Annual Report 2006 - samro

CHAIRMAN’S FOREWORDDear Member,I am pleased to report that SAMRO’s results for the year under review, in all the critical measures of performance, have continued to showpositive and robust performance. As you read through this Report, you may appreciate that the performance of the year under reviewis made significant by the fact that the management team had the added workload of implementing the organisational change andrestructuring plans that they had started to develop in the previous year.Your Board of Directors is constantly conscious of the impact of changes in the environment within which your organisation operates.As a member of the International Confederation of Societies of Authors and Composers (CISAC) and the International Association ofMechanical Right Societies (BIEM), the leadership of SAMRO participates in various international discussions regarding future trends thatmay have an impact on our business. One such key development is the explosion of new media and channels for consumption of music.Although the phenomenon started a while ago, the pace of these developments is certainly unprecedented. These new opportunitieshave necessitated the formation of alliances among parties that, traditionally, were on the opposite sides of the table.SAMRO is closely monitoring these developments and we are assured by our executive team that your organisation is well placed torealise the benefits presented by the various global developments, but are also capable of dealing with the threats that may be posedby them.At the macro-level, the year under review was characterised by a strong economy and a somewhat stable political and social environment.Notwithstanding a strong economy that has been growing steadily, as signified by inter alia “the decrease in unemployment figures from31% in 2003 to 25% in March 2006” (Mail & Guardian (www.mg.co.za) : 7 November 2006), the Reserve Bank Governor, Mr Tito Mboweni,started communicating a strong message towards the latter part of the year under review. His message was that credit levels were toohigh, and by so saying, he signalled the possibility of interest-rate hikes. We are therefore mindful of the impact on our business that canresult from reduced consumer spending and advertising in the electronic media.The political climate, albeit stable, is entering a challenging phase as the year 2009, the election year, approaches. We are, however, confidentat the maturity of all major players and that they will act in the interests of the country, despite the fact that we are still a young democracy.One of the key concerns is the ever increasing gap between our legislation, more specifically the copyright regime and the proliferation ofvarious means of music exploitation. While we accept that, throughout the world, legislation tends always to lag behind technological andother developments, we believe that there is a need for particular and urgent attention to this matter from our government. Our legislationnot only lags behind technological advancements, but also behind much of the legislation of our major trading-partner countries.Over the past three to four years, SAMRO has pioneered a number of initiatives to build institutional capacity in the music industry. Whilethe success of this approach is incontestable, as evidenced by the number of new organisations that are now in place and functioning,we are reviewing SAMRO’s future role and defining new areas that may need our support and active participation.Your Board has continued to meet with management regularly, in accordance with the highest standards of sound corporate governance,and is satisfied with the strategic direction taken by the management team. Progress in the key areas of the strategy is encouraging,and we are confident of the desired outcomes. One of the hallmarks of the latter part of this year was the significant time spent by ourexecutive leadership team in the process of the handing over of responsibility owing to Mr Robert Hooijer stepping down as the ChiefExecutive Officer and Mr Nicholas Motsatse assuming that role at the beginning of the current financial year. We believe that the timespent in ensuring smooth transition was necessary, and can only be of benefit to SAMRO. More importantly, this handing was thoroughlyplanned for by the Board, and thus it took no one by surprise. We therefore have the assurance that, as Mr Motsatse takes over theexecutive leadership of your organisation, he has received the necessary input and is fully in a position to execute his responsibilities.The Board of Directors, as well as the staff at SAMRO, wishes to take this opportunity to thank Mr Hooijer for his leadership over the pastnine years. He oversaw the transformation of SAMRO from a small-to-medium enterprise to becoming a medium-to-large concern. Duringthis period we experienced consistent growth in revenue, transformation in the staff profile in terms of gender and race, introduction ofmany policies and procedures aimed at ensuring operational effectiveness as well as increasing the participation of SAMRO in the broadermusic and copyright industries. We also express our gratitude for his help in preparing his successor for the role of Chief Executive Officer.We certainly believe that the manner in which he handled this change is a model for many leadership role changes.During the month of May last, we declared our intention to move into the administration of mechanical rights, and were subsequentlyelected to BIEM membership. Following this announcement and our BIEM affiliation, the management team set out to prepare plans toensure that SAMRO can fulfill this role at the highest level of competence, governance and commitment to safeguarding our members’interests. Positive progress has been made, and some specific announcements will be made during the course of the coming year.I would like to acknowledge the efforts of the management and staff of SAMRO, as well as my colleagues on the Board of Directors,especially Prof Mzilikazi Khumalo in his capacity as Vice-Chairman and Chairman of the SAMRO Retirement Annuity Fund, and Mr RobbieKallenbach as Chairman of the SAMRO Risk and Audit Committee.ANNETTE EMDONCHAIRMAN

CHIEF EXECUTIVE’S REPORTThis being my first report to our members, affiliates and stakeholders, it gives me great pleasure to inform you that, although we haveundergone some extensive corporate changes, the current reporting year has again proven to be one of growth and satisfactoryperformance in all the important areas of our business. For this I wish to thank my predecessor, Mr. Robert Hooijer, who remained theChief Executive Officer for the entire period under review. Under his leadership, the executive management team and the graduallygrowing number of staff-members at SAMRO, now standing at some one hundred and eighty (180), dedicated their energies to ensuringthat we achieve overall revenue growth and growth in distributions that are well above inflation. Furthermore, we did this while devotingsignificant amounts of our time to consultative sessions and forums that were necessitated by the process of change at SAMRO.KEY MEASURES OF PERFORMANCEThe Directors’ Report, in a subsequent section of this Annual Report, gives a detailed breakdown of revenue and distributions, as wellas other statistical information. It is, however, important for me to comment on the three key measures of our performance namelyrevenue,distributions and expenses.Group IncomeOur total Group Income exceeded the R250 million mark and grew by 22%, an effective real growth of around 17% above the rate ofinflation. Licence and Royalty Income grew by 15% as compared to the previous year’s growth of 18%. This signifies a slower growthcompared to the previous year. This has been of concern to us and we have already started to focus on the underlying reasons. Althoughthe growth of broadcast income exceeded that of the previous year, general Licensing Income was the main area where growth achievedfell below that of the previous year. Extensive effort has already been put to addressing the reasons for this, and we are confident that weare well on our way to resolving this challenge. SAMRO’s sustained growth over the years is clearly depicted in the charts “Group GrossIncome” – “Five-Year View “and “Twenty-Year View”.Five-Year ViewGROUP GROSS INCOMETwenty-Year ViewSources of Licence and Royalty Income for the Group has remained largely consistent with the previous year, as is depicted in the charts“Sources of Licence and Royalty Income”.SOURCES OF LICENCE AND ROYALTY INCOME2005 2006Investment Income for the year showed exceptional performance, with a growth of 60%. It is, however, important to note that this kind of growthwas also due to us realising some of the investments which had appreciated significantly, since stock markets have performed particularly well. Weare also mindful of the fact that this kind of performance is largely attributable to market forces that are not in the control of our organisation andthus we may not achieve similar Investment Income growth in the coming years.

CHIEF EXECUTIVE’S REPORTDistributionsDistribution for the Group grew by 14,2% for the period under review, which translates as an increase of R21,4 million to R172,3 million.Royalty and Non-Royalty distributions made during the year to rights holders increased by R20,662 million or 17,8%. The growth inGroup Royalty and Non-Royalty distributions to rights holders is depicted in the chart below.ROYALTY AND NON-ROYALTY DISTRIBUTION A FIVE-YEAR VIEWSAMRO RoyaltySAMRO Non-RoyaltyDALRO RoyaltyA significant proportion of SAMRO’s membership participated in this year’s royalty distributions, as was the case previously, whichindicates that the beneficiaries of distributions are reasonably broad-based.A total of 4,596 SAMRO members and 91 Affiliated Societies earned royalties during the year under review (2005 – 4,011 SAMRO membersand 94 Affiliated Societies). It has again been decided to publish statistics relating to the royalty earnings of SAMRO Members andAffiliated Societies in distribution income bands. The details for the past two royalty distributions are reflected below.Income BandOver R100 000R50 001 to R100 000R25 001 to R50 000R15 001 to R25 000R10 001 to R15 000R 5 000 to R10 000Below R 5 000SAMROMembers55531111231123123830Distribution 44 Distribution 43AffiliatedSocieties173125657SAMROMembers4652871271142873298AffiliatedSocieties164335657From our distribution letters, members will recall that their income from SAMRO’s distributions is declared to the South African RevenueService (SARS) by SAMRO. Members are aware that SARS continues to encourage compliance by all taxpayers, including members ofSAMRO, and with this in mind, SAMRO has been requested by SARS to forward statements of earnings of members for prior and currentperiods. Annually, members are provided with a statement of their SAMRO earnings, which they must include with their declaration ofother earnings to SARS.One of our goals is to promote, as far as possible, the demand for South African music abroad and to ensure that members receive foreign royaltiesdue to them. Our International Affairs Department is actively engaged in this endeavour, and we remind our members to keep us informed asto the activity and performance of their works abroad. It is also in our members’ best interests to provide us with their foreign tour performanceschedules if they are performing works of South African origin, so as to minimise the risk of forfeiting Foreign Royalty Income.For members whose works are active abroad, we provide a graph depicting regional breakdown of Foreign Income below:FOREIGN INCOME REGIONAL BREAKDOWNEuropeNorth AmericaAsia PacificAfricaSouth AmericaOceania

CHIEF EXECUTIVE’S REPORTDistributions in ProgressMembers are aware from previous annual reports that, at each distribution, there are credits allocated to works that have been performed,but which could not be distributed because the works or the rights holder shares are not clearly documented, identified or substantiatedby the relevant agreements. At times, information provided by users is insufficient, or sometimes our members fail to notify SAMRO intime, or to provide us with full details of all their works. Please notify SAMRO as soon as new works are written, or once your publishingentity has acquired a new catalogue of works, and ensure that full details are provided on the prescribed Notification of Works formwhich we supply for this purpose. We continue to experience some difficulties with the supply of or quality of programme informationfrom certain music users.Royalties which have remained undistributable for a number of years, and for which no further claims have been received, have onceagain been allocated to current revenue for redistribution. This year the figure amounts to R1,7 million as compared to R2,3 million forthe previous year.ExpensesGroup administration expenses for the period under review increased by 27,8%. Although this shows a higher increase in expenditurecompared to revenue growth, we had informed your Board of Directors at the beginning of the 2004 – 2005 financial year that, due tothe need for major restructuring, we had anticipated expenditure to show a higher than normal, but contained, increase over a maximumperiod of three years, after which we should be able to bring this in line with our targeted cost-to-income ratio.In the first year of this planned three year run, expenses did not increase beyond the norm, owing to the fact that most of our significantcorporate changes did not take effect in that year, as the time was largely spent in planning. Implementation of the plans took place inthe year under review. Cost containment remains one of the important focal areas of the management team, and we are confident thatthe next financial year (2006 – 2007) will be the last in which we see a marginally higher increase in expenses than the norm.We have made our case for change in the previous two years’ reports, and we remain convinced that the changes your organisation iscurrently undergoing are critical, if SAMRO has to continue growing and delivering value to its customers.International AffairsSAMRO participates actively in the organisation and the meetings of the international bodies to which it is affiliated. Both SAMRO,and its wholly owned subsidiary DALRO (Dramatic, Artistic and Litirary Rights Organisation), are members of CISAC. DALRO alsofurthered its active association with IFRRO (International Federation of Reproduction Rights Organisations). Both SAMRO and DALROremain committed to the African activities of CISAC and IFRRO. SAMRO continues to serve on CISAC’s Board of Directors, CSB (CommonInformation Systems Supervisory Board), DTC (Distribution Technical Committee) and other committees and working groups.SubsidiariesAll the subsidiary companies have performed to expectation, and the review of their results is contained in the Directors Report.Highlights of Restructuring during the Year under ReviewA number of changes took place during the year under review. The following are the highlights emanating from that process:New Organisational StructureThe process of creating a new organisational structure that would enable your organisation to meet the challenges of its future, as wellas to attain the market positioning that the management team has defined, started in the year preceding the one under review. As notedin our previous reports, the determination of the new structure was based on a logical three legged value-creating model. The three legsare “Creating Demand”, “Fulfilling Demand” and “Support Services”.The implementation of these, however, took place in earnest in the year under review, thus seeing the establishment of five out of apossible seven divisions. Each of the divisions is led by a General Manager, with Managers in the second tier being in charge of specificdepartments. Team meetings were also introduced within each division and department, resulting in a report format indicating a teamscorecard.Balanced Scorecard ReportingOne of the key driving factors of the internal change process was the need to manage performance, and to focus the energies of theorganisation on important indicators of the success of its business. This process has culminated in a structured form of reporting, basedon the Balanced Scorecard theory. The Management Committee meets monthly to review the Balanced Scorecard and to develop actionplans to address those areas of the business that need attention.Performance Based RemunerationA key factor of any performance management system is the ability to link performance to rewards. With the introduction of performancemanagement, we were able to introduce a performance based bonus scheme at the first and second tiers of management. We have thusbeen able directly to correlate performance with rewards, in computing the bonus due to each of the managers. It is our plan to roll outthis performance based bonus scheme in due course to supervisory and other levels of the organisation.

