annual report 2005 - sharedata · chairman’s report 6 – 8 chief executive officer’s report 9...

ANNUAL REPORT 2005

Contents

Vision 1

Operational Philosophy 1

Ethos 2

Group Statistics 3

Directorate 4 – 5

Chairman’s Report 6 – 8

Chief Executive Officer’s Report 9 – 12

Corporate Governance 13 – 20

Annual Financial Statements 21

Report of the Independent Auditors 22

Directors’ Report 23 – 27

Income Statements 28

Balance Sheets 29

Statements of Changes in Equity 30

Cash Flow Statements 31

Notes to the Cash Flow Statements 32

Notes to the Financial Statements 33 – 62

Subsidiary Companies 63

Joint Ventures 64

Segmental Reports 65 – 66

Directors’ Remuneration 67

Directors’ Share Options 68 – 69

Notice of Annual General Meeting 70 – 71

Annual General Meeting – Explanatory Notes 72 – 75

Administration 76

Shareholders’ Diary 76

Form of Proxy Inserted

Shareholders’ Update Form Inserted

Contact Details Inside Back cover

Spescom Vision

To see all leading organisations worldwide utilising Spescom’s products and solutions

to manage information and connect to the networked knowledge economy.

Operational Philosophy

In pursuit of our vision, Spescom promotes a culture that focuses on a five-point operational strategy:

1. COMMITMENT TO QUALITY – As an ISO 9001 company, Spescom’s commitment to quality is effected by

developing and maintaining close relationships with all stakeholders, thereby enabling us to understand and

cater for their requirements in an innovative and cost-effective manner.

2. COMPETE THROUGH INNOVATION – We are committed to sustained innovation through continued research

and development in our selected markets. Speed in bringing product to market is our priority. We encourage

our people to be innovative, not only technologically but in all aspects of business.

3. COMPETITIVE ADVANTAGE – Our objective is to dominate the markets in which we operate by formulating a

comprehensive competitive strategy that takes cognisance of the characteristics of the market as well as

knowledge of competitors.

4. GLOBALISATION – We strive to globalise our business in terms of allocation of resources and market

penetration. We will continue to identify and establish markets offshore.

5. SHORTER LEAD TIMES – We are committed to sustained programmes that lead to cost reduction and

productivity improvement in all areas of operation. Our objective is to shorten cycle times in all we do.

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Ethos

Ethos: Spirit or values of a community

THE SPESCOM ENVIRONMENT

Business is conducted in an atmosphere of professional entrepreneurship. Spescom’s perspective is global, thus

constant change is inevitable as we strive to be innovative in a highly competitive market. Successful growth is

achieved through individuals committing themselves to customer satisfaction and ‘the greater good of the

company’. This is to enhance the pervading sense of purpose – of building for the future.

Spescom has a long-term view of business

SPESCOM IN BUSINESS

To be proactive and achieve innovation, one must be passionate about business. However, the aggressive business

attitude is always influenced by the deep respect for human dignity and ethics so essential in negotiation. At

Spescom, we believe in the notion of ‘a deal is a deal’. It is expected that all who interact with Spescom mirror this

strong sense of business ethics that characterises operations. This sense of dignity is harnessed in entrepreneurial

individuals who are businesspeople, who respond to quick-paced action and change effectively, realising the

opportunities and outperforming the competition.

Spescom is passion and competence in business

THE SPESCOM FAMILY

In a dynamic, innovative industry, only a certain type of businessperson flourishes. Spescom is ideally suited to the

assertive self-starter who operates best in a team environment. Competency combines with honesty when one

respects the dignity of others in all transactions. We do not hide bad news from each other. Spescom recognises

and rewards performance, banking on the high level of intellectual capital available and supporting ambitious

business people with clearly defined company and personal goals.

When a group of winners work together, the result is success

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Group Statistics

Africa

International

15,4

84,6

38,2

61,8

2005 2004GEOGRAPHICAL REVENUE STREAMS

Own IP

3rd Party IP

2005 2004

61,4 38,6 53,0 47,0

PROPRIETARY TECHNOLOGY

Enterprise contentmanagement solutions

Communications

Services & other

2005 2004

21,5 59,8

18,7

10,4 71,2

18,4

REVENUE SPLIT

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Directorate

Tony Farah (57) BSc (Eng), MBA, AMP (Harvard)

Chief Executive Officer – Spescom Group

Member of Nomination Committee

Hilton J Isaacman (52) CA (SA)

Executive Director – Corporate Finance

Thomas Makore (40) Bsc Eng (Hons), MBL, Pr Eng, C Eng

Chief Executive Officer – Spescom Telecommunications

Dr James P Myers (65) American

PhD (Maths)

Independent Non-Executive Director and Chairperson

Acting Chairperson of Nomination Committee

Member of Audit Committee

Walter Kansteiner (51) American

Independent Non-Executive Director

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Mutle C Mogase (41) BCom, EDP (New York)

Non-Executive Director

Member of Audit Committee


Colin Rezek (50) BCom, MBA

Alternate Non-Executive Director

Directorate

Lynne Ogilvy (51) BSc (Maths)

Independent Non-Executive Director

Chairperson of Remuneration Committee

Nyeleti Magadze (32) BProc, HDip Tax

Company Secretary

Phillip Vallet (58) BA LLB

Non-Executive Director

Chairperson of Audit Committee

Member of Remuneration Committee

Jené I Palmer (35) BCom, BCompt (Hons), CA (SA)

Chief Financial Officer


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Chairman’s Report

This has been a demanding year in

the South African ICT arena.

Companies specifically involved in

telecommunications have been

frustrated by the lack of movement

in the sector. Deregulation became

a legislative reality on 1 February

2005, but little followed in the way

of true liberalisation of the market.

It would be inappropriate to

minimise the challenges we have

faced this past year. Difficult

decisions had to be made to

ensure Spescom remains well

positioned to capitalise on

opportunities resulting from the full

deregulation of the telecoms

sector. We have been forced to

manage costs in a manner that

guarantees that situation. This

strategy is evidenced by the

manner in which we supported

Spescom Software in its efforts to

obtain the necessary financing to

bolster product marketing. The

result has been a change in the

relationship between Spescom and

Spescom Software that over time

should benefit both companies.

We expect to continue in our

support of their efforts and believe

their future will be secured by

aligning with a powerful market

leader in their specific business

arena. The altered relationship will

allow Spescom’s management

team to devote their energies to

prospects that will more directly

impact value enhancement for

group shareholders and

employees.

Looking at the history of the South

African telecoms industry it is

difficult to predict how the market

will evolve. However, the SNO was

licensed at the end of 2005 and it

is expected that this development

will produce lucid information on

where Telkom will focus its efforts.

The anticipated aggressive start up

budget of the SNO alone should

stimulate the sector and promote

competitive expansion in the

market as a whole.

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Spescom’s strategic direction remainsfocused on value creation for allstakeholders. In this regard we are devoting our energies to maximising ourpotential and growing the business.

Jim Myers

Independent Non-Executive

Chairman

Chairman’s Report

It is predicted that the SNO will

emphasise a more modern,

upgraded network for corporate

business. Our challenge will be to

assure this focus will result in

business opportunities for Spescom.

Internationally, telecoms has also

been in a slump but trends are

indicating that this is changing. We

anticipate the world market will

improve this year, providing an

additional catalyst for local

advancement.

Moreover, the telecoms needs on

the African continent hold great

promise for the company in light of

the unique understanding and

knowledge we can bring to bear

on the technology requirements of

emerging nations. This expertise is

founded on almost 30 years’

experience of doing business in

this region. At considerable

expense, we have maintained our

key resources, without which we

would not be positioned to take

advantage of these opportunities.

GLOBALLY

Last year we experienced a weak

global economy, the effects of

which were clearly visible in the

telecommunications sector which

experienced very poor growth.

However, there are signs of a

recovery underway which will

positively impact on spending.

Africa specifically is recognised as

one of the few remaining

developing markets where

aggressive expansion is predicted

for telecommunications.

Spescom’s strategic direction

remains focused on value creation

for all stakeholders. Our

unwavering commitment to this

objective has underpinned all of

the difficult tactical decisions that

have recently been made.

In this regard we are devoting our

energies to maximising our

potential and growing the

business. This will be achieved by

maintaining strong client

relationships, preserving key

growth skills, expanding our

knowledge base in line with the

evolving sector and diligently

preserving our financial capability.

Our globalisation strategies are

very much on track. Spescom

DataVoice has made substantial

progress in broadening its

international channels to market.

New distributors and value added

resellers have been signed up in

both Europe and the Middle East.

Our assertive marketing campaign

is already yielding results with

orders emanating from these new

business conduits.

On the South African front, the

addition of a performance

management component, in the

shape of the Qnique Insight

product, to Spescom DataVoice’s

current market offerings is an

exciting prospect. It positions both

the call centre operation and the

voice transaction management

division to bring a comprehensive

contact centre and voice recording

solution to the market.

PROSPECTS

The long awaited opening up of the

telecommunications sector is

expected to become a reality in

South Africa. We are seeing clear

indicators that global investors

recognise the potential for value

creation in emerging markets such

as sub-Saharan Africa. It is

acknowledged that the region is

viewed as one of the few remaining

areas capable of yielding strong

growth in the next ten years.

ICT sector valuations have

significantly increased in the last

year with foreign investment being

seen as a boost to expansion,

which should in turn attract

attention from South African

suppliers and operators.

Spescom’s continued focus on

telecoms as one of its core

business activities puts the

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Chairman’s Report

company in a strong position to

take advantage of the dynamics at

play in this market. Through

existing relationships, augmented

by our reputation for service and

quality, we expect to see

opportunities emerge.

The business plans implemented

for our in-house developed

DataVoice technology products are

beginning to show results. The

restructured operation with a

closer association with the

DataFusion division is yielding

results. We are finding that South

African based technology provides

some unique advantages in the

global market. Spescom’s voice

solutions remain one of the most

advanced technology offerings

available, all of which translates

into competitive edge.

As the South African and other

African economies continue to

develop with increasing business

competition and capacity,

DataFusion should see improved

opportunities to offer turnkey

services in the call centre market.

Spescom’s product line and

service continues to be recognised

as best in class.

WORLD CUP FEVER

The positive economic effects of

hosting the world’s biggest

sporting event, after the Olympic

Games, in the shape of the 2010

World Cup, cannot be

underestimated.

It may seem very far away but

preparation and planning for the

right technology to be in place to

assure a successful hosting is

already underway. The media are

currently exposing the

implementation of plans for

upgrades in various sectors

including security, rail and airport

services.

The technology needs on the

broadcast and telecommunications

side will hold great opportunity for

Spescom’s divisions operating in

these areas.

The company is looking forward to

the challenges and business

potential that South Africa’s

hosting of this major event will

afford.

APPRECIATION

I would like to take this opportunity

to thank management, staff and all

stakeholders for their continued

hard work and support.

The Spescom team all join me in

expressing our appreciation of our

customers and their continued

confidence in our products,

services and staff. As with any

company, Spescom’s success

hinges on their ongoing

commitment and loyalty.

Jim Myers

Independent Non-Executive

Chairman

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Chief Executive Officer’s Report

FINANCIAL RESULTS

Spescom achieved a headline

earnings profit of R26,2 million.

This translates into 36,1 cents per

share (cps) for the year in contrast

to 63,5 cps for the comparative

year.

Subsequent to taking into account

the non-trading items and the

decision to write off all offshore

loans owing to the Group,

Spescom reports a loss for the

year of R3,4 million as compared

to a profit of R29,4 million for the

previous year.

However, it is rewarding to note

that the results for the second

six months of the year reflect a

vast improvement on those of

the first half.

During the year under review, the

Group restructured its shareholding

in its US operation, Spescom

Software Inc., facilitating external

financing and permitting the

redeployment of critical resources.

This has resulted in this investment

being equity accounted with effect

1 April 2005 as well as in a

recoupment of R52,6 million prior

year minority losses.

The gearing levels of the Group

remain satisfactory and largely

unchanged. Subsequent to year

end, the Group made further debt

repayments.

A RETROSPECTIVE VIEW OF

THE YEAR

This challenging year has been

characterised by business gaps in

the form of large contracts coming

to an end and not being replaced

swiftly enough by new deals. This,

of course, translates into

undesirable lulls in the revenue

stream. Spescom’s

telecommunications business in

the United Kingdom is one such

example. One large commitment

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Spescom is entering a new cycle in itshistory focused, aggressive, highly ambitiousand intent on unlocking the inherent value ofthe company. Tony Farah

Chief Executive Officer


came to an end and despite

arduous commercial exertions,

replacement with a contract of

similar size and value has proven

to be difficult to date.

The depressed revenues in the first

financial half can be directly

attributed to the unpredictability and

lack of movement in the South

African telecommunications market.

Deregulation remains little more than

an announcement – made earlier in

2005 – with the reality of the

situation being that this proclamation

has had little or no positive impact

on trading conditions in this arena.

Liberalisation is slow to take place,

leaving the telecoms business still

heavily dependent on large deals

and a small customer base.

Uncertainty in this market has also

contributed to delays in the

finalisation of large commitments as

well as the awarding of new

contracts.

However, it is hoped that the

licensing of the second network

operator will lead to movement in

the sector.

The first half of the year also saw

Spescom divesting itself of its Test

and Measurement operation,

which market sector formed the

foundation of the company’s early

days. Despite not being core

business for some time, Spescom

continued with this operation due

to its profitability. However, grey

importing and eroded margins

have latterly led to a steep decline

in profit prompting the decision to

exit this arena.

IMPROVED SECOND HALF

Overall the performance for the

second half of the year was much

improved. Notably, the Group’s

broadcast division, Spescom

Media IT, and contact centre

operation, Spescom DataFusion,

performed exceptionally well. This

included major institutional

corporate network rollout with

voice over IP functionality.

There are even more exciting

prospects for Spescom Media IT

with Avid Technology broadening

the terms of its current sole

distributorship agreement to

encompass exclusive rights to

market Avid’s newly acquired

range of Pinnacle broadcast

products. This development

followed on the heels of Avid’s

acquisition of Pinnacle Systems.

During the period under review,

Spescom DataVoice entered into a

strategic alliance with Key

Performance Technologies (KPT),

extending its range of market

offerings to include Qnique, a

powerful contact centre

performance assessment tool. The

product has been rebranded

DataVoice Qnique Insight and will

include a DataVoice

communications recording

component.

Spescom Telecommunications

successfully concluded strategic

alliances with the global leaders in

the wireless market – Samsung,

Redline and Gilat – a leading

supplier of satellite products. This

leaves Spescom uniquely well

positioned in this arena for the

expected uptake of these

technologies in South Africa.

Overall for the year, the Group’s

expense base has been up due to

investment in greater skills levels

and the acquisition of new people

aimed at driving an aggressive

sales and marketing campaign.

It is pleasing to note that our

customer base of “blue chip”

companies continues to grow and

includes such well known names as

IBM, Telkom, SABC, Old Mutual

and Auto & General, to name a few.

EXPANDING GLOBAL

CHANNELS TO MARKET

Internationally Spescom remains

focused on the globalisation of its

own products and technology.

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In support of these objectives

Spescom increased its global

footprint by breaking into Middle

Eastern markets. The channels to

market set up in that region by

Spescom DataVoice have started

to yield results.

Moreover, the UK office has

successfully focused its energies

on growing and working the

channel to identify specialised

niche applications for the

DataVoice range.

Spescom Software Inc. the

NASDAQ bulletin board

company, has excelled in

establishing the product range

in the content management

space, which is identified as the

future technology wave.

However, during the build-up

phase over the last few years the

brunt of the financial losses have

been fully borne by Spescom –

due to its 51% shareholding. The

returns for the first half of the

year under review exemplify the

situation. Moreover, the ongoing

cost of going to market and

providing the required level of

financial support for a US$

operation from a Rand-based

concern is punitive. This has

necessitated the raising of

expensive short-term funds from

US sources.

The resultant dilution of Spescom’s

interest in this enterprise – bringing

it below 51% – has brought about

the decision not to consolidate the

Group’s investment in Spescom

Software Inc. This can be viewed as

the first step in Spescom’s tactical

plan to find a powerful equity

partner to broaden Spescom

Software’s marketing footprint.

This opens up a possibility of new

structures to bring in the necessary

strategic ownership by leaders in

the market.

The profits arising on the minority

interest, due to the restructuring of this

offshore investment, have positively

affected headline earnings per share.

The Group has taken a conservative

view in writing off loans owed to it

by Spescom Software Inc.

BLACK ECONOMIC

EMPOWERMENT

Spescom continues to prioritise its

BEE programmes.

From an equity perspective the

Group’s BEE standing is high, with

25,4% of Spescom Limited being

owned by Vantage Capital – a

majority black owned venture

capital concern. Moreover, 40% of

Spescom Telecommunications is

held by wholly black owned

Puisano Telecommunications.

The Group is already actively

pursuing plans to upgrade its

empowerment status in all areas

and in this regard has

commissioned a BEE audit in order

to highlight where improvements

can be effected.

PROSPECTS

Business is cyclical in nature. It is

affected by market conditions and

the prevailing economic climate.

Companies go through a well-

defined life-cycle pattern which

includes a peak and trough

scenario.

Earlier this year one of the South

Africa’s major daily newspapers –

Business Report National,

March 7, 2005 – took a

retrospective look at the

Johannesburg Stock Exchange

and examined the listings over the

past ten years.

