| Mon 22 Jun 2009, 14:00 | | TKG - Telkom SA Limited - Provisional Group Annual Results for the year ended |
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TKG
TKG
TKG - Telkom SA Limited - Provisional Group Annual Results for the year ended
March 31, 2009
Telkom SA Limited
(Registration number 1991/005476/06)
JSE and NYSE share code: TKG
ISIN: ZAE000044897
Provisional Group Annual Results for the year ended March 31, 2009
GROUP FINANCIAL SALIENT FEATURES FOR THE YEAR ENDED MARCH 31, 2009
- Vodacom deal successfully concluded after year-end;
- Total cash distribution to shareholders of 2,275 cents per share;
- Group operating revenue up 6.9% to R35.9 billion;
- Group EBITDA decreased by 11.6% to R11.7 billion;
- Group EBITDA margin decreased from 39.3% to 32.5%;
- Group operating profit decreased by 29.6% to R6.4 billion;
- Net debt to EBITDA including discontinued operations increased from 0.8
times to 1.2 times;
- Cash flows from operating activities increased by 7.8% to
R11.4 billion;
- Headline earnings per share of continuing operations decreased by 45.9%
to 557.0 cents;
- Net asset value per share increased by 10.1% to 7,236.2 cents; and
- Ordinary dividend declared of 115 cents per share and special dividend
of 260 cents per share.
1. OVERVIEW
Johannesburg, South Africa - June 22, 2009. Telkom SA Limited (JSE and NYSE:
TKG) today announced Group annual results for the year ended March 31, 2009.
STATEMENT BY REUBEN SEPTEMBER, CHIEF EXECUTIVE OFFICER:
"The 2009 financial year has been both challenging and very exciting. We have
succeeded in concluding the Vodacom transaction at an exceptional price,
given the market conditions, and returning substantial capital to
shareholders through the R19.00 special dividend and unbundling of Vodacom
shares to our shareholders. We have also concluded the sale of our 75% stake
in Telkom Media to Schenzen Media (Proprietary) Limited and taken our holding
in Multi-Links, Nigeria up to 100%. Post the year-end, we succeeded in
acquiring the business of M-Web Africa, including AFSAT, from the Naspers
Group. Our footprint in Africa now covers almost the entire continent,
excluding North Africa, providing Telkom with opportunities to extend our
services to a very fast growing market. However, to date, our initiatives in
Africa have been challenging given the high start-up costs, unknown and
competitive markets, infrastructure and technology challenges, skills
requirements and volatile currency and interest rate markets. The financial
impact of this on our results is clearly visible in the impairments, foreign
exchange losses and negative fair value effects we have had to recognise in
the year. We believe Telkom is however well positioned to capitalise on these
opportunities in Africa.
The ICT market is never static. It is characterised by fluidity, change and
constant innovation. The transformation of Telkom is absolutely necessary to
allow us to be agile and responsive to our customer needs and to the changing
environment. We are in the process of reorganising our organisation into a
single corporate centre and three operating business units. The new structure
introduces simplicity into the organisation, aligns with our vision and
strategy, instills an imperative profit and loss accountability and provides
opportunities to manage cost, to manage our resources more efficiently and to
execute our strategy with greater focus. Telkom, unhindered by the
restrictive Vodafone shareholders` agreement, is ready to aggressively
compete in the communications market.
Our operation in South Africa remains our core business and cash flow
generator. Telkom`s defend and grow strategies are on track. We have achieved
good growth in our bundled calling plan products, Telkom Closer and Supreme
Call, and strong growth in our Broadband products. Data revenue continues to
achieve double digit growth, delivering a 12.1% revenue growth to R9.3
billion for the year ended March 31, 2009. Our continued drive to enhance our
Next Generation Network is delivering benefits and provides us with a
significant competitive advantage in our drive to provide customers with
quality, cost effective products and services covering the full ambit of
converged Information, Communication and Technology (ICT) services.
Given the continued decrease in our voice revenues due to mobile substitution
and increased competition it is vital for Telkom to explore all avenues that
will provide us with growth and migrate traffic back on to our network. We
now have the opportunity to enter the mobile market in South Africa. We are
in the process of conducting comprehensive mobile market research to
establish exactly how Telkom can maximise the opportunity at minimal
operational and build cost. We believe that Telkom is able to take advantage
of our Next Generation Network and newer technologies will give us an
advantage over the current mobile operators in terms of our ability to carry
increased traffic, provide superior quality and to compete.
Telkom is also actively moving up the value-added IT services chain. We are
intrinsically IT intensive and have a large IT asset base. This is driving
our strategic move into the IT services arena. We have already commenced with
adding a further 2,200 square metres of data centre space to our existing
facility of 7,500 square metres. Telkom is perfectly positioned to deliver a
true converged services value proposition and we are following the lead of
global players such as Deutsche Telekom and British Telecom who already hold
3rd and 5th positions, respectively, in the European IT outsourcing market.
We are very well aware of the risks associated with large investment spend
and free cash flow is a key focus throughout the Group. We are committed to
achieving cost efficiencies and investment grade return on our investments,
rebalancing our capital spend and continuing to pay dividends to our
shareholders. Each and every investment will be benchmarked to achieve the
best returns to our shareholders.
Telkom has the team and the strategy in place, the realigned organisational
structure, the determination and the balance sheet to drive us into the
future with the sole purpose of delivering attractive and sustainable returns
to our shareholders."
FINANCIAL PERFORMANCE
Group operating revenue from continuing operations increased 6.9% to R35.9
billion, while operating profit decreased by 29.6% to R6.4 billion. The Group
EBITDA margin decreased to 32.5% as at March 31, 2009, compared to 39.3% at
March 31, 2008, mainly due to an EBITDA loss of R226 million at Multi-Links
and higher fixed-line operating expenditure which decreased the fixed-line
EBITDA margin to 25.8% as at March 31, 2009 (March 31, 2008: 36.3%).
Headline earnings from continuing operations decreased 45.9% to 557.0 cents
per share and basic earnings per share decreased 57.7% to 407.4 cents per
share for the year ended March 31, 2009, compared to 963.7 cents per share at
March 31, 2008. The reduced earnings can be attributed to a decrease in
operating profit due to a 19.5% increase in operating expenses (R4,881
million) and higher foreign exchange and fair value movements (R1,098
million) partially offset by a lower taxation expense (R987 million).
Investments in Multi-Links and Africa Online were impaired by R462 million
and R39 million. The impairments were necessitated by the operating losses
incurred by these operations and the deteriorating prevailing economic
climate. Multi-Links reported a net loss of R1.76 billion (March 31, 2008:
net profit of R33 million).
The fixed-line operations performed satisfactory. Excluding the impairments
the fixed-line achieved an EBITDA margin of 32.3%.
Cash flows from operating activities increased by 7.8% to R11,432 million,
cash flow utilised in investing activities increased by 20.6% to R17,005
million and cash flows from financing activities increased from R2,943
million to R7,093 million during the year ended March 31, 2009.
SUMMARY OF GROUP FINANCIAL RESULTS
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Continuing
operations1
Operating 32,441 33,611 35,940 3.6 6.9
revenue
Operating profit 9,751 9,069 6,388 (7.0) (29.6)
EBITDA2 13,352 13,203 11,668 (1.1) (11.6)
Operating profit 30.1 27.0 17.8 (10.3) (34.1)
margin (%)
EBITDA margin(%) 41.2 39.3 32.5 (4.6) (17.3)
Capital 6,623 8,428 9,631 27.3 14.3
expenditure3
Capex to revenue 20.4 25.1 26.8 23.0 6.8
(%)
Basic EPS (ZAR 1,204.7 963.7 407.4 (20.0) (57.7)
cents)
Headline EPS 1,235.5 1,028.9 557.0 (16.7) (45.9)
(ZAR cents)2
Net debt n/a n/a 15,497 - -
Net debt to n/a n/a 1.3 - -
EBITDA
After tax n/a n/a 5.0 - -
operating return
on assets (%)
Total operations
Basic EPS (ZAR 1,681.0 1,565.0 832.8 (6.9) (46.8)
cents)
Headline EPS 1,710.7 1,634.8 994.6 (4.4) (39.2)
(ZAR cents)
Capital 10,246 11,900 13,234 16.1 11.2
expenditure3
Net debt 10,026 16,617 23,773 65.7 43.1
Net debt to 0.5 0.8 1.2 60.0 50.0
EBITDA
After tax 22.7 18.3 9.7 (19.4) (47.0)
operating return
on assets (%)
Operating free 3,728 2,229 (2,237) (40.2) (200.4)
cash flow
1. Excludes our 50% share of Vodacom, Swiftnet and Telkom Media.
2. EBITDA and earnings have been reconciled to net profit
3. Including spend on intangible assets.
OPERATIONAL DATA
Year ended March 31 % variance
2007 2008 2009 07/08 08/09
Fixed-line data
ADSL 255,633 412,190 548,015 61.2 33.0
subscribers1
Calling plan 272,071 464,038 590,590 70.6 27.3
subscribers
Closer 266,300 451,122 575,812 69.4 27.6
subscribers
Supreme call 5,771 12,916 14,778 123.8 14.4
subscribers
W-CDMA - - 5,253 n/a n/a
subscribers
Fixed access 4,642 4,533 4,451 (2.4) (1.8)
lines (`000)2
Postpaid - 2,971 2,893 2,769 (2.6) (4.3)
PSTN
Postpaid - 718 754 781 5.0 3.6
ISDN channels
Prepaid 795 743 766 (6.5) 3.1
Payphones 158 143 135 (9.5) (5.6)
Fixed-line 9.8 9.5 9.1 (3.1) (4.2)
penetration rate
(%)
Revenue per 5,275 5,250 5,349 (0.5) 2.1
fixed access
line (ZAR)
Total fixed-line 29,323 26,926 24,869 (8.2) (7.6)
traffic
(millions of
minutes)
Local 14,764 11,317 8,822 (23.3) (22.0)
Long distance 4,224 3,870 3,631 (8.4) (6.2)
Fixed-to- 4,103 4,169 4,126 1.6 (1.0)
mobile
International 558 635 622 13.8 (2.0)
outgoing
International 38 43 34 13.2 (20.9)
VoIP
Subscription
based
calling plans 1,896 2,997 3,546 58.1 18.3
3,740 3,895 4,088 4.1 5.0
Interconnection
Domestic 2,419 2,502 2,484 3.4 (0.7)
mobile
interconnection
Domestic - 113 415 n/a 267.3
fixed
interconnection
1,321 1,280 1,189 (3.1) (7.1)
International
interconnection
Managed data 21,879 25,112 29,979 14.8 19.4
network sites
Internet all 302,593 358,066 423,196 18.3 18.2
access
subscribers3
Fixed-line 25,864 24,879 23,520 (3.8) (5.5)
employees
Fixed access 180 182 189 1.1 3.8
lines per fixed-
line employee4
Mobile data5
Total customers 30,150 33,994 39,614 12.7 16.5
(`000)
South Africa
Mobile customers 23,004 24,821 27,625 7.9 11.3
(`000)
Contract 3,013 3,541 3,946 17.5 11.4
customers
Prepaid 19,896 21,177 23,561 6.4 11.3
customers
Community 95 103 118 8.4 14.6
services
telephones
Mobile churn (%) 33.8 42.3 40.1 25.1 (5.2)
Contract churn 9.7 8.3 9.9 (14.4) 19.3
Prepaid churn 37.5 47.9 45.4 27.7 (5.2)
Estimated mobile 58 55 53 (5.2) (3.6)
market share
(%)6
Mobile 84 94 108 11.9 14.9
penetration (%)
Total mobile 20,383 22,769 24,383 11.7 7.1
traffic
(millions of
minutes)
Mobile ARPU 128 128 133 - 3.9
(ZAR)7
Contract ARPU 517 486 474 (6.0) (2.5)
Prepaid ARPU 63 62 68 (1.6) 9.7
Community 902 689 534 (23.6) (22.5)
services
Number of mobile 4,727 4,849 5,451 2.6 12.4
employees8
Mobile customers 4,867 5,119 5,068 5.2 (1.0)
per mobile
employee8
Other African
countries
Mobile customers 7,146 9,173 11,989 28.4 30.7
(`000)
Number of mobile 1,522 1,992 2,336 30.9 17.3
employees9
Mobile customers 4,695 4,605 5,132 (1.9) 11.4
per mobile
employee9
Gateway - - 389 - -
employees
Other data
Multi-Links
Number of 185,619 813,392 2,516,109 338.2 209.3
subscribers
Number of - 680 870 - 27.9
employees
Africa Online
Number of n/a 17,252 18,441 - 6.9
subscribers 10,
11
Number of 317 379 313 19.6 (17.4)
employees
1. Excludes Telkom internal lines of 1,029 (2008: 751 and 2007: 523).
2. Excludes Telkom internal lines of 111,852 (2008: 109,501 and 2007:
107,719).
3. Includes Telkom Internet ADSL, ISDN, WiMAX and dial-up subscribers.
4. Based on number of fixed-line employees, excluding subsidiaries.
5. 100% of Vodacom data.
6. Based on Vodacom estimates.
7. With effect from April 1, 2008, ARPU calculations include revenues from
national roamers and international visitors roaming on Vodacom`s network.
Historical ARPU numbers have been restated in line with this new methodology.
8. Includes Holding company and Mauritian employees and temporary employees.
9. Includes temporary employees.
10. From April 1, 2008, Africa Online changed the method of counting
subscribers to include all the individual corporate sites as individual
customers. The comparative information for 2008 has been restated.
11. Excluding UU-Net joint venture partner`s subscribers in Kenya. UU-Net had
300 and 320 subscribers as at March 31, 2008 and 2009, respectively.
2. OPERATIONAL OVERVIEW
Telkom`s strategy continues to focus on defending and growing our traditional
voice base. Our growth strategies focus on adding revenue by developing a
fixed-mobile capability to give us a larger share of the voice revenue pie,
aggressively building our data, broadband and converged services offering and
expanding geographically into high growth markets.
REORGANISATION OF TELKOM
Reorganising Telkom is imperative to align the organisation to successfully
execute on our strategy and to position the new standalone group as a
competitive force. The new structure consists of the Telkom Group, with a
corporate centre and three operating business units - Telkom South Africa,
Telkom International and Data Centre Operations. Telkom South Africa is split
up into three distinct units - Network and Wholesale, Enterprise and
Consumer. The reorganising seeks to improve profit and loss accountability
throughout the organisation and to create distinctive focus for each business
unit. It will give the business units the agility to focus on customer
centricity and cost efficiency and respond to the competitive environment,
changing technological landscape and regulatory requirements.
We will seek to execute our strategy through our Telkom Renaissance
initiative which has been initiated with the objective of transforming us
into a leading pan-African communications company. Delivering on this
requires a compelling and focused transformation programme. This programme
consists of various initiatives including us defending our market share,
seeking new revenue and businesses and implementing a structure that enables
clear profit and loss accountability, as well as ensuring that our business
processes and work practices deliver upon our strategic intent.
DEFEND AND GROW PROFITABLE REVENUE
Voice revenue
Traffic revenue decreased 3.9% to R15.3 billion with local traffic revenue
decreasing 10.8% to R3.6 billion while local minutes decreased by 22.0% to
8.8 billion minutes. This is primarily due to continuing fixed to mobile
substitution. Telkom has reclassified subscription revenue from calling plans
into a separate revenue line item - subscription based calling plans - to
easily identify revenue from calling plans. Total traffic minutes decreased
by 7.6% to 24.9 billion minutes, a slow down on last year`s decrease of 8.2%.
Revenue from subscription based calling plans increased by 20.5% to R1.3
billion.
Long distance revenue decreased by 9.6% to R2.0 billion with a decrease in
volumes of 6.2% to 3.6 billion minutes and a 3.6% decrease in effective
rates. Fixed to mobile revenue decreased by 1.8% to R7.4 billion with a
decrease in volumes of 1.0% to 4.1 billion minutes and a 0.8% effective
tariff reduction for the year. International traffic revenue decreased by
5.4% to R933 million and an effective tariff reduction of 2.4%.
Interconnection revenue increased by 18.6% assisted by volume increases of
5.0% to 4.1 billion minutes.
The Telkom Closer packages have performed well, increasing by 27.6% to
575,812 plans. Supreme call packages, targeted at the business segment, have
increased by 14.4% to 14,778 packages and PC bundles have increased 48.3% to
11,336. Telkom continues to be successful in tying in large corporate
customers to term and volume discount plans. Annuity revenue streams, which
exclude line installations, reconnection fees and CPE sales, have increased
by 6.8% to R7.4 billion. Telkom will seek to continue converting revenue
streams to annuity revenues. This will be done largely through bundling call
minutes with access line rental in attractive subscription based value
propositions. This is an important strategy for delivering greater value to
our customers. Our current line penetration of bundled products is 41.7% and
we are targeting a penetration of 56% by 2013/14.
Broadband and converged services
Broadband and converged services continue to perform well with ADSL
subscribers up 33% to 548,015. Do Broadband subscribers increased 58.1% to
188,540. Internet all access subscribers increased 18.2% to 423,196. Our
current Broadband line penetration rate is 15% and our targeted penetration
rate is 25% by 2013/14.
We have increased DSLAMs throughout the country by 50.4% to 4,000 sites. We
have installed 91% of ADSL lines within 21 working days where no network
build is required, compared to 79% in the year ended March 31, 2008 and 74%
within 21 working days where network build is required compared to 66% in the
year ended March 31, 2008. The ADSL Self Install option is expected to
continue to improve the installation times. As of March 31, 2009, 57% of all
ADSL installations were being done through the Self Install option.
