamental issue is whether production of a qualifying asset. An entity is, therefore, the developer is selling the completed apartment or house required to capitalise such borrowing costs as part of or is selling a construction service as contractor engaged by the cost of the asset. The directors anticipate that the the buyer. The interpretation is not expected to be relevant adoption of this revision in future periods will have no for activities of the Corporation. material financial impact on the financial statements of the Corporation. IFRIC 16-Hedges of Net Investment in a Foreign Operation This interpretation is required to be applied for annual IFRS 2 (Amendment) ‘Vesting Conditions and Cancellations’ periods beginning on or after 1 October 2008. IFRIC effective from 1 January 2009. 16 clarifies the accounting treatment in respect of net The IASB published an Amendment to IFRS 2 Share- investment hedging. This includes the fact that net based Payment – Vesting Conditions and Cancellations. investment hedging relates to differences in functional currency not presentation currency.

144 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

The Amendment clarifies the definition of ‘vesting In addition, the Standard introduces the statement of condition’, introducing the term ‘non-vesting condition’ for comprehensive income: it presents all items of income conditions other than vesting conditions and prescribes and expense recognised in profit or loss, together with the accounting treatment of an award that is effectively all other items of recognised income and expense, either cancelled because a non-vesting condition is not satisfied. in one single statement, or in two linked statements. The Previously, IFRS 2 dealt only with situations where the Corporation is still evaluating whether it will have one or entity cancels an award. This amendment should not have two statements. an impact on the Corporation, as the Corporation does not have any share-based payments. Amendments to IAS 32 and IAS 1 Puttable Financial Instruments IFRS 3 Business Combinations (Revised) and IAS 27 Amendments to IAS 32 and IAS 1 were issued in February Consolidated and Separate Financial Statements (Revised) 2008 and become effective for annual periods beginning The revised standards were issued in January 2008 and on or after 1 January 2009. The amendment to IAS 32 become effective for financial years beginning on or after 1 requires certain puttable financial instruments and July 2009. IFRS 3(Revised) introduces a number of changes obligations arising on liquidation to be classified as equity in the accounting for business combinations that will if certain criteria are met. The amendment to IAS 1 requires impact the amount of goodwill recognised, the reported disclosure of certain information relating to puttable results in the period that an acquisition occurs, and future instruments classified as equity. The Corporation does reported results. IAS 27(Revised) requires that a change in not expect these amendments to impact the financial the ownership interest of a subsidiary is accounted for as statements of the Corporation. an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give raise to a gain or IFRS 1 and IAS 27 Amendments loss. Furthermore, the amended standard changes the IFRS 1 has been amended to allow for the use of a deemed accounting for losses incurred by the subsidiary as well as cost for investments in subsidiaries, associates and joint the loss of control of a subsidiary. The changes introduced ventures. Such deemed cost will be either the fair value by IFRS 3(Revised) and IAS 27(Revised) must be applied at the date of transition to IFRS or an amount used in prospectively and will affect future acquisitions and terms of the entity’s previous GAAP. As the Corporation transactions with minority interests. had already adopted IFRS previously, this amendment will have no impact. IAS 27 has been amended to no longer IAS 1 Revised Presentation of Financial Statements distinguish between pre- and post-acquisition dividends. The revised IAS 1 Presentation of Financial Statements However, the entity must now consider if the receipt of was issued in September 2007 and becomes effective for such a dividend is a possible indicator of impairment. The financial years beginning on or after 1 January 2009. The impact (if any) of this amendment on the Corporation will Standard separates owner and non-owner changes in be assessed at a later stage. The amendment to IFRS 1 and equity. The statement of changes in equity will include only IAS 27 is effective 1 January 2009. details of transactions with owners, with all non-owner changes in equity presented as a single line.

BTC Annualreport2009 0000111011000111 145 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

SIGNIFICANT ACCOUNTING Lease classification JUDGEMENTS AND ESTIMATES The Corporation has entered into property lease arrangements. The Corporation has determined, based Estimates and Judgements on an evaluation of the terms and conditions of the The preparation of financial statements in conformity with arrangements, that it retains all the significant risks and International Financial Reporting Standards requires the rewards of ownership of these properties and so accounts use of certain critical accounting estimates and judgments for the contracts as operating leases. concerning the future. Estimates and judgments are continually evaluated and are based on historical factors Related parties coupled with expectations about future events that are Government, parastatals, key management personnel and considered reasonable. In the process of applying the the Botsnet subsidiary are considered as being related to the groups accounting policies, management has made the Corporation. Significant management judgment is required following estimates and judgments that have a significant to determine as to who qualifies for being a related party, risk of causing material adjustment to the carrying amount based on the type of the relationship. of assets and liabilities as they involve assessments or decisions that are particularly complex or subjective within Provisions and allowances the next year. The amount recognised as a provision is the best estimate of the expenditure to settle the obligation at the balance Equity application account sheet date. The Corporation has made significant The money set aside through the equity application judgements and estimates relating to the labour disputes account is recognised as equity at the fair value of the and retrenchment costs. Further details are given in Note 19. consideration received by the Corporation. This equity account does not have any rights to dividends as the Allowances for slow moving inventory rights and obligations attached thereto have not been Based on prior management practice, stock that has not constituted. moved for a 12-month period is considered to have no normal sale value. Obsolete and discontinued products are Development grants considered to have no value. The provision is raised based Grants are recognised where there is reasonable assurance on the full cost or net realisable values of the product. that the grant will be received and all attached conditions will be complied with. Initial capitalisation of costs is based Depreciation Charges and Residual Values on management’s judgment that the attached conditions For depreciation purposes, a significant component defined will be complied with. as equal to or greater than 20% of the total cost of the asset and each significant component with different useful lives are Revaluation of land and buildings depreciated separately. The useful life of assets is determined Land and buildings are carried at a revalued amount, which with reference to its design life as prescribed by internal is the fair value at the date of the revaluation less any experts. The depreciation method reflects the pattern in subsequent accumulated depreciation and subsequent which economic benefits attributable to the asset flows to the accumulated impairment losses. Management consider entity. The useful lives of these assets can vary depending on that valuations are performed frequently (after every three a variety of factors, including but not limited to technological years) enough to ensure that the fair value of a revalued obsolescence, maintenance programs, refurbishments, asset does not differ materially from its carrying amount. product life cycles and the intention of management.

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Residual values of an asset are determined by estimating When value in use calculations are undertaken, the amount that the entity would currently obtain from management must estimate the expected future cash the disposal of the asset after deducting the estimated flows from the asset or cash-generating unit and choose cost of disposal, if the asset were already of age and in a suitable discount rate in order to calculate the present the condition expected at the end of its useful life. The value of those cash flows. estimation of the useful life and residual values of an asset is a matter of judgment based on the past experience of Fair Value of financial Instruments the Corporation with similar assets and the intention of Financial instruments have been valued based on the management. expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics. This Allowances for doubtful debts valuation requires the Corporation to make estimates This allowance is created where there is objective evidence, about expected future cash flows and discount rates, and for example the probability of insolvency/bankruptcy hence they are subject to uncertainty. Further details are or significant financial difficulties of the debtor, that the given in note 26.5. Corporation will not be able to collect all the amounts due under the original terms of the invoice. An estimate RETIREMENT BENEFIT COSTS is made with regards to the probability of insolvency and The Corporation operates a defined contribution pension the estimated value of debtors who will not be able to fund for its eligible citizen employees. The fund is pay. Financial assets that are assessed not to be impaired registered under the Pension and Provident Funds Act individually are subsequently assessed for impairment on a (Chapter 27:03). The Corporation contributes to the fund collective basis. 14% of the pensionable earnings of the members. Pension contributions on behalf of employees are charged to profit Pension and post employment benefits or loss in the year to which they relate to and as the related The cost of defined benefit pension plans is determined service is provided. Those citizen employees who were using actuarial valuations. The actuarial valuation involves transferred from Government in 1980 are covered under making assumptions about discount rates, expected rates a separate scheme applicable to Government employees of return on assets, future salary increases, mortality rates to whom the Corporation contributes 14% of their and future pension increases. Due to the long term nature pensionable earnings. The Corporation set aside 14% of of these plans, such estimates are subject to significant the Ex P&T employees pensionable earnings to meet their uncertainty. Further details are given in Note 24. proportion of the Ex P&T liability.

Impairment of non-financial assets The Corporation assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.