CHIEF EXECUTIVE’S REPORTRe-BrandingFundamental to restructuring has always been the importance of developing a new outlook on life – a new way of doing things. Forthis new outlook or new way to take effect and have meaning, it was important that we change the essence of brand “SAMRO” to reflectit. Although a brand involves not only the Company’s logo, colours, font type, etc, the logo does provide a powerful visual symbol ofwhat the brand stands for. It was in this light that we launched the new Corporate Identity with a colourful logo, as well as a set ofaccompanying brand values.Leadership ChangeThe most significant highlight was the change in the leadership of SAMRO, when my predecessor, Mr Robert Hooijer, stepped down asChief Executive Officer. Mr Hooijer’s achievements over the past nine years at the helm of your organisation are not only recognisablelocally, but internationally as well. Under his leadership, SAMRO has achieved greater recognition and respect among peer organisationsand Affiliated Societies the world over. SAMRO has also experienced an unbroken trend in growing revenues and distributions, a strongbalance sheet, as well as unmatched corporate citizenship in the South African music industry, through the SAMRO social and culturalfunds.On behalf of the management and staff of SAMRO, I wish to thank Mr Hooijer for the leadership he has provided over the years. Iam personally proud to have worked closely with him over the last four years, and I do believe that I could not have received betterpreparation for the role of Chief Executive Officer of your organisation.Mechanical Rights AdministrationToward the latter part of the year under review we announced our intention to administer reproduction rights, commonly known as“mechanical rights”, in musical works. Having been prompted by the strategic imperative created by the convergence of various means ofexploitation of musical works, and by the growing trend, worldwide, towards combining the administration of copyright in musical works,together with calls by our members to administer their mechanical rights, we took a decision to broaden our service to include those rights.Extensive plans were developed, and we are encouraged by the increasing number of reciprocal representation agreements with ouraffiliates that we have entered into thus far. We shall be commencing the licensing activities in the foreseeable future.The FutureThere is no doubt that the environment within which SAMRO conducts its business is rapidly changing, thus necessitating an organisationthat is on the one hand agile enough to adapt, but on the other, stable enough to withstand any turmoil brought by uncertainty andthe speed of change. We believe that we have invested sufficient resources in creating such an organisation. As a result of this, we areoptimistic about the prospects for strong growth in revenue and distributions.In order to ensure that we are guided by the same aspirations, we have introduced our five year plan throughout the organisation.The plan is based on what we have come to call the “Four Pillars of Our Future” which are:• Relentlessly pursuing CUSTOMER SATISFACTION• SAMRO being recognised by our staff, those working in the industry and highly talented potential entrants asTHE BEST PLACE TO WORK• Leading through INNOVATION• Achieving OPTIMUM EFFICIENCIES and sustained REVENUE GROWTHThese “Four Pillars of Our Future” serve as:• a trajectory for our success• a basis to achieve a common purpose• parameters for planning and expenditure• a magnifying glass of what really matters at SAMRO over the next five yearsA number of programmes are being initiated in line with these “Four Pillars of Our Future”, and we are confident that, by achieving thesebroad goals which we have set for ourselves, we shall be meeting the expectations of our customers and stakeholders in general.NICHOLAS MOTSATSECHIEF EXECUTIVE OFFICER

NOTICE OF ANNUAL GENERAL MEETINGNOTICE IS HEREBY GIVEN that the forty-fifth Annual General Meeting of SAMRO will be held on Friday, 24 November 2006 at 14h30, onthe ground floor of SAMRO House, 73 Juta Street, Braamfontein, Johannesburg, for the following purposes:-1 To receive and consider the Annual Financial Statements and Group Annual Financial Statements of SAMRO and its subsidiariesfor the year ended 30 June 2006, including the Directors’ Report and the Report of the Independent Auditors.2 To fix the remuneration of SAMRO’s independent auditors, Messrs Ernst and Young, for the past year’s audit, and to re-appointthem as SAMRO’s auditors until the next Annual General Meeting.3 To transact such other business as may be transacted at an Annual General Meeting.A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and speak on his or her behalf, and, on a poll,to vote in the member’s stead. A proxy need not be a member of SAMRO. Proxy forms must be forwarded to reach the registered officeof the Organisation not less than twenty four (24) hours before the time for holding the meeting or adjourned meeting.By order of the BoardSECRETARYJOHANNESBURG17 October 2006___________________________________________________________________________________________CERTIFICATE OF THE COMPANY SECRETARYIn my capacity as Company Secretary, I hereby certify, in terms of the Companies Act 1973, that, for the year ended 30 June 2006, theOrganisation has lodged with the Registrar of Companies all such returns as are required of a public company in terms of this Act, andthat all such returns are, to the best of my knowledge and belief, true, correct and up to date.G R A E HOOIJER 17 October 2006COMPANY SECRETARY

APPROVAL OF ANNUAL FINANCIAL STATEMENTSDIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTINGThe Board of SAMRO Limited (Limited by Guarantee) accepts responsibility for the Group and Company Financial Statements of SAMRO.Adequate accounting records have been maintained. The Directors endorse the principle of transparency in financial reporting.The responsibility of the external auditors, Ernst and Young, is to express an independent opinion on the fair presentation of the FinancialStatements based on their audit of SAMRO and its subsidiaries.The Risk and Audit Committee has confirmed that adequate internal financial control systems are being maintained. There were nomaterial breakdowns in the functioning of the internal financial control systems during the year. The Directors are satisfied that theFinancial Statements fairly present SAMRO’s financial position, the results of its operations and cash flows, in accordance with relevantaccounting policies based on International Financial Reporting Standards (IFRS).The Board of Directors of SAMRO accepts responsibility for the integrity, objectivity and reliability of the reports on the SAMRO Group. Itis also of the opinion that SAMRO is financially sound and operates as a going concern.Report of the Independent Auditors 9Directors’ Report 10Income Statement 13Balance Sheet 14Statement of Changes in Funds and Reserves 15Cash Flow Statement 16Notes to the Annual Financial Statements 17PagesDIRECTORSANNETTE EMDONCHAIRMANMOLEFI NICHOLAS MOTSATSECHIEF EXECUTIVE OFFICER

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THESOUTHERN AFRICAN MUSIC RIGHTS ORGANISATION LIMITED (LIMITED BY GUARANTEE)Report on the Annual Financial StatementsWe have audited the Annual Financial Statements and Group Annual Financial Statements of SAMRO, which comprise the Directors’ Report,the Balance Sheet as at 30 June 2006, the Income Statement, the Statement of Changes in Funds and Reserves and Cash Flow Statement forthe year then ended, a summary of significant accounting policies and other explanatory notes, as set out on pages 10 to 43.Directors’ Responsibility for the Financial StatementsThe Company and Group’s Directors are responsible for the preparation and fair presentation of these Financial Statements in accordancewith International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. This responsibilityincludes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of FinancialStatements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accountingpolicies; and making accounting estimates that are reasonable in the circumstances.Auditor’s ResponsibilityOur responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance withInternational Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the auditto obtain reasonable assurance whether the Financial Statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Statements.The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of theFinancial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevantto the entity’s preparation and fair presentation of the Financial Statements in order to design audit procedures that are appropriatein the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An auditalso includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by theDirectors, as well as evaluating the overall presentation of the Financial Statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, these Financial Statements present fairly, in all material respects, the financial position of the Company and Group as of30 June 2006, and of the financial performance and its cash flows for the year then ended in accordance with International FinancialReporting Standards, and in the manner required by the Companies Act of South Africa.ERNST & YOUNG REGISTERED AUDITORS INC.REGISTERED AUDITORJohannesburg13 February 2007

DIRECTORS’ REPORTTo the membersYour Directors have pleasure in submitting their forty-fifth Annual Report and SAMRO’s Audited Financial Statements for the year ended30 June 2006.PRINCIPAL ACTIVITIES OF THE GROUPThe SAMRO Group is the largest copyright collective administration group in Southern Africa. During the year under review, there hasbeen no material change in its core activity, which is the administration of specific rights vested in it by rights holders of musical, literaryand dramatic works.FINANCIAL REVIEWFINANCIAL HIGHLIGHTSGroup Income• Total Income – R250,9 million (2005 – R205,5 million) +22%• Licence & Royalty – R211,2 million (2005 – R183,1 million) +15%• Investments – R34,7 million (2005 – R21,7 million) +60%Music Rights Income• Licence and Royalty – R189,6 million (2005 – R167,6 million) +13%• Broadcast – R137,8 million (2005 – R116,9 million) +18%• General – R47,6 million (2005 – R47,2 million) + 1%• Foreign – R4,4 million (2005 – R3,5 million) +25%Literary Rights Income• Reprographic Reproduction – R19,5 million (2005 – R12,8 million) +52%• Other Licence – R2,1 million (2005 – R2,7 million) - 22%GROUP REVIEWINCOMETotal Group Income for the year increased from R205,5 million in 2005 to R250,9 million in 2006, an increase of R45,4 million or 22%.Group Licence and Royalty Income for the year amounted to R211,2 million as compared to R183,1 million in 2005, an improvement ofR28,1 million or 15%.Once again, the largest contribution to overall Group Income was from Music Rights, especially the broadcasting of musical works. Thecontribution to Gross Income from television, both free-to-air and pay services, amounted to R78 million (2005 – R66 million) and fromRadio R59,9 million (2005 – R50,9 million). General Licence Income, which represents the diffusion and public performance of musicalworks (including cinema), amounted to R45,9 million (2005 – R45,5 million).ADMINISTRATION EXPENSESGroup Administration Expenses in 2006 amounted to R53,7 million as compared to R42 million in 2005, an increase of 28%.DISTRIBUTIONThe Amount Distributable for the year under review, before taxation, social and cultural deductions and transfers to reserves, reachedR199,1 million as compared to R165,9 million in 2005, an increase of R33,2 million or 20%. Distributions for the Group for the year, aftertaking into account Income Tax, Social and Cultural deductions and amounts transferred to reserves, was determined at R172,3 millioncompared to R150,9 million in 2005, an increase of R21,4 million.REVIEW OF OPERATIONS FOR SAMRO AND ITS SUBSIDIARIESINCOME• SAMRO – MUSIC RIGHTSThe Total Licence and Royalty Income of SAMRO for the past year increased by R22 million to R189,7 million, from R167,7 million in 2005.Domestic Licence Income for the year increased by R21 million to R185 million, from R164 million in 2005, an improvement of 13%.Income from Broadcasting this year increased by R20,9 million to R137,8 million, from R116,9 million in 2005. General Licence Income(excluding cinema) increased by R1 million to R45,7 million, from R44,7 million in 2005.Income from Foreign Affiliates for the year increased by R0,9 million to R4,4 million, from R3,5 million in 2005. Total Non-Royalty Incomeincreased by R14,9 million to R39,3 million, from R24,4 million in 2005. Income from Investments increased by R13 million to R33,8million, from R20,8 million in 2005, an improvement of 60% which was mainly due to surpluses arising from the disposal of investmentson the advice of SAMRO’s fund-managers. This year, Administration Expenses represent 21,9% (2005 – 22%) of SAMRO’s Total Income.10