Grow and win back traffic initiatives
Telkom has developed further initiatives to grow and win back traffic. We
intend to change the perception that the fixed-line is an expensive service
through tariff communication and value for money campaigns and continue with
targeted marketing of our Telkom Closer and Do Broadband bundles. We continue
to improve our service delivery through fulfilment and assurance. The gated
community trend allows us to grow our line base in these niche markets. In
order to combat cannibalisation of our revenue we have developed attractive,
entry level internet dial-up bundles. We will continue to aggressively drive
our broadband strategy though adding higher value content. We anticipate that
our fixed to mobile convergence products will support traditional voice
revenue and we are developing fixed to mobile value propositions to combat
competition. From a cost efficiency point of view, we intend to maximise the
utilisation of our existing infrastructure by growing affordable entry level
products.
Corporate data
As a result of Telkom`s strategy to grow our data business, data revenues
(including broadband revenue) increased a very pleasing 12.1% to R9.3
billion. This is also indicative of the growth in bandwidth demand from
corporates and mobile operators as a result of 3G and HSDPA. Data
connectivity revenue increased 10.9% to R5.0 billion. Mobile leased line
revenue increased 0.5% to R1.9 billion. The low increase is as a result of
Telkom re-balancing its pricing points to be more competitive. Internet
access revenues increased 29.6% to R1.5 billion and we are proud of the fact
that managed network services and VPN revenue increased 22.3% to R891
million. Telkom intends to continue exploiting the advantage of our high-
quality unmatchable national network footprint in the corporate data market.
CUSTOMER SERVICE
Improved customer service is vital to the success of Telkom into the future.
Sustainable and profitable growth in the customer base requires creating and
strengthening capabilities focused on managing customer relationships and
learning from acquired customer information. This will allow Telkom to better
manage the customer experience and anticipate customer needs.
Customer segmentation based on value is enabling Telkom to understand
customers better in order to give additional value and services to customers.
Surveys with our key customer segments have shown that service quality
perception has improved in the Small Business, Medium and Large Business and
Corporate and Government Sectors. The residential market perception survey
indicates a stable rating.
COST MANAGEMENT AND CAPITAL EXPENDITURE REDUCTION
Faced with competition eroding our revenue base, cost management continues to
be a key element in creating shareholder value. Combined with the
inflationary environment affecting our operating expenses, a number of once
off items impacted fixed-line expenditure including:
- R177 million expenses relating to the Vodacom transaction;
- R85 million impairment of Africa Online;
- R254 million impairment of Telkom Media; and
- R1.8 billion impairment of Multi-Links.
Fixed-line operating expenses increased 19.6% to R29.8 billion. Employee
expenses increased by 8.1% to R8.0 billion, payments to other operators
increased 9.2% to R7.5 billion, selling general and administrative expenses
increased by 68.8% to R6.6 billion, service fees increased by 14.4% to R2.8
billion and operating leases decreased by 1.0% to R613 million. Depreciation,
amortisation, impairment and write-offs increased by 16.8% to R4.4 billion
resulting in an EBITDA margin of 25.8%. Excluding the Multi-Links, Telkom
Media and Africa Online impairment the fixed-line adjusted normalised EBITDA
margin was 32.3%.
The Telkom reorganisation programme - Telkom Renaissance - improves profit
and loss accountability throughout the organisation and will allow us to
focus on efficient resource management and cost containment. In addition, the
roll-out of our mobile network is expected to enable us to provide
connectivity in a more cost effective manner in rural and high cable theft
areas. Next Generation Network and mobile technology also allows us to
replace expensive to maintain legacy equipment. We intend to expedite the
retirement of costly legacy systems as a result of our growing Next
Generation Network in order to reduce maintenance spend. We continue with the
renegotiation of all supplier contracts and constructive engagement with
labour unions. We are reviewing our IT investment strategy in order to ensure
optimum levels of spend in line with our strategy and network investment.
Inventories and capital work-in-progress are receiving considerable attention
as we seek to lower just-in-time levels of investment and to monetise any
excessive levels of assets.
Telkom is targeting an operating cost reduction of 10% over the following
three financial years. The Telkom board is focusing on improving the cost
efficiency and free cash flow profile of the company. It has reduced the
initial 5 year capital expenditure budget by 40% to R34 billion and intends
to reduce it further where possible.
INTO THE FUTURE
Our geographic expansion strategy aim is to establish Telkom as a regional
voice and data player through the provisioning of a range of hosting
services, managed solutions, mobile voice and wireless broadband services. To
date we have invested in Multi-Links, Africa Online and M-web Africa. We have
also signed a memorandum of understanding with America`s AT&T. The primary
focus of this partnership is to explore the development of network to network
interfaces between Telkom`s regional networks and AT&T`s global networks in
order to increase service to multi-national customers.
Telkom is also conducting significant market research in order to enter the
mobile and Data Centre operations markets in South Africa.
Multi-Links
With effect from May 1, 2007, Telkom acquired 75% of Multi-Links
Telecommunications Limited, or Multi-Links, through Telkom International, a
wholly owned South African subsidiary, in Nigeria, for US$280 million, or
R1,985 million. The remaining 25% of Multi-Links was owned by Kenston
Investment Limited, an investment company based in the Isle of Man in the
United Kingdom. With effect from January 21, 2009, Telkom acquired the
remaining 25% interest in Multi-Links for US$130 million, thereby increasing
its ownership of Multi-Links to 100%. The purchase price was subject to a
contractual put option in favour of the minority shareholder.
Multi-Links is a private telecommunications operator with a Unified Access
License allowing fixed, mobile, data, long distance and international
telecommunications services focused primarily on corporate clients, wholesale
and mass markets in Nigeria.
Multi-Links` Unified Access License was granted on November 1, 2006 and has a
term of ten years, with seven years remaining. There are currently 13
operators licensed with Unified Access Services Licenses in Nigeria, making
the Nigerian telecommunications market extremely competitive as operators may
use any technology to deliver voice, data and video services to their
customers.
Multi-Links reported a 124.9% increase in revenue to R1.9 billion with
subscribers growing 209.3% to 2,516,109 in the year ended March 31, 2009.
Voice and data revenue contributed 75.0% to total revenue, handset sales
11.9%, interconnect revenue 12.6% and SMS 0.5%.
Multi-Links`s slow start in developing an efficient and well controlled
distribution channel, together with a departure from its initial strategy of
focusing on high ARPU subscribers, the delayed launch of EVDO and destructive
competition in the CDMA market caused ARPU to decline from US$32 at March 31,
2008 to US$9 at March 31, 2009. Telkom is currently addressing these
challenges as indicated below.
Operating expenses increased 157.1% to R2.4 billion primarily as a result of
upfront handset subsidies. The average cost per unit equalled approximately
R400 and subsidies totalled R281 million. Payment to other operators
contributed 26.9%, selling general and administrative expenses 46.0%,
employee expenses 5.2%, operating leases 8.0%, service fees 1.6% and
depreciation 12.3%. Subsidised handsets were the largest contributor to SG&A
expenses.
Multi-Links reported a negative EBITDA margin of 11.9%, an EBITDA loss of
R226 million for the year ended March 31, 2009 and a net loss of R1.76
billion after accounting for an impairment of the deferred tax asset of R301
million. Bad debts increased 208.2% to R7.9 million.
Multi-Links has begun focusing its attention on the SMME, corporate and
wholesale markets and mainly on high ARPU users. Its revenue retention and
growth strategy will concentrate on increasing revenue of fixed wireless and
mobile customers through brand awareness and promotion; expanding broadband
internet to offer high value bundles and services. Through its extensive
fibre network it will provide high quality internet protocol/next generation
network services to the government, corporate and SMME customers whilst
extending its metro-ethernet services. The reach of its fibre network also
allows Multi-Links to concentrate on carrier class corporate and wholesale
product and services offerings.
Operating expenses have been driven by network growth, rehabilitation of
distribution channels, marketing costs and customer acquisition and
maintenance. Multi-Links is focusing on containing costs through reducing
handset subsidies drastically, continuing to migrate to an all IP network in
order to reap the benefits of its cost effective network management
capabilities and securing cost effective international connectivity through
the SAT-3 and other submarine cables.
Capital expenditure increased 112.7% to R2.8 billion in the year ended March
31, 2009. In the 2009 financial year, Multi-Links` build and expansion
programme achieved the following:
- deployed additional packet based mobile switching centres increasing the
available capacity from 1,000,000 to 2,800,000 subscribers;
- extended home location register capacities from 800,000 to 5,100,000
subscribers;
- rolled out additional base transmission stations increasing its capacity
from 800,000 to 1,800,000 subscribers;
- successfully launched its broadband service offering by rolling out an
EVDO 3G network to a capacity of 100,000 subscribers;
- added 1,300 kms of optic fibre resulting in a total to 3,711 kms;
- increased international capacity by the addition of 2 x 155Mb services
on the SAT-3 submarine cable system; and
- extended coverage to 22 states and Abuja.
Turning around Multi-Links`s performance is vital to Telkom given the extent
of the Group`s investment and the enormous opportunity the Nigerian market
provides.
We have budgeted capital expenditure of US$100 million for the 2009/10
financial year with the primary objectives of adding an additional 1,000 kms
of fibre, fibre connecting all major cities, metro-ethernet rings connecting
the top five cities, and a national MPLS data networking connecting the top
eight cities.
We expect Multi-Links to be EBITDA positive in 2010/2011 and to be cash flow
positive by 2011/2012.
Africa Online, M-Web Africa and AT&T
Africa Online is an internet service provider with operations active in Cote
d`Ivoire, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and
Zimbabwe.
Africa Online`s network had 29 points of presence, 46 mobile broadband
transceiver stations, 31 fixed broadband wireless access transceiver
stations, eight network operation and 17 support centres and eight data
centres across nine countries servicing 18,441 customers as of March 31,
2009.
On April 21, 2009, we acquired a 100% interest in M-Web Africa Limited, which
owns approximately 88% of AFSAT Communications Limited, and a 75% interest in
M-Web Namibia (Proprietary) Limited, for approximately R498 million. M-Web
Africa is a group of companies offering internet services and its own VSAT
access services in Sub-Saharan Africa (excluding South Africa). M-Web Africa
is obliged to acquire the additional 12% of AFSAT Communications Limited and
we are currently in negotiations to purchase such shares.
M-Web Africa`s VSAT service is mostly focused on the corporate and enterprise
markets and is branded iWay. Its VSAT services are using satellite teleport
facilities in South Africa, the USA and Europe. The company had 20,175
customers at March 31, 2009.
The group is headquartered in Mauritius with operations in Nigeria, Kenya,
Tanzania, Uganda, Namibia and Zimbabwe and an agency arrangement in Botswana.
There are distributors in 26 Sub-Saharan African countries.
Between Africa Online and M-Web Africa, the Telkom Group`s footprint extends
across the entire Sub-Saharan Africa region. This provides us with a great
opportunity to service multi-national customers and corporate customers in
particular requiring internet access data products across Sub-Saharan Africa.
The internet access market is still in its infancy in Sub-Saharan Africa but
is expected to deliver solid growth into the future.
We will be concentrating on exploiting the synergies offered by integrating
Africa Online and M-Web Africa during this year. We will be consolidating all
satellite bandwidth capacity and data centre operations. The VSAT businesses
of Africa Online, M-Web Africa and AFSAT will be merged and all joint markets
will be consolidated under a single entity. The wireless broadband reach will
be expanded and VSAT will also be used for cost effective international
backbone connectivity. The new integrated Pan African business will focus on
including turnkey services and defending and growing market share to increase
shareholder value.
Telkom is building the muscle to serve multi-national customers in Africa
through combining our presence with partners. On April 16, 2009, Telkom and
AT&T entered into a strategic memorandum of understanding which aims to
extend AT&T`s global networking reach to Sub-Saharan Africa and boost
Telkom`s strategy to grow a strong ICT footprint on the African continent.
The agreement will enable both companies to explore ways to provide global
seamless communication and technology solutions and services to multi-
national customers, either based in or seeking to extend their operations in
Sub-Saharan Africa.
Under the terms of the memorandum of understanding, the two companies will
begin work towards definitive agreements that are designed to:
- directly connect the Telkom regional network and the AT&T global
network;
- deliver a wider geographic footprint of telecommunications services,
both in Sub-Saharan Africa and other global points;
- enhance mobile service capabilities for corporate customers in Sub-
Saharan Africa;
- extend global VPN services to support the state-of-the-art network
requirements of customers either headquartered in or seeking to expand
sites in Sub-Saharan Africa;
- explore other potential opportunities in areas such as telepresence,
hosting and professional services; and
- expand the existing global wholesale voice services relationship between
Telkom Group and AT&T.
Mobile strategy - South Africa
The recent liberalisation in the licensing regime, advancements in
convergence technology and the termination of the Vodafone shareholders
agreement provides Telkom with the opportunity to enter the mobile market. We
believe that an integrated fixed-mobile operator is well positioned to react
to, and take advantage of, the future requirements of our customers. By
developing an integrated fixed-mobile offering Telkom will seek to leverage
its customer base, marketing, logistics and distribution channels to increase
its share of voice revenue. In addition, Internet access demands are
increasingly requiring mobility. An integrated bundled offering would offer
superior speeds and quality through the fixed-line, including the advantages
of mobility when required by the customer. Mobility provides cost
efficiencies and the opportunity to consolidate traffic onto Telkom`s
network.
Currently mobile customers are experiencing the effects of a highly congested
network and poor quality of service. Telkom intends to use the strengths of
its fixed-line network to differentiate its mobile service on quality with a
fully converged array of products and services. Our Next Generation Network
and access to the latest technologies will provide further value to our
customers.
Telkom has rolled out 141 W-CDMA sites in major metropolitan areas throughout
South Africa. Our initial focus has been on theft, breakages and incident-
prone areas, customers waiting for service and greenfield areas where Telkom
has no copper infrastructure. In essence, the W-CDMA technology allows Telkom
to deploy fixed-line lookalike services with regional fixed numbering plans
instead of deploying copper, especially in high copper theft areas or areas
where copper deployment is not feasible or too slow to roll out. This roll-
out will be extended to rural areas and to replace expensive to maintain
legacy equipment.
Our move into offering a fully fledged mobile service is dependent on the
finalisation of market research and the outcome of pilot and customer trials
planned for the end of 2009.
We are however aware of the power of the entrenched mobile companies. With
this in mind, Telkom will not commit to further capital expenditure other
than that focused on reducing costs before the company has completed its
market research. Future build will be based on maximising our current
infrastructure and subscriber numbers in order to reduce operational and
build costs and improve value add as far as possible.
Data Centre Operations
Globally, fixed-line telecommunications operators are intrinsically IT
intensive and have large IT asset bases. This fact is driving them into the
value added IT outsourcing services market. Customers are increasingly
expecting consistent end-to-end service both on IT and communications
operations to support agile business processes. Major telecoms operators are
best positioned to deliver a converged services value proposition because
they control the network and are thus able to provide an integrated offering.
An analysis of the IT services sector shows it is both attractive and fast
growing. In Europe, data services demand is 6 times higher than the supply.
In South Africa, the IT services market was R21 billion in 2007 and was
forecast to grow by BMI-TechKnowledge at a compound annual growth rate of
10%.
Telkom can rely on a number of key differentiating factors related to Data
Centre operations. We are already a major player in the connectivity and
managed network space and currently have 7,500 square metres of data centre
space. We are currently managing over R2.5bn of IT assets and are currently
completing the addition of a further 2,200 square metres at a cost of R400
million which will be operational by July 2009. This fact confirms Telkom as
the largest provider of data centre services in terms of square metres in
high quality, high availability space in Sub-Saharan Africa. We are currently
conducting market research to assess the feasibility of adding a further
5,000 square metres. Our intention is to build carrier neutral data centres.
Confederations Cup 2009 and World Cup 2010
Telkom is extremely proud that our expertise in connectivity, transmission
and managed networks has been recognised by FIFA who has chosen us to design
and provide the underlying infrastructure for both the Confederation Cup 2009
and World Cup 2010. Telkom will also provide FIFA`s data centre hosting
requirements and fully managed customised IT solutions. To date, Telkom has
successfully beamed the Confederation Cup 2009 to billions of people across
the globe.
The deployment of the infrastructure and services at the ten stadiums and
International Broadcasting Centre is being funded through a contract entered
into with the Department of Communications. The funding received from the
Department of Communications totals R950 million over the 2009 and 2010
financial years. Telkom has spent R118 million during the year ended March
31, 2009. The Department of Communications funding does not cover certain
increases in the national backbone and transmission networks, element
management operating systems and network synchronisation requirements.
Revenue will be generated directly from FIFA and from the media and
broadcasters. We anticipate that this investment will meet our investment
criteria. In the future, it is envisaged that Telkom will be able to redeploy
a substantial portion of the infrastructure provided at the stadiums
throughout the network, apart from the access equipment. In addition, the
expansion in core network will be utilised for South Africa`s growing
bandwidth demand.
We are thrilled that Telkom is able to meaningfully participate in these
truly global events for the benefit of South Africa and its people.