BTC Annualreport2009 0000111011000111 147 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

In terms of their conditions of employment, expatriate Interconnect - national and international and contract employees receive gratuities at the end of National and international interconnect revenue is the contract. The cost of short-term employee benefits recognised on the usage basis. is recognised during the period the employee render services, unless the entity uses the services of employee Customer Premises Equipment comprise of the following in the construction of an asset and the benefits received products and or services: meet the recognition criteria of an asset, at which stage it is included in as part of the related item of property, plant Sale of goods and equipment item. Other than the regular contributions Revenue is recognised when the significant risks and made, the Corporation does not have any further liability in rewards of ownership of the goods have passed to the respect of its employees’ pension arrangements, other than buyer. referred to in note 24. Local and Access Services comprise of the following REVENUE RECOGNITION products and or services: Revenue, which excludes value added tax, comprises the value of national & international telephone services, Subscriptions, connections and other usage local and access services (rentals & installations), sale Revenue includes fees for installation and activation which of equipment to customers, data communications and are recognised as revenue upon activation. other services. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Data and Private Circuits comprise of the following Corporation and the revenue can be reliably measured. products and or services: Revenue is measured at the fair value of the consideration received, excluding discounts, rebates and other sales Rental income taxes or duty. The Corporation provides telephone and Revenue is recognised on a straight line basis over the lease data communication services under post paid and prepaid term on ongoing leases. The revenue recognised here is payment arrangements. The various revenue categories are classified under other services. explained below: Rendering of services National & International Telephone services comprise of Revenue is recognised upon performance of services the following product and or services: inclusive of recovery of disbursements, net of trade discounts. Unexpired airtime is recorded in the financial Prepaid products statements under trade and other payables until they are Upon purchase of an airtime scratch and dial card the utilised by the customers when they are transferred to customer receives the right to make outgoing voice and revenue. data calls to the value of the airtime scratch and dial card. On initial recognition, the amount received is deferred and Other Services comprise of the following products and or revenue is recognised as the customer utilises the airtime services: available or upon expiration of the usage period, whichever comes first.

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beMOBILE Income BORROWING COSTS beMOBILE’s bouquet of services to the matured Botswana Borrowing costs are recognised as an expense when market include voice, data, voicemail, caller identification, incurred. call forwarding, short message services, interconnect and roaming services. The two segments at the center of the PROPERTY, PLANT AND EQUIPMENT business are contract and prepaid subscribers. Property, plant and equipment is stated at historical cost or valuation less accumulated depreciation and subsequent Interest income accumulated impairment loss, where applicable. Plant Revenue is recognised as the interest accrues, taking into and equipment includes all direct expenditure and costs account the effective yield on the asset unless collectability incurred subsequently, to add to, replace part of, or major is doubtful. inspection thereof if the recognition criteria are met. Cost in respect of other network services equipment comprises Directory services expenditure up to and including the last distribution points Revenue is recognised when paper directories are released and includes materials, direct labour and other resources for distribution, as the significant risks and rewards have incurred in the construction of self-constructed assets; if the passed at that point. The revenue recognised here is recognition criteria are met, qualifying assets are capitalised classified under other services. under plant and equipment in the course of construction.

Construction contracts Subsequent costs are included in the asset’s carrying Contract revenue and contract costs are recognised as amount or recognised as a component, as appropriate, revenue and expenses, respectively, when the outcome only when it is probable that future economic benefits of a construction contract can be estimated reliably. associated with the item will flow to the corporation and Revenue arising from fixed price contracts is recognised in the cost of the item can be measured reliably. All other accordance with the percentage of completion method. repairs and maintenance expenditures are charged to the The stage of completion is measured by reference to costs income statement during the financial period in which they incurred to date as a percentage of total estimated costs are incurred. for each contract. Revenue recognised here is categorised under other services. The corporation’s policy is not to provide for dismantling and restoration costs relating to equipment as INVENTORIES management consider there is no legislated or constructive Inventories comprise items of equipment used in the obligation to incur such cost. construction or maintenance of plant (work in progress), and consumable stores and other inventories. Inventories An item of property, plant and equipment is derecognised are stated at the lower of cost, determined on the weighted upon disposal or when no future economic benefits are average basis, and estimated net realisable value after due expected from its use or disposal. Any gain or loss on consideration for slow moving and obsolete items. derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying Work-in-progress includes contracts carried out for customers amount of the asset) is included in the income statement in and is stated at cost less provisions for any foreseeable losses. the year the asset is derecognised. Advance payments in respect of such work-in-progress are included under trade and other payables.

BTC Annualreport2009 0000111011000111 149 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

Land and buildings are revalued independently by DEPRECIATION professional valuers using the open market value method. For depreciation purposes, a significant component Revaluations are conducted at intervals of three years. Any defined as equal to or greater than 20% of the total cost of revaluation increase arising on the revaluation of such the asset and each significant component with different land and buildings is credited to the revaluation reserve, useful lives are depreciated separately. Depreciation is except to the extent that it reverses a revaluation decrease not provided on freehold land as it is deemed to have an for the same asset previously recognised as an expense, in indefinite life and plant and equipment in the course of which case the increase is credited to the profit or loss to construction as they are not yet available for use. the extent of the decrease previously charged. A decrease in the carrying amount arising on the revaluation of such Depreciation is provided on other property, plant and land and buildings is charged as an expense to the extent equipment on a straight line basis. This is from the time that it exceeds the balance, if any, held in the properties they are available for use, so as to write off their cost over revaluation reserve relating to a previous revaluation the estimated useful lives taking into account any residual of the asset. The revaluation reserve is amortised over values. The residual value of an asset may be equal to or the expected useful lives of land and buildings and an greater than the asset’s carrying amount. If it is the case, the amount equal to the depreciation charge attributable asset’s depreciation charge is zero until its residual value to the revaluation portion of such land and buildings, is subsequently decreases to an amount below the asset’s transferred from the capital reserve to accumulated profits. carrying amount.

On subsequent sale or retirement of a revalued property, The estimated useful lives assigned to groups of property, the attributable revaluation surplus remaining in the plant and equipment are: properties revaluation reserve is transferred to accumulated profits. Improvements to assets held under operating Buildings 40 years leases are capitalised and depreciated over the remaining Leasehold land lease term. and buildings Unexpired portion of lease or 50 years, Capital work in progress (plant and equipment in the whichever is shorter course of construction) comprises costs incurred in Plant and equipment 5 to 20 years constructing property, plant and equipment that are Other equipment 3 to 10 years directly attributable to the construction of the asset. Assets remain in capital work in progress until they have been put Where the expected useful lives of property, plant and into use or are commissioned, whichever is the earlier date. equipment have changed due to technological change or At that time they are transferred to the appropriate class of market conditions, the rate of depreciation is adjusted so property, plant and equipment additions. as to write off their cost or valuation over the remaining estimated useful lives of such property, plant and equipment.

The useful lives, residual values and depreciation methods of property, plant and equipment are reviewed at each financial year end, and adjusted in the current period if expectations differ from the previous estimates.

150 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

Depreciation of an asset ceases at the earlier of the date An assessment is made at each reporting date as to that the asset is classified as held for sale or is included in a whether there is any indication that previously recognised disposal group that is classified as held for sale or the date impairment losses may no longer exist or have decreased. that the asset is derecognised. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is IMPAIRMENT OF NON-CURRENT ASSETS increased to the revised estimate of its recoverable amount At each balance sheet date, the Corporation reviews so that the increased carrying amount does not exceed the the carrying amounts of its assets to determine whether carrying amount that would have been determined had there is any indication that those assets have suffered no impairment loss been recognised for the asset (cash- an impairment loss. If any such indications exist, the generating unit) in prior years. A reversal of an impairment recoverable amount of the asset is estimated in order to loss is recognised as income immediately, unless the determine the extent of the impairment loss, if any. Where relevant asset is carried at a revalued amount, in which case it is not possible to estimate the recoverable amount of an the reversal of the impairment loss is treated as an increase individual asset, the Corporation estimates the recoverable in the revaluation reserve after reversing the portion amount of the cash-generating unit to which it belongs. previously in profit or loss through the income statement. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and NON - CURRENT ASSETS HELD FOR SALE its value in use and is determined for an individual asset, Non-current assets and disposal groups are classified as unless the asset does not generate cash inflows that are held for sale if their carrying amount will principally be largely independent of those from other assets or groups of recovered through sale rather than continuing use. For an assets. In assessing value in use, the estimated future cash asset to be classified as held for sale it must be available for flows are discounted to their present value using a pre-tax immediate sale in its present condition and the sale must discount rate that reflects current market assessments of be highly probable. Management must be committed the time value of money and the risks specific to the asset. to the sale, which should be expected to qualify for recognition as a completed sale within one year from the Management’s estimates of future cash flows are subject date of classification. Non - current assets held for sale are to risk and uncertainties. It is therefore reasonably measured at the lower of the asset’s carrying value before possible that changes could occur which may affect the being classified as held for sale and its fair value less cost recoverability of the Corporation’s assets. If the recoverable to sell. Fair value will be a price that is deemed reasonable amount of an asset (or cash-generating unit) is estimated in an arms length transaction. While a non - current to be less than its carrying amount, the carrying amount asset is classified as held for sale it is not depreciated (or of the asset (cash-generating unit) is reduced to its amortised). Interest and other expenses attributable to recoverable amount. Impairment losses are recognised as the liabilities of an asset held for sale continues to be an expense immediately, unless the relevant asset is land recognised. or buildings, in which case the impairment loss is treated as a decrease in the revaluation reserve to the extent of the value of this reserve relating to this particular asset.