The first time the stocks page was

published in Business Report,

there were 638 listings. Ten years

later, the number had shrunk by a

staggering 37% to 400.

Only 60 of the companies currently

listed on today’s exchange

survived the decade.

Spescom is cited as one of those

enduring names.

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Spescom is an interesting enterprise

that has prevailed in the face of ups

and downs in the IT industry. It is a

company that boasts many

technological world firsts.

It has always been the company to

watch – this has been shown time

and again since its listing in 1987.

Spescom is entering a new cycle

in its history focused, aggressive,

highly ambitious and intent on

unlocking the inherent value of the

company.

The business targets for the next

two to three years are ambitious.

The Group intends to take a

forceful lead in the core business

areas of the ICT sector. In doing

this Spescom will explore

acquisitions in order to accomplish

its strategic objectives.

Spescom will continue to focus on

content management and is actively

strengthening the application side of

its technology offerings.

The main emphasis will be on

telecommunications and voice.

In the telecommunications sector

opportunities are expected to come

on line in 2006. However, the results

of this may not become apparent

until the 2007 financial year.

Voice is recognised as a key

technology driver in 21st century

business. Spescom is a leader in

this field, as evidenced by the

global achievements already on

record, including the world’s first

speaker verification technology and

other applied applications in this

field. The company’s

understanding of this market

sector is formidable.

Business is increasingly conducted

on the move, with the demands on

customer service levels growing

exponentially. Contact centres,

voice recording, speaker

recognition and performance

management assessment – for

both customer service and legal

requirements – denote voice as a

major technology mover.

The contact centre business

continues to grow with the world

trend towards offshoring holding

great potential. Market research

houses have indicated that India’s

grip on this market is decreasing,

which in turn will provide

opportunity for South Africa.

The reality of the convergence and

synergy of contact centre and

voice technologies is unassailable.

Spescom is exceptionally placed

to benefit from these trends.

Spescom Media IT is well

positioned to take advantage of

the opportunities that will emanate

from the awarding of the soccer

World Cup in 2010.

In any country the business

landscape changes all the time.

One of the most important

changes in the history of South

African business is imminent –

namely the opening up of the

telecommunications arena through

the introduction of competition.

Telecoms is acknowledged as a

growth enabler in all sectors of any

economy.

From Spescom’s perspective, the

company is well placed, with its

product and service profile and

strategic planning, to capitalise on

the opportunities expected to

emanate from the expected new

phase of the SA business

environment.

Tony Farah

Chief Executive Officer

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Corporate Governance

Corporate governance may be

defined as the guardianship of a

company’s standards of integrity

and dedication to the interests of

all stakeholders, including investors,

customers and staff.

It is an intricate and diverse subject

composed of an anthology of

ideologies. Moreover, good

governance is far more complex

than the mere confines of statutory

compliance. It should encompass

active concern for a company’s

strategy and how it is implemented.

Global market research indicates

that companies reflecting

transparency of dealings,

augmented by good governance

practices, show a stronger

investment profile. Therefore, it can

be said that success in the

modern business environment is

inextricably linked to the

implementation of sound

governance procedures.

Spescom’s approach to corporate

governance is founded on six

fundamental principles, namely:

accountability, transparency,

responsibility, independence, fairness

and corporate social development.

These principles serve to boost

Spescom’s existing strong set of

values and business ethics, as

detailed in the company ethos.

The Spescom Group is committed

to adhering to the doctrines of

good governance as detailed in the

King Report on Corporate

Governance for South Africa

2002 (hereafter referred to as “the

King Report”).

The Spescom Board continually

strives to adhere to these values

and applies them in decision

making processes as well as all

aspects of its business dealings.

The Board of Directors is satisfied

that the correct systems are in

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“Organisations endure, however, in proportionto the breadth of the morality by which theyare governed. Thus the endurance of anorganisation depends upon the quality ofleadership; and that quality derives from thebreadth of the morality upon which it rests.”Chester Irving Barnard (1886 – 1961)

American business executive, public administrator and sociological theorist

Nyeleti MagadzeCompany Secretary


place to practise and improve the

principles of good corporate

governance within the Group.

BOARD OF DIRECTORS

The Spescom Board Charter

defines the parameters of

interaction for the Board. It is a

comprehensive policy document

the contents of which clearly define

the Board ethos, its constitution,

the roles of the Chairman, CEO,

and the appointment of directors.

The Charter also details the

responsibilities of the Audit

Committee.

The establishment of a charter is a

King Report requirement as well as

a recommendation of the JSE. The

full Charter may be viewed on the

Spescom website by clicking on

the appropriate link.

The Board structure and

composition has been devised in

accordance with the dictates of the

King Report and JSE Listings

Requirements and predominantly

consists of non-executive

directors. The composition

guarantees a balance of power

and circumvents dominance, by

any individual, in decision making

processes.

Non-executive directors are

selected for the broad base of

knowledge and experience that

they bring to the Board.

As reported in the previous financial

year, and in accordance with the

JSE Listings Requirements and the

King Report recommendations, the

roles of CEO and Chairman have

been divided.

Non-executive directors:

• Mr M Mogase

• Mr P Vallet

• Mr C Rezek (alternate non-

executive director to

Mr M Mogase)

Independent non-executive

directors:

• Ms L Ogilvy

• Mr W Kansteiner

• Dr J Myers

During the period under review, the

Remuneration Committee adopted

a decision to institute service

contracts for executive directors.

At the expense of the company,

directors may also seek counsel

from independent professionals,

when required. The Company

Secretary acts in an advisory

capacity to the Board.

Board members are compelled to

declare their interests in material

contracts regarding the Group.

This serves to negate conflicts of

interests. These include

shareholdings in Spescom and

other directorships. Where

necessary, it is mandatory for

Board members to excuse

themselves from involvement in

discussions or decisions that could

be influenced by vested interests.

The table on page 15 details

Board meeting attendance by

Spescom directors, for the period

under review, noting both

resignations of previous, and

appointment of new members.

Directors are subject to retirement

by rotation and re-election by

shareholders at least once every

three years in accordance with

Article 13.1 of Spescom’s Articles

of Association.

Appointment of Directors

During the period under review, the

Board resolved to reinstate a

dedicated nomination committee

tasked with the selection of

appropriately skilled and

experienced Board members. The

purpose of the Nomination

Committee is to evaluate the

structure and composition of the

Board and appoint members in

accordance with company

requirements, current trends and

business climate. The Committee

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Board Meetings

1 October 2004 – 30 September 2005

During the past financial year, the Board has met on six occasions. Attendance of directors at Board meetings for

the period under review was as follows:

08/10/04 12/11/04 11/03/05 24/05/05 12/08/05 20/09/05

Special Special

Directors’ Directors’ Directors’ Directors’ Directors’ Directors’

Meeting Meeting Meeting Meeting Meeting Meeting

Executive Directors

A Farah P2 P P P P P

H Isaacman P2 P P P P P

C Mostert P2 A A1 A1 A1 A1

J Palmer P2 P A P P P

Non-Executive Directors

J Myers (Chairman) P P P P P P

W Kansteiner A P P2 P P2 A

M Mogase A P P P A P

C Rezek (Alt) P P P A P P

L Ogilvy P2 P P P P P2

P Vallet P2 P P P P P

1 C Mostert resigned from the Board on 1 March 20052 Attended by teleconference

A = Absent

P = Present

R = Recused


serves to ensure that the presence

of a self-perpetuating board is

avoided. The Committee is made

up of executive and non-executive

directors to ensure a balance of

technical and financial expertise.

Members of the Nomination

Committee:

• Mr A Farah

• Ms J Palmer

• Dr J Myers

• Mr M Mogase

During the past financial year, the

Nomination Committee has met

once to review the composition of

the Board.

Members 28/09/2005

J Myers (Chairperson) P

M Mogase P

J Palmer P

A Farah P

P = Present

REMUNERATION COMMITTEE

Remuneration

Philosophy/Policies

Remuneration polices are devised

in accordance with trends and the

prevailing business climate. They

are designed to attract and retain

highly skilled and experienced

individuals from the ICT industry

for appointment to all levels within

the Group.

The main function of the

Remuneration Committee is to

formulate policies that concur with

the Group’s strategic aims. The

Committee devises appropriate

salaries and benefits for senior

management and executives, in

accordance with industry standards

and shareholder interests.

The Committee is chaired by

independent non-executive director,

Ms L Ogilvy and is wholly made up

of non-executive directors.

Remuneration Committee

Meetings

1 October 2004 – 30 September

2005

The Remuneration Committee

convened on two occasions during

the period under review and

attendance was as follows:

12/11 12/08

Members 2004 2005

L Ogilvy

(Chairperson) P P

P Vallet P P

P = Present

Spescom Group CEO, Mr A Farah

and the Group Human Resources

Manager, Mrs C Lamprecht attend

committee meetings by invitation

only. Mr Farah does not partake in

resolutions regarding his

remuneration package.

The Committee safeguards the

interests of stakeholders by

collaborating with the Spescom

Share Trust to match the share

incentive scheme with the JSE

Listings Requirements, the King

Report and current developments.

At the Annual General Meeting on

April 1, 2005, shareholders approved

an amendment to the share incentive

scheme whereby share options are

considered part of the remuneration

package for directors and

employees. The allocation of share

options to staff is discussed and

approved by the Board and Trustees

of the share incentive scheme. The

Trustees are independent individuals

who are not directors or beneficiaries

of the scheme.

The Committee has defined and

agreed its terms of reference,

which are regularly re-evaluated

and adjusted when necessary, and

then referred to the Board for

approval. Directors’ emoluments

are referred to in detail on page 67.

The Chairperson of the Remuneration

Committee attends the Annual

General Meeting and responds to

queries from shareholders.

AUDIT COMMITTEE

During the period under review,

Spescom’s Audit Committee was

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made up of the following

members:

• Mr P Vallet – Chairperson and

non-executive director

• Mr I Friedland – independent

chartered accountant

• Mr M Mogase – non-executive

director

• Dr J Myers – independent non-

executive director

Mr Friedland, in his capacity as an

independent chartered accountant,

brings valuable knowledge to the

Committee.

The Audit Committee fulfils the

JSE Listings Requirements and

recommendations of the King Report.

The Committee has formal terms

of reference which are frequently

reassessed and approved by the

Board of Directors. This ensures

compliance with changes in

accounting standards, as well as

proposed changes in the

accounting sector.

The Audit Committee thoroughly

observes the use of the external

auditors for non-audit services.

The external auditors, Ernst &

Young, have unrestricted access to

the Audit Committee and attend

meetings by invitation. Spescom is

currently finalising co-sourcing of

the internal audit function.

Ms J Palmer, Chief Financial Officer

of the Group, also attends

meetings by invitation.

In accordance with Section 242 of

the Companies Act of 1973 (as

amended), the minutes of the

meeting are transcribed by the

Company Secretary, Ms N Magadze,

who is present by invitation.

The Chairperson of the Committee

attends the Annual General Meeting to

respond to queries from shareholders.

The Committee convened on three

occasions during the financial year

ending 30 September 2005.

The internal audit function

formed one of the points of

discussion, as well as

examination and approval of year

end and interim results,

contingent liabilities, risk

management and the impact of

the new International Financial

Reporting Standards (IFRS).

Audit Committee Meetings

1 October 2004 – 30 September

2005

Attendance of members at

meetings for the period under

review was as follows:

09/11 09/05 27/07

Members 2004 2005 2005

P Vallet

(Chairperson) P P P

I Friedland P A P

J Myers P P P

M Mogase P P P

P = Present

A = Absent

RISK MANAGEMENT

The Board of Directors is tasked

with the evaluation and

management of all aspects of risk,

whether financial or otherwise. The

Audit Committee, on behalf of the

Board, is tasked with the continual

assessment of all issues relating to

risk evaluation and management.

Moreover, the Board has assigned

senior executives with the

responsibility of formulating detailed

risk detection and management

plans, as well as scrutiny of internal

financial and operating controls and

the authentication and preservation

of assets.

FINANCIAL REPORTING

CONTROLS

The Board of Directors is

responsible for scrutinising the

accounting practices applied in the

preparation of the financial

statements, as well as the integrity

of the information contained in this

Annual Report.

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The independent auditors endorse

the accuracy of the financial

statements and certify that they

properly reflect the financial

position, results of operations,

cash flow and changes in

Spescom equity.

Financial statements have been

drawn up in concurrence with

South African Statements of

Generally Accepted Accounting

Practices and include feasible and

sensible accounting

approximations and judgements,

except where otherwise stated.

THE ROLE OF THE COMPANY

SECRETARY

Ms N Magadze, the Spescom

Group Company Secretary, was

appointed by the Board on

11 March 2005. Ms Magadze is a

qualified and admitted attorney.

The Company Secretary is tasked

with offering counsel and assistance

to the Board, individually or

collectively, on all matters relating to

their responsibilities and powers.

The Company Secretary is also

responsible for providing training to

new directors regarding the Group’s

core business activities, ethics and

corporate governance policies.

Furthermore, the Company

Secretary assists in the recognition

and management of risk, provides

the foundation for ongoing legislative

compliance and is required to report

failures in this regard to stakeholders

and the Board.

Ms Magadze fulfils the functions

set out in Section 268G of the

Companies Act of 1973 (as

amended) and records the minutes

of shareholder meetings, directors’

meetings and Audit Committee

meetings in accordance with

Section 242 of the Companies Act

of 1973 (as amended).

INFORMING STAKEHOLDERS

Corporate communications

procedures and disclosure policies

are in place to ensure transparent

communication with the media,

institutional investors, stakeholders

and staff.

Continuous updates are conveyed to

institutional, domestic and

international shareholders, fund and

asset managers and financial analysts

through investor road shows,

presentations and one on one liaison.

Annual General Meetings

provide shareholders with a

platform for participation in

significant and proactive

discussion and debate with the

Board. Accordingly, shareholders

are encouraged to attend.

The Spescom Group operates

closed periods as set out in the

JSE Listings Requirements. These

closed periods are communicated

to directors, officers, members of

the Spescom Limited Share Trust

and employees, via email, intranet

and corporate policy documents

available in hard copy. During

closed periods, directors, officers,

participants in the share incentive

scheme and staff may not trade in

Spescom securities. Further closed

periods are imposed, when

necessary, in terms of corporate

activities.

A written policy is also in place that

regulates securities dealings by

Spescom’s directors and other

officers. The policy is in line with

the JSE Listings Requirements and

forms part of the Group’s ISO9001

quality system.

DEMATERIALISATION OF

SHARES

Shareholders must convert all share

certificates into an electronic record

before they may be traded and

settled on the JSE. This is achieved

via STRATE, the electronic

settlement system for securities on

the JSE (dematerialisation).

Shareholders who do not have a

Central Securities Depository

Participant (CSDP) or broker may

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contact STRATE Share Care Line

on 0800 202 363 or contact

Computershare Investor Services

2004 (Pty) Limited on

011 370 5000 for assistance.

SPESCOM’S TRIPLE BOTTOM

LINE APPROACH

PEOPLE PLANET PROFIT

The Spescom Group adheres to a

triple bottom line philosophy that

continuously assesses the effects

of its activities on people, the

environment and financial gain.

The three Ps are systems within

themselves and cannot be

evaluated or changed in isolation.

Spescom’s Greatest Asset

– Its People

The Group is committed to

providing a fair and balanced

working environment for all levels

of staff.

Spescom is an equal

opportunities employer and is

steadfast in its recruitment,

training, and development of

employees regardless of race,

creed, or sex.

The Employment Equity

Committee, in co-operation with

the Board, surveys affirmative

action legislative requirements and

trends in this arena.

Employment Equity

Spescom is committed to its

Employment Equity programmes

aimed at satisfying requirements of

the Employment Equity Act and

the Broad Based Black Economic

Empowerment Act. This is evident

in the implementation of

comprehensive employment

initiatives that are continually

evaluated to ensure compliance

with legislative criteria and

relevance to employees.

These policies outline the

Group’s aims in the equity arena

and detail strategies to support

and motivate the development

and career advancement of all

staff members, particularly those

from historically disadvantaged

groups.

Employment equity and

transformation policies are

reviewed and executed by

Spescom’s Employment Equity

and Black Economic Forum in

conjunction with a dedicated

manager in this arena.

Skills Development

Spescom’s employment policies

tackle issues such as skills

shortages and past inequalities.

They include a separate budget

over and above operating costs for

skills development.

The policies exist to ensure staff

members are educated,

encouraged and developed with a

view to personal empowerment,

realising career potential and

capitalising on opportunities.

Training needs are evaluated

annually as part of an internal skills

development programme.

Spescom complies fully with the

Skills Development Act (as

amended) and the Skills

Development Levies Act.

Health Policies

The Spescom Group meets the

terms of South Africa’s

Occupational Health and Safety

Act of 1993, as amended.

The Group is committed to the

support and maintenance of good

health for all staff members.

An HIV/AIDS management policy

exists to ensure that the rights and

dignity of employees are safeguarded.

The policy encompasses Spescom’s

responsibilities in this arena and

details interaction guidelines for staff

diagnosed with life threatening

diseases.

Black Economic Empowerment

The road to true transformation lies

in empowerment and enablement.