THE REGULATORY ENVIRONMENT
The licensing and provision of telecommunications services in the Republic of
South Africa has historically been subject to the Telecommunications Act and
the extensive regulations made under the Telecommunications Act. The
Telecommunications Act was repealed by the Electronic Communications Act when
the Electronic Communications Act came into effect on July 19, 2006. While a
new licensing regime has been created by the Electronic Communications Act,
all existing licences were to remain valid until converted to new licences in
accordance with the new licensing regime. Regulations made under the
Telecommunications Act are also to remain in force until new regulations
required are made to fully implement the provisions of the Electronic
Communications Act. As a result, the regulatory environment is evolving,
lacks clarity in a number of areas and is subject to interpretation, review
and amendment as the telecommunications industry is further developed and
liberalised. In addition, the regulatory process entails a public comment
process, which, in light of the politicised issue of privatisation of
industries such as telecommunications in South Africa, makes the outcome of
the regulations uncertain and may cause delays in the regulatory process. A
number of significant matters have not been addressed or clarified. ICASA has
started several regulatory processes, the most important of which are:
- the establishment of the special terms and conditions that may apply to
each individual licensee;
- the establishment of spectrum licence fees;
- the determination of the definition of the various markets;
- the establishment of the methodologies that will be used to determine
the level of competitiveness in each market and the existence of
significant market power therein; and
- the determination of the regulatory remedies that may be imposed on a
licensee upon a finding of significant market power.
It is not possible to determine at this stage the outcome of these processes
or the timeframe within which they will be concluded. Telkom remains
committed to working with ICASA for the benefit of the entire
telecommunications industry.
Declaration of ordinary and special dividend
The receipt of R9.6 billion from the sale of 15% of Vodacom to Vodafone Plc,
delay in the roll-out of the mobile network and data centre expansion and re-
assessment of the Multi-Links capital requirements allows Telkom to declare a
special dividend in addition to the ordinary dividend. The ordinary dividend
provides the new targeted base established by the board for the determination
of future dividends for Telkom as a standalone entity. The level of dividend
payments going forward will be based on a number of factors, including the
consideration of the financial results, capital and operating expenditure
requirements, the Group`s debt level, interest coverage, internal cash flows,
prospects and available growth opportunities.
Ordinary dividend number 14 of 115 cents per share (2008: 660 cents) and
special dividend of 260 cents per share (2008: 0 cents) in respect of the
financial year ended March 31, 2009 have been declared payable on Monday,
July 20, 2009 to shareholders recorded in the register of the company at
close of business on Friday, July 17, 2009.
Holders of ordinary shares
Salient dates with regard to the 2009
ordinary and special dividend
Last date to trade cum dividend Friday, July 10
Shares trade ex dividend Monday, July 13
Record date Friday, July 17
Payment date Monday, July 20
Share certificates may not be dematerialised or rematerialised between
Monday, July 13, 2009 and Friday, July 17, 2009, both days inclusive.
On Monday, July 20, 2009, dividends due to holders of certificated securities
on the South African register will either be transferred electronically to
shareholders` bank accounts or, in the absence of suitable mandates, dividend
cheques will be posted to such shareholders.
Dividends in respect of dematerialised shareholders will be credited to
shareholders` accounts with their relevant CSDP or broker.
Holders of American Depositary Shares
Salient dates with regard to the 2009
ordinary and special dividend
Ex dividend on New York Stock Exchange Friday, July 10
Record date Friday, July 17
Approximate date for currency conversion Monday, July 20
into US dollars
Approximate date for payment of dividend Monday, August 3
Prospects
Telkom`s strategy is designed to deliver sustainable, profitable growth going
forward and is benchmarked against global best practice. The creation of
sustainable shareholder value is the underlying driver of every decision
made. Telkom`s Board of directors and management team believe in the cost
efficiencies and cash flows of the fixed-line business and are committed to
addressing this while we invest for growth in new areas of business.
Capital expenditure for the group is expected to range between 20% and 23% of
revenue over the next financial year.
The targeted net debt to EBITDA for the 2010 financial year is expected to be
1.4 times.
Targets in a transforming industry such as ours are inherently risky,
particularly in later years and investors should not place undue reliance on
such targets. Our ability to meet such targets is subject to a number of
risks and uncertainties and there could be no assurance that we could meet
such targets. See the special note regarding forward-looking statements.
The level of dividend going forward will be based on a number of factors
including the consideration of the financial results, available growth
opportunities, capital and operational requirements, the group`s debt level,
interest coverage, internal cash flows, prospects and resources.
New York Stock Exchange Listing
Given the current global economic climate and the business imperative for
Telkom to reduce its cost base, the Board has decided to delist from the New
York Stock Exchange. Maintaining a listing in the United States is expensive
and takes considerable management time. The methodology employed and
discipline gained from compliance with the Sarbanes-Oxley reporting
requirements will be retained, where appropriate, to ensure strict corporate
governance compliance and transparent financial reporting.
Telkom is comfortable that the Johannesburg Stock Exchange provides
sufficient access to capital from both South African and global investors.
Telkom intends to maintain a level 1 American Depositary Receipt programme to
facilitate over-the-counter trading in the United States of America.
3. GROUP PERFORMANCE
The Telkom Group added Multi-Links as a new segment to its financial
reporting for the 2009 financial year. As a result, the Telkom Group`s four
reporting segments for the 2009 financial year are fixed-line, Multi-Links,
mobile and other. The other segment includes Telkom`s Trudon, formerly known
as TDS Directory Operations, and Africa Online subsidiaries. The information
in this provisional annual results has been updated to reflect the above
changes to Telkom`s reporting segments.
GROUP OPERATING REVENUE
Group operating revenue increased by 6.9% to R35,940 million (March 31, 2008:
R33,611 million) in the year ended March 31, 2009. Fixed-line operating
revenue, before inter-segmental eliminations, increased by 3.3% to R33,659
million due to growth in data revenues, higher revenue from interconnection
and subscription based calling plans, partially offset by lower traffic
revenue. Multi-Links`s operating revenue increased 124.9% due to a 209.3%
growth in its subscribers.
GROUP OPERATING EXPENSES
Group operating expenses increased by 19.5% to R29,895 million (March 31,
2008: R25,014 million) in the year ended March 31, 2009, due to a 19.6%
increase in operating expenses in the fixed-line segment to R29,849 million
(before inter-segmental eliminations) and a 157.1% increase in operating
expenses in Multi-Links to R2,422 million (before inter-segmental
eliminations). Fixed-line operating expenses increased due to increased
selling, general and administrative expenses, payments to other network
operators, depreciation, amortisation, impairment and write-offs, employee
expenses and service fees. The increase in Multi-Links`s operating expenses
was primarily due to increased cost of sales and associated subsidies as a
result of increased sales volumes, increased advertising and promotional
expenditure and an increase in expatriate fees as a result of an increase in
staff seconded from Telkom during the year.
INVESTMENT INCOME
Investment income consists of interest received on short-term investments and
bank accounts. Investment income increased by 7.7% to R181 million (March 31,
2008: R168 million), largely as a result of increased short-term deposits and
interest rates.
FINANCE CHARGES AND FAIR VALUE MOVEMENTS
Finance charges include interest paid on local and foreign borrowings,
amortised discounts on bonds and commercial paper bills, fair value gains and
losses on financial instruments and foreign exchange gains and losses on
foreign currency denominated transactions and balances. Finance charges and
fair value movements increased by 82.7% to R2,843 million (March 31, 2008:
R1,556 million) in the year ended March 31, 2009, primarily due to a 12.2%
increase in interest expense to R1,732 million (March 31, 2008: R1,543
million) mainly as a result of the 43.1% increase in the Group`s net debt to
R23,773 million (March 31, 2008: R16,617 million). In addition to the
increase in the interest expense, net fair value and foreign exchange rate
movements resulted in a loss of R1,111 million for the year ended March 31,
2009 (March 31, 2008: R13 million). The increase in the loss was mainly
attributable to foreign exchange losses incurred by Multi-Links on foreign
denominated loans and creditors` balances as a result of the devaluation of
the Naira as well as the mark to market valuation of the Multi-Links put
option.
TAXATION
Consolidated tax expense from continuing operations decreased by 37.3% to
R1,660 million (March 31, 2008: R2,647 million) in the year ended March 31,
2009. The consolidated effective tax rate for the year ended March 31, 2009
was 44.6% (March 31, 2008: 34.5%). Telkom Company`s effective tax rate was
8.9% (March 31, 2008: 24.6%). The lower effective tax rate for Telkom Company
in the year ended March 31, 2009 was mainly due to the deferred tax asset
that was raised on the capital gains tax base cost of the 15% investment in
Vodacom which is held for sale that will be utilised in the future capital
gains tax liability of the sale transaction, partially offset by the R1,843
million impairment of the Multi-Links investment, a R254 million impairment
of the Telkom Media loan and R85 million impairment of the Africa Online
investment at company level.
PROFIT FOR THE YEAR AND EARNINGS PER SHARE
Profit attributable to the equity holders of Telkom decreased by 47.7% to
R4,170 million (March 31, 2008: R7,975 million) in the year ended March 31,
2009.
Group basic earnings per share from continuing operations decreased 57.7% to
407.4 cents per share (March 31, 2008: 963.7 cents) and Group headline
earnings per share from continuing operations decreased by 45.9% to 557.0
cents per share (March 31, 2008: 1,028.9 cents).
4. GROUP BALANCE SHEET
Net debt, after financial assets and liabilities, including discontinued
operations, increased by 43.1% to R23,773 million (March 31, 2008: R16,617
million) resulting in a net debt to EBITDA ratio of 1.2 times from 0.8 times
at March 31, 2008. On March 31, 2009, the Group had cash balances of R1,931
million (March 31, 2008: R1,134 million). Net debt, after financial assets
and liabilities of continuing operations, was R15,497 million with a net debt
to EBITDA margin of 1.3 times.
Telkom Company issued new local bonds, the TL12 and TL15 with a nominal value
of R1,060 million and R1,160 million, respectively as well as syndicated
loans with a nominal value of R4,100 million during the year ended March 31,
2009. The Company issued commercial paper bills with a nominal value of
R11,025 million for the year ended March 31, 2009 of which commercial paper
bills with a nominal value of R9,849 million were repaid by March 31, 2009.
5. GROUP CASH FLOW
Cash flows from operating activities increased by 7.8% to R11,432 million
(March 31, 2008: R10,603 million), primarily due to a lower dividend paid in
respect of the 2008 financial year and lower tax payments partially offset by
higher finance charges. Cash flows utilised in investing activities increased
by 20.6% to R17,005 million (March 31, 2008: R14,106 million), primarily due
to higher capital expenditure in the Multi-Links and mobile segments and
higher acquisitions mainly as a result of the acquisition of Gateway by
Vodacom. Cash flows from financing activities includes loans raised of
R18,168 million, partially offset by loans repaid of R10,212 million.
SUMMARY
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Cash generated from 20,520 21,256 20,394 3.6 (4.1)
operations
Cash from operating 9,356 10,603 11,432 13.3 7.8
activities (after
tax, interest and
dividends)
Investing (10,412) (14,106) (17,005) 35.5 20.6
activities
Financing (2,920) 2,943 7,093 200.8 141.0
activities
Net (increase)/ (3,976) (560) 1,520 85.9 371.4
decrease in cash
6. GROUP CAPITAL EXPENDITURE
Group capital expenditure which includes spend on intangible assets,
increased by 11.2% to R13,234 million (March 31, 2008: R11,900 million) and
represents 36.8% of Group revenue (March 31, 2008: 35.4%).
GROUP CAPITAL EXPENDITURE
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Fixed-line 6,594 6,794 6,690 3.0 (1.5)
Multi-Links - 1,312 2,791 - 112.7
Mobile 3,608 3,460 3,569 (4.1) 3.2
Other 44 334 184 659.1 (44.9)
10,246 11,900 13,234 16.1 11.2
FIXED-LINE CAPITAL EXPENDITURE
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Baseline 3,409 4,039 3,343 18.5 (17.2)
Revenue 159 57 30 (64.2) (47.4)
generating
Network 784 1,092 1,373 39.3 25.7
evolution
Sustainment 416 277 115 (33.4) (58.5)
Effectiveness 1,141 841 603 (26.3) (28.3)
and efficiency
Support 497 451 790 (9.3) 75.2
Regulatory and 188 37 436 (80.3) 1,078.4
other
6,594 6,794 6,690 3.0 (1.5)
Fixed-line capital expenditure, which includes spending on intangible assets,
decreased by 1.5% to R6,690 million (March 31, 2008: R6,794 million) and
represents 19.9% of fixed-line revenue (March 31, 2008: 20.9%). Baseline
capital expenditure of R3,343 million (March 31, 2008: R4,039 million) was
largely for the deployment of technologies to support the growing data
services business (including ADSL footprint), links to the mobile cellular
operators and expenditure for access line deployment in selected high growth
commercial and residential areas. The continued focus on rehabilitating the
access network and increasing the efficiencies and reducing redundancies in
the transport network as well as the initiation of the fixed wireless roll-
out contributed to the network evolution and sustainment capital expenditure
of R1,488 million (March 31, 2008: R1,369 million).
Telkom continues to focus on its operations support system investment with
current emphasis on workforce management, provisioning and fulfilment,
assurance and customer care, hardware technology upgrades on the billing
platform and performance and service management and property optimisation.
During the year ended March 31, 2009, R603 million (March 31, 2008: R841
million) was spent on the implementation of several systems.
MULTI-LINKS CAPITAL EXPENDITURE
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Property, plant - 1,312 2,754 - 109.9
and equipment
Intangible - - 37 - -
assets
- 1,312 2,791 - 112.7
Multi-Links`s capital expenditure, which includes spending on intangible
assets, increased by 112.7% to R2,791 million (March 31, 2008: R1,312
million) and represents 146.9% of Multi-Links`s revenue (March 31, 2008:
155.3%) and was due to the continued investment to improve geographic
coverage and increase capacity for both the voice and data networks.
MOBILE CAPITAL EXPENDITURE
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Property, plant 3,069 2,475 2,979 (19.4) 20.4
and equipment
Intangible 539 985 590 82.7 (40.1)
assets
3,608 3,460 3,569 (4.1) 3.2
Mobile capital expenditure, which includes spending on intangible assets,
increased by 3.2% to R3,569 million (March 31, 2008: R3,460 million) and
represents 12.9% of mobile revenue (March 31, 2008: 14.4%) and was due to the
continued investment to improve geographic coverage and increase capacity for
both the voice and data networks.
OTHER CAPITAL EXPENDITURE
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Property, plant 34 277 139 714.7 (49.8)
and equipment
Intangible 10 57 45 470.0 (21.1)
assets
44 334 184 659.1 (44.9)
Other capital expenditure consists of additions to property, plant and
equipment and intangible assets for our subsidiaries Trudon (Proprietary)
Limited, formerly known as TDS Directory Operations, Swiftnet (Proprietary)
Limited, Africa Online Limited and Telkom Media. Other capital expenditure
decreased to R184 million (March 31, 2008: R334 million) and represents 13.8%
of other revenue (March 31, 2008: 29.1%).
7. SEGMENT PERFORMANCE
Telkom`s operating structure comprises three segments, fixed-line, Multi-
Links and other. The fixed-line segment provides fixed-line voice and data
communications services through Telkom. The Multi-Links segment provides
fixed, mobile, data, long distance and international telecommunications
services throughout Nigeria, through our wholly owned subsidiary, Multi-
Links. The other segment provides directory services through our 64.9% owned
subsidiary, Trudon and internet services in Cote d`Ivoire, Ghana, Kenya,
Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe, through our wholly
owned subsidiary, Africa Online Limited.
Our 50% share of Vodacom`s results, Telkom Media and Swiftnet`s results are
disclosed as discontinued operations in terms of IFRS5 in the Telkom Group`s
consolidated financial statements.
The financial information provided below is before any inter-segmental
eliminations.
SUMMARY - Continuing operations
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Operating revenue 32,441 33,611 35,940 3.6 6.9
Fixed-line 32,345 32,572 33,659 0.7 3.3
Multi-Links - 845 1,900 - 124.9
Other 873 1,040 1,214 19.1 16.7
Inter-segmental (777) (846) (833) 8.9 (1.5)
eliminations
Operating profit 9,751 9,069 6,388 (7.0) (29.6)
Fixed-line 8,596 8,107 4,334 (5.7) (46.5)
Multi-Links - (97) (522) - (438.1)
Other 411 453 477 10.2 5.3
Inter-segmental 744 606 2,099 (18.5) 246.4
eliminations
Operating profit 30.1 27.0 17.8 (10.3) (34.1)
margin (%)
Fixed-line 26.6 24.9 12.9 (6.4) (48.2)
Multi-Links - (11.5) (27.5) - 139.1
Other 47.1 43.6 39.3 (7.4) (9.9)
EBITDA 13,352 13,203 11,668 (1.1) (11.6)
Fixed-line 12,178 11,839 8,692 (2.8) (26.6)
Multi-Links - (11) (226) - -
Other 430 486 527 13.0 8.4
Inter-segmental 744 889 2,675 19.5 200.9
eliminations
EBITDA margin (%) 41.2 39.3 32.5 (4.6) (17.3)
Fixed-line 37.7 36.3 25.8 (3.7) (28.9)
Multi-Links - (1.3) (11.9) - (815.4)
Other 49.3 46.7 43.4 (5.3) (7.1)
FIXED-LINE SEGMENT
The fixed-line segment accounted for 93.7% (March 31, 2008: 96.9%) of Group
operating revenue from continuing operations (before inter-segmental
eliminations) and 67.9% (March 31, 2008: 89.3%) of Group operating profit
from continuing operations for the year ended March 31, 2009.
The financial information presented below for the fixed-line segment is
before inter-segmental eliminations.