BTC Annualreport2009 0000111011000111 151 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

FOREIGN CURRENCY TRANSLATION NOTIONAL SHARE CAPITAL Transactions in currencies other than Botswana Pula are The Corporation is constituted in terms of the Botswana initially recorded at the rates of exchange prevailing on the Telecommunication Corporation Act CAP 72:02. The Act dates of the transactions. Monetary assets and liabilities does not provide for share capital. However, by agreement denominated in such currencies are translated at the rates with the Government of Botswana, the Corporation has of exchange approximating those ruling at the balance created notional share capital being P21 033 733. These sheet date. Non-monetary items that are measured in shares have not been registered under the Company’s terms of historical cost in a foreign currency are translated Act nor have they been recorded by the Registrar of using the exchange rates as at the dates of the initial Companies. Notional share capital is recognised at the fair transactions. Non-monetary items measured at fair value value of the consideration received by the Corporation. in a foreign currency are translated using the exchange Unless varied by legislation passed by the Government rates at the date when the fair value is determined. Profits notional share capital is recognised at the notional par and losses arising on translation of foreign currencies value subject to amendment by the Board. The notional attributable to the Corporation are dealt with in the income share capital does not have any rights and obligations and statement in the year in which they arise. this constitutes an equity contribution by the government of Botswana. The notional shares do not have any right to The International Telecommunications Union uses Gold dividends and the rights and obligations attached thereto Francs as the currency to settle international operator have not been constituted. However dividends are paid debts. The Gold Franc is linked to the Special Drawing based on a Government directive CAB 40/2004 and are not Rights (SDR) rate, which is fixed at 3.061:1 (Gold Franc: Pula). linked to the share capital.

DEVELOPMENT GRANTS EQUITY APPLICATION ACCOUNT Grants are recognised where there is reasonable assurance By agreement with the Government of Botswana, the that the grant will be received and all attached conditions Corporation made an application to create an equity will be complied with. Grants received by the Corporation application account being loans convertible to equity of to specifically fund the acquisition or construction P207 858 215. The money set aside through the equity of property, plant and equipment are reflected as application account is recognised at the fair value of the development grants and classified as non current liabilities. consideration received by the Corporation. Unless varied Grants that are going to be used in the next financial year by legislation passed by the government, the equity is are classified as current liabilities. Where the grant relates recognised at a notional par value subject to amendment to an asset, the fair value of the grant is credited to a by the Board. The equity application account does not have deferred income account and is released to profit or loss any rights and obligations and this constitutes an equity on a systematic basis over the expected useful lives of such contribution by th government of Botwana. The equity property, plant and equipment. does not have any rights to dividends as the rights and obligations attached thereto have not been constituted. DEFERRED REVENUE As per certain rental agreements, certain amounts of revenue are received in advance. Revenue received in advance for the renting of plant and equipment is recognised as income over the remaining life of the plant and equipment utilised.

152 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

RELATED PARTY TRANSACTIONS Gains and Losses for Financial Assets The Government of the Republic of Botswana and its Gains and losses are recognised in the income statement various local authorities and Parastatals constitute a when the loan and receivable is derecognised or significant portion of the Corporation’s revenues. The other i m p a i r e d a s w e l l a s t h r o u g h t h e a m o r t i s a t i o n p r o c e s s . related parties are the Corporation’s subsidiary, Botsnet (Proprietary) Limited and members of key management Gains and Losses for Financial Liabilities personnel. Services to Government, other local authorities, Gains and losses are recognised in the income statement Parastatals and subsidiaries, are provided at arm’s length. when the loan and receivable is derecognised or For further information refer to Note 25. i m p a i r e d a s w e l l a s t h r o u g h t h e a m o r t i s a t i o n p r o c e s s .

FINANCIAL INSTRUMENTS Financial Liabilities and Equity Instruments Financial assets and financial liabilities are recognised on the Financial liabilities and equity instruments are classified balance sheet when the Corporation has become a party to according to the substance of the contractual the contractual provisions of the instrument. When financial arrangements entered into. instruments are initially recognised, they are measured at fair value plus in the case of instruments not at fair value Significant financial liabilities include long term borrowings, through profit or loss, directlty attributable transactions the liability portion of preference shares and trade and costs. other payables.

All regular way purchases and sales of financial instruments Compound financial instruments are recognised on the trade date, which is the date that the The Corporation evaluates the terms of each non derivative Corporation commits to purchase the instrument. financial instruments issued by the Corporation to determine whether it contains both a liability and an equity Financial Assets component. Where the financial instrument is determined The Corporation’s principal financial assets are cash and cash to be a compound financial instrument, such components equivalents and trade and other receivables. are classified separately as financial liabilities, and/or equity instruments in accordance with the requirements of IAS 32. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise As at year end, the Corporation had in issue, preference cash at banks and on hand and short term deposits with an shares that were considered to be a compound financial original maturity of three months or less. Cash on hand and instrument. The Corporation determines the carrying cash equivalents is carried at amortised cost. amount of the liability component by measuring the fair value of the liability by discounting future contractual Trade and other receivables dividend payments for the preference shares at the risk These are classified as loans and receivables. Subsequent to adjusted interest rate. The carrying amount of the equity initial recognition, trade receivables and loans are recognised instrument, represented by the option of the Corporation at amortised cost, which approximates the original invoice to redeem the preference shares, is then determined by amount less an allowance for any uncollectible amounts. deducting the fair value of the financial liability from the Gains and losses are recognised in the income statement fair value of the compound financial instrument as a whole. when the loan and receivable is derecognised or impaired as The liability portion of the preference shares are carried at well as through the amortisation process. amortised cost.

BTC Annualreport2009 0000111011000111 153 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

Interest bearing loans and borrowings Derecognition of financial assets and liabilities Interest-bearing loans, borrowings and interest bearing The corporation derecognises a financial asset when it bonds are initially recognised at fair value of the loses control over the contractual rights that comprise the consideration received less directly attributable transaction asset and consequently transfers the substantive risks and costs. After initial recognition all interest -bearing loans and benefits associated with the asset. borrowings are subsequently measured at amortised cost using the effective interest rate method. A financial liability is derecognised when it is legally extinguished. Finance charges, including premium payable on settlement or redemption, are accounted for on an accruals basis and Impairment of financial assets are added to the carrying amount of the instrument to the The Corporation assesses at each balance sheet date extent that they are not settled in the period in which they whether a financial asset or group of financial assets is arise. impaired. A provision of impaired debts is made when the agreed credit terms are not adhered to and the debtor is Interest - free loans disputing the billed amount or was declared insolvent. The Corporation recognised financial liabilities (loans) that required no payment of interest over the entire period of Assets carried at amortised cost their existence to the due date. These have been restated If there is objective evidence that an impairment loss to fair value by discounting the loans at the prevailing on loans and receivables carried at amortised cost has market lending rate available to the Corporation. The been incurred, the amount of the loss is measured as the notional interest arising therefrom is dealt with in the profit difference between the asset’s carrying amount and the or loss (Note 16). present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted Trade and other payables at the financial asset’s original effective interest rate (i.e. the Liabilities for trade and other payables are subsequently effective interest rate computed at initial recognition). The measured at amortised cost which is the present value of carrying amount of the asset is reduced either directly or the consideration to be paid in the future for goods and through use of an allowance account. The amount of the services received, whether or not billed to the Corporation. loss is recognised in profit or loss.