DIRECTORS’ REPORT• DALRO – LITERARY RIGHTSThe Dramatic Artistic and Literary Rights Organisation (Pty) Ltd (DALRO) has shown robust growth in recent times amid turbulent changesin the tertiary education sector. The organisation has turned around its business model as revenue derived from blanket licensing activitieshas surpassed that derived from its traditional transactional licences. This year, the wholly owned subsidiary has continued to increaseits revenue. DALRO’s Total Licence Income for the past financial year increased by R6,1 million to R21,5 million, from R15,4 million in2005, an improvement of 39,5%. The Reprographic Reproduction Income of DALRO showed significant growth during the year, despitethe administrative challenge posed by recently merged institutions of higher education. Blanket licensing as opposed to transactionallicensing represented 61% of DALRO Reprographic Reproduction Income, as compared with 38% in 2005. Total Other Licence Income ofDALRO for the year under review decreased by 19% to R2,1 million, from R2,6 million in 2005. Administration Expenses represented 20,7%of Licensing Income compared with 22% in 2005. Reprographic reproduction represents 90% of DALRO’s Total Licence Income.• SAMRO HOUSE HOLDINGSSAMRO House Holdings (Pty) Ltd is SAMRO’s property holding company, with its principal asset being SAMRO House (Pty) Ltd. Plans areafoot to consolidate all property interests, such as Fifteen Melle Street (Pty) Ltd, into this holding company. No change in its businessactivity took place in the year under review.• SAMRO HOUSESAMRO House (Pty) Ltd remains the property company that owns the Braamfontein headquarters of SAMRO. Rental revenue grewmarginally by 4%, but Operating Income grew by 32% for the year under review.• GRATIA ARTISGratia Artis (Pty) Ltd remains dormant, and no commercial activity took place within this wholly owned subsidiary.• FIFTEEN MELLE STREETSAMRO holds 59% of the shares in the property company Fifteen Melle Street (Pty) Ltd. The company declared no dividend in the financialyear under review. Rental Income for the year was R36,6 thousand, up from the previous year by some 6,8%.AMOUNT DISTRIBUTABLE• SAMRODistribution to SAMRO members and Affiliated Societies for this year is R156,2 million, compared with R138,7 million in 2005, an increaseof 12,6%. During the year under review, SAMRO processed it’s Distribution 44, funded by distribution revenue determined at the 2005financial year end and Distributions in Progress. This resulted in royalty credits distributed to SAMRO members, as well as members ofAffiliated Societies being in excess of R116 million. Of this amount R53,2 million was distributed to SAMRO members.• DALRODuring the past year, the distribution of royalties to rights holders and affiliates by DALRO was made by way of four distributions. Thisyear, DALRO’s distributions to rights holders in literary and dramatic works reached R11,3 million as compared to R9,3 million in 2005, animprovement of R2 million or 21%.TAXATIONTaxation for the year amounted to R3,8 million (2005 – R1,7 million).DIVIDENDSSAMRO has no share capital, and thus does not declare dividends.REVIEW OF GROUP’S FINANCIAL POSITIONThere has been no significant change in the nature of the Group’s assets or liabilities during the year.SHARE CAPITALSAMRO, being a Company Limited by Guarantee, has no share capital, and no shares can therefore be issued. No debentures have beenissued, and no wholly owned subsidiary issued any shares or debentures during the accounting period.FIXED ASSETSApart from ongoing investment in SAMRO’s information technology and equipment, there has been no major change in the nature offixed assets of the Group.REVALUATION – OTHER INVESTMENTSOther Investments have been valued at market values (unrealisd as at the date of this Report) in compliance with International FinancialReporting Standards (IFRS).EVENTS SUBSEQUENT TO BALANCE SHEET DATEThe appointment of Mr M N Motsatse to the office of Chief Executive Officer was effected on the 1st of July 2006, in accordance with theplanned succession of Mr G R A E Hooijer, who stepped down as Chief Executive Officer, but retained his office as Director until 30 November 2006.11

DIRECTORS’ REPORTSUBSIDIARY AND ASSOCIATE COMPANIESThe following figures reflect the nature of the Group’s business, issued share capital and effective holding in subsidiary and associate companies.Name of Company Nature of Business Issued Share Capital Effective Holding2006 2005 2006 2005Subsidiaries R R % %SAMRO House Holdings (Pty) Ltd Investment Holding 1 000 1 000 100 100SAMRO House (Pty) Ltd Property Holding 200 200 100 100DALRO (Pty) Ltd Rights Administration 100 100 100 100Gratia Artis (Pty) Ltd Dormant 2 2 100 100Fifteen Melle Street (Pty) Ltd Property Holding 600 600 59 59DIRECTORS’ INTEREST IN CONTRACTSNo material contracts involving Directors’ interests were entered into in the year under review.MANAGEMENT BY THIRD PARTYNo part of the business or any subsidiary is managed by a third person or company in which a Director has an interest. The Dramatic,Artistic and Literary Rights Organisation (Pty) Ltd (DALRO) and SAMRO House (Pty) Ltd pay service fees to SAMRO for administrative,accounting, secretarial and management services rendered to them by SAMRO.COMPOSITION OF SAMRO’S BOARD AND OTHER COMMITTEESComposition of the Risk and Audit, Remuneration and Executive Committees of SAMRO’s Board, as well as that of the Committee ofTrustees of the SAMRO Retirement Annuity Fund and the Board of Trustees of the SAMRO Endowment for the National Arts, is reflectedelsewhere in this Annual Report.DIRECTORSThere were no changes to the Board during the year.Composers / Arrangers / LyricistsJ S M Khumalo (Vice Chairman)Y MhingaB J ShabalalaC G de VilliersPublishersA E Emdon (Chairman)R I KallenbachExecutive DirectorsG R A E HooijerM N MotsatseS C P MabuseW A MonyJ E Mdlalose (Alternate)J E EdmondG G Trefusis-Paynter (British)A M JohnstonSecretaryG R A E Hooijer4th Floor, SAMRO HOUSE P O Box 31609Cnr Juta and De Beer Streets2017 BRAAMFONTEINBRAAMFONTEIN2001 JohannesburgJOHANNESBURG17 October 200612

STATEMENT OF CHANGES IN FUNDS AND RESERVESAT 30 JUNE 2006COMPANYGROUPNote2006RRestated2005R2006RRestated2005RRETAINED INCOMERetained Income as at the Beginning of the YearSurplus for the YearIFRS Adjustments to opening Retained IncomeTransfer to General Reserve1.3.28.1-7 236 807-(1 736 807)-1 843 9384 924 424(6 018 362)-6 551 042-(938 814)-2 389 2905 021 723(6 563 714)Subsidiary Net-after-Tax IncomeRetained Income – Effect of Deferred TaxRetained Income – Board’s DiscretionRetained Income – Effect of IFRS Adjustmentson SurplusRetained Income – Effect of IFRS Adjustmentson opening Retained IncomeTransfer to Minority Share Holders InterestTransfer to Development FundGENERAL RESERVEBalance at the Beginning of the YearNet Transfer from Retained IncomeBalance at the End of the Year8.18.18.18.1-(736 807)(1 000 000)---(5 500 000)-13 907 0151 736 80715 643 822--(500 000)(593 938)(4 924 424)-(750 000)-7 888 6536 018 36213 907 015797 993(736 807)(1 000 000)--(112 228)(5 500 000)-16 411 256938 81417 350 070(545 351)-(500 000)(593 938)(4 924 425)(97 299)(750 000)-9 847 5426 563 71416 411 256UNREALISED GAINS RESERVEBalance at the Beginning of the YearNet movement in Fair ValueBalance at the End of the Year68 684 96835 070 921103 755 88931 711 73536 973 23368 684 96868 466 96835 163 671103 630 63931 711 73536 755 23368 466 968TECHNOLOGICAL DEVELOPMENT FUNDBalance at the Beginning of the YearNet Transfer from Retained IncomeTransfer from the FundTransfer to the Fund8.28.28.28 548 9595 500 000(2 016 570)7 516 5707 798 959750 000(1 120 166)1 870 1668 548 9595 500 000(2 016 570)7 516 5707 798 959750 000(1 120 166)1 870 166Balance at the End of the Year14 048 9598 548 95914 048 9598 548 959MINORITY SHARE HOLDERS INTERESTBalance at the Beginning of the YearMinority Share Holders Share of Surplus for the Year83 395112 228195 623(13 904)97 29983 39515

CASH FLOW STATEMENTFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUPCASH FLOWS GENERATED FROMOPERATING ACTIVITIESCash Generated from Licensing OperationsInterest from SubsidiariesDividends receivedInterest receivedOtherCash Flow from OperationsTaxation PaidTaxation Refund ReceivedRoyalty, Non-Royalty and Social Distributionsto Members and Affiliated SocietiesFunds applied to Social and Cultural OperationsTotal Net Cash Flows Generated from OperatingActivitiesNote2326.12424252006R154 510 034400 8526 098 34313 908 4453 918 772178 836 446(2 993 047)1 109 545(121 478 007)(4 162 320)51 312 617Restated2005R123 147 58294 0983 358 52912 866 5653 401 606142 868 380(1 199 312)-(111 517 861)(3 384 180)26 767 0272006R168 360 9916 098 34314 787 672-189 247 006(3 357 636)1 109 545(123 697 402)(9 808 044)53 493 469Restated2005R134 001 8733 358 52913 668 366931 756151 960 524(1 919 304)-(115 738 789)(3 384 180)30 918 251CASH FLOWS GENERATED FROMFINANCING ACTIVITIESFinancing ActivitiesRepayment of Mortgage BondBequests and DonationsTotal Net Cash Flows Generated fromFinancing Activities-71 19271 192-67 30167 301(125 624)71 192(54 432)(965 995)67 301(898 694)CASH FLOWS GENERATED FROMINVESTING ACTIVITIESInvestment to Expand OperationsAdditions to Property and EquipmentIncrease in Loans to SubsidiariesDecrease in Associate LoanAcquisition of Fifteen Melle Street (Pty) LtdInvestment to Maintain OperationsProceeds on Disposal of Property and EquipmentNet Acquisitions of InvestmentsTotal Net Cash Flows Generated fromInvesting Operating ActivitiesNet (Decrease) / Increase in Cashand Cash EquivalentsCash and Cash Equivalentsat the Beginning of the YearCash and Cash Equivalents at the End of the Year26.111.326.227(1 811 690)(1 065 397)--1 033 5071 409 141(434 439)50 949 370111 140 845162 090 215(1 918 937)(860 390)759 253-13 08320 592 15918 585 16845 419 49665 721 349111 140 845(1 903 016)---1 033 5071 409 141539 63253 978 669129 482 230183 460 899(2 113 499)--13 87713 08321 435 32719 348 78849 368 34580 113 885129 482 23016

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 20061. ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. Thesepolicies have been consistently presented, unless otherwise stated.1.1 Corporate InformationThe Consolidated Financial Statements of the Southern African Music Rights Organisation (SAMRO) Limited and its subsidiaries (theGroup) for the year ended 30 June 2006 were authorised for issue in accordance with a resolution of the Directors passed on 17October 2006. SAMRO Limited is a Company Limited by Guarantee with no share capital and is incorporated and domiciled in theRepublic of South Africa. The principal activities of the Group are described in the Director’s Report.1.2 Basis of PreparationThe Consolidated Financial Statements of the Group have been prepared on the historical cost basis, except for Other Investmentswhich are available-for-sale investments that have been measured at fair value. The Consolidated Financial Statements comprise theFinancial Statements of SAMRO Limited and its subsidiaries as disclosed below in the note on Basis of Consolidation. The ConsolidatedFinancial Statements incorporate accounting policies that have been consistently applied to both years presented. The ConsolidatedFinancial Statements have been presented in South African Rands and all values are rounded to the nearest Rand.Statement of ComplianceThe Consolidated Financial Statements of the Group have been prepared in accordance with International Financial ReportingStandards (IFRS) and the requirements of the South African Companies Act, Act 61 1973 as amended. This is the first time adoptionof International Financial Reporting Standards in accordance with IFRS1, having previously prepared its Financial Statements inaccordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP).Basis of ConsolidationExcept for the subsidiary Fifteen Melle Street (Proprietary) Limited, which has a year end at 28 February the Financial Statements ofthe subsidiaries are prepared for the same reporting year as the parent company, which ends on 30 June each year. The year end ofFifteen Melle Street (Proprietary) Limited is currently in the process of being changed to 30 June. Subsidiaries are entities controlledby the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policiesof an entity, so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date of acquisition, being the dateon which the SAMRO Group obtains control, and continue to be consolidated until the date that such control ceases.All intra-group balances, transactions, income and expenses, profits and losses resulting from intra-group transactions that arerecognised in assets are eliminated in full.Minority interests represent the portion of net income or loss and net assets in Fifteen Melle Street (Proprietary) Limited, not heldby the Group, and are presented separately in the Income Statement and separately within Funds and Reserves in the ConsolidatedBalance Sheet. These Financial Statements incorporate accounting policies that have been consistently applied to both yearspresented. The Company’s Financial Statements include investments in subsidiaries at cost.1.3 Transition to IFRS FrameworkThe accounting policies adopted are consistent with those of the previous financial year, except that the Group has adopted IFRS andthe relevant new or revised accounting standards mandatory for financial years beginning on or after 1 January 2005. The changesin accounting policies result from adoption of the following new or revised standards:• IAS 12 Income Taxes.• IAS 16 (revised) Property and Equipment.• IAS 19 (revised) Employee Benefits.In terms of applying IFRS1 to convert to IFRS as at the transition date of 1 July 2004, the effect of the transition on the Balance Sheet fromthe previous year’s Report based on GAAP, to the current restated amounts, is disclosed below. The voluntary exemptions providedfor by IFRS1 which Management elected to adopt, relate to IFRS for the following business combinations of previously recognizedfinancial instruments. The Group has elected not to apply retrospectively the requirements of IFRS3 (Business Combinations) totransactions that occurred prior to 1 July 2004. The Group has also elected not to re-designate previously recognised financialinstruments. The adoption of IFRS did not affect the cash flow. The net increase in the non-distributable reserve Revaluation Reserveof R4million arose due to the revaluation of Property and Equipment as indicated.17