SUMMARY
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Revenue 32,345 32,572 33,659 0.7 3.3
Operating profit 8,596 8,107 4,334 (5.7) (46.5)
EBITDA 12,178 11,839 8,692 (2.8) (26.6)
Capital 6,594 6,794 6,690 3.0 (1.5)
expenditure1
Operating profit 26.6 24.9 12.9 (6.4) (48.2)
margin (%)
EBITDA margin (%) 37.7 36.3 25.8 (3.7) (28.9)
Capex to revenue(%) 20.4 20.9 19.9 2.5 (4.8)
1. Including spend on intangible assets.
FIXED-LINE OPERATING REVENUE
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Subscriptions and 6,286 6,330 6,614 0.7 4.5
connections
Traffic 16,740 15,950 15,323 (4.7) (3.9)
Local 4,832 4,076 3,634 (15.6) (10.8)
Long distance 2,731 2,252 2,036 (17.5) (9.6)
Fixed-to-mobile 7,646 7,557 7,420 (1.2) (1.8)
International 988 986 933 (0.2) (5.4)
outgoing
Subscription 543 1,079 1,300 98.7 20.5
based calling plans
Interconnection 1,639 1,757 2,084 7.2 18.6
Mobile operators 816 838 916 2.7 9.3
Fixed operators - 28 111 - 296.4
International 823 891 1,057 8.3 18.6
operators
Data 7,489 8,308 9,310 10.9 12.1
Leased lines and 5,828 6,460 7,452 10.8 15.4
other data
Mobile leased 1,661 1,848 1,858 11.3 0.5
facilities
Other 191 227 328 18.8 44.5
32,345 32,572 33,659 0.7 3.3
Operating revenue from the fixed-line segment, before inter-segmental
eliminations, increased by 3.3% to R33,659 million (March 31, 2008: R32,572
million) primarily due to increased data, interconnection and subscription
and connection revenues, partially offset by a decline in traffic revenue.
Subscription and connections revenue grew by 4.5% to R6,614 million (March
31, 2008: R6,330 million) largely as a result of increased rental tariffs and
the increase in the number of ISDN channels.
Traffic revenue decreased by 3.9% as a result of the acceleration of
broadband adoption and the resultant loss of internet dial-up minutes as well
as the increasing substitution of calls placed using mobile services rather
than fixed-line services. This was partially offset by an increase in revenue
from subscription based calling plans by 20.5% to R1,300 million primarily
due to increased volumes as a result of a 27.3% increase in the number of
subscribers to 590,590 (March 31, 2008: 464,038) in the year ended March 31,
2009.
Interconnection revenue increased by 18.6% to R2,084 million (March 31, 2008:
R1,757 million) largely as a result of an increase of 18.6% in international
interconnection revenue, a significant increase in domestic fixed-line
interconnection revenue and a 9.3% increase in mobile interconnection
revenue. The increased interconnection revenue from international operators
is mainly a result of higher volumes on switched hubbing due to a reduction
in margins to stimulate competitiveness and higher exchange rates partially
offset by a 7.1% decrease in international interconnection traffic minutes to
1,189 million minutes (March 31, 2008: 1,280 million minutes). Mobile
interconnection revenue increased by 9.3% to R916 million (March 31, 2008:
R838 million) primarily due to average tariff increases partially offset by
decreased interconnection traffic from mobile operators. Mobile
interconnection traffic minutes decreased by 0.7% to 2,484 million minutes
(March 31, 2008: 2,502 million minutes) in the year ended March 31, 2009.
Data revenue increased by 12.1% to R9,310 million (March 31, 2008: R8,308
million) mainly due to higher demand for data services, including ADSL, an
increase in internet access and related services and managed data network
services.
FIXED-LINE OPERATING EXPENSES
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Employee expenses 7,096 7,397 7,999 4.2 8.1
Salaries and wages 5,095 5,509 5,746 8.1 4.3
Benefits 2,673 2,671 2,981 (0.1) 11.6
Other 24 3 8 (87.5) 166.7
Employee related (696) (786) (736) 12.9 (6.4)
expenses capitalised
Payments to other 6,461 6,902 7,536 6.8 9.2
network operators
Payment to mobile 5,425 5,460 5,432 0.6 (0.5)
operators
Payment to 1,036 1,208 1,853 16.6 53.4
international
operators
Payment to fixed- - 234 251 - 7.3
line operators
SG&A 3,976 3,899 6,582 (1.9) 68.8
Materials and 1,900 1,996 2,295 5.1 15.0
maintenance
Marketing 604 583 574 (3.5) (1.5)
Bad debts 137 217 285 58.4 31.3
Other1 1,335 1,103 3,428 (17.4) 210.8
Service fees 2,206 2,413 2,761 9.4 14.4
Property management 1,141 1,222 1,262 7.1 3.3
Consultants and 1,065 1,191 1,499 11.8 25.9
security
Operating leases 762 619 613 (18.8) (1.0)
Depreciation, 3,582 3,732 4,358 4.2 16.8
amortisation,
impairment and write-
offs
Depreciation 2,993 3,061 3,399 2.3 11.0
Amortisation 305 409 638 34.1 56.0
Impairments and 284 262 321 (7.7) 22.5
write-offs
24,083 24,962 29,849 3.6 19.6
1. Includes R1,843 million, R254 million and R85 million in respect of
impairments of Multi-Links, Telkom Media and Africa Online, respectively, in
the 2009 financial year, and R217 million impairment in respect of the Telkom
Media loan in the 2008 financial year.
Fixed-line operating expenses, before inter-segmental eliminations, increased
by 19.6% in the year ended March 31, 2009, to R29,849 million (March 31,
2008: R24,962 million), primarily due to increased selling, general and
administrative expenses, payments to other network operators, depreciation,
amortisation, impairment and write-offs, employee expenses, and service fees.
Employee expenses increased by 8.1% in the year ended March 31, 2009
primarily due to a higher provision for medical aid for pensioners as a
result of increased interest costs, higher salaries and wages as a result of
average annual salary increases of 10.85% as well as a higher provision for
team award, gain sharing and leave, partially offset by a lower number of
employees.
Payments to other network operators increased by 9.2% as a result of
increased payments to international and fixed-line operators. Payments to
mobile operators decreased by 0.5%, largely due to decreased mobile outgoing
traffic during peak hours and no tariff increases. Payments to international
operators increased by 53.4% primarily due to the increase of volumes in
switched hubbing and the higher exchange rates partially offset by lower
settlement rates.
Selling, general and administrative expenses increased by 68.8% primarily as
a result of the R1,843 million impairment of the Multi-Links investment and
increased maintenance cost.
Service fees increased by 14.4% mainly as a result of consultancy fees
relating to the Vodacom sale and unbundling transaction and higher security
costs to secure the copper network.
Operating leases decreased by 1.0% primarily due to a 6.0% reduction in the
vehicle fleet from 8,792 vehicles at March 31, 2008 to 8,266 vehicles at
March 31, 2009.
The 16.8% increase in the depreciation, amortisation, impairment and write-
offs to R4,358 million (March 31, 2008: R3,732 million) was mainly as a
result of higher amortisation of intangible assets and increased depreciation
due to the ongoing investment in telecommunications network equipment and
data processing equipment.
Fixed-line operating profit decreased by 46.5% to R4,334 million (March 31,
2008: R8,107 million) with an operating profit margin of 12.9% (March 31,
2008: 24.9%).
Fixed-line EBITDA decreased by 26.6% to R8,692 million (March 31, 2008:
R11,839 million), with the EBITDA margin decreasing to 25.8%. (March 31,
2008: 36.3%).
MOBILE SEGMENT
Vodacom`s operational statistics are presented below at 100%, but all
financial figures represent the 50% that is included in the disposal group
held for sale in the Group and presented before inter-segmental eliminations.
SUMMARY
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Operating revenue 20,573 24,089 27,594 17.1 14.6
Operating profit 5,430 6,247 6,009 15.0 (3.8)
EBITDA 7,123 8,217 8,407 15.4 2.3
Capital expenditure1 3,608 3,460 3,569 (4.1) 3.2
Operating profit 26.4 25.9 21.8 (1.9) (15.8)
margin (%)
EBITDA margin (%) 34.6 34.1 30.5 (1.5) (10.6)
Capex to revenue (%) 17.5 14.4 12.9 (17.7) (10.4)
1. Including spend on intangible assets.
MOBILE OPERATING REVENUE
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Airtime and access 11,854 13,548 15,166 14.3 11.9
Data 1,671 2,501 3,221 49.7 28.8
Interconnect 3,918 4,443 4,899 13.4 10.3
Equipment sales 2,350 2,526 2,650 7.5 4.9
International 653 918 1,043 40.6 13.6
airtime
Other 127 153 615 20.5 302.0
20,573 24,089 27,594 17.1 14.6
Operating revenue from the mobile segment increased by 14.6%, before inter-
segmental eliminations, to R27,594 million (March 31, 2008: R24,089 million),
primarily driven by customer growth in all operations, higher data
penetration levels and the inclusion of R404 million revenue from the
acquisition of Gateway. Revenue from Vodacom`s operations outside of South
Africa increased by 29.9% to R3,502 million (March 31, 2008: R2,696 million)
for the year ended March 31, 2009.
The growth in revenue can largely be attributed to a 16.5% increase in
Vodacom`s total customers to 39.6 million as of March 31, 2009, (March 31,
2008: 34.0 million), resulting from strong growth in prepaid and contract
customers in South Africa and 30.7% growth in customers outside of South
Africa. In South Africa, total ARPUs increased by 3.9% to R133 (March 31,
2008: R128) for the year ended March 31, 2009. Contract ARPUs decreased 2.5%
to R474 (March 31, 2008: R486) and prepaid ARPUs increased by 9.7% to R68
(March 31, 2008: R62) for the year ended March 31, 2009.
Data revenue increased by 28.8% and represents 11.7% of mobile revenue during
the year ended March 31, 2009 (March 31, 2008: 10.4%). The growth was largely
due to higher penetration levels and more affordable product offerings.
Vodacom South Africa transmitted 5.4 billion SMS messages (March 31, 2008:
5.0 billion), over its network during the year ended March 31, 2009.
Mobile interconnect revenue increased by 10.3% to R4,899 million for the year
ended March 31, 2009 (March 31, 2008: R4,443 million), primarily as a result
of the increased number of Vodacom customers and the related increase in
calls terminating on Vodacom`s network.
Equipment sales increased by 4.9% to R2,650 million for the year ended March
31, 2009 (March 31, 2008: R2,526 million) primarily due to an increase in
handset sales, partially offset by a reduction in the average price per
handset. South African handset sales volumes increased by 8% to 5.5 million
units (March 31, 2008: 5.1 million units) during the year ended March 31,
2009.
Vodacom`s international airtime revenue consists largely of international
calls by Vodacom`s customers, roaming revenue from Vodacom customers making
and receiving calls while abroad and revenue from international customers
roaming on Vodacom`s network. International airtime revenue increased 13.6%
to R1,043 million for the year ended March 31, 2009 (March 31, 2008: R918
million) primarily due to the growth in the customer base.
MOBILE OPERATING EXPENSES
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Employee expenses 1,186 1,488 1,804 25.5 21.2
Payments to other 2,818 3,279 3,822 16.4 16.6
operators
SG&A 8,777 10,271 12,553 17.0 22.2
Service fees 82 115 169 40.2 47.0
Operating leases 629 775 958 23.2 23.6
Depreciation, 1,693 1,970 2,398 16.4 21.7
amortisation,
impairment and write-
offs
15,185 17,898 21,704 17.9 21.3
Mobile operating expenses, before inter-segmental eliminations, increased by
21.3% to R21,704 million for the year ended March 31, 2009 (March 31, 2008:
R17,898 million).
Mobile employee expenses increased by 21.2% to R1,804 million for the year
ended March 31, 2009 (March 31, 2008: R1,488 million), primarily due to a
19.5% increase in the total number of employees to 8,176 and annual salary
increases.
Mobile payments to other operators increased by 16.6% to R3,822 million
(March 31, 2008: R3,279 million) in the year ended March 31, 2009, primarily
as a result of increased outgoing traffic terminating on the other mobile
networks.
Mobile selling, general and administrative expenses increased by 22.2% to
R12,553 million for the year ended March 31, 2009 (March 31, 2008: R10,271
million), primarily due to an increase in selling, distribution and marketing
expenses mainly driven by an increase in the cost of connecting prepaid
customers and the cost of retention of contract customers.
Mobile depreciation, amortisation, impairment and write-offs increased by
21.7% to R2,398 million for the year ended March 31, 2009 (March 31, 2008:
R1,970 million), primarily as a result of increased capital expenditure
upgrading and expanding Vodacom`s networks.
MULTI-LINKS SEGMENT
The Multi-Links segment accounted for 5.3% of Group operating revenue from
continuing operations (March 31, 2008: 2.5%) (before inter-segmental
eliminations).
SUMMARY
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Operating revenue - 845 1,900 - 124.9
Operating profit - (97) (522) - (438.1)
EBITDA - (11) (226) - -
Capital expenditure1 - 1,312 2,791 - 112.7
Operating profit - (11.5) (27.5) - (139.1)
margin (%)
EBITDA margin (%) - (1.3) (11.9) - (815.4)
Capex to revenue (%) - 155.3 146.9 - (5.4)
1. Including spend on intangible assets.
Multi-Links`s operating revenue, before inter-segmental eliminations,
increased by 124.9% in the year ended March 31, 2009 to R1,900 million (March
31, 2008: R845 million) primarily driven by subscriber growth, an increase in
domestic traffic volumes as well as increased data revenue.
MULTI-LINKS OPERATING EXPENSES
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Employee expenses - 39 126 - 223.1
Payments to other - 624 652 - 4.5
operators
SG&A - 142 1,117 - 686.6
Service fees - 14 38 - 171.4
Operating leases - 37 193 - 421.6
Depreciation, - 86 296 - 244.2
amortisation,
impairment and write-
offs
- 942 2,422 - 157.1
Multi-Links`s operating expenses, before inter-segmental eliminations,
increased by 157.1% to R2,422 million (March 31, 2008: R942 million) in the
year ended March 31, 2009 primarily due to increased cost of sales and
associated subsidies as a result of increased sales volumes, increased
advertising and promotional expenditure and an increase in expatriate fees as
a result of an increase in staff seconded from Telkom during the year.
OTHER SEGMENT
The other segment accounted for 3.4% of Group operating revenue from
continuing operations (March 31, 2008: 3.1%) (before inter-segmental
eliminations) and 7.5% of Group operating profits from continuing operations
(March 31, 2008: 5.0%).
SUMMARY
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Operating revenue 873 1,040 1,214 19.1 16.7
Operating profit 411 453 477 10.2 5.3
EBITDA 430 486 527 13.0 8.4
Capital expenditure1 44 334 184 659.1 (44.9)
Operating profit margin 47.1 43.6 39.3 (7.4) (9.9)
(%)
EBITDA margin (%) 49.3 46.7 43.4 (5.3) (7.1)
Capex to revenue1 (%) 5.0 32.1 13.8 542.0 (57.0)
1. Including spend on intangible assets and discontinued operations.
The following table shows the contributions to other operating revenue by
each of the two subsidiaries contained in our other segment and the
percentage change for the year indicated.
OTHER OPERATING REVENUE
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Trudon 865 930 1,020 7.5 9.7
Africa Online 8 110 194 - 76.4
873 1,040 1,214 19.1 16.7
Other operating revenue, before inter-segmental eliminations, increased by
16.7% in the year ended March 31, 2009 to R1,214 million (March 31, 2008:
R1,040 million).
OTHER OPERATING EXPENSES
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Employee expenses 158 193 220 22.2 14.0
Payments to other - 53 89 - 67.9
operators
SG&A 310 335 404 8.1 20.6
Service fees 5 12 12 140.0 -
Operating leases 20 23 26 15.0 13.0
Depreciation, 19 32 50 68.4 56.3
amortisation, impairment
and write-offs
512 648 801 26.6 23.6
Other operating expenses, before inter-segmental eliminations, increased by
23.6% to R801 million (March 31, 2008: R648 million) in the year ended March
31, 2009.
The following table shows the contributions to other operating expenses by
each of the two subsidiaries contained in our other segment and the
percentage change for the year indicated.