Equity instruments The Corporation first assesses whether objective evidence Equity instruments are recorded net of direct issue costs. of impairment exists individually for financial assets that are individually significant, and individually or collectively Offsetting of financial assets and financial liabilities for financial assets that are not individually significant. If it (Interconnect balances) is determined that no objective evidence of impairment Financial assets and liabilities are offset and the net amount exists for an individually assessed financial asset, whether reported in the balance sheet when there is a legally significant or not, the asset is included in a group of financial enforceable right to set off the recognised amounts and assets with similar credit risk characteristics and that group of there is an intention to settle on a net basis, or realise the financial assets is collectively assessed for impairment. Assets asset and settle the liability simultaneously. that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

154 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation accounting policies (continued) for the year ended 31 March 2009

If, in a subsequent period, the amount of the impairment LEASES loss decreases and the decrease can be related objectively The determination of whether an arrangement is, to an event occurring after the impairment was recognised, or contains a lease is based on the substance of the the previously recognised impairment loss is reversed. Any arrangement and requires an assessment of whether the subsequent reversal of an impairment loss is recognised fulfillment of the arrangement is dependent on the use in the profit or loss, to the extent that the carrying value of of specific asset or assets and the arrangement conveys a the asset does not exceed its amortised cost at the reversal right to use the asset. date. Corporation as a lessee DIVIDENDS Operating lease payments are recognised as an expense The policy of the Board is to pay 25% of its profit as a in the Income Statement on a straight-line basis over the dividend annually to the government of Botswana. The lease term. government of Botswana reserves the right to vary the rate of the dividend. Dividends proposed after the balance Corporation as lessor sheet date is shown as a component of capital and reserves Leases where the Corporation retains substantially all the and not as a liability. risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating PROVISIONS an operating lease are added to the carrying amount of Provisions are recognised when the Corporation has a the leased asset and recognised over the lease term on present legal or constructive obligation as a result of a the same bases as rental income. Contingent rents are past event, it is probable that an outflow of resources recognised as revenue in the period in which they are embodying economic benefits will be required to settle earned. the obligation and a reliable estimate can be made of the amount of the obligation. A past event is deemed to give rise to a present obligation if, taking into account all of the available evidence, it is more likely than not that a present obligation exists at balance sheet date.

BTC Annualreport2009 0000111011000111 155 botswana telecommunications corporation notes to the consolidated financial statements for the year ended 31 March 2009

2009 2008 P’000 P’000 1 sale OF GOODS AND SERVICES Telephone - national 250,469 264,295 Telephone - international 132,203 168,152 local and Access Services 94,162 83,542 Data and Private circuits 249,859 202,311 Customer Premises Equipment 65,830 52,943 Other Services 43,377 27,930 835,900 799,174 2 OPERATING COSTS 2.1 Cost of services and goods sold: Payment to International carriers and local operators 163,868 146,007 Depreciation land and buildings 3,269 3,822 Plant and Machinery 148,982 149,361 Equipment and material costs 47,679 47,541 Costs of inventories recognised as an expense - Note 9 4,594 425 license fee - BTA 16,658 17,374 Space segment rentals and other licence fees 11,218 6,187 Total cost of services and goods sold 396,268 370,717

2.2 Selling and distribution costs: Installation of Customer Premises Equipment 4,818 4,350 Product Marketing costs 7,531 4,249 12,348 8,599 2.3 Administrative expenses Employee costs: Salaries and wages 172,241 167,589 Pension fund and group life contributions 14,448 14,995 Training costs 4,388 3,411 Other related costs 6,739 6,522 Total employee costs 197,817 192,516 Employee costs relating to assets constructed capitalised (1,542 ) (1,960 ) Total employee costs charged to income statement 196,274 190,556

156 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 2 OPERATING COSTS (continued) Depreciation - Other equipment 21,203 19,679 Repairs and maintenance - Non Telcom equipment 16,142 9,929

Total Administrative expenses 233,620 220,163

2.4 Other expenses Retrenchment costs — 95,017 Other operating expenses 122,567 98,079 Total other expenses 122,567 193,096

Total operating costs 764,803 792,575

Operating costs include the following items: Audit fees - Current year 745 760 Board members’ fees 113 114 Consultancies and legal costs 20,754 11,143 Debtors impairment 12,548 14,669 Marketing and publicity 36,868 1,716 Operating lease charges - rentals 1,706 2,360 Write-down of inventories recognised as an expense 4,594 — Foreign exchange net gains (4,727) (10,593)

3 OTHER INCOME Development grant recognised as income - Note 15 (21,801 ) (19,928 ) Profit on disposal of property, plant and equipment (1,410 ) (1,716 ) (23,211 ) (21,644 )

BTC Annualreport2009 0000111011000111 157 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 4 interest INCOME / FINANCE COSTS 4.1 Interest income: Call Accounts (45,873) (59,252) (45,873) (59,252) 4.2 Finance costs: long term borrowings: Government - Note 16 16,460 22,102 Bond 4,584 6,882 21,044 28,984 Preference shares interest 184 184 21,228 29,168

5 taXATION Under the provisions of the Income Tax Act (Chapter 52:01), Second Schedule, the Corporation is exempt from income tax.

6 earnings PER NOTIONAL ORDINARY SHARE The calculation of earnings per notional ordinary share is based on 21 033 733, (2008; 21 033 733) notional ordinary shares in issue throughout the year and net income attributable to the notional ordinary shareholder (after deducting the 8% redeemable preference share dividends).

Diluted earnings per notional ordinary share is calculated by dividing the profit for the year attributable to the notional shareholder (after deducting dividends on redeemable preference shares) by the weighted average number of notional ordinary shares outstanding during the year of 228 891 948 notional shares (adjusted for the effects of 207 858 215 potential notional ordinary shares to be issued from the equity application account - Note 12).

Profit attributable to ordinary notional shareholder for basic and diluted earnings per share 118,953 58,327

158 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

7 prOPERTY, PLANT AND EQUIPMENT 31 March 2009 Plant and Equipment in Land & Plant & Other the course of Buildings Equipment Equipment Construction Total P’000 P’000 P’000 P’000 P’000 Cost or valuation At beginning of the year 81,559 2,206,874 330,519 38,190 2,657,142 Additions — — — 167,727 167,727 Transfers 17,319 167,271 16,633 (201,223 ) — Adjustments (8 ) — 22 — 14 Disposals — (61 ) (2,001 ) — (2,062 ) Revaluation at 31 March 2009 25,823 — — — 25,823

At end of the year 124,693 2,374,084 345,173 4,694 2,848,644

Accumulated Depreciation At beginning of the year (6,649 ) (1,363,254 ) (257,388 ) — (1,627,291 ) Charge for the year (3,269 ) (148,982 ) (21,203 ) — (173,454 ) Disposals — 61 2,001 — 2,062

At end of the year (9,918 ) (1,512,175 ) (276,590 ) — (1,798,683 )

Net book value At beginning of the year 80,890 843,620 67,150 38,192 1,029,852 At end of the year 114,775 861,909 68,583 4,694 1,049,961

Land and buildings were revalued at 31 March 2009 by an accredited independent valuer, on an open market existing basis.

The valuation assumed that the poperties have marketable and unencumbered titles, free of any undisclosed restrictions and charges. Commercial properties were measured on gross internal areas basis only and residential properties on gross external area only in accordance with the Code of Measuring Practice applicable in Botswana.

BTC Annualreport2009 0000111011000111 159 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

7 prOPERTY, PLANT AND EQUIPMENT (continued) 31 March 2008 Plant and Equipment in Land & Plant & Other the course of Buildings Equipment Equipment Construction Total P’000 P’000 P’000 P’000 P’000 Cost or valuation At beginning of the year 79,560 1,870,377 320,460 18,326 2,288,723 Additions 2,033 336,520 13,575 19,866 371,994 Disposals (34 ) (23 ) (3,516 ) — (3,573 )

At end of the year 81,559 2,206,874 330,519 38,192 2,657,144

Accumulated depreciation At beginning of the year 3,119 (1,213,911 ) (247,134 ) — (1,457,926 ) Depreciation charge for the year (3,822 ) (149,361 ) (19,679 ) — (172,862 ) Disposals 34 18 3,444 — 3,496

At end of the year (669 ) (1,363,254 ) (263,369 ) — (1,627,292 )

Net book value At beginning of the year 82,679 656,466 73,326 18,326 830,797 At end of the year 80,890 843,620 67,150 38,192 1,029,852

The carrying amount of land and buildings that would have been included in the financial statements, had certain of these not been revalued and were carried at cost less depreciation is: 2009 2008 P’000 P’000 Cost less reduction due to impairment 91,440 91,440 Depreciation (41,740 ) (38,471 ) Carrying amount 49,700 52,969

8 deferred LEASE Balance at the beginning of the year 16,586 16,468 New lease arrangements 37 19 usage in the current period (779 ) — Originating in current period for existing contracts — 99 15,844 16,586

Deferred leases arise from the difference between the straight lining of operating leases on the Corporation sites in accordance IAS 17 and the actual payments made in accordance with the lease agreement.