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 20061.3.1. Deferred TaxTo comply with IFRS, the Company has now adopted the policy of providing for deferred taxation as disclosed in the notes onsignificant accounting policies. The implementation of this policy resulted in the following adjustments. [Refer to Note 12].COMPANYGROUPDeferred Tax AdjustmentDeferred Tax on leave and bonus provision as at 2004Deferred Tax on leave and bonus provision as at 2005Deferred Tax on asset re-assessment 2004Deferred Tax on asset re-assessment 2005Deferred Tax on leave and bonus provision as at 2006Deferred Tax on asset re-assessment 2006Total effect of IFRS on deferred taxTotal effect of IFRS on deferred tax liabilities 2005Total effect of IFRS on deferred tax assets 20062006838 727(101 920)736 807-105 5522005844 173307 961(1 666 581)(116 808)(631 255)(631 255)-2006838 727(101 920)736 807-105 5522005844 173307 961(1 666 581)(116 808)(631 255)(631 255)-1.3.2 Property and EquipmentThe adoption of IFRS necessitated a revised estimation of useful lives and residual values, resulting in an adjustment to accumulateddepreciation, revaluation reserve, funds, general reserve and deferred taxation. [Refer to Note 10].COMPANYGROUPEffect on values of Property and EquipmentCarrying value before re-assessment of residual values and useful livesIncrease in Property and Equipment due to the re-assessment ofresidual values and useful lives in terms of IAS 16 in 2004Increase in Property and Equipment due to the re-assessment ofresidual values and useful lives in terms of IAS 16 in 2005Increase in Property and Equipment due to the re-assessment ofresidual values and useful lives in terms of IAS 16 in 2005Total Property and Equipment after IFRS Adjustment200610 764 692351 44811 116 140Restated20054 630 9925 746 831402 78610 780 609200617 733 104351 44818 084 552Restated200511 693 5285 746 831402 78617 843 145Effect on Funds and ReservesIncrease to Net Distributable Reserve due to the re-assessmentof Property, Plant and Equipment Values as at 1 July 2004Adjustment due to the re-assessment of useful life of Property,Plant and Equipment in terms of IAS16Increase in General Reserves due to the effect of Deferred TaxTransfer to Minority Share Holders InterestTotal Effect of IFRS Adjustments on Retained IncomeTotal General Reserves after IFRS Adjustment4 924 425249 528838 727-6 012 68015 643 8224 080 252844 172--4 924 42413 907 0155 021 724249 528838 727-6 109 97917 350 0704 080 252844 172-97 2995 021 72316 411 256IFRS Effect on 2005 Balances reportedaccording to GAAP – Income Statement2005COMPANYIFRSAdjustmentsRestated20052005GROUPIFRSAdjustmentsRestated2005IncomeBequests and Donations ReceivedAdministration ExpensesRecognition of Negative GoodwillNet Operating IncomeShare of Profit Attributable to Subsidiarybefore control acquiredDistribution Adjustment Prior YearsAmount Distributable before TaxationDistributionNet Income before TaxationTaxationNet Income before Social andCultural AllocationSocial and Cultural Allocation192 062 72867 301(42 074 714)150 055 3152 276 456152 331 771(143 898 307)8 433 464(1 925 471)6 507 993(5 257 993)402 786402 786402 7865 153 8755 556 661191 1535 747 814(5 153 876)192 062 72867 301(41 671 928)150 458 1012 276 456152 734 557(138 744 432)13 990 125(1 734 318)12 255 807(10 411 869)205 514 93067 301(42 406 277)34 000163 209 95499 2682 276 456165 585 678(156 079 378)9 506 300(2 189 436)7 316 864(5 521 512)402 786402 786402 7865 153 8755 556 661191 1535 747 814(5 153 876)205 514 93067 301(42 003 491)163 612 74099 2682 276 456165 988 464(150 925 503)15 062 961(1 998 284)13 064 677(10 675 387)Net Surplus before Transfer to Fundsand Reserves1 250 000593 9381 843 9381 795 352539 9382 389 29019

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 20061.3.3 Retained EarningThe adoption of IFRS necessitated the adoption of deferred tax and the revised estimation of useful lives and residual values ofproperty and equipment, the resulting net adjustments being taken to general reserve. [Refer to Notes 1.5. 17, 8, 1 & 12].Effect on General Reserves in Terms of IFRS1Balance at the beginning of the periodNet Transfer from Retained IncomeRestating Comparative Figures onUseful Life AdjustmentLess Deferred Tax Adjustment onUseful life reinstatementDeferred Tax on Leave, Bonuses restating 2004Deferred Tax on Leave, Bonuses restating 2005Adjustment for revaluation Reserves – 2004Adjustment for revised depreciation – 200420057 888 653500 000COMPANYIFRSAdjustments402 785(116 808)844 172307 9615 746 832(1 666 580)Restated20057 888 653500 000402 785(116 808)844 172307 9615 746 832(1 666 580)20059 847 5421 045 352GROUPIFRSAdjustments402 785(116 808)844 172307 9615 746 832(1 666 580)Restated20059 847 5421 045 352402 785(116 808)844 172307 9615 746 832(1 666 580)Balance at the End of the Year8 388 6535 518 36213 907 01510 892 8945 518 36216 411 2561.3.4 Employee BenefitsAs of 1 July 2005, the Group adopted IAS 19. As a result, additional disclosures are made, providing information about trends in the assetsand liabilities in the defined benefit plans, and the assumptions underlying the components of the defined benefit cost. This change inaccounting policy has resulted in extra disclosure being included for the years ending 30 June 2005 and 30 June 2006. [Refer to Notes 1.5.20,16 and 29].1.4 Significant Accounting Judgements and EstimatesJudgementsIn the process of applying the Group’s accounting policies, Management is required to make the following judgements, estimatesand assumptions that effect the amounts represented in the Financial Statements and related disclosures.Estimation UncertaintyUse of available information and the application of judgements are inherent in the formation of estimates. Actual results in thefuture could differ from these estimates which may be material to the Financial Statements.Significant judgements and estimates include the determination of the following:1.4.1 Recognition of Licence RevenueLicence revenue arises out of annual invoiced blanket licence assessments, except for major broadcasters, which are assessed on amonthly basis. Except for major broadcasters, Management judge it imprudent to accrue as invoiced licence assessments, revenue,until the realisation is virtually assured. This judgement is influenced by historical experience inherent in the business environmentof such music users, and relates to the uncertainty of recovery of invoiced licence assessments due, because of factors such as thechange in ownership of establishments and their “going concern” status. [Refer to Note 1.5.1].1.4.2 Determination of Social and Cultural Allocations, Transfers to/from Reserves and Amounts for DistributionIn determining the Amounts for Distribution, Management, together with the Board, use their judgement to decide upon theamounts to be set aside for future development, and for Social and Cultural Allocations. The amounts transferred to or from theGeneral Reserve and Development Reserve, and the Amounts for Distribution, are consequently determined. [Refer to Note 1.5.6].s1.4.3 Carrying Value of Property and EquipmentIn determining the carrying value of property and equipment, Management exercise their judgement in the estimation of usefullives and residual carrying values of individual and groups of assets. [Refer to Notes 1.3.2, 1.5.7 and 10].1.4.4 Carrying Value held to Maturity Investments and/or Loans and ReceivablesThe Group assesses its Trade Receivables / Held to Maturity Investments and/or Loans and Receivables for impairment at eachBalance Sheet date. In determining whether an impairment loss should be recorded in the Income Statement, the Group makesjudgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from afinancial asset. [Refer to Notes 1.5.11-14, 2.3 and 13].20

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 20061.4.5 Distributions in ProgressManagement exercise their judgement in determining the number of prior distribution periods provided for, and the valuation ofdistributions in progress. [Refer to Notes 1.5.4/5, 4 and 19].1.4.6 Carrying Value for Slow Moving, Damaged and Obsolete StockManagement have made estimates of the selling price and direct cost to sell on certain inventory items, and use their judgementin the write down of stock to the lower of cost or net realisable value. [Refer to Notes 1.5.16 and 15].1.4.7 Impairment TestingThe recoverable amounts of cash-generating units and individual assets arse reviewed at the end of the fiscal year and have beendetermined based on the higher of “value-in-use” calculations and fair values. These calculations require the use of estimates andassumptions which is subject to risk and uncertainties. It is reasonably possible that the assumption may change which may thenimpact on estimations and may then require a material adjustment to the carrying value of assets.1.5 Principle Accounting PoliciesThe following are the principle accounting policies which unless otherwise stated conform to IFRS. These policies are consistentfor both years disclosed.1.5.1 Income and Revenue RecognitionIncomeIncome for the Group is all increases in economic benefits during the accounting period that result in increases in members’ fundsavailable for distribution. Income comprises both revenue and gains.RevenueRevenue for the Group is determined as income that arises in the course of ordinary activities in the organisation. Revenue forthe Group comprises revenue earned from licensing activities, dividends, interest revenue, rental revenue, investment activities,administration fees and the hire and sale of dramatic literature. Revenue excludes profit or losses from the sale of property, plantand equipment as well as from the sale of investments. Revenue is recognised to the extent that it is virtually certain that economicbenefits will flow to the Group and the amount of revenue can be reliably measured. [Refer to Note 2].1.5.2 Licensing and Royalty OperationsLicence fees are based on licence assessments for the use of music within the Group’s repertoire. Licence fees for publicperformance are recognised only to the extent it is virtually certain that economic benefits will flow. Licence assessments notrecognised due to the uncertainty of their realisation are accrued to the following year. Licence fees for major broadcasters areaccounted for on an accrual basis. Foreign Royalty Income received from Affiliated Societies attributable to music represents theroyalties within SAMRO’s repertoire in those territories and is recognised on a receipt basis, as SAMRO neither determines norinvoices this income.Licence fees for literary, dramatic and artistic works are accounted for on an accrual basis. [Refer to Note 2].1.5.3 Non-Licensing OperationsInterest and DividendsExcept for interest on Government Bonds and Stocks, interest is recognised on a time proportion basis according to the effectiveinterest rate method which takes into account the effective yield on the asset over the period it is expected to be held. Intereston Government Bonds and Stocks is recognised on an accrual basis, interest is raised at year end for the proportionate share ofinterest earned but not yet received up to the accounting date. Dividends are recognised on declaration when due.RentRent is recognised over the accounting period and is accrued in the Financial Statements based on the underlying rentalagreements.Administration FeesAdministration fees are recognised on the basis of pre-determined rates in terms of existing service agreements and are accruedmonthly and confirmed annually. [Refer to Note 2].21

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 20061.5.4 Distribution Adjustments Prior YearsAmounts pertaining to distributions in progress, which remain undistributed after a period of four years as well as allocations for publicdomain shares and distribution corrections are written back to current income for re-distribution in the Income Statement. [Refer to Note 4]1.5.5 DistributionThis amount represents net revenue from licence revenue available for allocation in royalty distributions and net non-licencerevenue for allocation in the non-licence revenue distribution per the Income Statement. Royalty distributions are standardprocesses, whereby net licence income from the licensing of Public Performance, Broadcast and Diffusion Rights in musicalworks, owned by those whose rights are administered by SAMRO is allocated in the form of royalties to those rights holderswhose musical works were logged as performed, broadcast or played by licensed users of music. The Non-Royalty Distributionsare standard processes, whereby non-licence revenue is allocated to members and Affiliated Societies in accordance with theorganisation’s established rules, practices and procedures. [Refer to Notes 5 and 18].1.5.6 Transfers to Social and Cultural FundsAllocations to Social and Cultural Funds are made expressly for the purpose of the social well being of writer members andpromotion of the national arts, and are determined and approved by SAMRO’S Board of Directors. The allocation comprisesbequests and donations received and a deduction from net SAMRO licence revenue. The deduction is made in terms of theprovisions contained in the standard CISAC approved reciprocal agreement as adopted by SAMRO. Net SAMRO licence revenueis determined by deducting from gross licence revenue from SAMRO territory and licensing administration expenses. [Refer toNotes 7 and 20].1.5.7 Property and EquipmentAn item of property and equipment is recognised as an asset when:- it is probable that future economic benefits associated with the item will flow to the entity; and- the cost of the item can be measured reliably.Property and equipment is recorded at cost of acquisition. Costs include costs incurred initially to acquire or construct an itemof property and equipment and costs incurred subsequently to add to, replace part of, or refurbish the asset. Subsequent toinitial acquisition costs are capitalised if the criteria for recognition of an asset are met. Borrowing cost incurred in respect ofassets requiring a substantial period of time to prepare for the intended future use are capitalised to the date that the assets aresubstantially completed. [Refer to Note 10].1.5.8 Land and BuildingsFreehold land and buildings are held as either owner occupied or investment property. [Refer to Note 10].1.5.9 Owner Occupied - SAMRO HouseThis property is considered as an owner occupied property and is stated at cost, less accumulated depreciation and anyimpairment in value. The building and improvement costs are depreciated on a straight-line basis over the expected economiclife of the property. The Group’s policy in respect of this property is to obtain an independent valuation of the property on aregular basis. This value is disclosed in the Financial Statements.1.5.10 EquipmentEquipment, consisting of Furniture and Fittings, Computer Information Systems and Motor Vehicles are shown at cost, lessaccumulated depreciation and any impairment losses. Works of Art, included in Furniture and Fittings are not depreciated asthey are deemed to appreciate in value. [Refer to Note 10].1.5.11 DepreciationDepreciation is provided on all property and equipment, other than freehold land, to write down the cost, less residual value, ona straight line basis over their useful lives are as follows:- Fixed Property - Office Block 2.0%- Furniture, Fittings and Equipment - 16.67% to 20%- Computer Information Systems -16.67% to 33.33%- Motor Vehicles - 20%22