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Spescom’s BEE philosophy is built

on four main pillars that support

these themes, namely:

shareholding, employment equity,

procurement and social

responsibility.

Shareholding with

Representation

Spescom’s commitment to BEE

endeavours in the ICT industry is

evidenced by the fact that

historically disadvantaged

individuals own 31,42% of the

Group.

Employment Equity

Policies exist to guide the

selection, development and

retention of all staff.

Procurement

Constantly evolving policies exist

that aid Spescom in achieving its

aims in the areas of affirmative

procurement and retention of high

quality black professionals. These

policies also focus on the use of

BEE subcontractors.

Social Responsibility

Spescom is dedicated to

community development and

upliftment. The Leseding

Electronics Investment Trust is an

equity sharing programme that

sees historically disadvantaged

employees owning 90% of the

trust with Spescom holding the

remaining 10%.

Spescom’s commitment to BEE is

further evidenced by the fact that

the company has commissioned a

BEE audit in order to highlight

areas where improvements can be

implemented.

STRATE Charity Shares Initiative

This initiative seeks to allocate the

proceeds from donated cash and

shares to various charitable

organisations.

Shareholders wishing to contribute

to the scheme can contact

STRATE Charity Shares Toll Free

on 0800 202 363 (+27 11 870 8207

if outside SA) or on

[email protected]

SOCIAL AND ENVIRONMENTAL

RESPONSIBILITY

Spescom’s commitment to the

community and the larger

environment is clear in its definitive

and sustained education initiatives.

Through education Spescom

endeavours to uplift and develop

the community with a view to

utilising technology as the enabler.

The Group is engaged in various

science, technology and

management programmes that

focus on enhancing the national

skills base and addressing the IT

skills shortage.

These initiatives include a

programme at the University of the

Witwatersrand Graduate School of

Business and scholarship

sponsorship for second year

Computer Science students from

previously disadvantaged

communities.

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Annual Financial Statements

Report of the Independent Auditors 22

Directors’ Report 23 – 27

Income Statements 28

Balance Sheets 29

Statements of Changes in Equity 30

Cash Flow Statements 31

Notes to the Cash Flow Statements 32

Notes to the Financial Statements 33 – 62

Subsidiary Companies 63

Joint Ventures 64

Segmental Reports 65 – 66

Directors’ Remuneration 67

Directors’ Share Options 68 – 69

Jené Palmer

Chief Financial Officer

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Report of the Independent Auditors

TO THE MEMBERS OF SPESCOM LIMITED

We have audited the annual financial statements and Group annual financial statements of Spescom Limited set out

on pages 23 to 69 for the year ended 30 September 2005. These financial statements are the responsibility of the

company’s directors. Our responsibility is to express an opinion on these financial statements based on our audit.

SCOPE

We conducted our audit in accordance with statements of South African Auditing Standards. Those standards

require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of

material misstatement. An audit includes:

• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements

• assessing the accounting principles used and significant estimates made by management

• evaluating the overall financial statement presentation

We believe that our audit provides a reasonable basis for our opinion.

AUDIT OPINION

In our opinion, the financial statements fairly present, in all material respects, the financial position of the company

and the Group at 30 September 2005 and the results of their operations, cash flows and changes in equity for the

year then ended in accordance with South African Statements of Generally Accepted Accounting Practice, and in

the manner required by the Companies Act in South Africa.

ERNST & YOUNG

Chartered Accountants (S.A.)

Johannesburg

27 January 2006

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Directors’ Reportfor the year ended 30 September 2005

Your directors have pleasure in submitting their report together with the annual financial statements of SpescomLimited (“Spescom” or “the company”) and of the Spescom Group for the year ended 30 September 2005.

NATURE OF BUSINESS

Spescom, a Proudly South African group of companies, is a multi-national technology innovator with directoperations in the United States, United Kingdom and South Africa. The Group is publicly listed on the JSE Limited(Spescom Limited) and Spescom Software Inc., an associate company is listed on the NASDAQ OTCBB:SPCO.OB.

Spescom is an information and communications technology group focused on various aspects of enterprise contentmanagement. The Group provides products and solutions to connect to the networked economy, as well asenterprise software to manage information and knowledge. Spescom successfully competes in a crowded globalICT (Information and Communication Technology) marketplace due to its innovative and entrepreneurial businessapproach, coupled with its leading proprietary technology and products.

Spescom markets its products worldwide through appointed partners and distributors under the eB brand for itsenterprise software, and the DataVoice brand for its multimedia transaction recording solutions. The Group’s globalcustomer base consists of multi-national organisations including leading enterprises in utilities, telecommunications,transportation, financial, banking and insurance.

OVERVIEW OF RESULTSSpescom reflects a headline earnings profit of R26,2 million which translates into 36,1 cents per share for the yearas compared to 63,5 cents per share for the comparative year.

After taking into account the non-trading items and the write off of all offshore loans owing to the Group, Spescomreports a loss for the year of R3,4 million as compared to a profit of R29,4 million for the previous year.

It is rewarding to note, however, that the operating results for the second six months of the year reflect a vastimprovement on those of the first half.

During the year under review, the Group restructured its shareholding in its US operation, Spescom Software Inc.,facilitating external financing and permitting the redeployment of critical resources. This opens up a possibility ofnew structures to bring in the necessary strategic ownership by leaders in the market. This restructuring hasresulted in this investment now being accounted for as an associate company and being equity accounted witheffect 1 April 2005. The effect of this change in holding from a subsidiary to an associate company resulted in achange in holding of profit of R52,6 million.

Spescom’s reduced turnover can be mainly attributed to:

– equity accounting instead of consolidating the US operation– completion of major international telecommunications contracts with British Telecoms (BT) and delays in the

awarding of replacement business– discontinuation of non-core test and measurement activities– continued delays in the full deregulation of the telecommunications sector in South Africa

The gearing levels of the Group remain satisfactory and largely unchanged. Subsequent to year end, the Group hasmade further debt repayments.

Spescom is entering a new cycle in its history. The Group intends to take a forceful lead in core business areas ofthe ICT sector. This includes considering all the opportunities for growth, such as exploring acquisitions, in order toaccomplish its strategic objectives.

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Spescom will continue to focus on content management and is actively strengthening the application side of itstechnology offerings. The main emphasis will be on telecommunications and voice.

Internationally, Spescom remains focused on the globalisation of its own products and technology. In support ofthese objectives Spescom increased its global footprint by breaking into Middle Eastern markets.

The telecommunications industry continues to be characterised by delays and uncertainties. However, it isanticipated that the landscape will change significantly over the next year revealing above average growth, for whichthe Group is well positioned. The ongoing momentum of this transformation is expected to be realised in the 2007financial year.

The contact centre business continues to grow with the world trend towards offshoring, holding great potential asIndia’s grip on this market lessens, providing opportunities for South Africa.

The reality of convergence and synergy of contact centre and voice technologies is unassailable. Spescom is wellplaced to take advantage of these trends.

FINANCIAL RESULTS

The financial results of the company and the Group are fully disclosed on pages 28 to 69.

DIVIDENDS

Due to Spescom’s position in the dynamic ICT arena, and taking into consideration trends for similar companies inthis rapidly changing sector, the directors have resolved not to declare a dividend for the financial year under review.This will provide additional funds to position Spescom to take advantage of local acquisition opportunities, marketchanges as well as to finance globalisation plans.

SUBSIDIARIES

During the year under review, the Group’s US operation successfully raised US$2,2 million in cash by way of aprivate placement of convertible preference shares. The issuance of these shares diluted the Group’s interest inSpescom Software Inc. from 51% to 42,6% and consequently required that the Group’s investment in SpescomSoftware Inc. no longer be accounted for as a subsidiary. As the Group still has significant influence over thisoperation, Spescom Software Inc. with effect 1 April 2005 is being treated as an associate company and has beenequity accounted from that date.

Details of the company’s interest in its subsidiaries, including the aggregate profits and losses of these subsidiaries,are set out on page 63.

DIRECTORS AND SECRETARY

Mrs N Magadze succeeded Mr AG Johnston as company secretary on 11 March 2005. Mr AG Johnston resignedfrom the company and as company secretary with effect 15 February 2005. Mrs N Magadze’s business and postaladdresses appear on page 76 of this annual report.

The directors of the company during the period under review and up to the date of this annual report are set out onpages 4 and 5 respectively.

The following changes were made to the composition of the board of directors.

Executive appointmentsT Makore 21 October 2005

ResignationsC Mostert 1 March 2005H Isaacman 21 October 2005

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In line with the recommendations of King II, the Spescom Board is currently constituted by more non-executive

directors than executive directors and the roles of Chairperson and Chief Executive Officer continue to be separated.

Details of the directors’ emoluments and benefits as well as their participation in the Group’s share option schemes

are detailed on pages 67 to 69.

SHARE CAPITAL

Details of the company’s authorised and issued share capital appear in note 18 to the financial statements.

• Directors’ interest in shares

The beneficial interest of directors, directly and indirectly, in the share capital of the company at 30 September

2005 was:

DIRECT INDIRECT

Director Beneficial Non-beneficial Beneficial Non-beneficial Total

Number Number Number Number Number

A Farah 3 678 944 – 608 893 24 891 4 312 728

H Isaacman 521 674 – – 439 000 960 674

J Myers – – – – –

L Ogilvy – – – – –

J Palmer – – – – –

P Vallet – – – – –

M Mogase – – – – –

C Rezek – – – – –

W Kansteiner – – – – –

Total 4 200 618 – 608 893 463 891 5 273 402

The beneficial interest of directors, directly and indirectly, in the share capital of the company at 30 September

2004 was:

DIRECT INDIRECT

Director Beneficial Non-beneficial Beneficial Non-beneficial Total

Number Number Number Number Number

A Farah 515 594 – 3 588 870 14 531 4 118 995

H Isaacman 521 674 – – 439 000 960 674

C Mostert (resigned 1 March 2005) 134 122 – – – 134 122

J Myers – – – – –

L Ogilvy – – – – –

J Palmer – – – – –

P Vallet – – – – –

M Mogase – – – – –

C Rezek – – – – –

W Kansteiner – – – – –

Total 1 171 390 – 3 588 870 453 531 5 213 791

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No material changes in their holdings have taken place between balance sheet date and the date of this annual

report.

• Major shareholders

According to the register of shareholders at 30 September 2005, the following are the only shareholders/nominee

holdings, other than directors of the company as disclosed above, who hold in excess of 3% of the shareholding

of the company at that date.

Shareholder Number of shares % of total shareholding

Vantage Capital Fund Managers (Proprietary) Limited 20 000 000 25,4%

The Spescom Limited Share Trust 6 447 516 8,2%

Allan Gray Fund Managers (Proprietary) Limited 4 368 800 5,5%

Farah Anthony Family Trust 2 979 977 3,8%

Credit Suisse Zurich 2 717 712 3,5%

Total 36 514 005 46,4%

No non-public shareholders, other than directors, hold 10% or more of the issued share capital of the company

for the financial year under review (2004 – nil).

• Share analysis

2005 2004

% %

Non-public 40,3 39,5

Public (consisting of 2 561 shareholders (2004 – 2 697)) 59,7 60,5

100,0 100,0

• Shareholder spread

Number of Number of

Shares shareholders % shares %

1 – 1 000 1 066 41,3 425 392 0,5

1 001 – 10 000 1 047 40,6 4 565 906 5,8

10 001 – 100 000 386 14,9 12 634 600 16,1

100 001 – 1 000 000 72 2,8 22 392 424 28,4

1 000 001 and over 9 0,4 38 749 734 49,2

2 580 100,0 78 768 056 100,0

The above information was supplied by the company’s registrars.

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RESOLUTIONS

No special resolutions, the nature of which might be significant to shareholders in their appreciation of the state ofaffairs of the Group, were passed by any subsidiary companies during the period covered by this annual report.

MATERIAL EVENTS SUBSEQUENT TO THE 2005 FINANCIAL YEAR END

During October 2005, the Group’s US-based associate company, Spescom Software Inc., successfully raised US$500 000 through a private placement of shares with Mercator Advisory Group LLC and Monarch Pointe Fund LLC.

Subsequent to year end, the Group made further debt repayments of US$350 000 in respect of its foreign loanfacility as well as a further R1,75 million repayment of its local loan facilities.

The directors are not aware of any other facts or circumstances that took place between financial year end being30 September 2005 and the date of this annual report which would be of importance in assessing the Group’sstate of affairs.

APPROVAL OF ANNUAL FINANCIAL STATEMENTS

The financial statements set out in this annual report have been prepared in accordance with Statements ofGenerally Accepted Accounting Practice in South Africa and are based on appropriate accounting policies, whichare supported by reasonable and prudent judgements and estimates. These have been consistently applied.

The directors are responsible for the preparation of the financial statements and related financial information thatfairly presents the state of affairs and results of the company and Group.

These financial statements have been prepared on the going concern basis. This basis presumes that the assetswill be realised and the liabilities settled in the normal course of business.

The directors have every reason to believe that the company and the Group will be able to continue in operation forthe foreseeable future. Accordingly, no adjustments have been made to the valuation or classification of assets orliabilities, which may have been necessary if the Group had been unable to continue as a going concern.

The annual financial statements set out on pages 28 to 69 were approved by the Board of Directors on 27 January 2006and are signed on its behalf by:

A FARAH J PALMERChief Executive Officer Chief Financial Officer

27 January 2006

COMPANY SECRETARY’S STATEMENTI certify that the company has lodged with the Registrar of Companies all such returns as are required of a publiccompany in terms of section 268G(d) of the Companies' Act and that all such returns are true, correct and up to date.

N MAGADZECompany Secretary

27 January 2006

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Income Statementsfor the year ended 30 September 2005

NOTES GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

Revenue 2 223 466 630 356 517 227 – –

From continuing operations 212 823 776 316 268 227 – –

From discontinued operations 3 10 642 854 40 249 000 – –

Other income 2 9 920 589 13 420 758 5 695 812 7 084 640

Total revenue 233 387 219 369 937 985 5 695 812 7 084 640

Cost of sales 103 467 826 139 124 547 – –



Gross profit 119 998 804 217 392 680 – –



Expenses (143 942 186) (185 940 602) (3 903 612) (1 098 708)

Selling and general (138 018 131) (171 361 155) (3 903 612) (1 098 708)

Direct marketing (5 924 055) (14 579 447) – –

Operating (loss)/profit 4 (17 094 274) 41 730 325 (1 765 223) 3 258 862

From continuing operations (17 234 225) 40 918 999 (1 765 223) 3 258 862

From discontinued operations 3 139 951 811 326 – –

Amortisation of goodwill 5 – (6 485 248) – –

Finance charges 6 (4 727 529) (5 879 600) (5 535 007) (6 773 852)

Investment income 3 071 481 3 142 511 3 557 423 2 727 070

Net (loss)/profit before non-trading items (18 750 322) 32 507 988 (3 742 807) (787 920)

Non-trading items 7 (29 532 842) (1 522 907) (33 599 374) –

Net (loss)/profit before taxation (48 283 164) 30 985 081 (37 342 181) (787 920)

Taxation 8 (2 461 699) (1 682 331) – (2 337 705)

Net (loss)/profit after taxation (50 744 863) 29 302 750 (37 342 181) (3 125 625)

Loss from associate company (6 214 422) – – –

Attributable to minorities 53 513 124 100 264 – –

Net (loss)/profit for the year attributable to

holding company shareholders (3 446 161) 29 403 014 (37 342 181) (3 125 625)

Headline earnings per share (cents) 9 36,1 63,5

(Loss)/earnings per share (cents) 9 (4,8) 49,4

Diluted (loss)/earnings per share (cents) 9 (4,8) 49,4

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Balance Sheetsat 30 September 2005

NOTES GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

ASSETSNon-current assetsTangible assets 10 25 264 931 29 635 230 – –Intangible assets 10 20 689 000 19 897 621 – –Goodwill 11 – 27 063 821 – –Investment in subsidiary companies 12 – – 8 481 024 42 080 400Loans to subsidiary companies 12 – – 70 197 491 78 868 958Investment in associate companies 13 17 017 536 3 100 2 –Available for sale investments and loans 14 18 368 861 17 973 690 25 284 520 24 262 062Deferred taxation 15 12 119 662 11 266 029 – –

93 459 990 105 839 491 103 963 037 145 211 420

Current assets 79 079 786 109 510 682 20 736 516 23 490 906

Inventories 16 13 460 866 9 462 201 – –Taxation prepaid 364 957 559 920 – –Accounts receivable 17 35 526 635 57 186 589 – 193 897Cash resources 29 727 328 42 301 972 20 736 516 23 297 009

Total assets 172 539 776 215 350 173 124 699 553 168 702 326

EQUITY AND LIABILITIESCapital and reserves

Share capital and share premium 18 45 283 298 46 660 812 56 406 860 56 406 860Non-distributable reserves 19 15 033 126 14 965 430 (12 533 513) (12 972 561)Distributable reserves/(accumulated losses) 11 399 696 14 845 857 (38 960 108) (1 617 927)

Ordinary shareholders’ equity 71 716 120 76 472 099 4 913 239 41 816 372Minority interests 20 – 862 073 – –