160 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 9 inVENTORIES Comprising: Consumable stores 40,349 29,509 Customer premises equipment 22,122 10,541 Other inventories 1,800 1,733 64,271 41,783

The above inventory is disclosed at lower of cost and estimated net realisable value. The cost of inventories recognised as an expense is P4,593,859 (2008 - P425,544).

10 trade AND OTHER RECEIVABLES Trade receivables 47,666 39,812 Receivables from related parties 14,075 40,764 Trade receivables from traffic balances 20,172 27,593 Staff advances 1,526 2,306 Interest receivable 3,024 — Other receivables 31,320 19,950 117,783 130,425 Prepayments and deposits 10,686 20,511 128,469 150,936

The Corporation’s trade and other receivables are non-interesting bearing. For terms and conditions relating to related party receivables, refer to Note 25. Trade, receivables from traffic balances and other receivables are generally 30 to 90 days terms, interest free, unsecured and settlement occurred in cash. Staff advances may be up to six months.

BTC Annualreport2009 0000111011000111 161 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 10 trade AND OTHER RECEIVABLES (continued) Trade and other receivables at 31 March 2009 Neither past due nor impaired 30,030 50,056 Past due but not impaired less than 30 days 39,896 19,183 between 30 days and 60 days 235 10,427 between 60 days and 90 days 1,911 18,004 more than 90 days 45,711 32,755 Net carrying amount 117,783 130,425

The movement in the provision for impairment of trade and other receivables is set out below.

Individually Collectively Impaired Impaired Total At 31 March 2009 P’000 P’000 P’000 At beginning of year 37,755 32,787 70,542 Charge for the year 2,043 420 2,463 At end of year 39,798 33,207 73,005

At 31 March 2008 At beginning of year 25,207 30,147 55,354 Charge for the year 12,548 2,640 15,188 At end of year 37,755 32,787 70,542

2009 2008 P’000 P’000

11 nOTIONAL ORDINARY SHARE CAPITAL Ordinary shares 21 033 733 ordinary shares of P1 each, held by the Government of the Republic of Botswana 21,034 21,034

162 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 11 nOTIONAL ORDINARY SHARE CAPITAL (continued) Preference shares 2 301 000 - 8% redeemable cumulative preference shares of P1 each, held by the Government of the Republic of Botswana

Total nominal value 2,301 2,301

less: Liability portion of preference shares included under non current liabilities (1,416 ) (1,416 )

Equity portion of preference shares disclosed as part of notional share capital 885 885 21,919 21,919

The preference share interest is cumulative and the preference shares are are redeemable at the option of the Corporation.

12 eQUITY APPLICATION ACCOUNT Balance at the beginning and end of the year 207,858 207,858

The shareholder has determined that the above will be allotted as follows:

P1 ordinary shares are to be issued for the loans converted to equity amounting to P190,939,000.

0% preference shares of P1 each are to be issued for the Gantsi-Mamuno project funding amounting to P16,919,215 which will be convertible into ordinary shares after the life of the project on 1 April 2009. However the conversion has not yet taken place as at 1 April 2009.

13 reVALUATION RESERVE Properties revaluation reserve Balance at the beginning of the year 45,855 47,912 Revaluation adjustment arising during the year 25,823 — Depreciation transfer for land and buildings (2,057 ) (2,057 ) Balance at the end of the year 69,621 45,855

Total reserves 69,621 45,855

BTC Annualreport2009 0000111011000111 163 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 14 diVIDENDS AND PREFERENCE SHARE INTEREST Preference share interest Amount paid to the Government of the Republic of Botswana on Preference share interest owing at the beginning of the year 184 184 8% redeemable cumulative preference shares - declared during the year 184 184 Amount paid during the year (184 ) (184 ) Amount payable at end of year 184 184

Equity dividends: Dividend proposed for approval (not recognised as a liability) 29,738 14,582 Total dividends 29,922 14,766

The current preference dividend amounting to P184,000 is payable as approved by the Board of the Corporation. The preference shares are a compound financial instrument comprising an equity portion and a liability portion. Consequently, they have been split into the equity and liability components (Note 11). The dividends on preference shares have been classified as interest cost and are included as part of finance cost (Note 4.2). The dividend is payable at the beginning of the next financial year, bears no interest and it is unsecured.

Dividends amounting to 25% of the Corporations profits are payable to the Government in line with the requirements of the Government directive CAB 40/2004.

15 deVELOPMENT GRANTS Balance at the beginning of the year 121,070 140,998 Grants received during the year 35,625 — Recognised as income during the year (21,801 ) (19,928 ) Balance at end of the year 134,894 121,070

The cumulative grants received to date of P250 423 679 (2008: P214 798 900). These grants are for the purpose of funding the Corporation’s expansion in rural districts in terms of National Development Plan 8. The portion of the grants recognised as income during the year is based on the useful life of plant and equipment which was funded by the above grants.

164 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 16 lONG TERM BORROWINGS Government of the Republic of Botswana Balance at the beginning of the year 150,813 188,711 Repayment of long term borrowings (60,000 ) (60,000 ) unwinding the finance costs - Note 4.2 16,460 22,102 107,273 150,813

The Government loan is unsecured, interest free and is repayable over a five year period commencing at the end of the current three year programme which started in May 2003, or in its entirety on privatisation, whichever is sooner. The loan is being used to upgrade the telecommunications network throughout the country.

unsecured puttable bond

Balance at the beginning of the year 50,000 50,000 Repayment of the bond (50,000 ) — — 50,000

Unsecured puttable bonds (BTC001) were issued by the Corporation bearing interest at 13.75% per annum, repayable semi-annually in arrears, maturing on 30 November 2008. The bonds were puttable by the investors at 95% on 30 November 2003. Investors were given an option to redeem the bonds as at 30 November 2003,however none exercised that right. The bond has been fully paid as at November 2008.

Total long term borrowings 107,273 200,813

less: amounts repayable within one year included under current liabilities (Government loan) (60,000 ) (60,000 ) less: amounts repayable within one year included under current liabilities (Unsecured bond) — (50,000 ) Total current portion of long term borrowings (60,000 ) (110,000 )

Balance at the end of the year 47,273 90,813

BTC Annualreport2009 0000111011000111 165 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 17 deferred REVENUE Balance at beginning of the year 131,430 144,629 Deferred revenue recognised as income - fibres (502 ) (502 ) - mini links (154 ) (154 ) - Network Upgrade - Government of Botswana (GOB) (18,396 ) (12,543 ) Balance at end of the year 112,378 131,430

Current portion of deferred revenue - Note 18 19,052 13,199 Non-current portion of deferred revenue 93,326 118,231 112,378 131,430

The deferred revenue comprises an amount received from the Water Utilities Corporation of P7,059,000 (2008:P7,059,000) for the sole usage of four fibres from Mmamashia to Letsibogo Dam for a period of 25 years, an amount received from other Licensed operators of P1,538,000 (2008: P1,538,000) for the use of mini links for a period of 10 years, and an amount received from other Licensed operators and Botswana Police of P257,000 (2008:257,000) for the use of Power sites for a period of 10 years. The ownership of the equipment utilised to provide these services vests with the Corporation. The deferred revenue is recognised in income over the life of the plant and equipment utilised.

18 trade AND OTHER PAYABLES Trade payables 79,297 50,996 Accrued expenses 1,893 13,156 Short-term employee benefits 44,413 36,186 Traffic administration balances 9,165 10,024 Interest on long term borrowings — 1,225 Other payables 29,674 28,416 Current portion of deferred revenue - Note 17 19,052 13,199 183,494 153,202

Trade payables are non interest bearing and are normally settled on 30-60 day terms and are not secured. Other payables are non-interest bearing and have an average term of three months and are not secured.

166 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 19 prOVISIONS Balance at the beginning of the year 51,501 4,300 Released during the year (40,835 ) (1,500 ) Arising during the year — 48,701 Balance at the end of the year 10,666 51,501

The balance at year end is for retrenchments costs not yet utilised by voluntary employees who are due to leave the Corporation during the financial year 2009/2010.

20 CASH FLOW STATEMENT 20.1 Operating profit before working capital changes: Net profit before financing costs 140,181 87,495 Adjustment for non cash movements: Depreciation 7 173,454 172,862 Profit on disposal of property, plant and equipment 3 (1,410 ) (1,716 ) Interest income 4.1 (45,873 ) (59,252 ) Interest receivable — 2,291 Exchange loss unrealised (1,016 ) (7,666 ) Development grant recognised as income 15 (21,801 ) (19,928 ) Deferred revenue recognised as income - fibres (502 ) (502 ) - mini links (154 ) (154 ) - Network Upgrade - GOB (18,396 ) (12,543 ) Finance costs: Government interest free loan 16 16,460 22,102 Deferred lease 8 742 (118 ) Decrease in provisions (40,835 ) 47,201 Operating profit before working capital changes 200,850 230,073

For the purpose of the consolidated cash flow statement the working capital changes arising from trade and other receivables and trade and other payables take into account the cash effects of the interest receivable and payable at both the beginning and end of the year.

