CHAIRMAN’S REPORT

Larry Nestadt

Blue Label Telecoms continues to be well-positioned to exploit the growth in the use of mobile phones in the developing world.

DEAR STAKEHOLDERS

I am pleased to report on the performance of Blue Label Telecoms Limited for the year ended 31 May 2009.

Despite operating in a very difficult global economic environment for much of the financial year, the group's product and service offerings showed resilience to these adverse conditions, which is reflected in the strong growth that was achieved.

Revenue of R15,2 billion (representing a growth of 18%), increased margins and cash flow generation resulted in core net profit of R427 million (representing a growth of 15%). Core earnings per share increased from 48,40 cents to 55,93 cents. Headline earnings increased by 19%. Net cash flow generated of R429 million resulted in accumulated cash-onhand at year-end of R1,7 billion. This is a strong foundation for the servicing of working capital requirements and investment opportunities in the year ahead.

Further details of the company's financial performance is to be found in the chief financial officer's report on page 86.

A special report in The Economist magazine recently noted that in the year 2000 developing countries accounted for one quarter of the world's 700 million mobile phones users. By the beginning of 2009 developing countries had grown this share to three-quarters of the total, which by then had risen to over four billion phones. The Economist further reports that with developed markets now saturated the developing world will account for most of the growth in mobile penetration in the coming years and predicts the number of mobile phones to reach six billion by 2013.

The company aims to deliver prepaid products and services to the unbanked and badly banked. Accordingly, it remains focused on growing its points-of-presence (touch-points) and expanding its product offerings.

Blue Label Telecoms continues to be wellpositioned to exploit the growth in the use of mobile phones in the developing world.

In furtherance of the objectives set out in the collaboration agreement between Blue Label Telecoms and Microsoft, we were pleased to announce the development and launch of mibli^TMpowered by Microsoft OneApp^TM. The Microsoft application was launched in South Africa as a global first and is in the process of being used as the forerunner for Microsoft's international rollout. The group's proprietary services and transactional technology have been integrated into Microsoft OneApp^TM. Microsoft intends to partner with Blue Label Telecoms in the rollout of the initiative in other territories.

Development of in-country money transfer technology has been completed. The company is currently exploring the regulatory and technology requirements to extend this initiative to crossborder money remittances.

During the year the company made a number of strategic acquisitions and investments.

The group also concentrated on consolidating its operations. A concerted effort has been made to achieve group-wide synergies, specifically in terms of new product development, innovation, technology and footprint growth. As a result there have been improvements in efficiency, cost-effectiveness and coordination. This process is likely to continue for some time as the four segments of the group are aligned through more effective consolidation and integration.

Employee share scheme

The Forfeitable Share Plan was introduced in November 2008 and will result in over 400 company employees becoming shareholders. In this regard 5,2 million shares were purchased by the company during the financial year under review and a further 4,5 million were purchased subsequent to the year-end, for allocation to employees in the current financial year.

Further share allocations are discretionary and performance-related.

Transformation and BBBEE

The board continues to embrace South Africa's codes on transformation and BBBEE. Framework policies and guidelines have been developed with the objective of enhancing these credentials across the group companies.

Blue Label Telecoms is in the process of launching a number of group-wide training initiatives aimed at enhancing and developing priority skills among junior and middle management bands.

Corporate citizenship

The Chairman's Fund remains a major contributor to the company's goodwill projects.

The group invested in a Legacy Park, which is focused on providing supervised recreational facilities for young people with a view to developing skills and leadership qualities.

The group remains actively involved in the Nomonde Children's Home and provides funding on a monthly basis.

Other beneficiaries include The Trust, Feed SA and Malamulele Onward, a programme to support caregivers of children with cerebral palsy. The sustainability report contains more detailed information on our corporate social investment initiatives.

Prospects

The group is poised for further growth and is in a position to fund its growth both organically and acquisitively as a result of its cash resources and its ability to distribute additional products and services through its distribution network.

Appreciation

I would like to thank my fellow directors for the contributions they have made over the past year. The board expresses its appreciation to Mark and Brett Levy and their executive team for their entrepreneurial vision, energy and determination. The group also expresses its gratitude to the company's employees for their hard work and achievements.

Sid Ellerine, our friend and colleague passed away in July 2009. Sid made an invaluable contribution to the development of the group. He was respected by all who knew him and will be sorely missed.

Larry Nestadt
Chairman