Interest of all shareholders 71 716 120 77 334 172 4 913 239 41 816 372

Non-current liabilities 12 241 628 39 473 882 92 854 115 124 343 313

Long-term liabilities 21 – 282 427 – –Contract advances and deferred maintenance revenue 25 – 870 750 – –Deferred taxation 15 16 923 – – –Loans from subsidiaries 12 – – 80 629 410 86 022 608Interest bearing liabilities 22 12 224 705 38 320 705 12 224 705 38 320 705

Current liabilities 88 582 028 98 542 119 26 932 199 2 542 641

Interest bearing liabilities 22 26 065 953 1 750 000 26 065 953 1 750 000Credit agreements 21 – 122 550 – –Bank finance 22 1 259 801 889 – –Taxation 3 093 169 991 558 – –Accounts payable 31 639 712 42 198 652 – 6 931Provisions, deferred maintenance revenue and contract advances 25 26 523 393 53 478 470 866 246 785 710

Total equity and liabilities 172 539 776 215 350 173 124 699 553 168 702 326

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Statement of Changes in Equityfor the year ended 30 September 2005

(ACCUMULATED NON–

LOSSES) DISTRI-

DISTRIBUTABLE BUTABLE SHARE SHARE

RESERVES RESERVES CAPITAL PREMIUM TOTAL

R R R R R

GROUP

Balance at 30 September 2003

as previously stated (13 296 178) 14 534 198 491 653 23 455 211 25 184 884

Prior year lease adjustment (1 260 979) – – – (1 260 979)

Opening balance at

30 September 2003 restated (14 557 157) 14 534 198 491 653 23 455 211 23 923 905

Fresh issue of shares – – 201 000 23 938 000 24 139 000

Share issue expenses – – – (1 507 552) (1 507 552)

Issue of shares by the Spescom

Share Trust – – – 82 500 82 500

Foreign currency translation

reserve movement – 791 232 – – 791 232

Reserve transferred to minority

interests – (360 000) – – (360 000)

Net profit for the year 29 403 014 – – – 29 403 014

Balance at 30 September 2004

restated 14 845 857 14 965 430 692 653 45 968 159 76 472 099

Purchase of treasury shares by the

Spescom Share Trust – – (8 264) (1 369 250) (1 377 514)

Foreign currency translation reserve

movement – 67 696 – – 67 696

Net loss for the year (3 446 161) – – – (3 446 161)

Balance at 30 September 2005 11 399 696 15 033 126 684 389 44 598 909 71 716 120

COMPANY

Balance at 30 September 2003 1 507 698 (11 492 383) 586 681 33 188 731 23 790 727

Fresh issue of shares – – 201 000 23 938 000 24 139 000

Share issue expenses – – – (1 507 552) (1 507 552)


reserve movement – (1 480 178) – – (1 480 178)


Balance at 30 September 2004 (1 617 927) (12 972 561) 787 681 55 619 179 41 816 372


reserve movement – 439 048 – – 439 048


Balance at 30 September 2005 (38 960 108) (12 533 513) 787 681 55 619 179 4 913 239

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Cash Flow Statements for the year ended 30 September 2005

NOTES GROUP COMPANY

2005 2004 2005 2004

(Restated) 2004

R R R R

OPERATING ACTIVITIES

Cash generated/(utilised) by operations 1 9 964 308 56 000 397 (1 765 223) 3 258 862Working capital changes 2 (10 592 480) (47 709 081) 267 502 100 121

Cash (utilised)/generated by operating activities (628 172) 8 291 316 (1 497 721) 3 358 983Investment income 3 071 481 3 142 511 3 557 423 2 727 070Finance costs (4 727 529) (5 879 600) (5 535 007) (6 773 852)Taxation paid 3 (1 001 835) (4 075 995) – (2 337 705)

Net cash flow from operating activities (3 286 055) 1 478 232 (3 475 305) (3 025 504)

INVESTING ACTIVITIES

Investment to maintain operations

Replacement of tangible and intangible assets (12 160 212) (12 273 954) – –Proceeds on disposal of tangible and intangible assets 1 928 921 820 761 – –

Investment to expand operationsNet cash applied in:Increase in shareholding in subsidiary – (114 990) – –

Net repaymentsSundry loans and investments (395 174) 1 303 111 – 38 642 879Subsidiary companies 4 955 148 – 2 694 859 458 680

Net cash flow from investing activities (5 671 317) (10 265 072) 2 694 859 39 101 559

FINANCING ACTIVITIES

Net proceeds from fresh issue of shares – 22 713 948 – 22 631 448Purchase of treasury shares (1 377 514) – – –Increase in capital element of finance lease liabilities – (370 429) – –Bank financing and facilities (2 631 565) (67 983 513) (1 780 047) (35 487 242)

Net cash flow from financing activities (4 009 079) (45 639 994) (1 780 047) (12 855 794)

Net change in cash and cash equivalents (12 966 451) (54 426 834) (2 560 493) 23 220 261Effects of foreign exchange 391 807 1 092 202 – –

Cash resourcesAt beginning of the year 42 301 972 95 636 604 23 297 009 76 748

At end of the year 29 727 328 42 301 972 20 736 516 23 297 009

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Notes to the Cash Flow Statementsfor the year ended 30 September 2005

GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

1. CASH GENERATED/(UTILISED)

BY OPERATIONS

Operating (loss)/profit (17 094 274) 41 730 325 (1 765 223) 3 258 862

Adjusted for:

Depreciation and adjustment on

disposal of tangible and intangible assets 13 780 098 14 691 192 – –

Other non-cashflow items 13 278 484 (421 120) – –

9 964 308 56 000 397 (1 765 223) 3 258 862

2. WORKING CAPITAL CHANGES

Inventories (3 998 665) 2 387 024 – –

Accounts receivable 16 886 881 (1 842 053) 193 897 32 233

Accounts payable and provisions (23 480 696) (48 254 052) 73 605 67 888

(10 592 480) (47 709 081) 267 502 100 121

3. TAXATION PAID

Balance at beginning of year (431 638) 300 126 – –

Charged to the income statement (2 461 699) (1 682 331) – (2 337 705)

Adjust movement in deferred tax (836 710) (3 125 428) – –

Balance at end of year 2 728 212 431 638 – –

(1 001 835) (4 075 995) – (2 337 705)

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Notes to the Financial Statementsat 30 September 2005

1. ACCOUNTING POLICIES

The financial statements are prepared on the historical cost basis, except where indicated otherwise, and

incorporate the following principal accounting policies which conform with South African Statements of

Generally Accepted Accounting Practice.

The Group’s measurement currency is South African Rand.

Changes in accounting policy

The accounting policies adopted are consistent with those adopted in the previous financial year, with the

exception of the adoption of AC 140/IFRS 3: Business Combinations, AC 128/IAS 36: Impairment of Assets

and AC 129/IAS 39: Intangible Assets.

The effective date of adopting these statements was for accounting periods beginning after 31 March 2004.

The principal effects of adopting the statements are discussed below.

AC 140 applies to business combinations for which the agreement date is on or after 31 March 2004. The

adoption of AC 140 has impacted on the recognition of restructuring provisions arising upon acquisition. The

Group is now only permitted to recognise an existing liability contained in the acquiree’s financial statements on

acquisition. Previously this type of restructuring provision could be recognised regardless of whether the

acquiree recognised this type of liability or not.

Further, upon acquisition, the Group initially measures the identifiable assets and liabilities acquired at their fair

values as at acquisition date hence causing any minority interest in the acquiree to be stated at the majority

proportion of the net fair values of those items.

Additionally, the adoption of AC 140 and AC 128 has resulted in the Group ceasing annual goodwill

amortisation. Goodwill is now tested for impairment annually at the cash generating unit level (unless an event

occurs during the year which requires goodwill to be tested more frequently) from 1 October 2004. The

transitional provisions of AC 140 required the Group to eliminate the carrying value of the accumulated

amortisation with a corresponding decrease in goodwill. The adoption of this statement resulted in goodwill

amortisation of R6,5 million ceasing.

Moreover, the useful life of intangible assets is now assessed at the individual asset level as having either a finite

or indefinite life. Where an intangible asset has a finite life, it has been amortised over its useful life. Amortisation

periods and methods for intangible assets with finite useful lives are viewed annually or earlier where an indicator

of impairment exists. Intangibles assessed as having indefinite useful lives are not amortised, as there is no

foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group.

However, intangibles with indefinite useful lives are reviewed annually to ensure the carrying value does not

exceed the recoverable amount regardless of whether an indicator of impairment is present.

Basis of consolidation

The Group financial statements incorporate the financial statements of the company, its subsidiaries,

proportionately consolidated joint ventures and equity accounted associates. The results of these entities are

included from effective dates of acquisition and up to the effective date control ceases. Profits and losses

arising on change of control are included in the income statement.

Unrealised income arising from transactions within the Group and inter-company balances and transactions are

eliminated in full in respect of subsidiaries and to the extent of the Group’s holding in joint ventures. Unrealised

losses are also eliminated, but only to the extent that they do not represent an impairment.

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1. ACCOUNTING POLICIES (continued)

Basis of consolidation (continued)

Subsidiaries are defined as those companies in which the Group, either directly or indirectly, has more than one

half of the voting rights, has the right to appoint more than half the board of directors or otherwise has the

power to control the financial and operating activities of the entity.

The financial statements of the subsidiaries are prepared for the same reporting year as the parent company,

using consistent accounting policies.

Significant accounting estimates

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance

sheet date, that have a significant risk of causing material adjustment to the carrying amounts of assets and

liabilities within the next financial year, are discussed below:

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of

the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use

requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and

also to choose a suitable discount rate in order to calculate the present value of those cash flows. Goodwill

impairments cannot be reversed.

Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the

business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and

contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated

impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in

circumstances indicate that the carrying value may be impaired.

At the acquisition date, any goodwill acquired is allocated to each of the Group’s cash-generating units

expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable

amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-

generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part

of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with

the operation disposed of is included in the carrying amount of the operation when determining the gain or loss

on disposal of the operation. Goodwill disposed of in these circumstances is measured on the basis of the

relative values of the operation disposed of and the portion of the cash-generating unit retained.

Joint ventures

Joint ventures are those entities in which the Group and one or more other venturers undertake an economic

activity which is subject to joint control over the financial and operating policy decisions under a contractual

agreement.

Joint ventures are accounted for by means of the proportionate consolidation method whereby the attributable

share of each of the assets, liabilities, income and expenses and cash flows of the jointly controlled entity is

combined on a line by line basis with similar items in the Group’s annual financial statements. A proportionate

share of inter-company items is eliminated.

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Joint ventures (continued)

Any difference between the cost of acquisition and the Group’s share of the fair value of the net identifiable

assets at acquisition date is recognised and treated according to the Group’s accounting policy for goodwill.

Where the joint venture applies accounting policies that are recognised as being materially different to those

adopted by the Group, adjustments are made to the financial statements of the joint venture prior to inclusion in

the Group financial statements.

Associated companies

An associated company is one in which the Group exercises significant influence, but not control, over the

financial and operating policies of that company.

The equity method is used to account for the Group’s share of post-acquisition reserves of such companies.

Under the equity method of accounting the Group’s post-acquisition share of the associate’s profit or loss for

the year is recognised in the income statement. In the balance sheet, the investment in the associate is carried

at cost plus post acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to

an associate is included in the carrying amount of the investment and is not amortised.

After application of the equity method, the Group determines whether it is necessary to recognise any additional

impairment loss with respect to the Group’s net investment in the associate.

Where there has been a change recognised directly in the equity of the associate, the Group recognises its

share of any changes and discloses this, when applicable, in the Statement of Changes in Equity.

If an associate company applies accounting policies that are materially different to those adopted by the Group,

adjustments are made to the financial statements of the associated company prior to equity accounting the

investment.

Foreign currencies

Foreign currency transactions are recorded at the exchange rate ruling on the transaction date. Foreign

monetary currency assets and liabilities are brought to account at the rates of exchange ruling at the financial

year end. Non-monetary assets and liabilities denominated in foreign currencies are translated at the rates of

exchange ruling on the later of acquisition or revaluation dates. Foreign currency gains and losses are included

in operating income.

The Group uses derivative financial instruments such as foreign exchange contracts to hedge its risk associated

with foreign currency fluctuations. It is the Group’s policy not to trade in derivative financial instruments. Details

of the Group’s financial risk management objectives are set out in note 26.

Foreign subsidiaries

The Group has investments in foreign subsidiary companies which are classified as foreign entities. The financial

statements of these subsidiaries are translated for incorporation into the group financial statements on the

following basis:

• Monetary assets and liabilities at the closing rate

• Non-monetary assets and liabilities at the closing rate

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Foreign subsidiaries (continued)

• Income statement items at a weighted average rate for the period

• Exchange differences arising on translation are recognised in the Statement of Changes in Equity as a

foreign currency translation reserve

• Goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and

liabilities of the foreign entity and are translated at the closing rate

• On disposal of part or all of the investment, the proportionate share of the related cumulative gains and

losses previously recognised in the foreign currency translation reserve in the Statement of Changes in

Equity are included in determining the profit or loss on disposal of that investment recognised in the

income statement

Subsidiaries which are classified as foreign operations will have their financial statements translated for

incorporation into the Group financial statements on the following basis:

• Monetary assets and liabilities at the closing rate

• Non-monetary assets and liabilities at the closing rate ruling on the later of the acquisition or revaluation

date

• Income statement items at a weighted average rate for the period

• Exchange differences arising on translation are taken directly to income

Finance charges

Finance charges on suspensive sale agreements are written off over the period of the agreements in relation to

the capital balance outstanding from time to time.

Capitalised finance leases

Leases are classified as finance leases where substantially all the risks and rewards associated with ownership

of an asset are transferred from the lessor to the Group as lessee. All other leases are treated as operating

leases.

Assets acquired in terms of finance leases are capitalised at the lower of fair value and the present value of the

minimum lease payments at inception of the lease and are depreciated at the same rates as property, plant and

equipment.

The capital element of future obligations is included as a liability in the balance sheet. Lease payments are

allocated between lease finance costs and capital repayments using the effective interest method.

Operating leases

Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are

classified as operating leases. Lease payments under an operating lease are recognised in the income

statement on a straight line basis over the lease term.

Contracts in progress

Contracts in progress are valued by recognising revenue and expenses respectively by reference to the stage of

completion of the contract activity at the balance sheet date. The stage of completion is determined based on

the work performed at the balance sheet date.

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Contracts in progress (continued)

Progress payments received in excess of the measured value of work determined on each contract are

included in the composition of contracts in progress. Cost includes direct costs and overheads allocated to the

contract.

Profit is brought to account on the percentage of completion basis. Where a loss is anticipated on any

particular contract, provision is made in full for such loss.

Impairment

The carrying amounts of tangible and intangible assets are reviewed at each balance sheet date to determine

whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated

as the higher of an asset’s or cash-generating unit’s fair value less cost to sell and the value in use and is

determined for an individual asset, unless the asset does not generate cash inflows that are largely independent

from those of other assets or groups of assets. Where the carrying values exceed the estimated recoverable

amount, assets are written down to their recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax

discount rate that reflects current market assessments of the time value of money and the risks specific to the

asset. Impairment losses of continuing operations are recognised in the income statement in those expense

categories consistent with the function of the impaired asset.

A previously recognised impairment is reversed if there has been a change in the estimates used to determine

the recoverable amount, but not, however, to an amount higher than the carrying amount that would have been

determined (net of depreciation) had no impairment loss been recognised in prior years. Such a reversal is

recognised in the income statement unless the asset is carried at its revalued amount, in which case the

reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future

periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its

remaining useful life.

Deferred taxation

Deferred taxation is provided on the liability basis for all temporary differences arising between the tax bases of

assets and liabilities and their carrying amounts on the balance sheet. Current tax rates at balance sheet date

are used to determine the deferred tax balance.

Provision is made for deferred tax on the revaluation of property, plant and equipment and on adjustments on

business acquisitions. The amount of deferred tax provided is based on the expected manner of realisation or

settlement of the carrying amount of assets and liabilities.

Deferred tax for the period is charged to the income statement except to the extent that it relates to a

transaction that is recognised directly in equity, or a business combination that is an acquisition.

The effect on deferred tax of any changes in the tax rates is recognised in the income statement, except to the

extent that it relates to items previously charged or credited directly to equity.

A deferred tax asset relating to deductible temporary differences is recognised to the extent that it is probable

that future taxable profits will be available against which the associated unused tax losses and deductible

temporary differences can be utilised. The carrying amount of deferred tax assets are reviewed at each balance

sheet date and are reduced to the extent that it is no longer probable that the related tax benefit will be

realised.

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Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assetsacquired in a business combination is the fair value as at the date of acquisition. Internally generated intangibleassets, excluding capitalised development costs, are not capitalised and expenditure is charged to the incomestatement in the year in which the cost is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite livesare amortised over the useful economic life and assessed for impairment annually or whenever there is anindication that the intangible asset may be impaired. The amortisation expense on intangible assets with finitelives is recognised in the income statement in the expense category consistent with the function of theintangible asset.

The rate of amortisation applied to technology developments which meet the requirements of intangible assetswith finite lives is 33,3%.

Intangible assets with indefinite lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinitelife is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, thechange in the useful life assessment from indefinite to finite is made on a prospective basis.

Research and development costs

Expenditure on the concept and design of possible new or improved products is written off in the year in whichit is incurred.