BTC Annualreport2009 0000111011000111 167 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 20 CASH FLOW STATEMENT (continued) 20.2 Net cash and cash equivalents at end of the year: Cash at bank and on hand 83,832 62,370 Short term deposits 315,886 341,706 Net cash and cash equivalents at end of the year 399,718 404,076

The call deposits had effective interest rates of between 1.50% and 10.70% for the year (2008 between 3.75% and 11.30%). At year end the short term deposits were maturing within 90 days (2008:30 days).

20.2.1 Banking Facilities The Corporation has facilities with its bankers amounting to P70,000,000 (2008:P70,000,000) in respect of letters of credit and guarantees. The banking facilities are unsecured.

21 CONTINGENT LIABILITIES In the ordinary course of business, the Corporation is a defendant in various litigation arising from trade claims. Although there can be no assurances, the corporation believes, based on information currently available, that the ultimate resolution of these legal proceedings would not likely have a material adverse effect on the results of its operations, financial position or liquidity of the corporation.

22 CAPITAL COMMITMENTS Contracted but not paid 236,347 98,337 Authorised but not contracted 258,946 132,832 Total capital commitments 495,293 231,169

These commitments will be financed by equity contributions, development grants, long term borrowings and internally generated funds.

168 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 23 OPERATING LEASE COMMITMENTS - CORPORATION AS LESSEE Future minimum rentals payable under non-cancellable operating leases as at 31 March 2009 are as follows:

Operating leases 851 3,846 Balance due within one year 826 — Balance due between two and five year 25 2,046 Balance due after five years — 416 851 2,462

OPERATING LEASE COMMITMENTS - CORPORATION AS LESSOR

Future minimum rentals receivable under non-cancellable operating leases as at 31 March 2009 are as follows:

Operating leases 35,681 54,374 Balance due within one year 8,920 6,510 Balance due between two and five years 26,761 34,844 Balance due after five years — 13,020 35,681 54,374

In addition to the above, the Corporation has entered into a number of service and maintenance contracts with third parties. The majority of the operating leases are in respect of sites on which radio site premises have been built and sub-let by the Corporation to its customers. These leases comprise of fixed rentals payable on a monthly basis with annual escalations of 10% per annum generally with a one month notice period.

BTC Annualreport2009 0000111011000111 169 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

24 emplOYEE RETIREMENT BENEFITS In 1980 the Corporation employed former Government employees who transferred to the Corporation. These comprised the Post and Telecommunications (P&T) employees that had formerly been employed by the Posts and Telecommunications Corporation.

These ex P&T employees were members of a defined benefit plan and opted not to become members of the Botswana Telecommunications Corporation Staff Pension Fund which is a defined contribution plan set up by the Corporation for its own employees, but to remain on the Government’s pension plan.

The Corporation was required to refund the Government for the pensionable benefits paid to these fund members relating to the time the members worked at the Corporation.

The Corporation set aside 14% of the employees’ pensionable earnings which is the same rate as for the Corporation’s Staff Pension Fund and was paid across to a defined contribution plan to fund this.

At 31 March 2007, the date of the last audit of the Fund, the total assets attributable to the Ex P&T members amounted to P29 481 499. An actuarial valuation of the Corporation share of the Ex P & T fund liability was carried out as at 31 March 2007, and this revealed a fund liability of P28 807 737 to the Ex P&T members, relating to the period of their employment with the Corporation.

Management made a final settlement of the Ex P&T liability by way of a lump sum payment of P29 481 499 during March 2008 to the Government of Botswana from funds the Corporation had set aside.

2009 2008 P’000 P’000 Changes in the present value of the defined benefit obligation are as follows: Defined benefit obligation at 1 April — 28,808 Settlement — (29,481 ) (Gains)/losses on obligation — 673 Defined benefit obligation at 31 March — —

Changes in the fair value of plan assets are as follows: Fair value of plan assets at 1 April — 29,481 Benefits paid — — Contributions by employer — — Gains/(losses) — — Settlement — (29,481 ) Fair value of plan assets at 31 March — —

170 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

24 emplOYEE RETIREMENT BENEFITS (continued) The overall expected rate of return on assets is determined based on the market prices prevailing. There has been a significant change in the expected rate of return on assets due to the improved stock market scenario.

25 RELATED PARTY TRANSACTIONS Related parties are parties under common control of the Government of the Republic of Botswana.

Trading transactions The following related party transactions were on an arms length basis:

Revenue billed Balance due 2009 2008 2009 2008 P’000 P’000 P’000 P’000 Sales to related parties The Government of the Republic of Botswana 224,231 191,599 12,372 36,536 Parastatals 34,702 54,652 1,704 4,228 Botsnet (Proprietary) Limited 6,837 3,839 1,519 1,451 265,770 250,089 15,595 42,215

Purchases from related parties Parastatals 83,972 67,102 36,016 9,827

The sales to and purchases from related parties are made at normal market prices. Outstanding balances at the year end are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For year ended 31 March 2009, the Corporation made an allowance for doubtful debts relating to amounts owed by related parties of P1,937,366 (2008:P 1,791,407). This assessment is undertaken every financial year through examining the financial position of the related party and the market in which the related party operates.

BTC Annualreport2009 0000111011000111 171 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 25 related PARTY TRANSACTIONS (continued)

Compensation of key management personnel Short term benefits 513 4,595 Other long term benefits 4,533 1,152 5,046 5,747

The remuneration for key management staff is determined by the remuneration committee and that of directors is consistent with Government rates.

The non-executive members of the Board do not receive pension entitlement from the Corporation.

26 finanCIAL RISK MANAGEMENT 26.1 Financial risk management objectives and policies The Corporation’s principal financial liabilities, comprise bonds, preference shares, trade payables and government loans received. The main purpose of these financial liabilities is to raise finance for the Corporation’s operations. The Corporation has various financial assets such as trade receivables and cash and short-term deposits, which arise directly from its operations.

The main risks arising from the Corporation’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.

Exposure to currency, liquidity, interest rate and credit risk arises in the normal course of the Corporation’s business.

172 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

26 finanCIAL RISK MANAGEMENT (continued) 26.2 Currency risk: The Corporation undertakes certain transactions denominated in foreign currencies with international operators and other foreign suppliers. Hence, exposure to exchange rates fluctuationss arise. The carrying amount of the Corporation’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

Exchange Rates Amount in Foreign Currency Currency 2009 2008 2009 2008 Liabilities: Euro 0.095 0.094 348,311 1,411,788 Rand 1.213 1.203 12,681,422 5,540,981 SDR 0.092 0.092 44,455,839 6,219,942 Sterling 0.088 0.074 9,450 4,170 US Dollar 0.126 0.148 13,789,709 2,305,503

Assets: SDR 0.092 0.092 77,069,274 3,173,497 Euro 0.098 0.098 — 51,962 US Dollar 0.131 0.155 6,487,470 906,387

BTC Annualreport2009 0000111011000111 173 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

26 finanCIAL RISK MANAGEMENT (continued)

The Corporation’s currency risk exposure is partly hedged by USD deposit accounts held, which at 31 March 2009 amounted to USD 1,182,331 (2008:USD 1,177,316).

26.3 Foreign Currency sensitivity analysis The Corporation is mainly exposed to the currencies of South Africa (Rand), the United States (US Dollar) and the SDR (Special Drawing Rights) which is a potential claim on the freely usable currencies of International Monetary Fund members.

The following table details the Group’s sensitivity to a 10% increase and decrease in the Pula against the relavant foreign currencies. 10% is the sensitivity rate when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit.

Pre Tax Profit/(Loss) 2009 2008 10% decrease Pula Pula Euro 1,173,971 1,456,911 Rand 383,363 666,303 Special Drawing Rights (SDR) 3,065,598 3,315,598 Sterling 6,808 5,608 United States Dollar 214,877 214,377 Net Effect 4,844,617 5,658,797

10% increase Euro (1,173,971 ) (1,456,911 ) Rand (383,363 ) (666,303 ) Special Drawing Rights (SDR) (3,065,598 ) (3,315,598 ) Sterling (6,808 ) (5,608 ) United States Dollar (214,877 ) (214,377 ) Net Effect (4,844,617 ) (5,658,797 )

174 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

26 finanCIAL RISK MANAGEMENT (continued) 26.4 Credit Risk Credit risk refers to the risk that a counterpary will default on its contractual obligations resulting in a financial loss to the Corporation. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Management has a credit policy in place and the exposure to credit risk is monitored an an ongoing basis. Credit evaluations are performed on all customers requiring credit.