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
Trudon 504 530 593 5.2 11.9
Africa Online 8 118 208 - 76.3
512 648 801 26.6 23.6
8. EMPLOYEES
Year ended March 31 % variance
2007 2008 2009 07/08 08/09
FIXED-LINE
Telkom Company 25,864 24,879 23,520 (3.8) (5.5)
Lines per employee 180 182 189 1.1 3.8
MOVEMENT IN FIXED-
LINE
EMPLOYEES
Opening balance 25,575 25,864 24,879 1.1 (3.8)
Appointments 1,486 891 1,034 (40.0) 16.0
Employee losses (1,197) (1,876) (2,393) 56.7 27.6
Workforce (20) (4) (10) (80.0) 150.0
reductions
Voluntary early (7) (2) (5) (71.4) 150.0
retirement
Voluntary (13) (2) (5) (84.6) 150.0
severance
Natural attrition (1,177) (1,872) (2,383) 59.0 27.3
Closing balance 25,864 24,879 23,520 (3.8) (5.5)
MULTI-LINKS - 680 870 - 27.9
OTHER
Trudon 549 610 531 11.1 (13.0)
Africa Online 317 379 313 19.6 (17.4)
MOBILE EMPLOYEES
South Africa 1, 2 4,727 4,849 5,451 2.6 12.4
Customers per 4,867 5,119 5,068 5.2 (1.0)
employee 1, 2
Other African 1,522 1,992 2,336 30.9 17.3
countries2
Customers per 4,695 4,605 5,132 (1.9) 11.5
employee2
Gateway - - 389 - -
Vodacom Group 1, 2 6,249 6,841 8,176 9.5 19.5
Customers per 4,825 4,969 4,845 3.0 (2.5)
employee 1, 2
1. Includes Holding Company and Mauritian employees.
2. Includes Agency temporary employees.
9. SUPPLEMENTARY INFORMATION
EBITDA RECONCILIATION TO NET PROFIT
Earnings before interest, taxation, depreciation and amortisation can be
reconciled as follows:
Year ended March 31 % variance
In ZAR millions 2007 2008 2009 07/08 08/09
EBITDA 13,352 13,203 11,668 (1.1) (11.6)
Depreciation, (3,601) (4,134) (5,280) 14.8 27.7
amortisation,
impairment and
write-offs
Investment income 199 168 181 (15.6) 7.7
Finance charges (857) (1,556) (2,843) 81.6 82.7
Taxation (2,803) (2,647) (1,660) (5.6) (37.3)
Profit from 2,559 3,138 2,181 22.6 (30.5)
disposal group held
for sale
Minority interests (203) (197) (77) (3.0) (60.9)
Net profit 8,646 7,975 4,170 (7.8) (47.7)
attributable to
equity holders
US DOLLAR
CONVENIENCE
In USD millions 2008 2009
Revenue 4,129 3,775
Operating profit 1,114 671
Net profit 980 438
EBITDA 1,622 1,226
EPS (cents) 118.4 42.8
Net debt 2,041 1,628
Total assets 8,645 9,016
Cash flow from 1,303 1,201
operating
activities
Cash flow from (1,733) (1,786)
investing
activities
Cash flow from 362 745
financing
activities
Exchange rate year
end1
US$1 - ZAR 8.14 9.52
1. Noon buying rate at March 31.
10. DEFINITIONS
3G
The generic term, 3G, is used to denote the next generation of mobile systems
designed to support high-speed data transmission (144 Kbps and higher) and
Internet Protocol (IP)-based services in fixed, portable and mobile
environments. As envisaged by the ITU, the 3G system will integrate different
service coverage zones and be a global platform and the necessary
infrastructure for the distribution of converged service, whether mobile or
fixed, voice or data, telecommunications, content or computing.
ADSL (Asymmetrical Digital Subscriber Line)
ADSL is a broadband access standard which uses existing copper lines to offer
high-speed digital connections over the local loop. ADSL transmits data
asymmetrically, meaning that the bandwidth usage is much higher in one
direction than the other. ADSL provides greater bandwidth from the exchange
to the customer (ie. downloading) than from the customer to the exchange (ie.
sending).
ARPU
Vodacom`s average monthly revenue per customer, or ARPU, is calculated by
dividing the average monthly revenue during the period by the average monthly
total reported customer base during the period. ARPU excludes revenue from
equipment sales, other sales and services and revenue from national and
international users roaming on Vodacom`s networks.
Bandwidth
Bandwidth is a measure of the quantity of signals that can travel over a
transmission medium such as copper or a glass fibre strand. It is the
available space available to carry a signal. The greater the bandwidth, the
greater the information carrying capacity. Bandwidth is measured in bits per
second.
Broadband
Broadband is a method of measuring the capacity of different types of
transmission. Digital bandwidth is measured in the rate of bits transmitted
per second (bps). For example, an individual ISDN channel has a bandwidth of
64 kilobits per second (Kbps), meaning that it transmits 64,000 bits (digital
signals) every second.
CDMA (Code Division Multiple Access)
CDMA is one of many technologies for digital transmission of radio signals
between, for example, mobile telephones and radio base stations. In CDMA,
which is a spread-spectrum modulation technology, each call is assigned a
unique "pseudorandom" sequence of frequency shifts that serve as a code to
distinguish it. The mobile phone is then instructed to decipher only a
particular code to pluck, as it were, the right conversation off the air.
EBITDA
EBITDA represents profit for the year before taxation, finance charges,
investment income and depreciation, amortisation, impairment and write-offs.
Effective tax rate
The effective tax rate is the tax charge in the income statement divided by
pre-tax profit.
Ethernet
Ethernet is a protocol that defines how data is transmitted to and received
from LANs. It is the most prevalent LAN protocol, with speeds of up to 10
Mbps.
EVDO (Evolution-data optimised or evolution-data only)
EVDO is a telecommunications standard for the wireless transmission of data
through radio signals, typically for broadband Internet access. It uses
multiplexing techniques including code division multiple access (CDMA) as
well as time division multiple access (TDMA) to maximise both individual
user`s throughput and the overall system throughput.
Fibre optics
Fibre optics is where messages or signals are sent via light rather than
electrical signals down a very thin strand of glass. Light transmission
enables much higher data rates than conventional wire, coaxial cable and many
forms of radio. Signals travel at the speed of light and do not generate nor
are subject to interference.
Fibre rings
Fibre rings have come to be used in many fibre networks as it provides more
network resiliency: if there is a failure along a route and a ring is broken,
the direction of the traffic can be reversed and the traffic will still reach
its final destination.
Fixed access lines
Fixed access lines are comprised of public switched telecommunications
network lines, or PSTN lines, including integrated services digital network
channels, or ISDN channels, and public and private payphones, but excluding
internal lines in service.
Fixed access lines per employee
To calculate the number of access lines per employee the total number of
access lines is divided by the number of employees at the end of the period.
Fixed-line penetration
Fixed-line penetration or teledensity is based on the total number of
telephone lines in service at the end of the period per 100 persons in the
population of South Africa. Population is the estimated South African
population at the mid-year in the periods indicated as published by
Statistics South Africa, a South African Government department.
Fixed-line traffic
Fixed-line traffic, other than international outgoing mobile traffic,
international interconnection traffic and international Voice over Internet
Protocol traffic, is calculated by dividing traffic operating revenue for the
particular category by the weighted average tariff for such category during
the relevant period. Fixed-line international outgoing mobile traffic and
international interconnection traffic are based on the traffic registered
through the respective exchanges and reflected in international
interconnection invoices. International Voice over Internet Protocol traffic
is based on the traffic reflected in invoices.
GPRS (General Packet Radio Service)
GPRS is a packet rather than a circuit-based technology. GPRS allows for
faster data transmission speed to both GSM and TDMA (IS-136) networks. GPRS
is a packet-switched technology that overlays the circuit-switched GSM
network. The service can be introduced to cellular networks by
infrastructure.
GSM (Global System for Mobile)
GSM is a second generation digital mobile cellular technology using a
combination of frequency division multiple access (FDMA) and time division
multiple access (TDMA). GSM operates in several frequency bands: 400 MHz, 900
MHz and 1800 MHz. On the TDMA side, there are eight timeslots or channels
carrying calls, which operate on the same frequency. Unlike other cellular
systems, GSM provides a high degree of security by using subscriber identity
module (SIM) cards and GSM encryption.
HSDPA
High Speed Downlink Packet Access.
IAS
International Accounting Standards.
IFRS
International Financial Reporting Standards.
Interconnection
Interconnection refers to the joining of two or more networks. Networks need
to interconnect to enable traffic to be transmitted to and from destinations.
The amounts paid and received by the operators vary according to distance,
time, the direction of traffic, and the type of networks involved.
ISDN (Integrated Services Digital Network)
ISDN is a data communications standard used to transmit digital signals over
ordinary copper telephone cables. This is one technology for overcoming the
"last mile" of copper cables from the local exchange to the subscriber`s
premises, which has proved a bottleneck for Internet access, for example.
ISDN allows to carry voice and data simultaneously, in each of at least two
channels capable of carrying 64 Kbps. It provides up to 128 Kbps and a total
capacity of 144 Kbps exist.
LAN (Local Area Network)
A LAN is a group of devices that communicate with each other within a limited
geographic area, such as an office.
Leased line
A leased line is a telecommunications transmission circuit that is reserved
by a communications provider for the private use of a customer.
Mobile churn
Vodacom`s churn is calculated by dividing the average monthly number of
disconnections during the period by the average monthly total reported
customer base during the period.
Mobile penetration
Vodacom calculates penetration, or teledensity, based on the total number of
customers at the end of the period per 100 persons in the population of South
Africa. Population is the estimated South African population at the mid-year
in the periods indicated as published by Statistics South Africa, a South
African Governmental department.
Mobile traffic
Vodacom`s traffic comprises total traffic registered on Vodacom`s network,
including bundled minutes, outgoing international roaming calls and calls to
free services, but excluding national and incoming international roaming
calls.
MOU (Mobile Minutes of Use)
Vodacom`s average monthly minutes of use per customer, or average MOU, is
calculated by dividing the average monthly minutes during the period by the
average monthly total reported customer base during the period. MOU excludes
calls to free services, bundled minutes and data minutes.
Net debt
Net debt is all interest-bearing debt finance (long-term and short-term) less
cash and marketable securities.
NGN (Next Generation Network)
A Next Generation Network is a packet-based network able to provide services
including telecommunication services and able to make use of multiple
broadband, QoS-enabled transport technologies and in which service-related
functions are independent from underlying transport-related technologies. It
offers unrestricted access by users to different service providers.
Operating free cash flow
Operating free cash flow is defined as cash flow from operating activities,
after interest and taxation, before dividends paid, less cash flow from
investing activities.
Revenue per fixed access line
Revenue per fixed access line is calculated by dividing total fixed-line
revenue during the period, excluding data and directories and other revenue,
by the average number of fixed access lines during the period.
ROA (Return on Assets)
Return on Assets is calculated by dividing net profit (annualised) by total
assets.
SMS (Short Message Service)
SMS refers to short, usually text-based messages sent by or to a wireless
subscriber. They are not delivered to the recipient instantly and have some
degree of transmission time delay. SMS messages are usually limited to total
character lengths of 140 to 160 characters.
Switch
A switch is a computer that acts as a conduit and director of traffic. It is
a means of sharing resources as a network.
VoIP (Voice over Internet Protocol)
Voice over Internet Protocol is a protocol enabling voice calls to be made
over the Internet. Rather than a dedicated circuit being set up between the
caller and receiver, as with ordinary phone calls, the voice conversation is
digitised and transmitted over Internet Protocol using packet-switched data
networks.
WAN (Wide Area Network)
A WAN comprises LANs in different geographic locations that are connected,
often over the public network.
W-CDMA (Wideband Code Division Multiple Access)
W-CDMA is a 3G mobile network that supports services like high-speed Internet
access, video and high quality voice transmission.
WiMAX
WiMAX is a standard for extending broadband wireless access to new locations
and over longer distances. The technology is expected to enable multimedia
applications with wireless connectivity and typically with a range of up to
30km. It is a standard for fixed wireless access with substantially higher
bandwidth capabilities than cellular networks.
The emergence of further enhancements to the standard is expected to enable
nomadic data communications across an entire metropolitan area network
linking homes and businesses to the core telecommunications network. WiMAX
can be viewed as a technology complementing existing ADSL broadband
offerings.
AUDITORS` REVIEW REPORT
Our auditors, Ernst & Young Inc. have reviewed the condensed consolidated
provisional annual financial statements. Their unmodified review report is
available for inspection at the Company`s registered office.
CONDENSED CONSOLIDATED PROVISIONAL INCOME STATEMENT
for the three years ended March 31, 2009
Restated* Restated* Reviewed
2007 2008 2009
Notes Rm Rm Rm
Total revenue 3.1 32,919 34,084 36,433
Operating revenue 3.2 32,441 33,611 35,940
Other income 338 472 343
Operating expenses 23,028 25,014 29,895
Employee expenses 4.1 7,254 7,629 8,345
Payments to other 4.2 5,005 6,098 6,919
operators
Selling, general and 4.3 4,184 4,045 5,772
administrative expenses
Service fees 4.4 2,209 2,437 2,756
Operating leases 4.5 775 671 823
Depreciation, 4.6 3,601 4,134 5,280
amortisation, impairment
and write-offs
Operating profit 9,751 9,069 6,388
Investment income 199 168 181
Finance charges and fair 857 1,556 2,843
value movements
Interest 1,142 1,543 1,732
Foreign exchange and fair (285) 13 1,111
value movement (gain)/loss
Profit before taxation 9,093 7,681 3,726
Taxation 5 2,803 2,647 1,660
Profit from continuing 6,290 5,034 2,066
operations
Profit for the year from 6 2,559 3,138 2,181
discontinued operations
Profit for the year 8,849 8,172 4,247
Attributable to:
Equity holders of Telkom 8,646 7,975 4,170
Minority interest 203 197 77
8,849 8,172 4,247
Total operations
Basic earnings per share 7 1,681.0 1,565.0 832.8
(cents)
Diluted earnings per share 7 1,676.3 1,546.9 819.6
(cents)
Dividend per share (cents) 7 900.0 1,100.0 660.0
Continuing operations
Basic earnings per share 7 1,204.7 963.7 407.4
(cents)
Diluted earnings per share 7 1,201.3 952.6 401.0
(cents)
* The amounts have been restated to disclose the effect of discontinued
operation and disposal group held for sale as disclosed in note 6.