Expenditure on the further development or commercialisation of products in respect of which there is probabilityof receiving future economic benefits is recognised as an asset and amortised in the accounting period duringwhich the income is anticipated to be received. Following initial recognition of development expenditure, thecost model is applied requiring an asset to be carried at cost less any accumulated amortisation andaccumulated impairment losses.

Impairment tests are carried out on intangible assets that are not yet available for use annually or morefrequently when an indication of impairment arises during the reporting year.

Property, vehicles and equipment

Property, vehicles and equipment are stated at cost less accumulated depreciation and impairment in value.Land is not depreciated. Depreciation is calculated on a reducing balance basis at rates consideredappropriate to reduce book values to estimated residual values over their useful lives. The properties arerevalued at appropriate intervals, not exceeding five years.

Increases in carrying amounts as a result of revaluations are credited directly to a non-distributable revaluationreserve. Decreases in valuation that offset previous increases of the same asset are charged against therevaluation reserve and all other decreases are charged to the income statement.

The difference between the net proceeds on disposal and the carrying amount of property is charged to theincome statement. Any balance in the revaluation reserve relating to the disposed property is transferred toretained earnings.

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Property, vehicles and equipment (continued)

The actual rates of depreciation applied to the various categories of assets are:

• Motor vehicles 20,0% per annum

• Computer and manufacturing equipment 33,3% per annum

• Buildings 5,0% per annum

• Test equipment 15,0% per annum

• Office equipment, furniture and fittings 10,0% per annum

• Leasehold improvements 10,0% per annum

Assets acquired under finance leases are capitalised and are depreciated in accordance with Group policy.

Financial instruments

Financial instruments, including derivatives, recognised on the balance sheet include cash and cash

equivalents, investments, trade receivables, trade payables, borrowings and forward rate agreements. All

financial instruments are initially measured at cost. The Group enters into derivative financial instruments to

reduce exposure to fluctuations in foreign currency and interest rates. It is the policy of the Group not to trade

in derivative financial instruments for speculative purposes.

Cash and cash equivalents are subsequently measured at fair value and consist of cash on hand and short-

term deposits. Fair value adjustments are recognised in the income statement.

Derivative financial instruments are classified as held for sale and are subsequently measured at fair value.

Gains from forward exchange contracts, options and currency swaps used to hedge potential exchange rate

exposures are offset against losses on the specific transactions being hedged and recognised in the income

statement. Balance sheet amounts are not set off.

Interest differentials under swap arrangements, forward rate agreements and interest rate caps used to manage

interest rate exposure are included in the financing costs for the period.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not

quoted in an active market. Such assets are carried at amortised cost using the effective interest method.

Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as

well as through the amortisation process.

Available for sale financial assets include equity investments and are those non-derivative financial assets that are

designated as available-for-sale or are not classified in any of the preceding categories or as held to maturity

investments. After initial recognition available-for-sale financial assets are measured at fair value with gains and

losses being recognised as a separate component of equity until the investment is derecognised or until the

investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is

included in the income statement.

Financial liabilities, other than derivatives, are amortised at their original debt value less principal payments and

amortisations.

Preference shares, which are redeemable on a specific date or at the option of the shareholder, are disclosed

together with long-term liabilities. The dividends paid on these shares are recognised in the income statement

as an interest expense.

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Borrowing costs

Borrowing costs that are directly attributable to the acquisition or construction of a qualifying fixed asset that

requires a substantial period of time to prepare for its intended use, are capitalised until such time as

substantially all activities necessary to prepare the qualifying asset for its intended use are completed. All other

borrowing costs are written off in the year in which they are incurred.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost has been established on the following

bases:

• Merchandise for resale – First in, first out

• Components and raw material – Weighted average

• Work in progress – Includes materials, direct labour and production overheads

• Demonstration stock – First in, first out

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of

completion and the estimated costs necessary to make the sale.

Provisions

Provisions are recognised where the Group has a present legal or constructive obligation as a result of a past

event, a reliable estimate of the obligation can be made and it is probable that an outflow of resources

embodying economic benefits will be required to settle the obligation. Where the effect is material, provisions

are determined by discounting to present value.

Employee benefits

• Equity-based compensation

The Group operates the Spescom Limited Share Trust, a share incentive plan, for the purpose of

incentivising employees of the Group and promoting the continued growth of the Group by giving such

employees an opportunity to acquire shares. In terms of the Share Trust Deed the directors may extend an

offer to employees in terms of the Cash Purchase Scheme or the Credit Purchase Scheme, or grant an

option in terms of the Option Scheme, or any combination thereof. The price payable per share purchased

or option exercised will be 90% of the market price determined for the month in which the offer is

extended or the option is granted. No more than 25% of the shares acquired and paid for in terms of the

Cash Purchase Scheme or the Credit Purchase Scheme may be sold in any financial year. Options not

taken up expire after 10 years.

• Short-term employee benefits

All short-term benefits, including leave pay, are fully provided in the period in which the related service is

rendered by the employee. The Group contributes to defined medical aid schemes for the benefit of

permanent employees.

• Post retirement benefits

Payments to the defined contribution retirement benefit plan are charged as an expense in the year to

which they relate.

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Share capitalisation awards and cash dividends

The full cash equivalent of capitalisation share awards, and cash dividends, are recorded and disclosed as

dividends declared in the Statement of Changes in Equity. The current dividend liability is that amount

reasonably estimated to be paid in cash. Any difference between total dividends declared and this estimate is

transferred to a non-distributable share election reserve pending the outcome of the final share awards. Upon

allotment of shares the relevant amounts are transferred to the share capital and share premium account and

cash dividend election amounts are paid.

Treasury shares

Shares in Spescom Limited held by the Group are treated as treasury shares. These shares are treated as a

deduction from the issued and weighted average number of shares and the cost price of the shares is

deducted from share capital and share premium in the balance sheet on consolidation. Dividends received on

treasury shares are eliminated on consolidation.

Revenue recognition

Revenue is recognised only when it is probable that the economic benefits associated with a transaction will

flow to the Group and the amount of the revenue can be reliably measured. Value-added taxation is excluded.

The Group derives gross revenues from sale of product and supporting software applications, charges under

contracts for maintenance of technology solutions supplied to customers and from the development and sale of

customised technology.

Revenue is brought to account in these financial statements as follows:

• Sale of product

– is recognised when substantially all the risks and rewards of ownership have passed to the buyer on

delivery

• Royalties

– are recognised on an accrual basis in accordance with the substance of the relevant agreement

• Rental income

– is recognised on an accrual basis in accordance with the substance of the relevant rental agreement

• Maintenance contracts

– are recognised evenly over the life of the lease

• Development and sale of technology

– is recognised in accordance with progress milestones, which approximate percentage of completion,

specified in a contract entered into with a third party, or on the sale of internally developed projects,

revenue is recognised when all significant performance obligations have been satisfied

• Interest income

– is recognised on a time proportioned basis recognising the effective yield on the underlying asset and an

appropriate accrual is made at each accounting reference date

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Revenue recognition (continued)

• Dividends

– are recognised when the right to receive payment is established, with the exception of dividends on

preference share investments which are recognised on a time proportioned basis in the period to which

they relate.

Segmental reporting

Segment information is reported on both a nature of business (primary) and geographical (secondary) basis.

This approach is based on the manner in which segments are organised and managed. All segment revenue

and expenses are directly attributable to the segments.

Segment assets include all operating assets used by a segment and consist principally of property, plant and

equipment, as well as current assets. Segment liabilities include all operating liabilities and consist principally of

trade and other payables. These assets and liabilities are directly attributable to the segments.

The segmental report is set out on pages 65 to 66.

Dividends payable

Dividends payable and secondary tax thereon are recognised in the period in which such dividends are

declared.

Earnings per share

Earnings per share is based on the earnings attributable to shareholders and is calculated on the weighted

average number of shares in issue during the period.

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2. REVENUE

Revenue comprises turnover and other income.

Turnover represents net invoiced sales of products and services after eliminating inter-company sales within the

Group and value added tax.

GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

Turnover comprises:

Sale of technological products and

communications solutions 95 993 495 100 921 636 – –

Maintenance and service contract revenues 41 210 130 66 777 936 – –

Revenues from development of proprietary

technology 86 263 005 188 817 655 – –

223 466 630 356 517 227 – –


From discontinued operations 10 642 854 9 678 548 – –

Total turnover 223 466 630 356 517 227 – –

Other income comprises:

Royalties received 1 255 976 2 215 865 – –

Management fee 1 923 819 50 000 1 923 819 50 000

Foreign exchange differences 147 986 4 698 737 214 570 4 307 570

Rent received 3 521 327 3 313 645 – –

Premises 3 446 383 3 238 701 – –

Other 74 944 74 944 – –

Investment income 3 071 481 3 142 511 3 557 423 2 727 070

Total other income 9 920 589 13 420 758 5 695 812 7 084 640

Total revenue 233 387 219 369 937 985 5 695 812 7 084 640

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3. DISCONTINUED OPERATIONS

During the year under review, the Group disposed of the

following interests:

GROUP

2005 2004

(Restated)

R R

Test and measurement sales and customer support divisionThe decline in the worldwide test and measurement market, increasedcompetition and grossly decreased margins, negatively impacted on theGroup’s general test and measurement sales and support division. As aresult thereof, the Group resolved to shut down this division. Formalnotification of the discontinuance plan for the support business unit wascommunicated on 17 September 2004. The Group also entered into abinding sale agreement for substantially all the assets attributable to thisbusiness unit. The remaining test and measurement sales business unitwas closed down on 31 December 2005. The results of the customersupport business unit were previously reported in the services industrysegment while the results of the sales business unit were reported in theenterprise content management segment. Both business units previouslyformed part of the Africa geographical segment.

The results of the test and measurement division are presented below:Revenue 10 462 854 40 249 000Expenses (10 322 903) (39 437 674)

Operating profit for the year 139 951 811 326Non-trading items attributable to discontinuance – (1 204 755)

Net profit/(loss) for the year from discontinued operations 139 951 (393 429)

The major classes of assets and liabilities of the test and measurement division as at 30 September are:

AssetsProperty, plant and equipment – 1 206 952Inventories – 2 806 405Accounts receivable – 5 100 485

– 9 113 842

LiabilitiesAccounts payable and provisions (950 193) (4 822 671)

Net (liabilities)/assets directly associated with the closure of the division (950 193) 4 291 171

The net cash flows incurred by the test and measurement division are as follows:Operating 5 381 315 1 606 963

Net cash inflow 5 381 315 1 606 963

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

4. OPERATING (LOSS)/PROFIT:Is stated after taking into account:IncomeRoyalties received 1 255 976 2 215 865 – –Management fee 1 923 819 50 000 1 923 819 30 000Foreign exchange differences 147 986 4 698 737 214 570 27 274 113Rent received 3 521 327 3 313 645 – –

Premises 3 446 383 3 238 701 – –Other 74 944 74 944 – –

ExpensesAdministration fees (83 853) – – –Secretarial fees (546 515) (213 284) – –Auditors’ remuneration (2 647 488) (3 289 461) (566 782) (363 160)

Audit fees – provision (2 272 500) (2 600 596) (546 824) (333 160)For other services (374 988) (688 865) (19 958) (30 000)

Depreciation of tangible and intangible assets (13 677 850) (14 307 839) – –

Owned (13 677 850) (14 194 504) – –Leased – (113 335) – –

Gross employment costs (86 580 692) (130 237 276) (832 500) (662 500)Loss on disposal of tangible and intangible assets (102 248) (383 353) – –Foreign exchange differences (606 359) (1 089 000) – –Impairment of loans – – (1 923 819) –Management fee (100 000) – – –Royalties (973 813) (1 073 578) – –Operating lease charges (8 896 988) (11 918 092) – –

Premises (7 668 494) (10 431 062) – –Other (1 228 494) (1 487 030) – –

Directors’ remuneration (refer to page 67 for more details)

Non-executive directors (832 500) (662 500) (832 500) (662 500)Executive directors (5 556 385) (8 688 849) – –

Total directors’ remuneration (6 388 885) (9 351 349) (832 500) (662 500)

Paid byThe company (832 500) (662 500) (832 500) (662 500)Subsidiaries (5 556 385) (8 688 849) – –

(6 388 885) (9 351 349) (832 500) (662 500)

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

5. AMORTISATION OF GOODWILLAmortisation of goodwill is reconciled as follows:Charged to the income statement asa result of amortising positive goodwill – (6 765 955) – –

Credited to the income statement asa result of amortising negative goodwill – 280 707 – –

Net charge to the income statement – (6 485 248) – –

6. FINANCE CHARGESBank overdraft and bankers’ acceptances (4 111 547) (4 660 961) (4 037 229) (4 653 524)Group loans – – (1 347 645) (2 120 328)Finance leases and instalment sale agreements – (4 297) – –Other (615 982) (1 214 342) (150 133) –

(4 727 529) (5 879 600) (5 535 007) (6 773 852)

7. NON-TRADING ITEMSDisposal of interest in subsidiary:

40% of Spescom Telecommunications (Proprietary) Limited – (308 469) – –

Loss on discontinuance of business operations – (1 204 755) – –Impairment of goodwill:

Spescom Software Inc. (10 049 399) – – –Impairment of investments:

Technologies QS (Proprietary) Limited – (9 683) – –Spescom Software Inc. (19 483 443) – (33 599 374) –

(29 532 842) (1 522 907) (33 599 374) –

8. TAXATIONSA normal taxation for the yearCurrent (3 298 409) (4 786 169) – (2 319 065)

Current year (3 208 433) (2 117 231) – –Prior year (89 976) (2 668 938) – (2 319 065)

Deferred 836 710 3 125 428 – –

Current year 1 212 243 3 125 428 – –Change in tax rate (375 533) – – –

Capital gains tax – prior year – (18 640) – (18 640)

Secondary tax on companies – current year – (2 950) – –

(2 461 699) (1 682 331) – (2 337 705)

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GROUP COMPANY2005 2004 2005 2004

(Restated)R R R R

% % % %

8. TAXATION (continued)Reconciliation of tax rateStandard tax rate (29,0) (30,0) (29,0) (30,0)

Adjusted for:Change in tax rate (0,8) – – –Disallowable expenditure 16,6 28,6 29,0 27,1Capital gains – – – (2,4)Tax losses utilised 8,3 4,5 – 2,9Prior years (0,2) (8,5) – (294,3)

Effective tax rate (5,1) (5,4) – (296,7)

Certain Group companies have computed tax losses. Aggregated computed unutilised tax losses available forset-off against future taxable income are estimated at R176 799 863 (2004 – R127 713 206). Deferred taxassets have been raised where appropriate.

The Group has unutilised input credits for secondary taxation on companies which would result in tax relieftotalling R565 578 (2004 – R565 578).

9. EARNINGS PER SHARE9.1 Headline (loss)/earnings per share

Based on net (loss)/profit after taxation, minority shareholders’ interests and adjusted for capital itemsincluded in non-trading items as set out in the following reconciliation, and 72 590 276 (2004 – 59 529 071) weighted shares in issue.

GROUP2005 2004

(Restated)R R

Net (loss)/profit for the year attributable to the holding company’s shareholders (3 466 161) 29 403 014Amortisation of goodwill – 6 485 248Impairment of goodwill 10 049 399 –Disposal of interest in subsidiary – 308 469Impairment in value of investments: Technologies QS (Proprietary) Limited – 9 683

Spescom Software Inc. 19 483 443 –Loss on discontinuance of business operations – 1 204 755Loss on sale of tangible and intangible assets 102 248 383 353

Profit for calculation of headline earnings 26 188 929 37 794 522

9.2 (Loss)/earnings per shareBased on net loss after taxation of R3 466 161 (2004 – net profit of R29 403 014) and 72 590 276 (2004 –59 529 071) weighted average shares in issue.

9.3 Diluted (loss)/earnings per shareThere are no existing instruments which will have a further diluting effect on the earnings of the company.The diluted (loss)/earnings per share thus equates to the (loss/)earnings per share as calculated in note 9.2.

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10.

TAN

GIB

LE A

ND

INTA

NG

IBLE

AS

SE

TS

GROU

P

2005

10.1

La

nd a

nd

Inta

ngib

lebu

ildin

gsCo

mpu

ter a

nd

asse

ts:

(10.