Significant concentrations of credit risk The Corporation does have significant credit risk exposure to single counterparty or groups of counterparties having similar characteristics. The Corporation defines counterparties as having similar characteristics if they are related entities and this include sectors such Corporate clients, Government clients, etc. The credit risk related to these counterparties or groups of counterparties is however limited since the counterparties are Government agencies or businesses possessing high credit ratings. The credit risk on liquid funds is similarly limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

Except as detailed in the following table, the carrying amount of the financial assets recorded in the financial statements, which is net of impairment losses, represents the Corporation’s maximum exposure to credit risk. The Corporation holds no collateral with which to secure its financial assets.

2009 2008 Financial assets and other credit exposures P’000 P’000 Trade debtors and other receivables 117,783 130,425 Short term call deposits 315,886 341,706 Cash and bank 83,832 62,370 517,501 534,502

BTC Annualreport2009 0000111011000111 175 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

26 finanCIAL RISK MANAGEMENT (continued) 26.5 Fair value of financial instruments Management considers that the carrying amounts of financial assets and financial liabilities recorded in the financial statements to approximate their fair values. For this reason, no valuation methods have been employed in order to determine fair value. The respective carrying amounts and fair values of the Corporation’s financial assets and liabilities are shown in the following table.

Carrying Fair Value Carrying Fair Value Amount Amount 2009 2009 2008 2008 P’000 P’000 P’000 P’000 Financial assets Trade and other receivables 117,783 117,783 130,425 130,425 Short term call deposits 315,886 315,886 341,706 341,706 Cash and cash equivalents 83,832 83,832 62,370 62,370 517,501 517,501 534,502 534,502

Financial liabilities Unsecured long term bonds — — 50,000 50,000 Government of the Republic of Botswana Loan 107,273 107,273 150,814 150,814 Trade and other payables 164,442 164,442 138,778 138,778 Preference share - liability portion 1,416 1,416 1,416 1,416 Interest payable on preference shares 184 184 184 184 Guarantees given to financial institutions in respect of staff loans 1,355 1,355 2,067 2,067 274,670 274,670 343,259 343,259

176 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

26 finanCIAL RISK MANAGEMENT (continued) 26.6 Categories of financial instruments Loans and Held to Receivables Maturity Total 2009 P’000 P’000 P’000 Financial assets Trade and other receivables 117,783 — 117,783 Short term call deposits — 315,886 315,886 Cash at bank and on hand 83,832 — 83,832 201,615 315,886 517,501

At Amortised Cost Fair Value Total P’000 P’000 P’000 Financial liabilities Government of the Republic of Botswana Loan 107,273 — 107,273 Trade and other payables 164,442 — 164,442 Preference share - liability portion 1,416 — 1,416 Interest payable on preference shares 184 — 184 Guarantees given to financial institutions in respect of staff loans 1,355 1,355 1,355 274,670 1,355 274,669

BTC Annualreport2009 0000111011000111 177 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

26 finanCIAL RISK MANAGEMENT (continued) 26.6 Categories of financial instruments (continued)

Loans and Held to Receivables Maturity Total 2008 P’000 P’000 P’000 Financial assets Trade and other receivables 130,425 — 130,425 Short term call deposits — 341,706 341,706 Cash at bank and on hand 62,370 — 62,370 192,795 341,706 534,501

At Amortised Cost Fair Value Total P’000 P’000 P’000 Financial liabilities Unsecured long term bonds 50,000 — 50,000 Government of the Republic of Botswana Loan 150,814 — 150,814 Trade and other payables 138,778 — 138,778 Preference share - liability portion 1,416 — 1,416 Interest payable on preference shares 184 — 184 Interest payables unsecured long term loans 6,876 — 6,876 Guarantees given to financial institutions in respect of staff loans — 2,067 2,067 348,068 2,067 350,135

26.7 Financial instruments designated at fair value through profit and loss At the reporting date the Corporation held no financial instruments designated at fair value through for profit and loss (FVTPL).

26.8 Financial assets held or pledged as collateral At the reporting date the Corporation held or received no financial assets as collateral or had pledged any of its financial assets as collateral.

178 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

26 finanCIAL RISK MANAGEMENT (continued) 26.9 Interest income and expense by financial instrument category Loans and Held to Amortised Receivables Maturity Cost Total 2009 P’000 P’000 P’000 P’000 Interest income (27,693 ) (18,180 ) — (45,873 ) Interest expense — — 21,228 21,228 Net interest (income) / expense (27,693 ) (18,180 ) 21,228 (24,645 )

2008 Interest income (38,525 ) (20,728 ) — (59,252 ) Interest expense — — 29,168 29,168 Net interest (income) / expense (38,525 ) (20,728 ) 29,168 (30,084 )

26.10 Liquidity and interest risk management Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

Management has built an appropriate liquidity risk management framework for the management of the Corporation’s short, medium and long-term funding and liquidity management requirements. Liquidity risk is managed by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The following table details the Corporation’s expected maturity for its financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the group anticipates that the cash flow will occur in a different period.

Less 1 - 3 3 mnths than mnths to 1 yr 1 - 5 yrs 5+ yrs Total 1 mnth P’000 P’000 P’000 P’000 P’000 Financial Assets 2009 Trade and other receivables — 96,085 21,698 — — 117,783 Variable interest rate instruments 83,832 — — — — 83,832 Fixed interest rate instruments — 315,886 — — — 315,886 83,832 411,971 21,698 — — 517,501

Net liquidity 83,832 217,530 -8,302 -121,355 — 171,704

BTC Annualreport2009 0000111011000111 179 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

26 finanCIAL RISK MANAGEMENT (continued) 26.10 Liquidity and interest risk management (continued)

Less 1 - 3 3 mnths than mnths to 1 yr 1 - 5 yrs 5+ yrs Total 2008 1 mnth P’000 P’000 P’000 P’000 P’000 Trade and other receivables 2,522 98,004 29,899 — — 130,425 Variable interest rate instruments 62,370 — — — — 62,370 Fixed interest rate instruments — 341,706 — — — 341,706 64,892 439,710 29,899 — — 534,502 Net liquidity 38,245 294,142 -53,723 -122,067 -1,416 155,181

The following table detail the Corporation’s remaining contractual maturity of its financial liabilities. The tables have been drawn up based on the discounted cash flows of financial liabilities based on the earliest date on which the Corporation can be required to pay. The table includes both interest and principal cash flows.

Weighted Average Effective Interest Less 1 - 3 3 mnths Rate than mnths to 1 yr 1 - 5 yrs 5+ yrs Total % P’000 P’000 P’000 P’000 P’000 Financial Liabilities 2009 Trade and other payables — 164,442 — — — 164,442 Non-interest bearing instruments — 30,000 30,000 120,000 — 180,000 Institutions in respect of staff loans — — — 1,355 — 1,355 — 194,442 30,000 121,355 — 345,797

2008 Trade and other payables 26,647 112,131 — — — 138,778 Non-interest bearing — 30,000 30,000 120,000 — 180,000 Fixed interest rate instruments 13.75% — 3,438 53,622 — 1,416 58,476 Guarantees given to financial institutions in respect of staff loans — — — 2,067 — 2,067 26,647 145,569 83,622 122,067 1,416 379,321

180 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

26 finanCIAL RISK MANAGEMENT (continued) 26.11 Interest rate sensitivity analysis The table below has been determined based on the exposure of financial instruments to interest rates at the balance sheet date. For variable rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the balance sheet date was outstanding for the whole year. A 1% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s asssessment of the reasonably possible change in interest rates.

If the Corporation’s interest rates had been 1% higher/lower and all other variables were held constant, the change in the Corporation’s profit and equity reserves would be as shown in the table below:

Increase/ (decease) in pre tax profit/(loss) for the year 2009 P’000 Interest rate risk Change in interest rate +1% — -1% — 2008 Interest rate risk Change in interest rate +1% 3,132 -1% (3,132 )

BTC Annualreport2009 0000111011000111 181 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

27 CAPITAL RISK MANAGEMENT The Corporation manages its capital to ensure continuity as a going concern for all the subsidiaries while at the same time maximising the shareholders return through the optimisation of the debt and equity balance. The Corporation has access to financing facilities, the total unused portion amounting to P70 million at the balance sheet date. The Corporation expects to meet its other obligations from operating cash flows and the proceeds of maturing financial assets. The Corporation expects to maintain current debt to equity ratio, within 20-25% limits increasing to 25%. This will be achieved through the issue of new debt and increased use of bank loan facilities. The capital structure of the Corporation consists of debt, which includes borrowings (Note 16), trade and other payables(note 18), cash and cash equivalents (note 20.2), Share capital, reserves and retained earnings.