CONDENSED CONSOLIDATED PROVISIONAL BALANCE SHEET
at March 31, 2009
Audited Audited Reviewed
2007 2008 2009
Notes Rm Rm Rm
Assets
Non-current assets 48,770 57,763 51,009
Property, plant and 9 41,254 46,815 41,418
equipment
Intangible assets 10 5,111 8,468 7,232
Investments 1,384 1,448 1,383
Deferred expenses 270 221 54
Finance lease receivables 158 206 166
Deferred taxation 11 593 605 756
Current assets 10,376 12,609 11,287
Short-term investments 77 51 -
Inventories 12 1,093 1,287 1,974
Income tax receivable 5 520 9 91
Current portion of 287 362 -
deferred expenses
Current portion of finance 88 166 109
lease receivables
Trade and other 7,303 8,986 5,980
receivables
Other financial assets 259 614 1,202
Cash and cash equivalents 13 749 1,134 1,931
Assets of disposal groups 6 - - 23,483
classified as held for
sale
Total assets 59,146 70,372 85,779
Equity and liabilities
Equity attributable to 31,724 32,815 36,253
equity holders of Telkom
Share capital and premium 14 5,329 5,208 5,208
Treasury shares 15 (1,774) (1,638) (1,517)
Share-based compensation 16 257 643 1,076
reserve
Non-distributable reserves 1,413 1,292 1,758
Retained earnings 26,499 27,310 28,852
Reserves of disposal group - - 876
held for sale
Minority interest 284 522 853
Total equity 32,008 33,337 37,106
Non-current liabilities 8,554 15,104 15,348
Interest-bearing debt 18 4,338 9,403 10,653
Other financial 36 919 -
liabilities
Provisions 1,443 1,675 1,875
Deferred revenue 1,021 1,128 997
Deferred taxation 11 1,716 1,979 1,823
Current liabilities 18,584 21,931 17,452
Trade and other payables 7,237 8,771 5,538
Shareholders for dividend 15 20 23
Current portion of 18 6,026 6,330 7,622
interest-bearing debt
Current portion of 2,095 2,181 2,150
provisions
Current portion of 1,983 2,593 1,714
deferred revenue
Income tax payable 5 594 323 50
Other financial 193 371 228
liabilities
Credit facilities utilised 13 441 1,342 127
Liabilities of disposal 6 - - 15,873
groups classified as held
for sale
Total liabilities 27,138 37,035 48,673
Total equity and 59,146 70,372 85,779
liabilities
CONDENSED CONSOLIDATED PROVISIONAL STATEMENT OF CHANGES IN EQUITY
for the three years ended March 31, 2009
Attributable to equity holders of Telkom
Share-based
Share Share Treasury compensation
capital premium shares reserve
Rm Rm Rm Rm
Balance at April 5,449 1,342 (1,809) 151
1, 2006
Total income and
expense for the
year
Profit for the
year
Foreign currency
translation
reserve (net of
tax of R4 million)
Dividend declared
(refer to note 17)
Transfer to non-
distributable
reserves*
Shares vested and 35 (35)
re-issued (refer
to note 15 and 16)
Increase in share- 141
based compensation
reserve (refer to
note 16)
Acquisition of
subsidiaries and
minority interests
Shares bought back (120) (1,342)
and cancelled
(refer to note 14)
Balance at March 5,329 - (1,774) 257
31, 2007
Total income and
expense for the
year
Profit for the
year
Revaluation of
available-for-sale
investment (net of
tax of R1 million)
Foreign currency
translation
reserve (net of
tax of R6 million)
Dividend declared
(refer to note 17)
Transfer to non-
distributable
reserves*
Increase in share- 522
based compensation
reserve (refer to
note 16)
Shares vested and 136 (136)
re-issued (refer
to note 15 and 16)
Acquisition of
subsidiaries and
minorities
Shares bought back (121)
and cancelled
(refer to note 14)
Minority put
option
Balance at March 5,208 - (1,638) 643
31, 2008
Discontinued
operation (refer
to note 6)
Total income and
expense for the
year
Profit for the
year
Revaluation of
available-for-sale
investment (net of
tax of R1 million)
Foreign currency
translation
reserve (net of
tax of R6 million)
Dividend declared
(refer to note 17)
Transfer to non-
distributable
reserves*
Increase in share- 554
based compensation
reserve (refer to
note 16)
Shares vested and 121 (121)
re-issued (refer
to note 15 and 16)
Acquisition of
subsidiaries and
minorities (refer
to note 19)
Minority put
option (refer to
note 19)
Broad-based black
economic
empowerment
transaction
Balance at March 5,208 - (1,517) 1,076
31, 2009
Attributable to equity holders of Telkom
Non-
distributable Retained Discontinued
reserves earnings operations Total
Rm Rm Rm Rm
Balance at April 1,128 22,904 29,165
1, 2006
Total income and 46 8,646 8,692
expense for the
year
Profit for the 8,646 8,646
year
Foreign currency 46 46
translation
reserve (net of
tax of R4
million)
Dividend (4,678) (4,678)
declared (refer
to note 17)
Transfer to non- 239 (239) -
distributable
reserves*
Shares vested -
and re-issued
(refer to note
15 and 16)
Increase in 141
share-based
compensation
reserve (refer
to note 16)
Acquisition of -
subsidiaries and
minority
interests
Shares bought (134) (1,596)
back and
cancelled (refer
to note 14)
Balance at March 1,413 26,499 31,724
31, 2007
Total income and 529 7,975 8,504
expense for the
year
Profit for the 7,975 7,975
year
Revaluation of 8 8
available-for-
sale investment
(net of tax of
R1 million)
Foreign currency 521 521
translation
reserve (net of
tax of R6
million)
Dividend (5,627) (5,627)
declared (refer
to note 17)
Transfer to non- 11 (11) -
distributable
reserves*
Increase in 522
share-based
compensation
reserve (refer
to note 16)
Shares vested -
and re-issued
(refer to note
15 and 16)
Acquisition of -
subsidiaries and
minorities
Shares bought (1,526) (1,647)
back and
cancelled (refer
to note 14)
Minority put (661) (661)
option
Balance at March 1,292 27,310 32,815
31, 2008
Discontinued (4) 4 -
operation (refer
to note 6)
Total income and (181) 4,171 181 4,171
expense for the
year
Profit for the 4,171 4,171
year
Revaluation of (8) (8)
available-for-
sale investment
(net of tax of
R1 million)
Foreign currency (181) - 189 8
translation
reserve (net of
tax of R6
million)
Dividend (3,306) (3,306)
declared (refer
to note 17)
Transfer to non- (10) 10 -
distributable
reserves*
Increase in 554
share-based
compensation
reserve (refer
to note 16)
Shares vested -
and re-issued
(refer to note
15 and 16)
Acquisition of 667 667
subsidiaries and
minorities
(refer to note
19)
Minority put 661 661
option (refer to
note 19)
Broad-based 691 691
black economic
empowerment
transaction
Balance at March 1,758 28,852 876 36,253
31, 2009
Minority Total
interest equity
Rm Rm
Balance at April 301 29,466
1, 2006
Total income and 217 8,909
expense for the
year
Profit for the 203 8,849
year
Foreign currency 14 60
translation
reserve (net of
tax of R4
million)
Dividend (166) (4,844)
declared (refer
to note 17)
Transfer to non- -
distributable
reserves*
Shares vested -
and re-issued
(refer to note
15 and 16)
Increase in 141
share-based
compensation
reserve (refer
to note 16)
Acquisition of (68) (68)
subsidiaries and
minority
interests
Shares bought (1,596)
back and
cancelled (refer
to note 14)
Balance at March 284 32,008
31, 2007
Total income and 226 8,730
expense for the
year
Profit for the 197 8,172
year
Revaluation of 8
available-for-
sale investment
(net of tax of
R1 million)
Foreign currency 29 550
translation
reserve (net of
tax of R6
million)
Dividend (65) (5,692)
declared (refer
to note 17)
Transfer to non- -
distributable
reserves*
Increase in 522
share-based
compensation
reserve (refer
to note 16)
Shares vested -
and re-issued
(refer to note
15 and 16)
Acquisition of 77 77
subsidiaries and
minorities
Shares bought (1,647)
back and
cancelled (refer
to note 14)
Minority put (661)
option
Balance at March 522 33,337
31, 2008
Discontinued -
operation (refer
to note 6)
Total income and 93 4,264
expense for the
year
Profit for the 77 4,248
year
Revaluation of (8)
available-for-
sale investment
(net of tax of
R1 million)
Foreign currency 16 24
translation
reserve (net of
tax of R6
million)
Dividend (33) (3,339)
declared (refer
to note 17)
Transfer to non- -
distributable
reserves*
Increase in 554
share-based
compensation
reserve (refer
to note 16)
Shares vested -
and re-issued
(refer to note
15 and 16)
Acquisition of 10 677
subsidiaries and
minorities
(refer to note
19)
Minority put 661
option (refer to
note 19)
Broad-based 261 952
black economic
empowerment
transaction
Balance at March 853 37,106
31, 2009
* The earnings from the Group`s cell captives are recognised in the income
statement and then transferred to non-distributable reserves.
CONDENSED CONSOLIDATED PROVISIONAL CASH FLOW STATEMENT
for the three years ended March 31, 2009
2007 2008 2009
Notes Rm Rm Rm
Cash flows from 9,356 10,603 11,432
operating activities
Cash receipts from 50,979 55,627 61,302
customers
Cash paid to suppliers (30,459) (34,371) (40,908)
and employees
Cash generated from 20,520 21,256 20,394
operations
Interest received 422 433 485
Dividends received 3 - -
Finance charges paid (1,115) (1,077) (2,164)
Taxation paid 5 (5,690) (4,277) (3,947)
Cash generated from 14,140 16,335 14,768
operations before
dividend paid
Dividend paid 17 (4,784) (5,732) (3,336)
Cash flows from (10,412) (14,106) (17,005)
investing activities
Proceeds on disposal 54 169 43
of property, plant and
equipment and
intangible assets
Proceeds on disposal 77 8 -
of investments
Additions to property, (10,037) (11,657) (13 191)
plant and equipment
and intangible assets
Acquisition of (445) (2,462) (3,778)
subsidiaries and
minority interests
Additions to other (61) (164) (79)
investments
Cash flows from (2,920) 2,943 7,093
financing activities
Loans raised 5,624 23,877 18,168
Loans repaid (6,922) (19,315) (10,212)
Shares bought back and (1,596) (1,647) -
cancelled
Finance lease capital (37) (61) (136)
repaid
Decrease/(increase) in 11 89 (727)
net financial assets
Net (3,976) (560) 1,520
(decrease)/increase in
cash and cash
equivalents
Net cash and cash 4,255 308 (208)
equivalents at
beginning of year
Effect of foreign 29 44 (30)
exchange rate
differences
Net cash and cash 13 308 (208) 1,282
equivalents at end of
year
NOTES TO THE CONDENSED CONSOLIDATED PROVISIONAL ANNUAL FINANCIAL STATEMENTS
for the three years ended March 31, 2009
1. Corporate information
Telkom SA Limited (`Telkom`) is a company incorporated and domiciled in the
Republic of South Africa (`South Africa`) whose shares are publicly traded.
The main objective of Telkom, its subsidiaries and joint ventures (`the
Group`) is to supply telecommunication, broadcasting, multimedia, technology,
information and other related information technology services to the general
public, as well as mobile communication services through the Vodacom Group
(Proprietary) Limited (`Vodacom`) in South Africa and certain other African
countries. The Group`s services and products include:
fixed-line subscription and connection services to post-paid, prepaid and
private payphone customers using PSTN (`Public Switched Telephone Network`)
lines, including ISDN (`Integrated Services Digital Network`) lines, and the
sale of subscription based value-added voice services and customer premises
equipment rental and sales;
fixed-line traffic services to post-paid, prepaid and payphone customers,
including local, long distance, fixed-to-mobile, international outgoing and
international voice-over-internet protocol traffic services;
interconnection services, including terminating and transiting traffic from
South African mobile operators, as well as from international operators and
transiting traffic from mobile to international destinations;
fixed-line data and internet services, including domestic and international
data transmission services, such as point-to-point leased lines, ADSL
(`Asymmetrical Digital Subscriber Line`) services, packet-based services,
managed data networking services and internet access and related information
technology services;
W-CDMA (`Wideband Code Division Multiple Access`), a 3G next generation
network, including fixed voice services, data services and nomadic voice
services; and
other services including directory services, through Trudon (Proprietary)
Limited (formerly trading as TDS Directory Operations (Proprietary) Limited),
wireless data services, through Swiftnet (Proprietary) Limited, television
media services through Telkom Media Group, internet services outside South
Africa, through Africa Online Limited and information, communication and
telecommunication operating services in Nigeria, through Multi-Links
Telecommunications Limited.
Mobile communications services, wireless data services and television media
services through Vodacom, Swiftnet and Telkom Media Group respectively have
been disclosed as disposal groups held for sale and discontinued operations.
2. Basis of preparation and accounting policies
Basis of preparation
The condensed consolidated provisional annual financial statements have been
prepared in accordance with IAS34 Interim Financial Reporting and in
compliance with the South African Companies Act, 1973.
The financial statements are prepared on the historical cost basis, with the
exception of certain financial instruments which are measured at fair value
and share-based payments which are measured at grant date fair value.
Significant accounting policies
The Group`s significant accounting policies and methods of computation are
consistent with those applied in the previous financial year except for the
following:
The Group has adopted certain amendments to IAS39 and IFRS7, and adopted
IFRIC12 and IFRIC14 which are applicable for annual periods on or after
January 1, 2008.
The principal effects of these changes are discussed below.
IAS39 Financial Instruments: Recognition and Measurement and IFRS7 Financial
Instruments: Disclosures - Reclassification of Financial Assets (amended)
The amendments, which are effective on or after July 1, 2008, permit an
entity to reclassify non-derivative financial assets (other than those
designated at fair value through profit or loss by the entity upon initial
recognition) out of the fair value through profit or loss category in
particular circumstances. The amendments also permit an entity to transfer
from the available-for-sale category to the loans and receivables category a
financial asset that would have met the definition of loans and receivables
(if the financial asset had not been designated as available for sale), if
the entity has the intention and ability to hold that financial asset for the
foreseeable future. The amendment does not have an impact on the condensed
consolidated provisional annual financial statements.
IFRIC12 Service Concession Arrangements
The interpretation, which is effective for annual periods beginning on or
after January 1, 2008, sets out general principles on recognising and
measuring the obligations and related rights in service concession
arrangements from an operator`s perspective. The interpretation does not have
an impact on the condensed consolidated provisional annual financial
statements.
IFRIC14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction
The interpretation, which is effective for annual periods beginning on or
after January 1, 2008, provides guidance on assessing the limit in IAS19 on
the amount of the surplus that can be recognised as an asset. It also
explains how the pension asset or liability may be affected by a statutory or
contractual minimum funding requirement. The interpretation does not have any
impact on the condensed consolidated provisional annual financial statements,
as the Group is not subject to minimum funding requirements.
2007 2008 2009
Rm Rm Rm
3. Revenue
3.1 Total revenue 32,919 34,084 36,433
Operating revenue 32,441 33,611 35,940
Other income (excluding profit on 279 305 312
disposal of property, plant and
equipment, intangible assets and
investments)
Investment income 199 168 181
3.2 Operating revenue 32,441 33,611 35,940
Fixed-line 32,345 32,572 33,659
Multi-Links - 845 1,900
Other 873 1,040 1,214
Eliminations (777) (846) (833)
Fixed-line 32,345 32,572 33,659
Subscriptions, connections and 6,286 6,330 6,614
other usage
Traffic 16,740 15,950 15,323
Domestic (local and long 7,563 6,328 5,670
distance)
Fixed-to-mobile 7,646 7,557 7,420
International (outgoing) 988 986 933
Subscription based calling 543 1,079 1,300
plans
Interconnection 1,639 1,757 2,084
Data 7,489 8,308 9,310
Sundry revenue 191 227 328
4. Operating expenses
Operating expenses comprise:
4.1 Employee expenses 7,254 7,629 8,345
Salaries and wages 5,215 5,710 6,050
Medical aid contributions 384 415 410
Retirement contributions 446 470 472
Post-retirement and pension 33 5 29
benefits
Current service cost 5 5 4
Interest cost 329 509 633
Expected return on plan asset (508) (713) (825)
Actuarial gain (136) (16) -
Settlement loss/(gain) 21 (2) (3)
Asset limitation 322 222 220
Post-retirement medical aid 330 278 457
Current service cost 83 84 95
Interest cost 286 322 428
Expected return on plan asset (188) (257) (223)
Actuarial loss 149 129 157
Telephone rebates 104 27 61
Current service cost 4 3 6
Interest cost 19 22 39
Past service cost 76 2 2
Actuarial loss 5 - 14
Share-based compensation expense 141 522 554
(refer to note 16)
Other benefits* 1,297 988 1,048
Employee expenses capitalised (696) (786) (736)
* Other benefits include skills development, annual leave, performance
incentive and service bonuses.
4.2 Payments to other operators 5,005 6,098 6,919
Payments to other network
operators consist of expenses in
respect of interconnection with
other network operators.
4.3 Selling, general and 4,184 4,045 5,772
administrative expenses
Selling and administrative 1,533 1,220 2,375
expenses
Maintenance 1,870 1,966 2,319
Marketing 640 614 710
Bad debts 141 245 368
4.4 Service fees 2,209 2,437 2,756
Facilities and property 1,142 1,228 1,275
management
Consultancy services 192 169 295
Security and other 821 982 1,121
Auditors` remuneration 54 58 65
Audit services 53 57 58
Company auditors 48 46 47
Current year 47 43 47
Prior year underprovision 1 3 -
Other auditors - current year 5 11 11
Audit related services - 1 -
Other services 1 - 7
4.5 Operating leases 775 671 823
Land and buildings 135 160 244
Transmission and data lines 8 35 118
Equipment 80 48 72
Vehicles 552 428 389
4.6 Depreciation, amortisation, 3,601 4,134 5,280
impairment and write-offs
Depreciation of property, plant 3,011 3,151 3,733
and equipment
Amortisation of intangible assets 306 469 724
Impairment of property, plant and - 229 501
equipment and intangible assets
Write-offs of property, plant and 284 285 322
equipment and intangible assets
Included in the current year`s amortisation of intangible assets is an amount
of R134 million relating to the FIFA brand intangible asset.
The impairment charge for the 2009 financial year consists of R462 million
and R39 million in Multi-Links and Africa Online respectively.
5. Taxation 2,803 2,647 1,660
South African normal company 1,989 2,018 1,658
taxation
Deferred taxation 490 254 (164)
Secondary tax on companies 324 381 164
(`STC`)
Foreign taxation - (6) 2
Included in the current year`s
deferred taxation expense is a
credit of R454 million relating
to the deferred taxation on the
temporary differences of the
investments which are held for
sale.
STC is provided for at a rate of
10% on the amount by which
dividends declared by Telkom
exceed dividends received.
Taxation paid (5,690) (4,277) (3,947)
Net liability at beginning of (1,549) (74) (314)
year
Taxation expense (3,545) (3,807) (3,412)
Foreign currency translation - (32) 2
reserve
Secondary tax on companies (670) (678) (425)
Business combination - - 2
Net taxation liability at end of 74 314 200
year
Income tax payable 594 323 325
Continuing operations 594 323 50
Disposal group - - 275
Income tax receivable (520) (9) (125)
Continuing operations (520) (9) (91)
Disposal group - - (34)
6. Discontinued operations and
disposal groups held for sale
6.1 Discontinued operations
Telkom Media (Proprietary)
Limited
Telkom Media was classified as
held for sale in September 2008
interim financials. At year-end
March 31, 2009, the subsidiary
did not meet the held for sale
criteria as management were
unable to sell the disposal group
for its expected price and
therefore decided to abandon it.
The results and cash flows of the
subsidiary are disclosed as a
discontinued operation in
accordance with IFRS.
Analysis of the results of
discontinued operations, and the
result recognised on the re-
measurement of assets or
discontinued operations is as
follows (after inter-segmental
eliminations):
Revenue* 14 26
Expenses* 157 305
Loss before taxation of disposal 143 279
group held for sale
Taxation (1) 2
Loss after taxation of disposal 142 281
group held for sale
Telkom Media (Proprietary)
Limited
The net cash flows attributable
to the operating, investing and
financing activities of
discontinued operations:
Operating cash flows (95) (140)
Investing cash flows (218) (39)
Financing cash flows 319 149
Total cash inflow/(outflow) 6 (30)
* Revenue comprises operating
revenue, other income and
investment income. Expenses
comprises operating expenses and
finance charges.
6.2 Disposal groups held for sale
6.2.1 Vodacom Group (Proprietary)
Limited
In the current year, the Group
announced a decision to dispose
of its entire shareholding in
Vodacom through selling 15% of
its shareholding to Vodafone, a
wholly-owned subsidiary of
Vodafone Group Plc (`Vodafone`)
and unbundling its remaining 35%
shareholding to its shareholders
pursuant to a listing of Vodacom
on the main board of the JSE
Limited. This decision was taken
in line with the Group`s strategy
to unlock shareholder value,
consequently, all assets and
liabilities of Vodacom and its
subsidiaries were classified as a
discontinued operation.