3) a

ndm

anuf

actu

ring

Tota

l

tech

nolo

gyle

aseh

old

im-

Offic

eeq

uipm

ent

Mot

orFu

rnitu

reTo

tal o

wned

Furn

iture

leas

edTo

tal

deve

lopm

ents

prov

emen

tseq

uipm

ent

and

softw

are

vehi

cles

and

fittin

gsas

sets

and

fittin

gsas

sets

asse

ts

RR

RR

RR

RR

RR

Open

ing

bala

nce:

01/

10/2

004

Cost

59 5

44 2

6923

696

658

2 45

5 64

949

917

027

555

471

3 51

1 94

713

9 68

1 02

157

4 74

757

4 74

714

0 25

5 76

8

Less

: Acc

umula

ted

depr

eciat

ion(3

9 64

6 64

8)(2

815

614

)(1

192

962

)(4

4 85

2 31

8)(4

05 0

01)

(1 6

58 7

19)

(90

571

262)

(151

655

)(1

51 6

55)

(90

722

917)

Net b

ook

valu

e19

897

621

20 8

81 0

441

262

687

5 06

4 70

915

0 47

01

853

228

49 1

09 7

5942

3 09

242

3 09

249

532

851

Curre

nt ye

ar m

ovem

ent:

Addit

ions

10 7

39 0

0654

228

48 1

971

220

854

–97

927

12 1

60 2

12–

–12

160

212

Asse

ts no

w eq

uity a

ccou

nted

(118

772

)–

–(2

92 4

78)

–(5

4 00

1)(4

65 2

51)

(398

241

)(3

98 2

41)

(863

492

)

Effec

ts of

fore

ign e

xcha

nge

–(1

469

)(2

13)

(27

235)

–(1

196

)(3

0 11

3)–

–(3

0 11

3)

Disp

osals

(11

789)

–(2

03 6

72)

(3 3

26 8

95)

(54

666)

(494

711

)(4

091

733

)–

–(4

091

733

)

Depr

eciat

ion:

Disp

osal/

trans

ferre

d11

788

–85

074

2 54

3 23

348

790

235

171

2 92

4 05

6–

–2

924

056

Depr

eciat

ion:

Incom

e sta

tem

ent

(9 8

28 8

54)

(786

981

)(2

20 1

42)

(2 6

16 1

84)

(33

296)

(192

394

)(1

3 67

7 85

0)–

–(1

3 67

7 85

0)

791

379

(734

222

)(2

90 7

56)

(2 4

98 7

05)

(39

171)

(409

204

)(3

180

679

)(3

98 2

41)

(398

241

)(3

578

920

)

Clos

ing

bala

nce:

30/

09/2

005

Cost

68 0

59 9

9123

501

578

2 29

9 96

139

898

686

500

805

2 61

3 93

813

6 87

4 95

924

851

24 8

5113

6 89

9 81

0

Less

: Ac

cum

ulate

d de

prec

iation

(47

370

991)

(3 3

54 7

56)

(1 3

28 0

30)

(37

332

682)

(389

506

)(1

169

914

)(9

0 94

5 87

9)–

–(9

0 94

5 87

9)

Net b

ook

valu

e20

689

000

20 1

46 8

2297

1 93

12

566

004

111

299

1 44

4 02

445

929

080

24 8

5124

851

45 9

53 9

31

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10.

TAN

GIB

LE A

ND

INTA

NG

IBLE

AS

SE

TS

(c

ont

inue

d)

GROU

P

(Res

tate

d)

2004

10.2

La

nd a

nd

Inta

ngib

lebu

ildin

gsCo

mpu

ter a

nd

asse

ts:

(10.

3) a

ndm

anuf

actu

ring

Tota

l

tech

nolo

gyle

aseh

old

im-

Offic

eeq

uipm

ent

Mot

orFu

rnitu

reTo

tal o

wned

Mot

orFu

rnitu

rele

ased

Tota

l

deve

lopm

ents

prov

emen

tseq

uipm

ent

and

softw

are

vehi

cles

and

fittin

gsas

sets

vehi

cles

and

fittin

gsas

sets

asse

ts

RR

RR

RR

RR

RR

R

Open

ing

bala

nce:

01/

10/2

003

Cost

49 8

64 8

4223

682

151

2 32

7 28

449

398

934

632

145

3 80

6 01

512

9 71

1 37

116

5 00

062

6 60

379

1 60

313

0 50

2 97

4

Less

: Acc

umula

ted

depr

eciat

ion(2

9 89

3 91

2)(2

313

046

)(9

73 5

49)

(42

652

890)

(411

643

)(1

621

097

)(7

7 86

6 13

7)(5

7 20

0)(4

0 11

7)(9

7 31

7)(7

7 96

3 45

4)

Net b

ook

valu

e19

970

930

21 3

69 1

051

353

735

6 74

6 04

422

0 50

22

184

918

51 8

45 2

3410

7 80

058

6 48

669

4 28

652

539

520

Curre

nt y

ear m

ovem

ent

Addit

ions

9 51

8 75

215

2 76

616

2 28

02

356

781

–83

375

12 2

73 9

54–

––

12 2

73 9

54

Effec

ts of

fore

ign e

xcha

nge

(113

186

)(1

4 65

7)(1

67)

(601

118

)–

271

147

(457

981

)–

––

(457

981

)

Disp

osals

–(7

9 54

7)(3

3 74

8)(6

88 5

08)

(76

674)

(343

621

)(1

222

098

)(1

65 0

00)

(51

856)

(216

856

)(1

438

954

)

Trans

fer39

4 55

7–

–(3

94 5

57)

––

––

––

–

Depr

eciat

ion:

Disp

osal/

trans

ferre

d(3

56 5

81)

79 5

479

202

922

422

76 6

7413

3 89

086

5 15

458

997

–58

997

924

151

Depr

eciat

ion:

Incom

e sta

tem

ent

(9 5

16 8

51)

(626

170

)(2

28 6

15)

(3 2

76 3

55)

(70

032)

(476

481

)(1

4 19

4 50

4)(1

797

)(1

11 5

38)

(113

335

)(1

4 30

7 83

9)

(73

309)

(488

061

)(9

1 04

8)(1

681

335

)(7

0 03

2)(3

31 6

90)

(2 7

35 4

75)

(107

800

)(1

63 3

94)

(271

194

)(3

006

669

)

Clos

ing

bala

nce:

30/

09/2

004

Cost

59 5

44 2

6923

696

658

2 45

5 64

949

917

027

555

471

3 51

1 94

713

9 68

1 02

1–

574

747

574

747

140

255

768

Less

: Ac

cum

ulate

d de

prec

iation

(39

646

648)

(2 8

15 6

14)

(1 1

92 9

62)

(44

852

318)

(405

001

)(1

658

719

)(9

0 57

1 26

2)–

(151

655

)(1

51 6

55)

(90

722

917)

Net b

ook

value

19 8

97 6

2120

881

044

1 26

2 68

75

064

709

150

470

1 85

3 22

849

109

759

–42

3 09

242

3 09

249

532

851

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50


10. TANGIBLE AND INTANGIBLE ASSETS (continued)

Fixed assets with a book value of R24 851 (2004: R423 092) are encumbered under various credit agreements

as set out in note 21.

10.3 Property

GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

Portion 13 of Agricultural Holding No 1:

Halfway House Estate, Registration

Division IR Gauteng 19 350 000 19 350 000 – –

The assessment of residual values of

owner occupied buildings at date of

acquisition, was deemed to be similar

to the carrying cost. Accordingly, no

depreciation has been provided on

owner occupied buildings in the

current year. Subsequent

assessments of residual values may

result in a depreciation charge being

taken to the income statement in the

future.

This property is encumbered by first

covering mortgage in favour of ABSA

Bank Limited (refer to note 22).

11. GOODWILL

Carrying amount of goodwill – 27 063 821 – –

The Group adopted AC 140: Business Combinations on 1 April 2004. Goodwill is no longer amortised but

tested for impairment on an annual basis.

Impairment testing of indefinite life goodwill

Goodwill acquired through business combinations has been allocated to the cash generating operations of

Spescom Software Inc.

The recoverable amount of this cash-generating unit has been established by using a fair value less costs to sell

calculation. This method is considered to be more appropriate due to the volatile performance of this cash-

generating unit and the minority interest held by the Group in this investment. The application of this method

resulted in an impairment of R10 049 399 to the carrying value of the net investment.

With effect 1 April 2005, this investment has been equity accounted and the related goodwill is now disclosed

as part of the cost of investment in an associate company.

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

12. SUBSIDIARY COMPANIES

(refer to schedule of subsidiary companies)

Carrying value of shares – – 8 481 024 42 080 400

Amounts owed by subsidiaries – – 70 197 491 78 868 958

Amounts owed to subsidiaries – – (80 629 410) (86 022 608)

– – (1 950 895) 34 926 750

Amounts owing by subsidiary companies are

unsecured, bear interest at variable rates and

have no fixed terms of repayment, except for

the amounts owing by Spescom Software Inc.

The latter amounts are secured in terms of a

security agreement dated 15 February 2002.

13. INVESTMENT IN ASSOCIATE COMPANIES

13.1 Decision Technologies

(Proprietary) Limited 3 100 3 100 – –

Attributable cost of shares 200 200 – –

Loan owing: this amount is

unsecured, interest free and

not subject to any fixed terms

of repayment. 2 900 2 900 – –

13.2 Spescom Software Inc.

Carrying amount after

impairment 17 014 436 – 2 –

During the year, Spescom Software Inc.

raised capital by issuing fresh

convertible preference shares to an

outside party, thereby effectively

reducing the Group’s interest in its

former subsidiary to 42,6%. With effect

1 April 2005, this investment has been

treated as an associate company.

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

13. INVESTMENT IN ASSOCIATE COMPANIES

(continued)

13.2 Spescom Software Inc. (continued)

Due to the volatile performance of this

investment, management has written

off loans amounting to R7 138 982 and

owing by Spescom Software Inc. to the

Group.

The recoverable amount of

this investment has been

calculated using the fair value

less costs to sell method.

17 017 536 3 100 2 –

14. AVAILABLE FOR SALE INVESTMENTSAND LOANS

14.1 Meter Patent Development

(Proprietary) Limited – 333 859 – –

The amount owing is unsecured,

interest free, and will be repaid out of

revenues generated from further

exploitation of the patent purchased

14.2 Leseding Electronics Investments

(Proprietary) Limited 18 368 861 17 639 831 14 370 464 14 370 464

100 000 ordinary shares resulting in

an attributable interest of 10% 1 000 1 000 1 000 1 000

235 000 convertible cumulative

preference shares with the right to

convert after 1 October 2000 into

ordinary shares resulting in an

additional interest of 19,02%. 1 1 1 1

Loan amounts owing: these loans

are unsecured, have no fixed terms of

repayment and bear interest at prime

bank overdraft rates. 18 367 860 17 638 830 14 369 463 14 369 463

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

14. AVAILABLE FOR SALE INVESTMENTS

AND LOANS (continued)

14.3 Spescom Limited

Share Trust – – 10 914 056 9 891 598

Opening balance – – 9 891 598 9 827 963

Add: Acquisition of shares

on behalf of the Trust – – 985 320 –

Costs incurred on behalf

of the Trust – – 37 138 63 635

In terms of the Trust Deed the following

information is disclosed:

At the beginning of the year 2 550 400

share options were accepted by

employees in terms of the Trust Deed.

During the year, the Trust purchased an

additional 759 704 shares at an

average market price of R1,24. The

Trustees allocated an additional

4 626 000 share options at R1,17 to

employees during the year and

647 100 share options reverted back

to the Trust on termination of

employment. The balance of share

options accepted by employees at the

end of the year is 6 529 300.

There are no further shares available as

scheme shares of the Trust at year end.

The total number of shares held by the

Trust at the end of the year was

6 447 516.

Scheme shares are required to be

pledged to the Trust and serve as

security for due payment of the share

debts.

The loan is interest free and not subject

to any fixed terms of repayment

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

14. AVAILABLE FOR SALE INVESTMENTS

AND LOANS (continued)

14.4 Glenwood Investments

(Proprietary) Limited

Loan owing – – – –

Balance at beginning of year – 119 000 – –

Amount repaid during the year – (119 000) – –

The directors are of the opinion that

the available for sale investments

materially approximate fair value.

18 368 861 17 973 690 25 284 520 24 262 062

15. DEFERRED TAXATIONAnalysis of major categories of temporary differences:Computed tax losses (51 437 792) (26 681 885) – –Prepayments 827 313 382 857 – –Fixed assets 20 723 319 750 716 – –Provisions (11 846 425) (12 005 118) – –

Deductible temporary differences (41 733 585) (37 553 430) – –

Tax thereon at standard rate 29% (2004 – 30%) (12 102 739) (11 266 029) – –

Analysed to:Companies with net credit temporary differences 16 923 – – –Companies with net debit temporary differences (12 119 662) (11 266 029) – –

(12 102 739) (11 266 029) – –

Reconciliation of deferred taxation:Balance at beginning of the year (11 266 029) (7 708 977) – –Income statement charge (1 212 243) (3 125 428) – –Change in tax rate 375 533 – – –Restatement resulting from lease payment recognition – (431 624) – –

Balance at end of the year (12 102 739) (11 266 029) – –

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

16. INVENTORIESMerchandise for resale 7 640 085 7 535 717 – –Components and raw materials 836 897 1 232 805 – –Projects-in-progress 6 329 757 1 579 069 – –Demonstration and hire equipment 1 018 986 2 711 366 – –Provision for obsolescence (2 364 859) (3 596 756) – –

13 460 866 9 462 201 – –

17. ACCOUNTS RECEIVABLETrade receivables net of provisions for impairment 29 871 540 50 803 022 – –Prepayments and deposits 5 640 570 6 195 938 – 193 897Other debtors 14 525 187 629 – –

35 526 635 57 186 589 – 193 897

Trade receivables are interest bearing and are generally on 30 days terms.

18. SHARE CAPITAL AND SHARE PREMIUM

18.1 Ordinary shares

Authorised100 000 000 (2004 – 100 000 000) ordinary shares of 1 cent each 1 000 000 1 000 000 1 000 000 1 000 000

IssuedBalance at beginning of year 692 653 491 653 787 681 586 681Add: New shares issued during the year – 201 000 – 201 000Less: Net movement in treasury shares (8 264) – –

Balance at end of year 684 389 692 653 787 681 787 681

Total number of shares in issue to external partiesBalance at beginning of year 73 146 922 52 896 922 78 768 056 58 668 056New issue of shares during the year – 20 100 000 – 20 100 000Net movement in treasury shares (8 264) 150 000 – –

Balance at end of year 73 138 658 73 146 922 78 768 056 78 768 056

The unissued shares are under the control of the directors until the forthcoming annual general meeting.

Weighted average number of shares in issueTotal issued share capital at beginning of year 78 768 056 58 668 056Add: weighted average number of fresh shares issued – 6 619 854Less: weighted average number of treasury shares (6 177 780) (5 758 839)

Total weighted average number of shares in issue at end of year 72 590 276 59 529 071

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

18. SHARE CAPITAL AND SHARE PREMIUM (continued)

18.2 Share premiumPremium arising on issue of sharesBalance at beginning of year 45 968 159 23 455 211 55 619 179 33 188 731Share issue expenses incurred during the year – (1 507 552) – (1 507 552)Net movement in treasury shares (1 369 250) 82 500 – –Shares issued during the year – 23 938 000 – 23 938 000

44 598 909 45 968 159 55 619 179 55 619 179

19. NON–DISTRIBUTABLE RESERVESForeign currency translation reserve 14 493 126 14 425 430 (12 533 513) (12 972 561)

Balance at beginning of the year 14 425 430 13 634 198 (12 972 561) (11 492 383)Movement for the year 67 696 791 232 439 048 (1 480 178)

Capital redemption reserve fund 540 000 540 000 – –

Balance at beginning of the year 540 000 900 000 – –Amount transferred to outside shareholders – (360 000) – –

15 033 126 14 965 430 (12 533 513) (12 972 561)

20. MINORITY INTERESTInterest in equity shares of subsidiary companies – 862 073 – –

21. LONG-TERM LIABILITIES

21.1 SecuredCapitalised finance lease agreements:Secured by assets financed and payableover periods of up to five years

at effective rates of interest between prime less 1% and prime – 404 977 – –Current portion – (122 550) – –

– 282 427 – –

Operating lease commitments:Premises

Long-term (> 3 years) – 77 138 – –Medium-term (2 – 3 years) 582 110 5 595 669 – –Short-term (0 – 1 years) 5 232 780 7 317 567 – –

5 814 890 12 990 374 – –

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

21. LONG-TERM LIABILITIES (continued)

21.2 Cavendish Securities LimitedThis loan originated in terms of theagreement to advance US$1,6 million toSpescom Limited UK. This facility wassecured by a call option over the sharesof the borrower and interest was chargedat 10% per annum compounded. Theloan was repaid in full during November2003.Balance at beginning of year – 11 867 181 – –Less: Amount repaid – (11 867 181) – –

Current portion – – – –

22. BANK FINANCE

22.1 Overdraft facilities:Overdraft facilities, limited to a maximumof R10 million, are secured by suretyships,the cession and pledge of all debit bankbalances as well as debtors balances.These facilities bear interest at the banks’corporate base wholesale rate plus 2%per annum. There are no fixed terms ofrepayment. 1 259 801 889 – –

22.2 Revolving credit facility: Amalgamated

Banks of Southern Africa Limited

(United Kingdom):The Group had a revolving credit facility ofUS$3,5 million which was reduced toUS$3,15 million subsequent to year endfollowing a repayment of US$350 000.This facility is secured by a cession andpledge of Spescom Software Inc.(incorporated in the United States ofAmerica) ordinary and preference sharesheld by Spescom Limited. The facility isalso secured by way of unlimitedguarantees from each of the Group’s mainoperating subsidiaries. This facility bearsinterest at LIBOR plus 2,5% per annumand is repayable no later than 31 October 2006. 22 565 953 22 596 000 22 565 953 22 596 000Long-term portion – (22 596 000) – (22 596 000)

Current portion 22 565 953 – 22 565 953 –

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

22. BANK FINANCE (continued)

22.3 Call loan facility: Amalgamated Banks

of Southern Africa Limited (South Africa)

This call loan facility is secured by way

of unlimited guarantees from each of

the Group’s main operating

subsidiaries, as well as a first covering

mortgage bond over the property.