2009 2008 Debt P’000 P’000 Trade and other payables 183,494 131,427 long term borrowings 107,273 200,813 Preference shares liability portion 1,600 1,600 Total debt 292,366 333,840 less cash and short term deposits (399,718 ) (404,076 ) Net debt (107,352 ) (70,236 )

Equity Notional share capital 21,919 21,919 Equity application account 207,858 207,858 Revaluation reserve 69,621 45,855 Accumulated profits 827,612 721,186 Total equity 1,127,010 996,818

Total capital 1,819,095 1,734,735

Net debt to equity ratio 10% 7%

Total capital is derived by adding total equity and total debt less cash and short term deposits.

182 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 28 segment REPORTING Eliminations represent the inter-segmental transactions that have been eliminated against segment results.

Business Segment

Consolidated operating revenue 835,900 799,174 Fixed-line 817,232 794,240 Mobile 9,599 — Broadband 15,325 11,631 Elimination 6,256 6,697

Consolidated other income 69,083 80,896 Fixed-line 68,915 80,754 Broadband 168 142

Consolidated operating expenses 764,803 792,575 Fixed-line 695,506 773,893 Mobile 61,652 14,084 Broadband 7,645 4,598

Consolidated finance charges

Fixed-line 21,228 29,168

Segment Results - Net profit/(Loss) reported 118,953 58,327 Fixed-line 169,414 71,933 Mobile (52,053 ) (14,084 ) Broadband 1,592 478

BTC Annualreport2009 0000111011000111 183 botswana telecommunications corporation notes to the consolidated financial statements (continued) for the year ended 31 March 2009

2009 2008 P’000 P’000 28 segment REPORTING (continued) Business Segment (continued)

Profit/(Loss) attributable to equity holders

Fixed-line 169,414 71,933 Mobile (52,053 ) (14,084 ) Broadband 1,592 478

Consolidated assets

Fixed-line 1,646,418 1,643,233 Mobile 11,845 — Broadband 4,689 2,752

Total assets 1,662,952 1,645,985

Consolidated equity & liabilities

Fixed-line 1,646,417 1,643,233 Mobile 11,845 — Broadband 4,689 2,752

Total liabilities 1,662,951 1,645,985

184 1110001101110000 BTC Annualreport2009 botswana telecommunications corporation botswana telecommunications corporation notes to the consolidated consolidated financial statements (continued) balance sheet for the year ended 31 March 2009 At 31 March 2009

2009 2008 Notes 2009 2008 P p’000 P’000 P’000 P’000 28 SEGMENT REPORTING (continued) ASSETS Non current assets business Segment (continued) Property, plant and equipment 7 1,049,961 1,029,852 Deferred lease 8 15,844 16,586 other segment information 1,065,805 1,046,438 Current assets Capital expenditure for property, plant and equipment Inventories 9 64,271 41,783 167,727 371,994 Trade and other receivables 10 128,469 150,936 Fixed-line 167,241 371,875 Cash and cash equivalents 20.2 399,718 404,076 Broadband 486 119 592,458 596,795

Total assets 1,658,263 1,643,233 Depreciation 173,454 172,862 EQUITY AND LIABILITIES Fixed-line 173,265 172,733 Capital and reserves Broadband 189 129 Notional Share Capital 11 21,919 21,919 Equity application account 12 207,858 207,858 Revaluation reserve 13 69,621 45,855 A business segment is a group of assets and operations engaged in providing products or services that are subject Accumulated profits 827,612 721,184 to risks and returns that are different from those of other business segments. On the basis of the Corporation’s 1,127,010 996,816 organisational and reporting structure, management considers that there are primarily three operating segment, Non current liabilities namely fixed-line telephony activities, mobile services and broadband data services. A geographical segment is Development grants 15 134,894 121,070 engaged in providing products or services within a particular economic environment that are subject to risks and Long term borrowings 16 47,273 90,813 returns that are different from those of segments operating in other economic environments. The corporation only Preference shares-liability portion 11 1,416 1,416 has significant operations in Botswana hence a geographical segment analysis has not been provided.The revenue Deferred revenue 17 93,326 118,231 is all coming from external customers. 276,909 331,530 Current liabilities Trade and other payables 18 183,494 153,202 29 EVENT AFTER THE BALANCE SHEET DATE Provisions 19 10,666 51,501

Interest payable on preference shares 14 184 184 There were no subsequent events. Current portion of long term borrowings 16 60,000 110,000 254,344 314,887

Total equity and liabilities 1,658,263 1,643,233

BTC Annualreport2009 0000111011000111 185 botswana telecommunications corporation botswana telecommunications corporation consolidated key business terms income statement for the year ended 31 March 2009

Notes 2009 2008 NET BORROWINGS / DEBT Net interest bearing debt / liabilities less liquid funds and interest bearing receivables P’000 P’000 (see also Financial Review). Sale of goods and services 1 835,900 799,174 CAPITAL EMPLOYED Total assets less current liabilities, which equals shareholder’s funds plus long term liabilities Interest income 4.1 45,873 59,252 FIXED CAPITAL Ordinary shareholders equity interest. Revenue 881,773 858,426 TOTAL ASSETS Property, plant and equipment, assets under construction, investments and current assets. Cost of services and goods sold 2.1 (396,268 ) (370,717 ) OPERATING ASSETS Total assets less investment and cash. TOTAL LIABILITIES Sum of all interest and non-interest bearing liabilities. Gross Profit 485,505 487,709 NET ASSET VALUE PER SHARE Ordinary shareholders funds divided by the number of ordinary shares in issue at year-end. Other Income 3 23,211 21,644 OPERATING INCOME Net income before adding investment income and deducting financing cost. Selling and distribution costs 2.2 (12,348 ) (8,599 ) EARNINGS (PROFITS) Net income attributable to ordinary shareholders as disclosed in the income statement. Administrative expenses 2.3 (233,620 ) (220,163 ) EARNINGS PER SHARE Net income attributable to ordinary shareholders divided by weighted average number Other Expenses 2.4 (122,567 ) (193,096 ) of ordinary shares in issue during the year. NET OPERATING CASH FLOW (EBIDTA) Operating income plus income from investments and depreciation and amortisation Operating profit 140,181 87,495 (EBIDTA). It is not the same as cash flow from operating activities in the statement of cash flow (see also Financial Review). Finance costs 4.2 (21,228 ) (29,168 ) Profit for the year 118,953 58,327 KEY BUSINESS RATIO GROSS MARGIN Operating income before depreciation expressed as a percentage of operating revenue. Attributable to Government of Botswana 118,953 58,327 OPERATING MARGIN Operating income after depreciation expressed as a percentage of operating revenue. NET MARGIN (PROFIT MARGIN) Net income after financing costs expressed as a percentage of operating revenue. Earnings per notional ordinary share: INTEREST COVERAGE RATE Operating income after depreciation plus investment income divided by financing costs. Basic (thebe): 6 565.5 277.3 DIVIDEND COVER Net income attributable per ordinary share divided by ordinary dividend per share. RETURN ON CAPITAL EMPLOYED Operating income after depreciation plus investment income adjusted for financing cost Diluted (thebe): 6 52.0 25.5 on short term portions of loans and overdrafts expressed as a percentage of average capital employed. Dividend per notional share 141.4 69.3 RETURN ON SHAREHOLDER’S EQUITY Net income attributable to ordinary shareholders divided by average total assets.

botswana telecommunications corporation A nnual financial statements corporation telecommunications botswana SELF-FINANCING RATIO Cash available from operating activities (available for investments) divided by capital expenditure funded by BTC. GEARING RATIO (DEBT / EQUITY) Interest-bearing liabilities / debt divided by adjusted shareholder’s equity. Balances on Development Grants are excluded. SOLIDITY RATIO (EQUITY / ASSET) Shareholder’s equity expressed as a percentage of total assets CURRENT RATIO Current assets divided by current liabilities. LIQUIDITY RATIO Trade and other receivables and cash balances divided by current liabilities CAPITALISATION RATIO Debt divided by debt plus equity. FREE CASHFLOW RATIO Profit after tax plus interest plus interest plus depreciation, less capital expenditure, less increase in net working capital. BOTSWANA TELECOMMUNICATIONS CORPORATION Megaleng Khama Crescent Plot 50350 P O Box 700 Gaborone, Botswana www.btc.bw