Analysis of the results of
discontinued operations, and the
result recognised on the re-
measurement of assets or disposal
group is as follows (after inter-
segmental eliminations):
Revenue* 19,157 22,653 26,215
Expenses* 14,709 17,334 21,749
Profit before taxation of 4,448 5,319 4,466
disposal group held for sale
Taxation 1,918 2,055 2,023
Profit after taxation of disposal 2,530 3,264 2,443
group held for sale
The major classes of assets and
liabilities of the business
classified as a disposal group:
Assets 23,410
Property, plant and equipment 10,922
Intangible assets 5,897
Trade and other receivables 4,283
Other non-current and current 2,308
assets
Liabilities 15,858
Interest-bearing debt 4,170
Trade and other payables 4,679
Current portion of interest- 2,882
bearing debt
Current portion of deferred 1,260
revenue
Credit facilities utilised 1,102
Other non-current and current 1,765
liabilities
6.2.1 Vodacom Group (Proprietary)
Limited
The net cash flows attributable
to the operating, investing and
financing activities of the
disposal group:
Operating cash flows 2,429 2,563 2,092
Investing cash flows (3,292) (3,751) (6,375)
Financing cash flows (100) 1,617 4,436
Total cash (outflow)/inflow (963) 429 153
* Revenue comprises operating
revenue, other income and
investment income. Expenses
comprises operating expenses and
finance charges.
6.2.2 Swiftnet (Proprietary)
Limited
In February 2009, Telkom`s
directors took a decision to
dispose of its 100% investment in
Swiftnet (Proprietary) Limited.
The investment is classified as
held for sale.
Analysis of the results of
discontinued operations, and the
result recognised on the re-
measurement of assets or disposal
group is as follows (after inter-
segmental eliminations):
Revenue* 103 98 97
Expenses* 64 79 82
Profit before taxation of 39 19 15
disposal group held for sale
Taxation 10 3 (4)
Profit after taxation of disposal 29 16 19
group held for sale
The major classes of assets and
liabilities of the business
classified as disposal group:
Assets 73
Property, plant and equipment 24
and intangible assets
Income tax receivable 2
Trade and other receivables 19
Cash and cash equivalents 28
Liabilities 15
Provisions 1
Trade and other payables 10
Current portion of provisions 4
The net cash flows attributable
to the operating, investing and
financing activities of the
disposal group:
Operating cash flows 43 22 31
Investing cash flows (15) (11) (33)
Financing cash flows (23) - 10
Total cash inflow 5 11 8
* Revenue comprises operating
revenue, other income and
investment income. Expenses
comprises operating expenses and
finance charges.
2007 2008 2009
7. Earnings and
dividend per share
Total operations
Basic earnings per 1,681.0 1,565.0 832.8
share (cents)
The calculation of
earnings per share is
based on profit
attributable to equity
holders of Telkom for
the year of R4,170
million (2008: R7,975
million; 2007: R8,646
million) and
500,700,538 (2008:
509,595,092; 2007:
514,341,284)
weighted average number
of ordinary shares in
issue.
Diluted earnings per 1,676.3 1,546.9 819.6
share (cents)
The calculation of
diluted earnings per
share is based on
earnings for the year
of R4,170 million
(2008: R7,975 million;
2007: R8,646 million)
and 508,782,641 diluted
weighted average number
of ordinary shares
(2008: 515,541,968;
2007: 515,763,581). The
adjustment in the
weighted average number
of shares is as a
result of the expected
future vesting of
shares already
allocated to employees
under the Telkom
Conditional Share Plan.
Headline earnings per 1,710.7 1,634.8 994.6
share (cents)*
The calculation of
headline earnings per
share is based on
headline earnings of
R4,980 million (2008:
R8,331 million; 2007:
R8,799 million) and
500,700,538 (2008:
509,595,092; 2007:
514,341,284) weighted
average number of
ordinary shares in
issue.
Diluted headline 1,706.0 1,616.0 978.8
earnings per share
(cents)*
The calculation of
diluted headline
earnings per share is
based on headline
earnings of R4,980
million (2008: R8,331
million; 2007: R8,799
million) and
508,782,641 (2008:
515,541,968;
2007: 515,763,581)
diluted weighted
average number of
ordinary shares in
issue. The adjustment
in the weighted average
number of shares is as
a result of the
expected future vesting
of sharesalready
allocated to employees
under the Telkom
Conditional Share Plan.
Continuing operations
Basic earnings per 1,204.7 963.7 407.4
share (cents)
The calculation of
earnings per share is
based on profit
attributable to equity
holders of Telkom for
the year of R2,040
million (2008: R4,911
million; 2007: R6,196
million) and
500,700,538 (2008:
509,595,092; 2007:
514,341,284) weighted
average number of
ordinary shares in
issue.
Diluted earnings per 1,201.3 952.6 401.0
share (cents)
The calculation of
diluted earnings per
share is based on
earnings for the year
of R2,040 million
(2008: R4,911 million;
2007: R6,196 million)
and 508,782,641 diluted
weighted average number
of ordinary shares
(2008: 515,541,968;
2007: 515,763,581). The
adjustment in the
weighted average number
of shares is as a
result of the expected
future vesting of
shares already
allocated to employees
under the Telkom
Conditional Share Plan.
Continuing operations
Headline earnings per 1,235.5 1,028.9 557.0
share (cents)*
The calculation of
headline earnings per
share is based on
headline earnings of
R2,789 million (2008:
R5,243 million; 2007:
R6,355 million) and
500,700,538 (2008:
509,595,092; 2007:
514,341,284) weighted
average number of
ordinary shares in
issue.
Diluted headline 1,232.2 1,017.0 548.2
earnings per share
(cents)*
The calculation of
diluted headline
earnings per share is
based on headline
earnings of R2,789
million (2008: R5,243
million; 2007: R6,355
million) and
508,782,641 (2008:
515,541,968; 2007:
515,763,581) diluted
weighted average number
of ordinary shares in
issue. The adjustment
in the weighted average
number of shares is as
a result of the
expected future vesting
of shares already
allocated to employees
under the Telkom
Conditional Share Plan.
Discontinued operations
Basic earnings per 476.3 601.3 425.4
share (cents)
The calculation of
earnings per share is
based on profit
attributable to equity
holders of Telkom for
the year of R2,130
million (2008: R3,064
million; 2007: R2,450
million) and
500,700,538 (2008:
509,595,092; 2007:
514,341,284) weighted
average number of
ordinary shares in
issue.
Diluted earnings per 475.0 594.3 418.6
share (cents)
The calculation of
diluted earnings per
share is based on
earnings for the year
of R2,130 million
(2008: R3,064 million;
2007: R2,450 million)
and 508,782,641 diluted
weighted average number
of ordinary shares
(2008: 515,541,968;
2007: 515,763,581). The
adjustment in the
weighted average number
of shares is as a
result of the expected
future vesting of
shares already
allocated to employees
under the Telkom
Conditional Share Plan.
Headline earnings per 475.2 606.0 437.6
share (cents)*
The calculation of
headline earnings per
share is based on
headline earnings of
R2,191 million (2008:
R3,088 million; 2007:
R2,444 million) and
500,700,538 (2008:
509,595,092; 2007:
514,341,284) weighted
average number of
ordinary shares in
issue.
Diluted headline 473.9 599.0 430.6
earnings per share
(cents)*
The calculation of
diluted headline
earnings per share is
based on headline
earnings of R2,191
million (2008: R3,088
million; 2007: R2,444
million) and
508,782,641 (2008:
515,541,968; 2007:
515,763,581) diluted
weighted average number
of ordinary shares in
issue. The adjustment
in the weighted average
number of shares is as
a result of the
expected future vesting
of shares already
allocated to employees
under the Telkom
Conditional Share Plan.
Reconciliation of
weighted average number
of ordinary shares:
Ordinary shares in 544,944,901 532,855,530 520,784,186
issue (refer to note
14)
Weighted average number (7,442,253) (1,594,241) (27)
of shares bought back
Weighted average number (23,161,364) (21,666,197) (20,083,621)
of treasury shares
Weighted average number 514,341,284 509,595,092 500,700,538
of shares outstanding
Reconciliation of
diluted weighted
average number of
ordinary shares:
Weighted average number 514,341,284 509,595,092 500,700,538
of shares outstanding
Expected future vesting 1,422,297 5,946,876 8,082,103
of shares
Diluted weighted 515,763,581 515,541,968 508,782,641
average number of
shares outstanding
* The disclosure of
headline earnings is a
requirement of the JSE
Limited and is not a
recognised measure
under IFRS. It has been
calculated in
accordance with the
South African Institute
of Chartered
Accountants` circular
issued in this regard.
2007 2008 2009
Rm Rm Rm
Total operations
Reconciliation between
earnings and headline
earnings:
Earnings attributable 8,646 7,975 4,170
to equity holders of
Telkom
Adjustments:
Profit on disposal of (52) (4) -
investments (available-
for-sale)
Profit on disposal of (29) (147) (25)
property, plant and
equipment and
intangible assets
Impairment of property, 12 248 557
plant, equipment and
intangible assets
Write-offs of property, 284 285 322
plant and equipment
Tax effects (62) (30) (44)
Minority interest - 4 -
Headline earnings 8,799 8,331 4,980
Continuing operations
Reconciliation between
earnings and headline
earnings:
Profit from continuing 6,290 5,034 2,066
operations
Minority interest 94 123 26
Earnings as reported 6,196 4,911 2,040
Adjustments:
Profit on disposal of (43) - -
investments (available-
for-sale)
Profit on disposal of (16) (166) (32)
property, plant and
equipment and
intangible assets
Impairment of property, - 233 501
plant, equipment and
intangible assets
Write-offs of property, 284 285 322
plant and equipment
Tax effects (66) (24) (42)
Minority interest - 4 -
Headline earnings 6,355 5,243 2,789
Discontinued operations
Reconciliation between
earnings and headline
earnings:
Profit from 2,559 3,138 2,181
discontinued operations
Minority interest 109 74 51
Earnings as reported 2,450 3,064 2,130
Adjustments:
Profit on disposal of (9) (4) -
investments (available-
for-sale)
Profit on disposal of (13) 19 7
property, plant and
equipment and
intangible assets
Impairment of property, 12 15 56
plant, equipment and
intangible assets
Tax effects 4 (6) (2)
Headline earnings 2,444 3,088 2,191
Dividend per share 900.0 1,100.0 660.0
(cents)
The calculation of
dividend per share is
based on dividends of
R3,306 million (2008:
R5,627 million; 2007:
R4,678 million)
declared on June 6,
2008 and 500,941,029
(2008: 511,513,237;
2007: 519,711,236)
number of ordinary
shares outstanding on
the date of dividend
declaration.
The reduction in the
number of shares
represents the number
of treasury shares held
on date of payment.
8. Net asset value per 6,223.2 6,570.3 7,236.2
share (cents)
The calculation of net
asset value per share
is based on net assets
of R36,253 million
(2008: R32,815 million;
2007: R31,724 million)
and 500,993,664 (2008:
499,441,985; 2007:
509,769,454) number of
ordinary shares
outstanding at year-
end.
9. Property, plant and
equipment*
Additions 8,648 10,108 8,725
Disposals (290) (122) (74)
A major portion of this
capital expenditure
relates to the
expansion of existing
networks.
Included in the
additions for the
current year is an
amount of R179 million
(2008: R31 million;
2007: Rnil) that refers
mainly to finance
leases in Telkom.
* Amounts in 2009
exclude disposal
groups.
10. Intangible
assets*
Additions (including 1,841 3,719 2,215
business
combinations)
Included in the
additions for the
current year is an
amount of R260
million that refers
to the FIFA value-in-
kind agreement which
was capitalised to
the trademarks and
copyrights category
as well as the
additional 25%
acquired in Multi-
Links for R1,339
million classified as
goodwill.
* Amounts in 2009
exclude disposal
groups.
2007 2008 2009
Rm Rm Rm
11. Deferred
taxation*
Deferred tax balance (1,123) (1,374) (1,067)
is made up as
follows:
Deferred tax assets 593 605 756
Deferred tax (1,716) (1,979) (1,823)
liabilities
Unutilised STC 2,958 1,830 2,730
credits
The deferred taxation
asset mainly
represents the
deferred taxation on
the temporary
differences of the
investments which are
held for sale and
will be utilised in
the future deferred
taxation of the sale
transactions.
The deferred taxation
asset also represents
STC credits on past
dividends received
that are availableto
be utilised against
dividends declared.
It is considered
probable that these
credits will be
utilised in the
future.
The deferred taxation
liability mainly
represents the
temporary differences
between the carrying
amount and the
taxation base of
assets.
* Amounts in 2009
exclude disposal
groups.
12. Inventories* 1,093 1,287 1,974
Gross inventories 1,275 1,535 2,165
Write-down of (182) (248) (191)
inventories to net
realisable value
Inventories consist 1,093 1,287 1,974
of the following
categories:
Installation 811 895 1,051
material, maintenance
material and network
equipment
Merchandise 282 392 923
Inventory levels as
at March 31, 2009
have increased due to
the roll-out of the
Next Generation
Network, to improve
customer service, and
the acquisition of
merchandise for the W-
CDMA roll-out.
* Amounts in 2009
exclude disposal
groups.
13. Net cash and cash 308 (208) 1,282
equivalents
Net cash and cash 308 (208) 1,804
equivalents
attributable to
continuing operations
Cash shown as current 749 1,134 1,931
assets
Cash and bank 649 664 1,361
balances
Short-term deposits 100 470 570
Credit facilities (441) (1,342) (127)
utilised
Net cash and cash - - (522)
equivalents
attributable to
disposal groups
Cash at banks and - - 580
short-term deposits
attributable to
disposal groups
Credit facilities - - (1,102)
utilised
Undrawn borrowing 8,658 7,565 6,237
facilities
The undrawn borrowing
facilities are
unsecured, when drawn
bear interest at a
rate that will be
mutually agreed
between the borrower
and lender at the
time of drawdown,
have no specific
maturity date and are
subject to annual
review. The
facilities are in
place to ensure
liquidity. At March
31, 2009 R3,000
million of these
undrawn facilities
were committed by
Telkom.
Borrowing powers
To borrow money,
Telkom`s directors
may mortgage or
encumber Telkom`s
property or any part
thereof and issue
debentures, whether
secured or unsecured,
whether outright as a
security or debt,
liability or
obligation of Telkom
or any third party.
For this purpose the
borrowing powers of
Telkom are unlimited,
but are subject to
the restrictive
financial covenants
of the loan
facilities.
14. Share capital and
premium
Issued and fully paid 5,329 5,208 5,208
520,783,898 (2008: 5,329 5,208 5,208
520,784,184; 2007:
532,855,528) ordinary
shares of R10 each
1 (2008: 1; 2007: 1) - - -
Class A ordinary share
of R10
1 (2008: 1; 2007: 1) - - -
Class B ordinary share
of R10
The following table
illustrates the
movement within the
number of shares
issued:
Number of Number of Number of
shares shares shares
Shares in issue at 544,944,901 532,855,530 520,784,186
beginning of year
Shares bought back and (12,089,371) (12,071,344) (286)
cancelled
Shares in issue at end 532,855,530 520,784,186 520,783,900
of year
The rights of class A
and class B shares rank
equally with the
ordinary shares in
respect of rights to
dividends but differ in
respect of the right to
appoint directors. Full
details of the voting
rights of ordinary
class A and class B
shares are documented
in the Articles of
Association of Telkom.
The directors have been
given authority by the
shareholders to buy
back Telkom`s own
shares up to a limit of
20% of the issued share
capital as at September
22, 2008. This
authority expires at
the next Annual General
Meeting.
Share buy-back
During the financial
year Telkom bought back
286 ordinary shares at
a total consideration
of R0.03 million.
During the year ended
March 31, 2008, Telkom
bought back 12,071,344
ordinary shares for a
total consideration of
R1,647 million. This
reduced share capital
by R121 million and
retained earnings by
R1,526 million.
During the year ended
March 31, 2007, Telkom
bought back 12,089,371
ordinary shares at a
total consideration of
R1,596 million. This
reduced the share
capital by R120
million, share premium
by R1,342 million and
Retained earnings by
R134 million.
15. Treasury shares (1,774) (1,638) (1,517)
At March 31, 2009 11,646,680
(2008: 10,493,141; 2007:
12,237,016) and 8,143,556 (2008:
10,849,058; 2007: 10,849,058)
ordinary shares in Telkom, with a
fair value of R1,229 million
(2008: R1,377 million; 2007:
R2,031 million) and R859 million
(2008: R1,423 million; 2007:
R1,801 million) are held as
treasury shares by its
subsidiaries Rossal No 65
(Proprietary) Limited and Acajou
Investments (Proprietary)
Limited, respectively.
The shares held by Rossal No 65
(Proprietary) Limited and Acajou
Investments (Proprietary) Limited
are reserved for issue in terms
of the Telkom Conditional Share
Plan (`TCSP`).
The reduction in the treasury
shares is due to 1,551,963 (2008:
1,743,785; 2007: 450,505) shares
that vested in terms of the TCSP
during the current year.
The fair value of these shares at the date of vesting was R228 million (2008:
R301 million; 2007: R63 million).
16. Share-based compensation reserve
This reserve represents the cumulative fair value of the equity-settled share-
based payment transactions recognised in employee expenses during the vesting
period of the equity instruments granted to employees in terms of the Telkom
Conditional Share Plan.
No consideration is payable on the shares issued to employees, but
performance criteria will need to be met in order for the granted shares to
vest. The ultimate number of shares that will vest may differ based on
certain individual and Telkom performance conditions being met. The related
compensation expense is recognised over the vesting period of shares granted,
commencing on the grant date.