This facility bears interest at prime

overdraft rates less 0,15% and must

be repaid in ten equal six monthly

instalments commencing from

1 April 2005

until 1 April 2010 15 724 705 17 474 705 15 724 705 17 474 705

Long-term portion (12 224 705) (15 724 705) (12 224 705) (15 724 705)

Current portion 3 500 000 1 750 000 3 500 000 1 750 000

Total current portion 26 065 953 1 750 000 26 065 953 1 750 000

23. INTEREST BEARING BORROWINGS

Long-term 12 224 705 38 603 132 12 224 705 38 320 705

Short-term 27 325 754 1 873 439 26 065 953 1 750 000

39 550 459 40 476 571 38 290 658 40 070 705

There are no restrictions on the borrowing capabilities of the company or the Group imposed by the Articles of

Association or any other covenant.

24. CONTINGENT LIABILITIES

Spescom Limited has issued letters of support in favour of Spescom Limited UK (Proprietary) Limited. This

letter of support is valid until October 2006. There are no further known material contingent liabilities which

require separate disclosure at this time.

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GROUP COMPANY

2005 2004 2005 2004

(Restated)

R R R R

25. PROVISIONS, DEFERRED

MAINTENANCE REVENUE AND

CONTRACT ADVANCES

Short-term provisions consist of:

Performance incentives 7 267 045 11 226 970 – –

Audit fee 1 601 441 2 343 333 546 824 440 505

Leave pay 4 319 548 7 025 108 – –

Warranty 252 636 2 241 709 – –

Deferred maintenance revenue 6 422 195 12 448 635 – –

Contract advances – 3 321 131 – –

Other trade provisions 6 660 528 14 871 584 319 422 345 205

26 523 393 53 478 470 866 246 785 710

Reconciliation of short-term balances:

Balance at beginning of year 53 478 470 99 574 742 785 710 720 617

Subsidiary company now treated as an

associate company (19 551 101) – – –

Increases in provisions/additional provisions 23 731 361 86 707 562 735 073 1 288 653

Payments against/expenses set-off against

provisions (28 829 098) (130 269 966) (654 537) (1 223 560)

Foreign exchange rate adjustment (2 306 239) (2 533 868) – –

Balance at end of year 26 523 393 53 478 470 866 246 785 710

Long-term provisions consist of:

Deferred maintenance revenue – 870 750 – –

Contract advances – – – –

– 870 750 – –

Reconciliation of long-term balances:

Balances at beginning of year 870 750 20 046 647 – –

Subsidiary company now treated as an

associate company (870 750) – – –

Payments against/expenses set-off

against provisions – (17 213 288) – –

Foreign exchange adjustments – (1 962 609) – –

Balance at end of year – 870 750 – –

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26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT POLICIES

The Group does not trade in derivative financial instruments but, in the normal course of operations, the Group

is exposed to currency, credit and liquidity risk. In order to manage these risks, the Group may enter into

transactions which make use of derivative financial instruments. The Group has developed a risk management

process to facilitate, control and monitor these risks. This process includes formal documentation of policies,

including limits, controls and reporting structures.

26.1 Foreign currency management

The Group enters into forward exchange contracts to cover all foreign purchases in order to manage its

foreign currency exposure. All outstanding forward exchange contracts are due to mature within three

months of the year end. Material forward exchange contracts at 30 September are summarised below:

Rand Average

equivalent rate

2005

US Dollars 10 575 190 6,51

Japanese Yen 733 371 0,06

Euro 255 521 7,86

2004

US Dollars 9 824 996 6,50

Japanese Yen 108 036 0,06

British Pound 77 632 11,71

Euro 1 129 506 7,89

26.2 Foreign companies

The Group has investments in foreign companies which are classified

as foreign entities. The rates used in translating the income

statements and balance sheets of these entities are as follows:

Average Closing

rate rate

2005

US Dollars 6,26 6,37

British Pound 11,56 11,22

2004

US Dollars 6,63 6,45

British Pound 11,89 11,62

26.3 Interest rate management

As part of the process of managing the Group's interest rate risk, interest rate characteristics of new

borrowings and the refinancing of existing borrowings are positioned according to expected movements

in interest rates. Full details of interest rates relating to borrowings are detailed in notes 21 and 22.

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26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT POLICIES (continued)

26.4 Credit risk managementThe Group only deposits cash surpluses with major banks of high quality credit standing. Trade accountreceivables comprise a widespread customer base. Ongoing credit evaluation of the financial position ofcustomers is performed, and where appropriate, letters of credit are procured to limit the risk on certainexport sales.

The exposure in respect of the loan to the Share Trust is limited to the differential between the price atwhich shares were purchased by the Trust and the price at which options were issued to employees.Where the recoverable amount of the loan is less than the amount recoverable by way of options, theloan is impaired to its recoverable value.

At year end, the Group did not consider there to be any significant concentration of credit risk againstwhich adequate provision has not been made.

27. POST RETIREMENT BENEFITSEligible employees are members of defined contribution schemes or are members of funds within the variousindustries and countries within which they are employed.

The Group has a paid up defined contribution pension fund scheme (Spescom Pension Fund) covering certainqualifying employees. In South Africa, with effect from 01 July 1999 the Group established a definedcontribution provident scheme (Spescom Retirement Fund) for employees. The latter scheme covers allexisting employees as well as subsequent new employees.

All South African funds are administered by Aon Consulting South Africa (Proprietary) Limited on behalf of theGroup. The assets of all schemes are held in administered trust funds separated from the Group’s assets.South African funds are governed by the Pensions Act, No. 24 of 1956 and all other funds are governed by therespective legislation of the country concerned.

The most recent financial reviews of the Spescom Retirement Fund as well as the Spescom Pension Fund wereperformed by QED Actuaries and Consultants (Proprietary) Limited on 30 September 2004. The reviews for thefinancial year ending 30 September 2005 are still in progress.

The objectives of the reviews of the Funds were to assess the financial position of the Funds as well as thesolvency of the Funds in terms of assets and liabilities and, in the case of the Pension Fund, to recommend adistribution of the surplus. Both Funds were previously found to be in sound financial condition.

Contributions to the Spescom Provident Fund are employee determined and range from a minimum of 15% toa maximum of 20% of the employee’s pensionable payroll cost.

Group company contributions expensed during the financial year to 30 September 2005 amounted toR5 040 692 (2004 – R4 349 941).

2005 2004

Total number of employees in the Group 240 308Membership details of the Spescom Pension and Provident Funds at the valuation date are:

Active members – Pension Fund 110 145Active members – Provident Fund 217 249

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28. RELATED PARTY TRANSACTIONS

During the year, the company and its subsidiaries, in the ordinary course of business, entered into various sale

and purchase transactions with associates and joint ventures. These transactions occurred under terms that

are no less favourable than those arranged with third parties.

Other related party transactions are detailed below:

GROUP

Related party Relationship to the Group Transaction type 2005 2004

R R

Fluxmans Attorneys P Vallet is a partner of this firm

Incorporating and also a non-executive Legal and consultancy

Kallmeyer and Strime director of Spescom Limited services 462 271 455 245

29. RESTATEMENTS AND COMPARATIVES

AC 105: Leases

In prior years, operating lease payments were recognised in the income statement in the year incurred. Circular

7/2005 issued in August 2005, by the South African Institute of Chartered Accountants, highlights the

requirement of AC 105 for minimum lease payments that are subject to fixed escalations to be spread evenly

over the life of the lease instead of as incurred.

Impact on financials: AC 105 Lease payment recognition

GROUP

Effect 2005 2004

R R

Balance sheet

Distributable reserves – current year Increase 361 506 253 856

– prior year Decrease (1 007 123) (1 260 979)

Deferred tax asset Decrease/Increase (283 968) (431 624)

Trade payables Increase 929 585 1 438 747

Income statement

Operating expenses Decrease 509 162 253 856

Comparatives restated

Comparatives have been restated as a result of the change in accounting for leases per AC 105.

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63

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05

64

Joint Venturesat 30 September 2005

Proportion of

ownership

2005 2004

UNLISTED JOINT VENTURE

Technologies QS (Proprietary) Limited (formerly Quante Spescom (Proprietary) Limited) 39,0% 39,0%

Telecommunications interconnection technology

– voluntary liquidation confirmed by the Master of the Court during September 2004

Group’s proportionate

share of joint venture

financial statements

INCOME STATEMENT

Turnover – –

Income before taxation – 12 828

Net attributable income – 12 828

2005 2004

R R

CASH FLOW STATEMENT

Operating activities

Cash generated by operations – (246)

Working capital changes – 3 791 219

Cash generated by operating activities – 3 790 973

Net finance costs – 13 075

Taxation paid – (8 062)

Cash available from operating activities – 3 795 986

Financing activities

Repayment of net asset value – (4 293 467)

– (4 293 467)

Cash and cash equivalents

Net movement in year – (497 481)

At beginning of year – 497 481

At end of year – –

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Segmental Reportsat 30 September 2005

1. BASED ON INDUSTRY SECTOR

1.1 Income statement

Enterprise

content Communication GROUP

management integration 2005

solutions activities Services Total

R R R R

Revenue 159 052 628 23 203 872 41 210 130 223 466 630

Cost of sales (91 681 236) (7 045 590) (4 741 000) (103 467 826)

Operating (loss)/profit (7 933 631) (9 622 206) 461 563 (17 094 274)

Depreciation (12 133 259) (1 174 472) (370 119) (13 677 850)

Enterprise GROUP

content Communication 2004

management integration (Restated)


R R R R

Revenue 213 168 428 76 570 864 66 777 935 356 517 227

Cost of sales (102 058 532) (14 758 108) (22 307 907) (139 124 547)

Operating profit 13 033 118 26 559 538 2 137 669 41 730 325

Depreciation (12 060 894) (1 418 130) (828 815) (14 307 839)

1.2 Balance sheet

Enterprise

content Communication GROUP

management integration 2005


R R R R

Assets 137 399 362 16 966 541 18 173 773 172 539 776

Liabilities (78 198 233) (7 849 503) (14 775 920) (100 823 656)

Enterprise GROUP

content Communication 2004

management integration (Restated)


R R R R

Assets 106 793 912 68 236 831 40 319 430 215 350 173

Liabilities (102 415 740) (13 520 347) (22 079 914) (138 016 001)

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Segmental Reports at 30 September 2005

2. BASED ON GEOGRAPHICAL OPERATIONS

2.1 Income statement

GROUP

2005

Africa Europe USA Other Total

R R R R R

Revenue 189 069 701 22 139 718 10 450 211 1 807 000 223 466 630

Cost of sales (97 013 565) (1 869 000) (4 274 261) (311 000) (103 467 826)

Operating (loss)/profit (7 678 257) (3 803 840) (6 550 177) 938 000 (17 094 274)

Depreciation (12 467 040) (1 043 488) (167 322) – (13 677 850)

GROUP

2004

(Restated)

Africa Europe USA Other Total

R R R R R

Revenue 220 447 110 104 366 777 31 703 340 – 356 517 227

Cost of sales (115 481 958) (14 174 779) (9 467 810) – (139 124 547)

Operating profit 3 026 595 38 469 925 233 805 – 41 730 325

Depreciation (12 271 717) (1 419 059) (617 063) – (14 307 839)

2.2. Balance sheet

GROUP

2005

Africa Europe USA Total

R R R R

Assets 137 872 063 17 653 283 17 014 430 172 539 776

Liabilities (92 794 592) (8 029 064) – (100 823 656)

GROUP

2004

(Restated)

Africa Europe USA Total

R R R R

Assets 151 294 416 28 981 224 35 074 533 215 350 173

Liabilities (97 860 522) (20 390 755) (19 764 724) (138 016 001)

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Directors’ Remunerationat 30 September 2005

Non-executive directors:

GROUP

Retirement

Name Basic Performance and other Total Total

Fees salary bonus benefits 2005 2004

R R R R R R

J Myers 345 500 – – – 345 500 242 500

M Mogase 138 500 – – – 138 500 117 500

P Vallet 147 000 – – – 147 000 142 500

L Ogilvy 119 000 – – – 119 000 137 500

W Kansteiner 82 500 – – – 82 500 22 500

Total 832 500 – – – 832 500 662 500

Executive directors:

GROUP

Retirement

Basic Performance and other Total Total

Name Fees salary bonus benefits 2005 2004

R R R R R R

A Farah – 1 431 424 380 000 425 839 2 237 263 1 979 683

H Isaacman – 1 053 333 – 184 025 1 237 358 1 542 685

J Palmer – 906 359 450 000 162 006 1 518 365 1 093 703

C Mostert (resigned 1 March 2005) – 537 172 – 26 227 563 399 1 452 930

V Leas (resigned 20 August 2004) – – – – – 2 619 848

Total – 3 928 288 830 000 798 097 5 556 385 8 688 849

Messrs C Mostert and W Kansteiner are resident in the United States of America and their remuneration is

denominated in US Dollars. For the purposes of reporting, their remuneration has been converted into South African

Rand (ZAR).

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Directors’ Share Options at 30 September 2005

Spescom Limited share options: 30 September 2005

Weighted

Options held Granted average –

at beginning during Options held price

Name of year the year at year end closing

A Farah 150 000 190 000 340 000 0,90

H Isaacman 150 000 190 000 340 000 0,90

J Palmer 130 000 190 000 320 000 1,13

L Ogilvy – – – –

W Kansteiner – – – –

P Vallet – – – –

M Mogase – – – –

J Myers – – – –

C Rezek – – – –

Total 430 000 570 000 1 000 000

Spescom Software Inc. share options: 30 September 2005

Weighted




USD

A Farah 300 000 – 300 000 0,21

H Isaacman 300 000 – 300 000 0,21

J Myers 125 000 – 125 000 0,22

Total 725 000 – 725 000

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Directors’ Share Options at 30 September 2005

Spescom Limited share options: 30 September 2004

Weighted




R

A Farah 150 000 – 150 000 0,55

H Isaacman 150 000 – 150 000 0,55

J Palmer 130 000 – 130 000 1,08

C Mostert (resigned 1 March 2005) 150 000 – 150 000 0,55

L Ogilvy – – – –

P Vallet – – – –

M Mogase – – – –

J Myers – – – –

C Rezek – – – –

W Kansteiner – – – –

Total 580 000 – 580 000

Spescom Software Inc. share options: 30 September 2004

Weighted




USD

A Farah 300 000 – 300 000 0,21

H Isaacman 300 000 – 300 000 0,21

C Mostert (resigned 1 March 2005) 750 000 – 750 000 0,20

J Myers 100 000 25 000 125 000 0,22

Total 1 450 000 25 500 1 475 000

Notice is hereby given that the eighteenth Annual General Meeting of members of Spescom Limited, registration

number 1987/001083/06, will be held in the Spescom Boardroom, 1st Floor, Spescom Park, Cnr. Alexandra Avenue

and Second Road, Halfway House, Midrand on Friday, 31 March 2006 at 09h00 to conduct the following business:

Ordinary Resolution 1

To receive and adopt the consolidated audited annual financial statements of the company and its subsidiaries,

incorporating the auditors’ and directors’ reports for the year ended 30 September 2005.


To re-elect by way of separate resolutions directors in the place of those retiring in accordance with the company’s

Articles of Association. The directors retiring are Messrs T Makore, M Mogase, J Myers, J Palmer and P Vallet, all of

whom, being eligible, offer themselves for re-election.

An abbreviated curriculum vitae in respect of each director offering him/herself for re-election is contained in the

explanatory notes to the notice of Annual General Meeting.


To sanction the current remuneration payable to non-executive directors as set out in the table contained in the

explanatory notes to the notice of Annual General Meeting.


To sanction the proposed remuneration payable to non-executive directors, payable from 31 March 2006 as set out

in the table contained in the explanatory notes to the notice of Annual General Meeting.


To re-appoint Ernst & Young as independent auditors of the company and to authorise the directors to determine

the remuneration of the auditors for the past year’s audit as reflected in note 4 of the annual financial statements.

As special business, to consider and if deemed fit, pass with or without modification the following ordinary

resolutions numbered 6, 7 and 8:


That the unissued authorised shares in the capital of the company be and are hereby placed under the control of

the directors until the next Annual General Meeting of the company for allotment and issue to such persons and

upon such terms and subject to such conditions as the directors in their sole discretion may determine from time to

time, but at all times subject to the provisions of the Companies Act No. 61 of 1973, as amended, and to the rules

and regulations of the JSE Limited (“the JSE”).


That in terms of the Listings Requirements of the JSE, the directors be given the general authority to issue ordinary

shares of one cent each for cash to the public as and when suitable situations arise, subject to the following

conditions:

• That this authority is in the form of a renewable mandate and is valid until the company’s next Annual General

Meeting, but it shall not extend beyond 15 (fifteen) months from the date of this Annual General Meeting.

• That a paid press announcement giving full details, including the impact on net asset value and earnings per

share, will be published at the time of any issue representing, on a cumulative basis within one year, 5% or more

of the number of shares of that class in issue prior to the issues.

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Notice of Annual General Meeting

• That issues in the aggregate in any one year may not exceed 15% of the number of shares of that class of the

company’s issued share capital.

• That, in determining the price at which an issue of shares will be made in terms of this authority, the maximum

discount permitted will be 10% of the weighted average ruling price of the shares in question, as determined over

the 30 business days prior to the date that the price of the issue is determined or agreed by the directors of the

company.