NOTES TO FINANCIAL STATEMENTSThe residual value and the useful life of each asset group are reviewed at each financial year-end. Each part of an item of propertyand equipment, with a cost that is significant in relation to the total cost of the item shall be depreciated separately.The depreciation charge for each period is recognised in the Income Statement and is re-assessed annually.The gain or loss arising from de-recognition of an item of property and equipment is included in the Income Statement when theitem is de-recognised. The gain or loss arising from de-recognition of an item of property and equipment is determined as thedifference between the net disposal proceeds, if any, and the carrying amount of the item. [Refer to Note 10].1.5.12 Investment PropertiesFifteen Melle StreetInvestment property comprises land or buildings held to earn rentals or for capital appreciation or both. The cost model isapplied in accounting for investment property, i.e. the investment property is recorded at cost less any accumulated depreciationand impairment losses.Investment property is recognised as an asset when, and only when, it is probable that the future economic benefits that areassociated with the investment property will flow to the enterprise and the cost of the investment property can be measuredreliably. Investment property is initially recorded at cost of acquisition subsequently the property is depreciated.Subsequent to initial measurement, any additions to the investment property are measured at cost and any impairment isrecognised and recorded in the revaluation reserve.Fair values are obtained through independent bi-annual valuations to provide additional comparative information. [Refer to Note 10.1].1.5.13 Other InvestmentsInvestments which the Group intends to hold for longer than a year, are considered to be long-term assets and are classified asnon-current assets. Other investments are valued at fair value. [Refer to Note 13].1.5.14 Financial InstrumentsFOR THE YEAR ENDED 30 JUNE 2006Fair ValueThe carrying value of all financial instruments, other than investments, is considered to approximate fair value. The fair valueof investments is disclosed in the Financial Statements and notes to the Financial Statements and is considered to approximatetheir current values. These values may differ from those ultimately realised.Credit RiskThe Group’s material exposure to credit risk is in its investments, receivables, deposits and cash balances. Receivables representamounts owed to the Company by major broadcasters in terms of their licence agreements. Deposits and cash balances areall invested at reputable financial institution. Listed investments are purchased with the intention of being held for the longtermand are recorded at market value, these portfolios are managed by reputable professional investment managementfirms. Secured participation mortgage bonds are placed with reputable institutions. Investment levels and risk are periodicallyreviewed by an investment committee.Interest Rate RiskDeposits and cash balances all carry interest rates that are keenly negotiated and vary in response to money market rates.Liquidity RiskThe Group’s liquidity risk is its exposure to meet is royalty distribution obligations in terms of predetermined distribution dates aswell as being able to meet its operational financial obligations when they fall due. This risk is managed by regularly undertakingcash flow projections and ensuring that the appropriate level of funds are invested in such instruments that are readily convertibleto cash as and when requested.Financial instruments recognised on the Balance Sheet include cash and cash equivalents, other investments, trade and otherreceivables and trade and other payables.Initial recognition and measurementThe Group classifies financial instruments or their component parts on initial recognition as a financial asset, a financial liabilityor an equity instrument in accordance with the substance of the contractual arrangement. All financial instruments are initiallyrecognised at fair value. Transaction costs for financial instruments not classified as fair value through profit and loss are includedin the carrying amount of the financial asset.23

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006Investments are recognised and de-recognised on a trade date basis where the purchase or sale of an investment is under acontract, whose terms require delivery of the investment within the timeframe established by the market concerned.Subsequent measurementSubsequently the financial instruments are accounted for as follows:Cash and Cash EquivalentsCash and short-term deposits in the Balance Sheet comprise cash at banks and in hand deposits in money market accountsand short-term deposits with an original maturity of three months or less. For the purpose of the Consolidated Cash FlowStatement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.The carrying amount of cash and cash equivalents is stated at cost which approximates fair value. [Refer to sNote 27].Other InvestmentsOther Investments are classified as “available – for-sale” financial assets, subsequently measured at fair value. Fair value forlisted investments is the active market value per the stock exchange listing price, whereas fair value for unlisted investmentsis estimated to be cost due to no other reliable active market value. Gains and losses arising from changes in fair value arerecognized as a separate component of equity until the investment is sold or otherwise disposed of, or until the investment isdetermined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the IncomeStatement for the period. All listed investments are held in this category. [Refer to Note 13].Trade and Other ReceivablesTrade receivables are subsequently carried at cost less impairment based on appropriate allowances being made for estimatedirrecoverable amounts when there is objective evidence that the asset is impaired. The allowance recognised is measured as thedifference between the asset’s carrying amount and the value of estimated future cash flows. [Refer to Note 14].Trade and Other PayablesTrade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interestrate method. [Refer to Note 21].1.5.15 Key Management PersonnelKey Management Personnel are those personnel who by virtue of their office are able to influence strategic decisions. Managementconsider key management to include Non Executive Directors, Executives and General Managers. [Refer to Note 9].1.5.16 InventoryInventory comprising of publications of literary, dramatic, and musical dramatic works for sale or for hire. Inventory is valued atthe lower of cost or net realisable value using the weighted average method. When inventories are sold, the carrying amountsof those inventories are recognised as an expense in the period in which the related revenue is recognised. The amount of anywrite-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period thewrite-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisablevalue, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversaloccurs. [Refer to Note 15].1.5.17 Deferred TaxationDeferred taxation is provided in full, using the Balance Sheet liability method, for all timing differences arising between the taxbases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted, or where appropriate,substantially enacted tax rates are used to determine deferred taxation.Using this method, the Group is required to make provision for deferred taxation, in relation to an acquisition, on the differencebetween the fair values of the net assets acquired and their tax base. Provision for taxes, mainly withholding taxes, which couldarise on the remittance of retained earnings, is only made if there is a current intention to remit such earnings.The principal timing differences arise from depreciation on property and equipment, other intangibles, provisions and othercurrent liabilities, income received in advance and tax losses carried forward. Deferred taxation assets are recognised to theextent that it is probable that future taxable income will be available against which timing differences and unused tax losses canbe utilised. [Refer to Note 12].24

1.5.18 Funds and ReservesNOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006General ReserveTransfers to or from the reserves are at the discretion of the Board. The retained income of the Dramatic, Artistic and Literary RightsOrganisation (Proprietary) Limited (DALRO), the unexpended grants in Gratia Artis (Proprietary) Limited, and the Company’s attributableshare of the subsidiary company’s retained income since acquisition are treated as part of the General Reserve. [Refer to Note 8.1].Development FundTransfers to the fund are at the discretion of the Board with the object of setting aside amounts deemed necessary for future regionalcopyright administration, technological and business development within the Group. The utilisation of this fund comprises identifiedexpenditure incurred which is considered to be related to development and is recorded as transfer from the fund. [Refer to Note 8.2].1.5.19 Distribution in ProgressDistributions in progress comprise amounts pertaining to royalty allocations made in the previous four distribution periods, toworks or rights holder shares that cannot be distributed in accordance with established distribution rules, standards, practicesand procedures. These allocations are retained to allow on-going research in respect of identification of the works and rightsholder shares and obtaining the necessary documentation and complying with the required documentation update procedures.Until such time as the necessary identification, contractual information and other documentation is obtained and processedsuch royalties cannot be correctly distributed. The amounts are retained until such time as they are duly distributed as royaltiesor written back to income. [Refer to Note 5].1.5.20 Employee BenefitsRetirementThe Company has a retirement benefit plan for all permanent employees that provide amongst other benefits a pension of 1/50thof final emolument per year of pensionable service. The full details of the benefits payable by the scheme can be found in theregistered rules of the scheme. The plan is an approved defined benefit plan and is governed by a Board of Trustees in accordancewith the Rules of the Fund and the Pension Funds Act of 1956 as amended in terms of which valuations should be performed everythree years. Any shortfall that may occur is required to be funded by the Company and written-off against income.The retirement benefit plan is funded by payments from employees and the Company, taking account of the recommendationsof independent actuaries. Current contributions to the pension fund operated by the Company employees are charged againstincome as incurred. The liability to pay the pensioners has been outsourced by the fund. The pension plan assets are invested in abalanced portfolio managed by Trail Finders (Pty) Ltd and administered by Investment Solutions (Pty) Ltd and direct investmentin shares.In the case of the defined benefit fund the related benefit costs and obligations are assessed using the projected unit creditmethod. Under this method, the cost of providing benefits is charged to the Income Statement so as to spread the regular costsover the service lives of employees in accordance with the advice of the actuaries who perform a statutory valuation of the planevery three years. The net surplus or deficit in the benefit obligation is the difference between the present value of the fundedobligation and the fair value of plan assets. Where a positive funded status is disclosed , no asset has been recognised by theCompany. The disclosure of funded status does not necessarily indicate any assets available to the Company.The portion of actuarial gains and losses recognised is the excess over the greater of:10% of the present value of the defined benefit obligation at the end of the previous reporting period (before deducting planassets); and 10% of the fair value of any plan assets at the same date, divided by the expected average remaining working livesof the employees participating in the fund. [Refer to Notes 16 and 29].Ownership of SurplusThe funded status disclosed in the valuation of the fund for accounting purposes can be significantly different from that disclosedby a funding valuation. The surplus assets disclosed by the accounting valuation have been treated in the manner prescribed byIAS 19. Ownership of surplus in a pension fund has historically been a contentious issue, but has now been addressed by way of thePension Funds Second Amendment Act. The disclosure of the funded status is for accounting purposes only, and does not indicateavailable assets to the Company.MedicalThe Company provides defined benefit health care for the benefit of the employees. The present value of the post employment medicalbenefits for retired employees is actuarially determined annually using the projected unit credit method and any deficit is recognisedimmediately in the Income Statement. This benefit is unfunded. [Refer to Note 16].Short-Term BenefitsThe cost of all short-term employee benefits, such as salaries, bonuses, housing allowances, medical and other contributions arerecognised during the period in which the employee renders the related service.25

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 20061.5.21 ProvisionsProvisions are recognised where the Group has a present legal or constructive obligation as result of a past event, a reliable estimate ofthe obligation can be made and it is probable that an outflow of resources embodying economic benefits will be required to settle theobligation. [Refer Note 22].1.5.22 Foreign CurrenciesForeign currency transactions are recorded at the exchange rate ruling on the transaction date. Assets and liabilities designatedin foreign currencies are translated at rates of exchange ruling at Balance Sheet date. Foreign currency gains and losses arecharged to the Income Statements.COMPANYGROUP2. INCOME2.1 LICENCE AND ROYALTY INCOMEMusic RightsPerforming Rights – South AfricaPerforming Rights – Outside South AfricaTotal SAMRO TerritoryRoyalties from Affiliated SocietiesTotal Music RightsLiterary and Dramatic RightsReprographic Reproduction Income- Blanket- TransactionalOther Licences- Primary Rights- HiringTotal Literary and Dramatic Rights2006R229 057 272185 087 049184 590185 271 6394 392 101189 663 740Restated2005R192 062 728163 578 363460 271164 038 6343 526 773167 565 4072006R250 964 402185 087 049184 590185 271 6394 392 101189 663 74011 947 0497 528 07419 475 1231 857 420194 6682 052 08821 527 211Restated2005R205 514 930163 578 363460 271164 038 6343 526 773167 565 4074 833 7787 954 32612 788 1042 417 046231 4232 648 46915 436 573Sundry and Grand Rights81 011142 33582 097142 335Total Licence and Royalty Income189 744 751167 707 742211 273 048183 144 3152.2 SUBSIDIARY COMPANIESInterestAdministration, Computer and Management FeesTotal Income from Subsidiary Companies400 8523 918 7724 319 62494 0982 469 8502 563 9482.3 INVESTMENTSListed InvestmentsDividendsInterest from Debentures and Loan StockGain on Disposal of InvestmentsTotal Income from Listed InvestmentsUnlisted InvestmentsDividendsInterest from Bonds and NotesInterest from Short Term Investments6 098 3435 102 04813 870 08325 070 474-3 767 3795 039 0188 806 3973 358 5294 626 3194 630 57512 615 423-4 021 6834 218 5638 240 2466 098 3435 102 04813 870 08325 070 474-3 767 3795 918 2459 685 6243 358 5294 626 3194 630 57512 615 4236 1434 021 6835 014 2219 042 047Total Income from Investments33 876 87120 855 66934 756 09821 657 47026

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP2.4 OTHER INCOMEAdministration FeesOther InterestRentSundry Incidental IncomeGain on Disposal of Property and EquipmentHire and Sale of Dramatic LiteratureTotal Other IncomeTotal Income2006R397 485480 021--238 520-1 116 026229 057 272Restated2005R399 881501 665-30 2093 614-935 369192 062 7282006R3 956 713488 946598 145(411 766)238 52064 6984 935 256250 964 402Restated2005R399 882501 66654 731(283 274)3 61236 528713 145205 514 9302.5 REVENUETotal IncomeGain on Disposal of InvestmentsGain on Disposal of Property and EquipmentSundry and Incidental IncomeTotal Revenue229 057 272(13 870 083)(238 520)-214 948 669192 062 728(4 630 575)(3 614)(30 209)187 398 330250 964 402(13 870 083)(238 520)411 766237 267 565205 514 930(4 630 575)(3 612)283 274201 164 0173. ADMINISTRATION EXPENSESAccommodation CostsOperating CostsPersonnel CostsPost Employment Medical BenefitsMarketing CostOther CostsTotal Administration ExpensesIncluded in Other Costs are:Auditors RemunerationFees – Current ProvisionFees – Under Provision Previous YearsPrevious YearsOther Services52 583 1401 923 20110 143 96133 199 5041 038 0004 337 4581 941 01652 583 140787 000(9 837)--777 16341 671 9281 907 3729 895 43225 508 915976 000878 8652 505 34441 671 928420 00032 159240 00042 750734 90953 683 11937 44013 018 35633 231 4231 038 0004 416 8841 941 01653 683 119865 340(9 837)--855 50342 003 491128 95712 061 18025 505 504976 000878 8652 452 98542 003 491492 64032 159240 00042 750807 549Investment Managers’ FeesIncluded in Operating Costs:DepreciationFurniture and EquipmentComputer Information SystemsMotor VehiclesBuilding Fixtures and EquipmentBuildings786 037270 659921 175206 615--1 398 449646 460234 720897 417123 461--1 255 598792 287270 659921 175206 615115 77569 6761 583 900652 710234 720897 417123 461111 75469 2301 436 5824. DISTRIBUTION ADJUSTMENTS PRIOR YEARSComprises undistributed distribution in progressamounts and Public Domain shares written backand distribution corrections and adjustments1 740 0721 740 0721 740 0722 276 4562 276 4562 276 4561 740 0721 740 0721 740 0722 276 4562 276 4562 276 45627

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP5. DISTRIBUTIONLicence and RoyaltyNon-RoyaltyTotal Distribution2006R156 242 768123 870 05832 372 710156 242 768Restated2005R138 744 432115 035 90823 708 524138 744 4322006R172 349 979136 798 47835 551 501172 349 979Restated2005R150 925 503127 216 97923 708 524150 925 5036. TAXATIONCurrent charge S.A. Normal TaxDeferred TaxTotal Taxation3 794 5694 531 376(736 807)3 794 5691 734 3181 925 471(191 153)1 734 3183 495 5644 232 371(736 807)3 495 5641 998 2842 189 437(191 153)1 998 284Reconciliation of the Tax RateStandard Rate of TaxAdjust for:Current DistributionsDistribution Adjustments Prior YearsDisallowable ExpenditureNon Taxable IncomeTax Deductible Social and Cultural GrantsInterest and PenaltiesEffective Tax Rate29.00%(25.67%)(0.29%)0.23%(1.06%)(0.12%)0.04%2.13%29.00%(27.40%)(0.43%)0.90%(0.68%)(0.13%)-1.26%29.00%(25.72%)(0.26%)0.22%(1.37%)(0.11%)-1.76%29.00%(27.44%)(0.40%)0.80%(0.73%)(0.12%)0.11%1.22%7. SOCIAL AND CULTURAL ALLOCATIONSocialCulturalTotal Social and Cultural Allocation11 011 2525 175 0945 836 15811 011 25210 411 8695 205 9345 205 93510 411 86916 695 9625 175 09411 520 86816 695 96210 675 3875 205 9345 469 45310 675 3878. TRANSFERS TO FUNDS AND RESERVES7 236 8071 843 9386 551 0422 389 2908.1 General Reserve:Subsidiary Net after Tax IncomeTransfer to General ReserveIFRS Adjustment not TransferredIFRS Adjustment to opening Retained IncomeDeferred TaxTotal Transfer to General Reserve-1 000 000--736 8071 736 807-500 000593 9384 924 424-6 018 362(797 993)1 000 000--736 807938 814545 351500 000593 9384 924 425-6 563 7148.2 Technological Development Fund:Transfer from Development FundTransfer to Development FundTotal Transfer to Technological DevelopmentFund(2 016 570)7 516 5705 500 000(1 120 166)1 870 166750 000(2 016 570)7 516 5705 500 000(1 120 166)1 870 166750 000Total Transfers to Funds and ReservesTransfer Minority Shareholders InterestOut of IFRS Adjustment to opening RetainedIncome7 236 807--6 768 362-(4 924 424)6 438 814112 228-7 313 71497 299(5 021 723)Out of Surplus per Income Statement7 236 8071 843 9386 551 0422 389 29028

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP9. KEY MANAGEMENT EMOLUMENTSFrom the Company and its controlled Subsidiariesfor:DirectorsShort Term Benefits- Non-Executive Directors’ Fees- Executive Directors’ Fees- Salaries and Bonuses- Pension and Medical Aid Contributions- Other Fringe BenefitsTotal Directors’ Short Term EmolumentsPost Retirement- Estimated Post Retirement BenefitsTotal Directors’ EmolumentsPaid by- Company- SubsidiariesTotal PaidOther Key ManagementShort Term Benefits- Salaries and Bonuses- Pension and Medical- Other Fringe BenefitsTotal Key ManagementPost Retirement- Estimated Post Retirement BenefitsTotal Other Key Management Emoluments2006R5 998 078240 73055 9903 482 587618 358104 6814 502 346546 3375 048 6834 474 74627 6004 502 346594 706120 33595 520810 561138 834949 395Restated2005R5 099 567244 68055 9903 075 512544 906102 6974 023 785502 2224 526 0073 996 18527 6004 023 785330 30264 47851 157445 937127 623573 5602006RRestated2005RTotal Key Management Emoluments5 998 0785 099 567Number of Non-Executive DirectorsNumber of Executive Directors of the GroupNumber of General ManagersA service agreement exists betweenthe Company and the CEOMonths in OfficeG R A E HooijerA M JohnstonM N MotsatseB G RobinsonL van WykG ZoghbyTenFourTwo12121212125TenFourOne12121212--29

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP10. PROPERTY AND EQUIPMENTLand and BuildingsProperty – SAMRO House & Fifteen Melle StreetBeginning of the YearCostAccumulated DepreciationCarrying Amount at the Beginning of the YearAdditionsDisposalsDepreciationCarrying Amount at the End of the YearSummaryAssets at CostAccumulated DepreciationNet Carrying Amount at the End of the YearOffice Furniture and EquipmentBeginning of the YearCostAccumulated DepreciationIFRS Accumulated Depreciation AdjustmentCarrying Amount at the Beginning of the YearAdditionsDisposalsDepreciation Charge for the YearDepreciation AdjustmentsNet Carrying Amount at the End of the YearSummaryAssets at CostAccumulated DepreciationNet Carrying Amount at the End of the Year2006R11 116 1403 781 849(1 673 172)-2 108 677270 611(180 423)(270 659)228 7352 156 9413 872 037(1 715 096)2 156 941Restated2005R10 780 6093 850 806(3 051 648)1 338 8682 138 026214 843(9 472)(255 965)21 2452 108 6774 056 177(1 947 500)2 108 6772006R18 084 5536 698 838(588 070)6 110 76863 650-(69 676)6 104 7426 762 488(657 746)6 104 7423 781 849(1 673 172)-2 108 677270 611(180 423)(270 659)228 7352 156 9413 872 037(1 715 096)2 156 941Restated2005R17 843 1454 161 517(518 840)3 642 6772 537 321-(69 230)6 110 7686 698 838(588 070)6 110 7683 850 806(3 051 648)1 338 8682 138 026214 843(9 472)(255 965)21 2452 108 6774 056 177(1 947 500)2 108 677Computer Information SystemsBeginning of the YearCostAccumulated DepreciationIFRS Accumulated Depreciation AdjustmentCarrying Amount at the Beginning of the YearAdditionsDisposalsDepreciation Charge for the YearDepreciation AdjustmentCarrying Amount at the End of the YearSummaryAssets at CostAccumulated DepreciationNet Carrying Amount at the End of the Year12 639 737-(4 563 619)8 076 118955 388(40 721)(921 176)4 8018 074 41013 554 404(5 479 994)8 074 41011 511 475(8 107 466)4 441 2647 845 2731 128 262-(1 249 403)351 9868 076 11812 639 737(4 563 619)8 076 11812 639 737-(4 563 619)8 076 118955 388(40 721)(921 176)4 8018 074 41013 554 404(5 479 994)8 074 41011 511 475(8 107 466)4 441 2647 845 2731 128 262-(1 249 403)351 9868 076 11812 639 737(4 563 619)8 076 11830

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUPMotor VehiclesBeginning of the YearCostAccumulated DepreciationIFRS Accumulated Depreciation AdjustmentCarrying Amount at the Beginning of the YearAdditionsDisposalsDepreciation Charge for the YearDepreciation AdjustmentCarrying Amount at the End of the YearSummaryAssets at CostAccumulated DepreciationNet Carrying Amount at the End of the Year2006R1 216 457-(620 644)595 813585 691(573 843)(206 615)483 741884 7871 228 305(343 518)884 787Restated2005R640 625(463 883)(33 300)143 442575 832-(153 015)29 554595 8131 216 457(620 644)595 8132006R1 216 457-(620 644)595 813585 691(573 843)(206 615)483 741884 7871 228 305(343 518)884 787Restated2005R640 625(463 883)(33 300)143 442575 832-(153 015)29 554595 8131 216 457(620 644)595 813Building Fixtures and EquipmentBeginning of the YearCostAccumulated DepreciationCarrying Amount at the Beginning of the YearAdditionsDisposalsDepreciation Charge for the YearNet Carrying AmountSummaryAssets at CostAccumulated DepreciationNet Carrying Amount at the End of the Year1 501 367(549 598)951 76927 676-(115 775)863 6701 529 043(665 373)863 6701 293 314(424 354)868 960194 563-(111 754)951 7691 487 877(536 108)951 769Total Property and EquipmentBeginning of the YearCostAccumulated DepreciationIFRS Accumulated Depreciation AdjustmentCarrying Amount at the Beginning of the YearAdditionsDisposalsDepreciation Charge for the YearDepreciation AdjustmentNet Carrying AmountSummaryAssets at CostAccumulated DepreciationNet Carrying Amount at the End of the Year17 638 044(1 673 171)(5 184 263)10 780 6091 811 690(794 987)(1 398 449)717 27711 116 14018 654 746(7 538 606)11 116 14016 002 906(11 622 996)5 746 83210 126 7421 918 937(9 472)(1 658 383)402 78510 780 60917 912 371(7 131 762)10 780 60925 838 248(2 810 838)(5 184 263)17 843 1451 903 016(794 987)(1 583 900)717 27718 084 55126 946 277(8 861 724)18 084 55321 457 737(12 566 191)5 746 83214 638 3784 650 821(9 472)(1 839 367)402 78517 843 14526 099 086(8 255 941)17 843 14531

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP10.1 Land and BuildingThe estimated Open Market Values of the Land andBuildings as determined by the sworn valuators areset out below- Samro HouseA fourteen storey office block on consolidatedFreehold Stand No. 4490, Johannesburg,situated in Juta Street, Braamfontein.In August 2006 the land and buildings werevalued for existing use by Independent ValuatorsMessrs. Mills Fitchet (registered Valuators andAppraisers) as at 30 June 20062006RRestated2005R2006RRestated2005RTotal Valuation Land and Buildings6 700 0004 000 000- Fifteen Melle StreetERF 2767, 2768 & 2769, Johannesburg Township,Registration Division, I.R. Transvaal in August 2006the buildings were valued for existing use byIndependent Valuators Messrs. Mills Fitchet(registered Valuators and Appraisers) as at 30 June 2006Total Valuation Land and Buildings2 850 0002 537 32111. INVESTMENT IN SUBSIDIARIES10 412 5969 347 19911.1 Shares at CostDramatic, Artistic and Literary Rights Organisation(Proprietary) LimitedGratia Artis (Proprietary) LimitedFifteen Melle Street (Proprietary) LimitedSamro House Holdings (Proprietary) LimitedTotal Cost of Shares174 17722353173 820174 177174 17722353173 820174 17711.2 Loans to SubsidiariesDramatic, Artistic and Literary Rights Organisation(Proprietary) LimitedGratia Artis (Proprietary) LimitedFifteen Melle Street (Proprietary) LimitedSamro House Holdings (Proprietary) LimitedTotal Indebtedness10 238 4192 309 7338261 058 6496 869 21110 238 4199 173 0221 743 7643761 059 0006 369 8829 173 022Total Investment in Subsidiaries10 412 5969 347 19932