• That the shares must be issued to public shareholders and not to related parties.

• That approval is required by achieving a 75% majority of the votes cast in favour of the resolution by all equity

security holders present or represented by proxy at this Annual General Meeting convened to approve such

resolution.


That any one director or the Secretary of the company be and are hereby authorised to do all such things and sign

all documents and take all such action as they consider necessary to implement the resolutions set out in the notice

convening the Annual General Meeting at which this ordinary resolution will be considered.

Any shareholder holding shares in certificated form or recorded on the company’s sub-register in electronic

dematerialised form in “own name” and entitled to attend, speak and vote at the meeting is entitled to appoint a

proxy to attend, speak and on a poll vote in his stead. A proxy need not be a member of the company.

Proxy forms must be lodged at the registered office of the company at Spescom Park, Cnr. Alexandra Avenue &

2nd Road, Halfway House, Midrand, 1685, South Africa (Postal address P O Box 288, Halfway House, 1685) or at

the offices of the transfer secretaries, Computershare Investor Services 2004 (Proprietary) Limited (70 Marshall

Street, Corner Sauer Street, Johannesburg; P O Box 61051, Marshalltown, 2107) by no later than 09h00 on

Wednesday, 29 March 2006.

All beneficial owners whose shares have been dematerialised through a Central Securities Depository Participant

(“CSDP”) or broker other than with “own name” registration, must provide the CSDP or broker with their voting

instructions in terms of their custody agreement should they wish to vote at the Annual General Meeting.

Alternatively, they may request the CSDP or broker to provide them with a letter of representation, in terms of their

custody agreements, should they wish to attend the Annual General Meeting.

By order of the Board

NYELETI MAGADZE

Company Secretary

Midrand

31 January 2006

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Notice of Annual General Meeting

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Notice of Annual General Meeting Explanatory Notes

Ordinary Resolution 1 – Adoption of annual financial statements

At the Annual General Meeting, the directors must present the annual financial statements for the year ended

30 September 2005 to shareholders, together with the reports of the directors and the auditors. These are

contained within the Annual Report.

Ordinary Resolution 2 – Re-election of directors

In accordance with the company’s Articles of Association, one third of the directors are required to retire at each

Annual General Meeting and may offer themselves for re-election. In addition, any person appointed to the Board of

Directors is similarly required to retire and is eligible for re-election at the next Annual General Meeting.

The following Directors are eligible for re-election:

Thomas Makore

Mutle Mogase

James Myers

Jené Palmer

Phillip Vallet

Brief biographical details of each of the above directors and the remaining members of the Board are set out

hereunder.

James Myers (65)

is Chairperson as well as an independent non-executive director of the company, having been appointed to the

Board on 23 October 2003. He is a past President of the American Chamber of Commerce in South Africa and is

currently a director of African Merchant Bank Limited, Spescom Software Inc., and Econet Wireless Global.

Tony Farah (57)

is Chief Executive Officer of the Spescom Group, a position he has held since 1977. He is a founding member and

Vice President (1993) of the Electronics Industries Federation. In 2000, he was the only South African nominated as

a Technology Pioneer and represented South Africa at the World Economic Forum at Davos. He was elected to

serve on the Presidential National Commission on Information Society and Development in 2002.

Walter Kansteiner III (51)

joined the Board of the company as an independent non-executive director on 5 April 2004. He was until recently

the Assistant Secretary of State for African Affairs reporting directly to Colin Powell. He is now a senior partner of the

Scowcroft Group (of which he was a founding principal). Mr Kansteiner has more than 20 years experience with

African and emerging market business issues and has advised corporations on a wide range of mergers,

acquisitions and privatisation throughout Africa involving amongst others the telecommunications sector. In this

respect Mr Kansteiner recently advised the buy side on the $1.3 billion privatisation of Telkom SA Limited, the

largest privatisation in Africa to date.

Thomas Makore (40)

joined Spescom Telecommunications (Pty) Limited as Chief Executive Officer on 1 March 2005 and was appointed

to the Board of Spescom Limited on 21 October 2005. Prior to joining the Spescom Group, he was the Managing

Director of Diebold South Africa (Pty) Limited and Siemens Power. Mr Makore’s experience covers management,

customer relationship management, sales and marketing, project management and systems engineering. He is

registered with various professional institutions including ECSA, SAIEE, UK Engineering Council and the IEE and

holds a BSc Eng Hons Electrical and a Masters of Business Leadership.

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Mutle Mogase (41)

is an independent non-executive director of the company having been appointed to the Board on 23 October 2003.

He is presently the Chairman of Vantage Capital. Mr Mogase was also instrumental in the establishment of Real

Africa Investments Limited and Nubank of which he was Chief Executive Officer for three years. He is a current

director of Gemini Consulting (Pty) Limited, Air Liquide (Pty) Limited and the Micro-Finance Regulatory Council.

Lynne Ogilvy (51)

joined the Board of the company as an independent non-executive director on 15 September 2002. Ms Ogilvy has

25 years experience in the computer and IT industry in South Africa and was previously a director of Hi Performance

Systems (Pty) Limited and Usko Limited as well as the Managing Director of Hewlett Packard SA (Pty) Limited.

Jené Palmer (35)

is Chief Financial Officer of the company, having been appointed to the Board as an executive director on

23 October 2003. Ms Palmer joined the Spescom Group in 1998 having previously been the financial accountant

for Intaba Chemicals (Pty) Limited, a subsidiary of Omnia Limited. She completed her accounting articles of clerkship

with McAllister Dobeyn in 1995.

Colin Rezek (50)

joined the Board of the company as an alternate non-executive director to Mutle Mogase on 13 May 2004.

Mr Rezek’s previous experience includes senior management positions in the operational, marketing and new

business development of the listed group Venture Motor Holdings. In 1998 and 1999, he assisted in the

establishment and management of the Equity Africa Fund. Pursuant thereto he has been involved in the

establishment of MMR Equity Capital, a private equity management company and MMR Advisory, a corporate

finance advisory business which became Vantage Capital.

Phillip Vallet (59)

joined the Board of the company as an independent non-executive director on 23 October 2003. He is presently

the Chief Executive Officer of Fluxmans Attorneys, the Chairman of Super Group Limited as well as being a director

of Caxton and CTP Publishers and Printers Limited. In 2003, Mr Vallet was listed in Chambers Global World

Leading Lawyers as a leading individual in corporate and M&A work in Southern Africa.

Ordinary Resolution 3 – Current remuneration of non-executive directors

Shareholders are requested to sanction the current remuneration payable to non-executive directors as set out in

the table hereunder. Full particulars of all fees and remuneration for the past financial year are contained on page 67

of the annual report.

Ordinary Resolution 4 – Proposed remuneration of non-executive directors payable from 31 March 2006

Shareholders are requested to consider and if deemed appropriate, sanction the proposed remuneration payable to

non-executive directors with effect from 31 March 2006 as set out in the table hereunder. Full particulars of all fees

and remuneration for the past financial year are contained on page 67 of the annual report.

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Proposed remuneration

payable with effect from

Category Current remuneration 31 March 2006 Note

Spescom Limited Board

Chairman R210 000 annual retainer R210 000 annual retainer (1)

R20 000 per meeting attended R20 000 per meeting attended

Board member R40 000 annual retainer R40 000 annual retainer (2)

R10 000 per meeting attended R10 000 per meeting attended

Audit Committee

Chairman R26 000 annual retainer R15 000 per meeting attended (3)

Audit Committee member (ACM) R13 000 per meeting attended R13 000 per meeting attended (4)


Chairman R13 000 annual retainer R8 000 per meeting attended (5)

R6 500 per meeting attended


member (RCM) R6 500 per meeting attended R 6 500 per meeting attended (6)

Nomination Committee

Chairman R5 000 per meeting attended R5 000 per meeting attended (7)

Nomination Committee member R4 000 per meeting attended R4 000 per meeting attended (8)

Notes

(1) It is proposed that the non-executive chairman of the Board receives a fee calculated at three times the total

annual Board fees payable to a Board member (retainer plus minimum four Board meetings), in addition to the

other committee fees set out above.

(2) The company holds minimum four Board meetings during any 12 month period.

(3) The Audit Committee chairman receives a higher fee than the fee payable to non-executive directors who serve

on the Audit Committee.

(4) The company holds a minimum of three Audit Committee meetings during any 12 month period.

(5) The Remuneration Committee chairman receives a higher fee than the fee payable to non-executive directors

who serve on the Remuneration Committee.

(6) The company holds a minimum of two Remuneration Committee meetings during any 12 month period.

(7) The Nomination Committee chairman receives a higher fee than the fee payable to non-executive directors who

serve on the Nomination Committee.

(8) The company holds a minimum of one Nomination Committee meeting during any 12 month period.

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Ordinary Resolution 5 – Auditors

Ernst & Young has indicated its willingness to continue in office and resolution 5 proposes the re-appointment of

that firm as the company’s auditors until the next Annual General Meeting. The resolution also gives authority to the

directors to fix the auditors’ remuneration.

Ordinary Resolutions 6 and 7 – Placement and Issue of shares

In terms of Sections 221 and 222 of the Companies Act No. 61 of 1973, as amended, the shareholders have to

approve the placement of the unissued shares under the control of the directors. A general authority to issue

shares for cash has also been granted to the directors. The authorities will be subject to the Companies Act No. 61

of 1973, as amended, and the JSE Listings Requirements.

The effect of ordinary resolution number 7 and the reason therefor is that as more than 35% of the company’s

issued shares are in the hands of the public as defined by the JSE, the approval of a 75% majority of the votes cast

by shareholders present or represented by proxy at this Annual General Meeting is required for this ordinary

resolution to become effective.


One director or the Secretary of the company be authorised to do all such things and sign all documents and take

all such action as they consider necessary to implement the resolutions set out in the notice convening the Annual

General Meeting at which this ordinary resolution will be considered.

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Administration

COMPANY DETAILS

Spescom Limited

Registration No. 1987/001083/06

Share Code: SPS

ISIN: ZAE000017919

Listed on the JSE Securities Exchange South Africa

(JSE) under the name “Spescom” in the

“Information Technology” sub-section.

REGISTERED OFFICE

Spescom Limited

Spescom Park

Cnr. Alexandra Avenue and 2nd Road

Midrand, 1685, South Africa

Telephone: +27 11 266 1500

Facsimile: +27 11 266 1532

E-mail address: [email protected]

Website address: www.spescom.com

POSTAL ADDRESS

PO Box 288, Halfway House, 1685, South Africa

COMPANY SECRETARY

Nyeleti Magadze (32)

BProc, HDip Tax

Cnr. Alexandra Ave & 2nd Road, Midrand, 1685

PO Box 288, Halfway House, 1685,

South Africa

TRANSFER SECRETARIES

Computershare Investor Services 2004 (Proprietary)

Limited

70 Marshall Street, Johannesburg, 2001

PO Box 61051, Marshalltown, 2017, South Africa

BANKERS

First National Bank of Southern Africa Limited

No. 4 First Place, BankCity, Cnr. Simmonds

& Pritchard Streets, Johannesburg, 2001

PO Box 7791, Johannesburg, 2000, South Africa

ATTORNEYS

Fluxmans Inc Attorneys

Incorporating Kallmeyer & Strime

11 Biermann Ave, Cnr. Cradock

& Biermann Avenues, Rosebank, 2196

Private Bag X41, Saxonwold, 2132, South Africa

AUDITORS

Ernst & Young

Wanderers Office Park, 52 Corlett Drive, Illovo, 2000

PO Box 2322, Johannesburg, 2000, South Africa

SPONSOR

Investec Bank Limited

100 Grayston Drive, Sandown

Sandton, 2196, South Africa

PO Box 785700, Sandton, 2146, South Africa

Shareholders’ diary

Financial year-end 30 September 2006

Annual General Meeting 31 March 2006

Interim Report: October 2004 to March 2005 May 2006

Preliminary announcement of final results November 2006

Annual financial statements March 2007

Printed by Ince (Pty) Ltd

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Form of Proxy

SPESCOM LIMITED(Registration Number 1987/001083/06)

(“the company”)

Important note concerning this form of proxy.

For use at the seventeenth annual general meeting of the holders of ordinary shares in the company (“Spescom Limited shareholders”) to be held atthe registered office of Spescom Limited, Spescom Park, Corner Alexandra Avenue and Second Road, Halfway House, Midrand at 09h00 on Friday,31 March 2006 (“the annual general meeting”).

Spescom Limited shareholders who have dematerialised their Spescom Limited shares through a CSDP or broker must not complete thisform of proxy and must provide their CSDP or broker with their voting instructions, except for Spescom Limited shareholders who haveelected own name registration in the sub-register through a CSDP or broker, which shareholders must complete this form of proxy andlodge it with the transfer secretaries.

Holders of dematerialised Spescom Limited shares, other than with own name registration, wishing to attend the annual general meeting must informtheir CSDP or broker of such intention and request their CSDP/broker to issue them with the relevant authorisation to attend.

I/We

(Name (s) in full in block letters)

of

being the holder/s of ordinary shares in the company do hereby appoint:

1 or failing him/her

2 or failing him/her

3 the chairman of the Annual General Meeting;

as my/our proxy to act for me/us and on my/our behalf at the Annual General Meeting which will be held for the purpose of considering and, ifdeemed fit, passing, with or without modification, the resolutions to be proposed thereat and at any adjournment thereof, and to vote for and/oragainst the resolutions and/or abstain from voting in respect of the shares registered in my/our name/s, in accordance with the following instructions:

My/our proxy shall vote as follows: In favour of Against Abstain

Ordinary Resolution 1Adopt the annual financial statements

Ordinary Resolution 2Re-elect retiring directors: T Makore

M Mogase

J Myers

J Palmer

P Vallet

Ordinary Resolution 3 Sanction the current remuneration of the non-executive directors

Ordinary Resolution 4Sanction the proposed remuneration of the non-executive directors payable from 31 March 2006

Ordinary Resolution 5Reappoint the auditors and determine the auditors’ remuneration

Ordinary Resolution 6 The placing of the unissued shares under the control of the directors

Ordinary Resolution 7 An issue of ordinary shares for cash

Ordinary Resolution 8Authorising of any director or secretary of the company to implement resolutions

Signed at on 2006

Signature

Assisted by me (where applicable)

An entitled shareholder may appoint one or more proxies (none of whom need be a member of the company) to attend, speak and vote or abstainfrom voting in place of that entitled shareholder at the Annual General Meeting.

Please read the notes on the reverse side hereof.

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Notes

1. Proxies must be lodged at the company’s transfer secretary, Computershare Investor Services 2004

(Proprietary) Limited, 70 Marshall Street, Corner Sauer Street, Johannesburg; P O Box 61051, Marshalltown,

2107, so as to be received no later than 48 hours before the time fixed for the Annual General Meeting,

excluding Saturdays, Sundays and public holidays.

2. An entitled shareholder may appoint one or more persons of his own choice as his proxy/ies by inserting the

name/s of such proxy/ies in the space provided and any such proxy need not be a shareholder of the company.

Should this space be left blank, the proxy will be exercised by the chairman of the Annual General Meeting.

3. An entitled shareholder’s instructions to the proxy must be indicated by the insertion of the relevant number of

shares to be voted on behalf of that shareholder in the appropriate space provided. Failure to comply with the

above will be deemed to authorise the chairman of the Annual General Meeting, if the chairman is the

authorised proxy, to vote in favour of the resolutions at the Annual General Meeting, or any other proxy, to vote

or abstain from voting at the Annual General Meeting as the shareholder deems fit, in respect of all the shares

concerned.

4. An entitled shareholder or such shareholder’s proxy is not obliged to vote in respect of all of the shares held or

represented by such shareholder but the total number of votes for or against the resolutions and in respect of

which any abstention is recorded, may not exceed the total number of votes to which the shareholder or such

shareholder’s proxy is entitled.

5. The authority of the person signing the form of proxy under a power of attorney must be attached hereto,

unless that power of attorney has already been recorded by the transfer secretaries of the company or waived

by the chairman of the Annual General Meeting. A minor must be assisted by his/her parents or guardian

unless the relevant documents establishing his/her capacity are produced or have been registered by the

transfer secretaries of the company.

6. The completion and lodging of a form of proxy will not preclude the relevant entitled shareholder from attending

the Annual General Meeting and speaking and voting or abstaining from voting in person thereat to the

exclusion of any proxy appointed in terms hereof, should such entitled shareholder wish to do so.

7. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies.

8. The chairman of the Annual General Meeting may reject or accept a form of proxy, which is completed and/or

received other than in accordance with these instructions and notes.

9. For assistance in completing this form of proxy please phone the Spescom ShareCare Line on 0861 100 634

or on +27 11 870 8216 if you are phoning from outside South Africa.

Shareholders’ Update Form

VERY IMPORTANT!

All Spescom Limited shareholders are requested to kindly complete this form and return it to the Chief

Communications Officer, Spescom Limited, fax +27 11 266 1553 or PO Box 288, Halfway House, 1685, South

Africa. This will ensure you receive all official communications.

Shareholder’s Name

Title Designation

Company Name

Postal Address

Postal Code Country

Physical Address

Postal Code Country

Tel Fax

E-mail address

Please complete the following very important information:

Would you prefer to receive your communications electronically or in printed form?

Comments or special requests

All information supplied to Spescom Limited will be treated as strictly confidential.

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