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP11.3 New Business Combination Acquisition2006RRestated2005R2006RRestated2005RSAMRO Limited (parent company) combined withits former Associate Company, Fifteen Melle Street(Pty) Ltd, an established property company on 1March 2005. SAMRO Limited acquired a further 100voting shares and shareholders’ loans from existingshareholders in Fifteen Melle Street (Pty) Ltd, therebyobtaining a 59% interest and control of the Company.The cost of the acquisition was paid for in cash.Cost of the SharesCost of the LoansAcquisition of SubsidiaryThe carrying amounts of the assets prior toacquisitions and liabilities are the same asthose quoted below.The subsidiary company’s financial year end is28 February, annual income and expenditure for thesubsidiary is accounted for based on the financialinformation available.Fair Value of Assets AcquiredProperty – ERF 2768 & 2769, Johannesburg TownshipAccounts ReceivableOther InvestmentsCash & DepositsAccounts Payable & ProvisionsLong-Term LiabilitiesFair Value of Net AssetsAccumulated Profit at AcquisitionSamro ShareOutside Shareholders’ ShareTotal Accumulated Profit at 1 March 2005Total Share CapitalRevenue353841 4522 537 32041 49531 2945 676(574 500)(1 838 700)202 585119 16882 812201 980600539 458Share of Net Assets acquired during Year – 16.83%Purchase PriceExcess of Net Asset Value – Negative GoodwillCash & Cash Equivalents Acquired34 100(100)34 00013 97712. DEFERRED TAX105 552(631 255)105 552(631 255)Balance at the Beginning of the YearMovement for the YearDeferred Tax on leave and bonus provision as at 2004Deferred Tax on leave and bonus provision as at 2005Deferred Tax on asset re-assessment 2004Deferred Tax on asset re-assessment 2005Deferred Tax on leave and bonus provision as at 2006Deferred Tax on asset re-assessment 2006Total Deferred Tax(631 255)736 807838 727(101 920)105 552-(631 255)844 173307 961(1 666 581)(116 808)(631 255)(631 255)736 807838 727(101 920)105 552-631 255844 173307 961(1 666 581)(116 808)(631 255)33

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP13. OTHER INVESTMENTSCostListed SharesListed Bonds and Unitised InvestmentsListed Investments at CostUnlisted InvestmentsTotal Investments at CostFair ValueListed InvestmentsShares at Fair ValueBonds and Unitised InvestmentsTotal Listed Investments at Fair ValueUnlisted InvestmentsParticipation Bonds, Notes and OtherTotal Unlisted Investments at Fair ValueTotal Investments at Fair ValueFair Value AdjustmentTotal Investment at Fair ValueTotal Investment at CostTotal Unrealised Gain at the End of the YearTotal Unrealised Gain at the Beginning of the YearTotal Fair Value Adjustment related to otherInvestmentsOther Fair Value AdjustmentsTotal Fair Value AdjustmentA register of Listed and Unlisted Investments isavailable for inspection by members.2006R231 962 15968 087 62732 709 840100 797 46727 486 000128 283 467164 160 57240 315 587204 476 15927 486 00027 486 000231 962 159231 962 159(128 283 467)103 678 692(68 684 968)34 993 72477 19735 070 921Restated2005R184 429 49471 600 45816 736 06888 336 52627 486 000115 822 526137 908 18619 035 308156 943 49427 486 00027 486 000184 429 494184 429 494(115 822 526)68 606 968(31 711 735)36 895 23378 00036 973 2332006R232 017 40768 087 62732 709 840100 797 46727 541 248128 338 715164 160 57240 315 587204 476 15927 541 24827 541 248232 017 407232 017 407(128 338 715)103 678 692(68 684 968)34 993 72477 19735 070 921Restated2005R184 452 24671 600 45816 736 06888 336 52627 508 752115 845 278137 908 18619 035 308156 943 49427 508 75227 508 752184 452 246184 452 256(115 845 278)68 606 968(31 711 735)36 895 233(140 000)36 755 23314. TRADE AND OTHER RECEIVABLESTrade DebtorsOther ReceivablesTotal Trade and Other Receivables13 714 73812 238 7641 475 97413 714 73815 109 0009 232 8805 876 12015 109 00017 486 06515 803 6851 682 38017 486 06515 611 9809 735 8605 876 12015 611 98015. INVENTORYInventory comprises of:Books and Musical Sheets for SaleBooks and Musical Sheets for HireTotal Inventory196 91757 943138 974196 917199 86061 620138 240199 86016. POST EMPLOYMENT MEDICAL BENEFITS12 855 00011 817 00012 855 00011 817 000Net Liability ReconciliationOpening Balance of the LiabilityIncome Statement ChargeClosing Balance of the Liability11 817 0001 038 00012 855 00010 841 000976 00011 817 00011 817 0001 038 00012 855 00010 841 000976 00011 817 000Present Value of ObligationsOpening BalanceCurrent Service CostInterest CostBenefits Paid / Expected to be PaidActuarial Gain on ObligationClosing Balance of Funded Defined Benefit ObligationsA valuation was carried out by a firm of consultingactuaries on 30 June 2006. At 30 June 2006 there were109 in-service members (2005 : 102) and 9 continuationmembers (2005 : 9).10 150 000571 000849 000(332 000)1 617 00012 855 00010 841 0001 919 0003 032 000(733 000)(151 000)14 908 00010 150 000571 000849 000(332 000)1 617 00012 855 00010 841 0001 919 0003 032 000(733 000)(151 000)14 908 00034

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUPReconciliation of Income Statement ExpenseCurrent Service CostInterest CostActuarial Gain RecognisedActuarial AssumptionsDiscount RateInflation Rate2006R571 000849 0001 285 0002 705 0008.5%6.5%Restated2005R1 919 0003 032 000(884 000)4 067 0009.5%4.0%2006R571 000849 0001 285 0002 705 0008.5%6.5%Restated2005R1 919 0003 032 000(884 000)4 067 0009.5%4.0%17. LOANS (LONG-TERM LIABILITIES)747 081872 705Mortgage LoanABSA Bank LimitedSecured by First Mortgage Bond over FifteenMelle Street (Pty) LtdERF 2768 & 2769 Johannesburg Township,Registration Division, I.R. TransvaalThe interest rate on this loan for the year ended28 February 2006 was 11.75% per annum.The loan is repayable in August 2012.6 081131 705Outside Shareholders LoansInterest at 11% per annum was paid on theseloans during the year.No date has been set for repayment. And is notdue for repayment within the next 12 months.The Directors and shareholders consider this tobe a long-term liability as they are subject to theprovisions of a share holders agreement.Total Loans (Long-Term Liabilities)741 000747 081741 000872 70518. FOR DISTRIBUTIONRoyalty DistributionNon-Royalty DistributionCurrent Amount per Income StatementSocial BenefitsPrior Periods AmountsDistributions and AdvancesTotal for Distribution171 452 070123 870 05832 372 710156 242 7685 155 28813 187 234174 585 290(3 133 220)171 452 070149 028 262115 035 90923 708 523138 744 4325 153 8747 930 655151 828 961(2 800 699)149 028 262188 892 287136 798 47835 551 501172 349 9795 419 99928 939 514206 709 492(17 817 205)188 892 287159 667 373127 216 97923 708 524150 925 5035 153 87614 046 220170 125 599(10 458 226)159 667 37319. DISTRIBUTIONS IN PROGRESS59 447 51649 179 15659 447 51649 179 15619.1 Shares in Musical WorksBalance at the Beginning of the YearDistributed during the YearArising out of Distributions during the YearDistribution Adjustments Prior YearBalance at the End of the Year5 979 365(2 460 449)3 518 9164 032 4887 551 404(743 757)6 807 6475 062 199(1 649 904)3 412 2953 071 0896 483 384(504 019)5 979 3655 979 365(2 460 449)3 518 9164 032 4887 551 404(743 757)6 807 6475 062 199(1 649 904)3 412 2953 071 0896 483 384(504 019)5 979 36535

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP19.2 Musical WorksBalance at the Beginning of the YearDistributed out during the YearArising out of Distributions during the YearDistribution Adjustment, Prior YearBalance at the End of the Year2006R43 199 791(13 174 848)30 024 94327 887 12857 912 071(5 272 202)52 639 869Restated2005R35 088 170(14 112 135)20 976 03524 231 18045 207 215(2 007 424)43 199 7912006R43 199 791(13 174 848)30 024 94327 887 12857 912 071(5 272 202)52 639 869Restated2005R35 088 170(14 112 135)20 976 03524 231 18045 207 215(2 007 424)43 199 791Total Distributions in Progress59 447 51649 179 15659 447 51649 179 15620. SOCIAL AND CULTURAL FUNDS15 964 0059 099 27317 104 46810 200 75020.1 SOCIAL FUNDOther Social Funds not included in DistributionsBalance at the Beginning of the YearUtilisation during the YearCurrent Funding for the Year [Refer to Note 7]Balance at the End of the YearCopyrights Training FundBalance at the Beginning of the YearUtilisation during the YearCurrent Funding for the YearBalance at the End of the Year569 687(631 832)5 175 0945 112 949539 992(5 176 239)5 205 934569 687569 687(631 832)5 175 0945 112 949954 371(225 725)250 000978 646539 992(5 176 239)5 205 934569 687703 3081 063250 000954 37120.2 CULTURALSAMRO Endowment for the National Artsand Related ProvisionsBalance at the Beginning of the YearUtilisation during the YearCurrent Funding for the Year [Refer to Note 7]Unexpended Grants / ScholarshipsBalance at the End of the Year7 419 331(5 720 785)5 764 9662 225 4479 688 9595 617 364(4 631 245)5 138 6321 294 5807 419 3317 419 331(5 720 785)5 764 9662 225 4479 688 9595 617 364(4 631 245)5 138 6321 294 5807 419 331Bequests and DonationsBalance at the Beginning of the YearUtilisation during the YearCurrent Funding for the Year [Refer to Note 7]Balance at the End of the YearStudy Loan AdvancesBalance at the Beginning of the YearNet Movements for the YearBalance at the End of the YearBursary FundsTrewehela-Breytenbach BursaryInterestTotal Cultural1 126 055(35 150)71 1921 162 097(15 800)15 800-10 851 0561 083 904(25 150)67 3011 126 055(132 300)116 500(15 800)8 529 5861 126 055(35 150)71 1921 162 097(15 800)15 800-147 10614 711161 81711 012 8731 083 904(25 150)67 3011 126 055(132 300)116 500(15 800)133 58713 519147 1068 676 692Total Social and Cultural15 964 0059 099 27317 104 46810 200 75036

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP21. TRADE AND OTHER PAYABLESMembers and Affiliated SocietiesAccounts PayableNon-Residents Royalty Tax2006R24 996 17419 557 3565 320 944117 87424 996 174Restated2005R14 213 3328 482 9285 565 869164 53514 213 3322006R26 187 32119 557 3566 512 091117 87426 187 321Restated2005R15 574 7198 482 9286 927 256164 53515 574 71922. PROVISIONSComprise:Licence CancellationsStaff Leave Pay and BonusesTotal ProvisionsOpening BalanceNet MovementClosing Balance6 919 04254 0006 865 0426 919 0424 026 8792 892 1636 919 0424 026 87954 0003 972 8794 026 8792 964 9431 061 9364 026 8797 347 309602 2076 745 1027 347 3094 455 1462 892 1637 347 3094 575 086602 2073 972 8794 575 0863 513 1501 061 9364 575 086Leave Pay Provision is computed in terms ofemployees’ current salary and accrued days leaveat the financial year end. This method accounts forany utilisations during the year.23. CASH GENERATED FROM LICENSINGOPERATIONSOperating SurplusAmount Distributable before TaxAdjustments for:DepreciationDepreciation AdjustmentAdministration Computer, Management Feesand Other FeesSurplus on Disposal of Property and EquipmentSurplus on Disposal of InvestmentsInterest from SubsidiariesIncome from InvestmentsInterest from Term and Call DepositsBequests and DonationsDistribution Adjustment Prior YearsPost-Employment Medical BenefitsImpairment of Subsidiary LoanRecognition of Negative GoodwillOperating Surplus before Working Capital Changes154 510 034178 285 3961 398 449(717 278)(3 918 772)(238 520)(13 870 083)(400 852)(14 967 770)(5 039 018)(71 192)(1 740 072)1 038 000--139 758 288123 147 582152 734 5571 255 598-(3 401 606)(3 612)(4 630 575)(94 098)(12 006 531)(4 218 563)(67 301)(2 276 456)976 000125 000-128 392 413168 360 991199 092 5471 583 900(717 278)-(238 520)(13 870 083)-(14 967 770)(5 918 245)(71 192)(1 740 072)1 038 000--164 191 287134 001 873163 712 0071 436 583-(931 756)(3 612)(4 630 575)-(12 006 531)(5 014 221)(67 301)(2 276 456)976 000-(34 000)141 160 138Working Capital Changes(Increase) / Decrease in Current Asset ItemsDistribution and Advances [Refer Note 18]Accounts ReceivableInventoryIncrease / (Decrease) in Current Liability ItemsMembers and Affiliated Societies [Refer to Note 21]Accounts Payable, Provisions and Royalty TaxStudy Loans [Refer to Note 20.2]Total Working Capital Changes(333 321)1 394 262-11 074 4282 600 57715 80014 751 74651 725(2 105 783)-(6 815 347)3 741 074(116 500)(5 244 831)(7 359 779)(1 874 085)2 94311 074 4282 310 39715 8004 169 704(1 184 188)(2 110 345)(27 939)(6 815 347)3 096 054(116 500)(7 158 265)Total Cash Generated from Licensing Operations154 510 034123 147 582168 360 991134 001 87337

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006COMPANYGROUP24. TAXATION PAIDOpening BalanceCurrent Taxation [Refer to Note 6]Closing BalanceNet AdjustmentRefund ReceivedNet Tax Adjustment, Deferred Tax2006R(2 993 047)(1 671 049)(3 794 569)4 318 923(1 146 695)(1 109 545)(736 807)Restated2005R(1 199 312)(944 890)(1 734 318)1 671 049(1 008 159)-(191 153)2006R(3 357 636)(1 560 840)(3 495 564)3 545 120(1 511 284)(1 109 545)(736 807)Restated2005R(1 919 304)(1 290 708)(1 998 283)1 560 840(1 728 151)-(191 153)Total Taxation Paid(2 993 047)(1 199 312)(3 357 636)(1 919 304)25. ROYALTY AND NON-ROYALTY DISTRIBUTIONSTO MEMBERS AND AFFILIATED SOCIETIESAvailable for Distribution at the Beginning of the YearPrior Periods AmountsAvailable for DistributionDistributions in Progress at the Beginning of theYear- Shares [Refer Note 19.1]- Works [Refer Note 19.2]Distributions in Progress at the End of the Year- Shares [Refer to Note 19.1]- Works [Refer to Note 19.2]Less Distribution Adjustment, Prior YearsRoyalty, Non-Royalty and Social Benefit AmountsDistributed during the Year121 478 007151 828 961(18 342 522)133 486 4395 979 36543 199 791182 665 595(6 807 647)(52 639 869)123 218 079(1 740 072)121 478 007111 517 861130 753 759(7 930 655)122 823 1045 062 19935 088 170162 973 473(5 979 365)(43 199 791)113 794 317(2 276 456)111 517 861123 697 402170 125 599(34 419 765)135 705 8345 979 36543 199 791184 884 990(6 807 647)(52 639 869)125 437 474(1 740 072)123 697 402115 738 789141 090 252(14 046 220)127 044 0325 062 19935 088 170167 194 401(5 979 365)(43 199 791)118 015 245(2 276 456)115 738 78926. NON-LICENSING ACTIVITIES26.1 Increase in Loans to Subsidiary CompaniesIndebtedness of SubsidiariesInterestAdministration, Computer and Management FeesNet Cash Inflow From / (Outflow To) Subsidiaries(1 065 397)3 254 227(400 852)(3 918 772)(1 065 397)(860 390)1 703 558(94 098)(2 469 850)(860 390)26.2 Movements in InvestmentsProceeds on Disposal of InvestmentsTransfer to FundsInvestments PurchasedNet Cash Outflow1 409 14126 555 713-(25 146 572)1 409 14120 592 15917 952 24639 819 414(37 179 501)20 592 1591 409 14126 555 713-(25 146 572)1 409 14121 435 32717 952 24640 662 582(37 179 501)21 435 32727. CASH AND CASH EQUIVALENTSCash and Cash Equivalents consist of cash on hand,balances with Banks and Investment in MoneyMarket Instruments and are made up as followsCash on Hand and Balances with BanksShort Term InvestmentsTotal Cash and Cash Equivalents162 090 21524 505 973137 584 242162 090 215111 140 8452 877 244108 263 601111 140 845183 460 89927 178 540156 282 359183 460 899129 482 2304 900 176124 582 054129 482 23038

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 200628. RELATED PARTY TRANSACTIONSThe Company and its Subsidiaries, in the ordinary course of business, have entered into service agreements. These transactionsoccurred under terms that are considered to be no less favourable than those arranged with third parties.SubsidiariesAdministration and Management FeesInterest Received[Refer Note 2.2]Dalro (Pty) Ltd3 918 772-3 918 772Samro HouseHoldings (Pty) Ltd-155 046155 046Samro House(Pty) Ltd249 153-249 153Total4 167 925155 0464 322 971DirectorsThere are two groups of SAMRO Directors, Writer Directors and Publisher Directors. These Directors and parties related to them areentitled to Royalty and Non-Royalty distributions from SAMRO. These distributions are computed on the same basis as those for otherrights holders and are not considered to be emoluments for services as Directors.29. RETIREMENT BENEFITSIn line with the statutory requirements for an actuarial valuation every three years, a statutory valuation of the SAMRO Staff PensionFund was carried out by an independent firm of consulting actuaries on 30 June 2006. An interim valuation is conducted annually byindependent counsulting actuaries as at 30 June each year. In terms of their Report, it was concluded that the fund was in a soundfinancial condition in terms of Section 16 of the Pension Fund Act of 1956 as amended.Summary of ResultsThe effects of the Pension Funds Second Amendment Act of 2001, are quite significant to companies sponsoring retirement funds,in that recognition of any assets in a retirement fund cannot be made by the Company, unless it is either as a result of a surplusapportionment exercise, or if a fund’s rules allow it.The Balance Sheet item that the Company can recognise was calculated to be nil as at 30 June 2005 and 30 June 2006. The “adjustedexpense” for the year ended 30 June 2006 was therefore calculated as R2 572 000. (2005 : R1 799 000).CompanyActive number of MembersTotal Annual SalariesNumber of Pensioners (outsourced by the fund)Present Value of Funded Defined Benefit ObligationFair Value of Plan Assets in Respect ofDefined Benefit ObligationFunded Status of Defined Benefit PlanUnrecognised Net Transitional ObligationUnrecognised Past Service CostUnrecognised Actuarial GainsAssetParagraph 58 LimitUnrecognised due paragraph 58 limitAsset recognised on Balance Sheet134R15 301 000292006R(45 074 000)57 201 00012 127 000--3 464 00015 591 000-(15 591 000)-129R13 438 00023Restated2005R(33 326 000)39 850 0006 524 000-568 0007 816 00014 908 000-(14 908 000)-39

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006The “paragraph 58 limit” ensures that the asset to be recognised on the Company Balance Sheet is subject to a maximum of the sumof any unrecognised actuarial losses, past service cost and the present value of any economic benefit available to the Company inthe form of refunds or reductions in future contributions.In respect of those retirement arrangements which disclosed a positive funded status, no asset has been recognised by the Company.The disclosure of funded status does not necessarily indicate any assets available to the Company.Actuarial Valuation AssumptionsDiscount RateInflation RateSalary Increase RateExpected Rate of Return on AssetsPension Increase Allowance20068.50%4.00%5.00%9.50%2.38%20057.50%4.00%5.00%9.50%3.33%Determination of the Net Periodic Pension Cost for the Fiscal Year ending 30 June 2007Components of Income Statement Pension ExpenseCurrent Service CostInterest CostExpected Return on AssetsAmortisationa. Unrecognised Net Transition Obligation / (Asset)b. Unrecognised Past Service Costc. Unrecognised Net (Gain) / LossExpense / (Income)2006R1 900 0003 043 000(3 903 000)-568 000281 0001 889 0002005R1 919 0003 032 000(3 451 000)--896 0002 396 000Estimated Contributions, Benefit Payments, Expenses andRisk Premiums for the Period 1 July 2005 to 30 June 2006Member ContributionsCompany ContributionsRisk PremiumsBenefit PaymentsEstimated return on Assets for the period ending 30 June 20061 151 0002 572 000(405 000)(530 000)14 563 000900 0001 799 000(456 000)(733 000)4 981 000Reconciliation of Asset / (Liability) on the Balance SheetAsset / (Liability) as at 30 June 2005Net (Expenses) / Income Recognised in the Income StatementCompany ContributionsAsset / (Liability) as at 30 June 2006Paragraph 59 LimitUnrecognised due to Paragraph 59 LimitAsset / (Liability) Recognised on the Balance SheetAdjusted Net Expenses Recognised in the Income Statement14 908 000(1 889 000)2 572 00015 591 000-(15 591 000)-2 572 00015 505 000(2 396 000)1 799 00014 908 000-(14 908 000)-1 799 000Reconciliation of Defined Benefit ObligationDefined Benefit Obligation as at 30 June 2005Service CostMember ContributionsInterest CostActuarial (Gain) / LossBenefits PaidRisk PremiumsDefined Benefit Obligation as at 30 June 200633 326 0001 900 0001 151 0003 043 0006 589 000(530 000)(405 000)45 074 00029 520 0001 919 000900 0003 032 000(956 000)(733 000)(356 000)33 326 00040

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006Reconciliation of Fair Value of Plan AssetsAssets at Fair Market Value as at 30 June 2005Expected Return on AssetsContributionsRisk PremiumsBenefits PaidActuarial Gain / (Loss)Assets at Fair Market Value as at 30 June 20062006R39 850 0003 903 0003 723 000(405 000)(530 000)10 660 00057 201 0002005R33 259 0003 451 0002 699 000(356 000)(733 000)1 530 00039 850 000Estimated Asset Composition as at 30 June 2006CashEquityBondsProperty and OtherInternationalTotal14,31%72,35%9,19%4,15%0%100,0%9,66%75,24%12,82%2,27%0%100,0%Determination of Estimated Pension Expensefor the Fiscal Year ending 30 June 2007Components of Income Statement Pension ExpenseCurrent Service CostInterest CostExpected Return on AssetsAmortisationa. Unrecognised Net Transition Obligation / (Asset)b. Unrcognised Past Service Costc. Unrecognised Net (Gain) / LossExpense / (Income)2 817 0003 651 000(5 011 000)---(1 457 000)1 901 0003 043 000(3 903 000)-42 000281 000(1 363 000)Expected Contributions, Expenses and Risk Premiumsfor the Period 1 July 2006 to 30 June 2007Member ContributionsCompany ContributionsRisk PremiumsValuation Assumptions1 214 0002 714 000(427 000)945 0001 889 000(374 000)A summary of the assumptions used in the valuation, together with a short comment on each, are given below. Please note that, althoughthese are our recommended assumptions, the Company is ultimately responsible for setting these assumptions.Discount RateSalary Increase RateExpected Rate of Return on AssetsInflationPension Increase AllowanceAsset as at30 June 2005and Expense forthe Year ending30 June 20068,50%5,00%9,50%4,00%3,33%Asset as at30 June 2006and Expense forthe Year ending30 June 20077,00%5,50%8,50%4,50%2,38%41

NOTES TO FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006Discount RateThe rate used to discount post-employment benefit obligations should be determined by reference to market yields at the BalanceSheet date on high quality Corporate Bonds. In countries where there is no deep market in such bonds, the market yields at theBalance Sheet date on Government Bonds should be used. In South Africa there is no deep market in Corporate Bonds and as suchwe have set our recommended assumption with reference to the yield curve for South African Government Bonds, which levels offat 7,4% in the first quarter at the “long” end. In terms of the accounting standards, historical yields are less important, and as such weconsequently consider it appropriate to use the current yield rounded up, i.e. a discount rate of 7,5% per annum.Inflation RateWe have assumed a general inflation rate of 4,5% per annum. This assumption is in line with the SA Government’s Monetary Policytarget of 3% to 6% and was derived as the difference between the yields on a portfolio of fixed interest Government Bonds and aportfolio of Index-Linked Bonds of a similar term. This inflation assumption is not directly used in determining our results, however,the salary increase rates and pension increase rates are related to the level of price inflation.Salary Increase RateWe have assumed that the general level of salary increases to be awarded in the long-term will, on average, be 1% above inflation.Expected Return on AssetsThe Fund’s expected long-term return is a function of the expected long-term returns on equities, cash and bonds. In setting theseassumptions, we made use of the asset as at 30 April 2006. The expected long-term rate of return on bonds was set at the same levelas the discount rate. This implies a yield on government bonds of 7,5% per annum as at 30 June 2006. The expected long-term rateof return on equities was set at a level of 3% above the bond rate, whilst the expected long-term rate of return on cash was set at alevel of 2% below the bond rate. Adjustments were made to reflect the effect of Retirement Funds Tax (RFT) and expenses.Pension Increase RateWe have assumed a post retirement discount rate of 5% per annum, which is the rate on which pensioners are outsourced. Thisimplies an allowance for increases to pensions currently in payment of approximately 2,38% per annum.These assumptions differ from those used in the funding valuation, and have been based on the requirements of the reportingstandard. All other assumptions adopted in the funding valuation were left unchanged.42

CORPORATE INFORMATIONAS AT 30 JUNE 2006REGISTERED OFFICEFourth Floor,SAMRO HOUSECnr Juta and De Beer StreetsBRAAMFONTEIN2001 JohannesburgREGISTRATION NUMBER 1961/002506/09POSTAL ADDRESS P O Box 316092017 BRAAMFONTEINTELEPHONE (011) 489 5000FACSIMILE (011) 403 1934WEBSITECHIEF EXECUTIVE OFFICERDEPUTY CHIEF EXECUTIVE OFFICERBANKERSwww.samro.org.zaG R A E HOOIJERM N MOTSATSEA M JOHNSTONStandard BankABSA BankFirst National BankAUDITORSLEGAL ADVISORSINVESTMENT ADVISORSErnst & Young Registered Auditors Inc.Cheadle Thompson & HaysomAdams & AdamsSpoor & FisherEdward Nathan SonnenbergsBOEInvestecStandard Corporate & Merchant Bank43