The following table illustrates the movement within the share-based
compensation reserve:
Balance at beginning of year 151 257 643
Net increase in equity 106 386 433
Employee cost 141 522 554
Vesting and transfer of shares (35) (136) (121)
Balance at end of year 257 643 1,076
The principal assumptions used in
calculating the expected number of
shares that will vest are as
follows:
Employee turnover (%) 5 5 9
Meeting specified performance 100 100 75
criteria (%)
At March 31, 2009 the estimated total compensation expense to be recognised
over the vesting period was R1,824 million (March 31, 2008: R2,151 million;
March 31, 2007: R580 million), of which
R554 million (March 31, 2008: R522 million; March 31, 2007: R141 million) was
recognised in employee expenses for the year.
17. Dividends paid (4,784) (5,732) (3,336)
Dividends payable at beginning of (4) (15) (20)
year
Declared during the year - (4,678) (5,627) (3,306)
dividends on ordinary shares
Final dividend for 2006: 500 (2,599) - -
cents
Special dividend for 2006: 400 (2,079) - -
cents
Final dividend for 2007: 600 - (3,069) -
cents
Special dividend for 2007: 500 - (2,558) -
cents
Final dividend for 2008: 660 - - (3,306)
cents
Dividends paid to minority (117) (110) (33)
interest
Dividends payable at end of year 15 20 23
18. Interest-bearing debt*
Non-current portion of interest- 4,338 9,403 10,653
bearing debt
Local debt 2,359 6,875 9,114
Foreign debt 820 1,441 589
Finance leases 1,159 1,043 950
Licence obligations - 44 -
Current portion of interest- 6,026 6,330 7,622
bearing debt
Local debt 5,772 6,001 7,546
Foreign debt 193 202 40
Finance leases 61 124 36
Licence obligations - 3 -
Movements in borrowings for the year are as follows:
Repayments/refinancing
The Group issued new local bonds, the TL12 and TL15 with a nominal value of
R1,060 million and R1,160 million respectively as well as syndicated loans
with a nominal value of R4,100 million during the current year. Commercial
Paper Bills with a nominal value of R10,665 million were issued and
Commercial Paper debt with a nominal value of R9,849 million was repaid
during the current year.
Repayments/refinancing of current portion of interest-bearing debt
The repayment/refinancing of R7,622 million of the current portion of
interest-bearing debt is expected to be repaid/refinanced from proceeds of
the Vodacom sale.
Management believes that sufficient funding facilities will be available at
the date of repayment/refinancing.
* Amounts in 2009 exclude disposal groups.
19. Acquisitions of subsidiaries and minorities
Multi-Links Telecommunications Limited (`Multi-Links`)Telkom International
(Proprietary) Limited acquired 75% of the issued share capital of Multi-Links
Telecommunications Limited from Kenston Investment Limited on May 1, 2007.
Telkom also granted Kenston the irrevocable right and option (put option) to
require Telkom to acquire all of the shares held by Kenston (25%
shareholding) in Multi-Links, at any time during the 90 day period following
the second anniversary of the effective date. On initial recognition, a
liability of R661 million, representing the higher of the transaction share
price and the fair value was recognised under non-current other financial
liabilities. A corresponding debit was recognised in non-distributable
reserves.
The put option was exercised on January 21, 2009 for R1,328 million (USD130
million at USD1 = R10.2188). The liability was derecognised and a
corresponding credit consisting of R661 million reversal of equity and R667
million relating to changes in the fair value of the put option subsequent to
initial recognition, was recognised directly in equity.
20. Commitments*
Capital commitments
Capital commitments authorised 11,167 15,198 8,542
Fixed-line 7,000 7,000 6,991
Mobile 4,159 5,211 -
Multi-Links - - 1,461
Other 8 2,987 90
Commitments against authorised 1,099 3,504 2,007
capital expenditure
Fixed-line 506 652 539
Mobile 591 800 -
Multi-Links - - 1,461
Other 2 2,052 7
Authorised capital expenditure 10,068 11,694 6,535
not yet contracted
Fixed-line 6,494 6,348 6,452
Mobile 3,568 4,411 -
Multi-Links - - -
Other 6 935 83
Capital commitments comprise commitments for property, plant and equipment
and intangible assets.
Management expects these commitments to be financed from internally generated
cash and other borrowings
2010 FIFA World Cup commitment
The FIFA World Cup commitment is an executory contract which requires the
Group to develop the fixed-line components of the necessary
telecommunications infrastructure needed to broadcast this event to the
world. This encompasses the provisioning of the fixed-line telecommunications
related products and services and, where applicable, the services of
qualified personnel necessary for the planning, management, delivery,
installation and de-installation, operation, maintenance and satisfactory
functioning of these products and services.
Furthermore as a National Supporter, Telkom owns a tier 3 sponsorship that
grants Telkom a package of advertising, promotional and marketing rights that
are exercisable within the borders of South Africa.
Telkom entered into a barter transaction in return for which it has a
commitment to FIFA of R243 million (2008: R260 million) as at March 31, 2009.
* Amounts in 2009 exclude disposal groups.
21. Contingencies
Third parties 28 27 18
Fixed-line 19 18 18
Mobile 4 4 -
Multi-Links - - -
Other 5 5 -
Third parties
These amounts represent sundry disputes with third parties that are not
individually significant and that the Group does not intend to settle.
2007 2008 2009
Rm Rm Rm
Supplier dispute
There is a dispute between Telkom and
Telcordia arising from the development
and installation of an integrated end
to end customer assurance and
activation system, which was supposed
to havebeen supplied by Telcordia.
The agreement was terminated in the
2001 financial year and the dispute
was taken to arbitration where
Telcordia was seeking approximately
US$130 million plus interest at a rate
of 15.5% per year for money
outstanding and damages.
A number of hearings took place during
the 2008 and 2009 financial year
without success. Further hearings in
the matter are expected to take place
during the 2010 financial year.
A provision has been raised based on
management`s best estimate of the
probable payments in this regard.
Supplier dispute liability included in 527 569 664*
current portion of provisions
*USD70 million
Competition Commission
If Telkom were to be found to have committed prohibited practices as
contained in the Competition Act 1998 as amended, Telkom could be required to
cease these practices, divest these businesses and a maximum administrative
penalty of up to 10%, calculated with reference to Telkom`s annual turnover,
excluding the turnover of subsidiaries and joint ventures, for the financial
year prior to the complaint date. The Competition Commission has to date not
imposed the maximum penalty on any offender.
The South African Value Added Network Services (`SAVA`)
On May 7, 2002 SAVA, an association of Value Added Network Services (`VANS`)
providers, filed complaints against the Company at the Competition Commission
under the Competition Act 89 of 1998, alleging, among other things, that
Telkom was abusing its dominant position in contravention of the Competition
Act 89 of 1998, and that it was engaged in price discrimination. The
Competition Commission determined, among other things, that several aspects
of Telkom`s conduct contravened the Competition Act 89 of 1998, and referred
certain of the relevant complaints to the Competition Tribunal for
adjudication. The referred complaints deal with Telkom`s alleged refusal to
provide telecommunications facilities to certain VANS providers to construct
their networks, refusal to lease access facilities to VANS providers,
provision of bundled and cross subsidised competitive services with monopoly
services, discriminatory pricing with regard to leased line services and
alleged refusal to peer with certain VANS providers.
During July 2008, the Competition Commission filed an application for leave
to appeal and Telkom also filed an application for leave to cross-appeal.
The application for leave to appeal as well as the application for leave to
cross-appeal were granted by the Pretoria High Court on October 9, 2008. The
appeal and cross-appeal will be argued before the Supreme Court of Appeal,
and the Main Complaint before the Competition Tribunal will continue to be
held over pending the outcome of the appeal and cross-appeal.
Omnilink
Omnilink alleged that Telkom was abusing its dominance by discriminating in
its price for Diginet services as against those charged to VANS and the price
charged to customers who apply for a Telkom IVPN solution. The Competition
Commission conducted an enquiry and subsequently referred the complaint,
together with the SAVA complaint, to the Competition Tribunal for
adjudication. The matter is currently being dealt with together with the SAVA
matter as discussed above.
Orion/Telkom (Standard Bank and Edcon): Competition Tribunal
Telkom has not yet filed its answering affidavit in the main complaint before
the Tribunal and it appears as if Orion is not actively pursuing this matter
any further.
The Internet Service Providers Association (`ISPA`)
The Competition Commission has formally requested Telkom to provide it with
certain records of orders placed for certain services, in an attempt to first
investigate the aspects of the complaint. Telkom has provided the records
requested.
The complaints by ISPA at the Competition Commission were also mentioned as
being the subject of an investigation by the Competition Commission, in a
summons issued by the Competition Commission and forwarded to Telkom on July
31, 2008. The summons has subsequently been withdrawn by agreement with the
Competition Commission, but Telkom is still engaged in a co-operative process
with the Competition Commission as part of the Competition Commission`s
ongoing investigations into this complaint.
M-Web and Internet Solutions (`IS`)
On June 29, 2005 M-Web and Internet Solutions, or IS, jointly lodged a
complaint with the Competition Commission against Telkom and also requested
interim relief at the Competition Tribunal. The complaint at the Competition
Commission mainly deals with Telkom`s pricing for ADSL retail products and
its IP Connect products, the termination of the peering link between Telkom
and IS, the wholesale pricing of SAIX bandwidth for ADSL users of other
internet service providers, the architecture of Telkom`s ADSL access route
and the manner in which internet service providers can only connect to
Telkom`s edge service router via IP Connect as well as alleged excessive
pricing for bandwidth on Telkom`s international undersea cable. The
application for interim relief at the Competition Tribunal dealt with
allegations that Telkom should maintain the peering link between IS and
Telkom in terms of its current peering agreement, and demanded that Telkom
treat the traffic generated by ADSL customers of M-Web as traffic destined
for the peering link and that Telkom upgrade its peering link to accommodate
the increased ADSL traffic emanating from M-Web and maintain a maximum of 65%
utilisation.
Telkom filed its answering affidavit, and is awaiting IS and M-Web`s replying
affidavit.
The complaint by M-Web and IS at the Competition Commission was also one of
the complaints mentioned as being the subject of an investigation by the
Competition Commission, in a summons issued by the Competition Commission and
forwarded to Telkom on July 31, 2008. The summons has subsequently been
withdrawn by agreement with the Competition Commission, but Telkom is still
engaged in a co-operative process with the Competition Commission as part of
the Competition Commission`s ongoing investigations into this complaint.
M-Web
On June 5, 2007, M-Web brought an application against Telkom for interim
relief at the Competition Tribunal with regard to the manner in which Telkom
provides wholesale ADSL internet connections. M-Web requested the Competition
Tribunal to grant an order of interim relief against Telkom to charge M-Web a
wholesale price for the provision of ADSL internet connections which is not
higher than the lowest retail price. M-Web further applied for an order that
Telkom implement the migration of end customers from Telkom PSTS ADSL access
to M-Web without interruption of the service. Telkom raised the objection
that the Competition Tribunal does not have jurisdiction to hear the matter
in its answering affidavit filed at the Competition Tribunal. Telkom still
had to "plead over" as to the merits of the matter. Telkom also filed an
application in the Transvaal Provincial Division of the South African High
Court on July 3, 2007 for an order declaring that the Competition Tribunal
does not have jurisdiction to hear the application for interim relief made to
it by M-Web. The application before the High Court was set down for hearing
during the first quarter of the 2009 financial year.
The complaint by M-Web at the Competition Commission was also one of the
complaints mentioned as being the subject of an investigation by the
Competition Commission, in a summons issued by the Competition Commission and
forwarded to Telkom on July 31, 2008. The summons has subsequently been
withdrawn by agreement with the Competition Commission, but Telkom is still
engaged in a co-operative process with the Competition Commission as part of
the Competition Commission`s ongoing investigations into this complaint.
Verizon SA Limited (`Verizon`)
Verizon filed a complaint against Telkom on March 22, 2007. Verizon alleged
that Telkom charges an excessive price on services rendered to Verizon, that
Telkom induces Verizon`s customers not to deal with Verizon, that Telkom
engages in exclusionary conduct through "margin squeeze", which are lower
than the prices at which it sells rights of access to its infrastructure (on
a wholesale basis) to Verizon, and Telkom engages in price discrimination
against Verizon.
The complaint by Verizon to the Competition Commission was also one of the
complaints mentioned as being the subject of an investigation by the
Competition Commission, in a summons issued by the Competition Commission and
forwarded to Telkom on July 31, 2008. The summons has subsequently been
withdrawn by agreement with the Competition Commission, but Telkom is still
engaged in a co-operative process with the Competition Commission as part of
the Competition Commission`s ongoing investigations into this complaint. This
investigation is expected to be finalised early in the 2009 calender year.
Internet Solutions (`IS`)
IS filed a complaint against Telkom at the Competition Commission during
December 2007. The complaint relates to abusive conduct by Telkom, and IS
specifically alleges that Telkom is charging excessive prices in that the
prices charged bear no reasonable relation to the economic value of the good
or service and are higher than such value, that Telkom has raised the
wholesale cost to downstream competitors, while also reducing the downstream
retail price, and is thus raising rivals` costs and/or is engaging in margin
squeeze, that Telkom has introduced a series of bundled products (Closer
products) which limit the ability of rivals in particular markets to compete
effectively, and Telkom is offering discriminatory prices in relation to a
number of infrastructural and service items that IS is compelled to purchase
from Telkom.
Notwithstanding that the complaint was still being investigated by the
Competition Commission on January 15, 2009, IS brought an application to the
Competition Commission for interim relief in the following terms: that Telkom
is ordered to charge IS a wholesale price for telecommunication facilities to
be used by IS in providing VPN services to its customers, which are no higher
than the lowest retail price for such connection charged to Telkom`s VPN
Supreme customers, ordering that the costs of the application be paid by
Telkom, granting such further or alternative relief as the Competition
Tribunal may deem fit and that the interim relief endure for a period not
extending beyond the earlier of the conclusion of a hearing into the alleged
prohibited practices, or a date that is six months after the date of issue of
the interim order, subject to IS`s right to apply for an extension of the
order as provided for in section 49C of the Competition Act.
At the time, Telkom was still in discussions with IS regarding IS`s complaint
relating to Telkom`s VPN Supreme product. Accordingly, Telkom informed IS
that discussions could not continue in good faith until IS withdrew its
interim relief application. IS withdrew the aforementioned application on
January 16, 2009. After withdrawal of the abovementioned application,
discussions continued with IS. However, IS was of the view that Telkom`s
proposed solution did not substantively address IS`s concerns.
In light of the above, IS re-served the interim relief application at the
Competition Tribunal, and papers were served on Telkom on January 30, 2009.
IS essentially served the same application, but updated it with reference to
the correspondence and meetings held since their withdrawal of the previous
application.
Telkom opposed the application at the Competition Tribunal. However, Telkom
is unable to finalise its opposing papers due to difficulties with the manner
in which IS claimed confidentiality over the application. No further activity
has taken place with regard to the interim relief application and it does not
appear as if IS intends to pursue the application.
The complaint at the Competition Commission was also one of the complaints
mentioned as being the subject of an investigation by the Competition
Commission in a summons issued by the Competition Commission to Telkom on
July 31, 2008. The summons was subsequently withdrawn by agreement with the
Competition Commission, but Telkom has been engaged in a co-operative process
with the Competition Commission as part of the Competition Commission`s
ongoing investigations into this complaint. The investigation is expected to
be finalised in the 2009 calendar year.
Telecom and Broadcasting (Proprietary) Limited (`Maredi`)
A notice of motion was served on Telkom by Maredi, on January 8, 2009.
Ericsson SA is the first respondent, Telsaf Data (Pty) Limited is the second
respondent and Telkom is cited as the third respondent. The matter relates to
a tender published by Telkom for the supply of point to point split mount
microwave equipment. Maredi, Telsaf, Ericsson and a fourth company, Mobax,
were shortlisted. The tender was awarded by the Telkom executive committee to
Telsaf and Ericsson. Telkom informed Maredi on December 1, 2008 that the
tender had been awarded to the aforementioned companies.
Firstly, Maredi applied for an urgent court order, with a court hearing date
set for February 3, 2009, requesting that the Court urgently interdict Telkom
from entering into a contract with Ericsson and Telsaf or either party, and
from ordering goods or services from Ericsson and Telsaf pursuant to the
tender. Secondly, Maredi requested an order that the Court review and set
aside the award of the tender to Telsaf and Ericsson or either of the
aforementioned parties, and refer the tender back to Telkom in order for
Telkom to reconsider its award. Maredi alleged that there were certain
irregularities in the tender process, in that Telkom did not follow fair
procedures by failing to comply with its own mandatory procedural
requirements, that Telkom acted arbitrarily and in bad faith, that Telkom was
biased in favour of Ericsson and that Ericsson should have been disqualified
as it failed to meet Telkom`s critical criteria as set out in the tender, and
that the submissions to the Procurement Review Council and Executive
Committee erroneously indicate that Maredi did not comply with technical
critical criteria.
Numerous allegations in the application, including accusations against
certain members of the Procurement Review Council and allegations by Maredi
of compliance by them to the technical critical criteria, were refuted by
Telkom. Telkom and Ericsson opposed the application and filed their
respective opposing affidavits. Telsaf did not oppose the application. The
matter was ultimately set down for hearing on February 20, 2009 and Maredi`s
application was dismissed with costs. However, Maredi is proceeding with the
review application in the ordinary course and Telkom is opposing the
application.
Negative working capital ratio
At each of the financial years ended March 31, 2009, 2008 and 2007 Telkom had
a negative working capital ratio. A negative working capital ratio arises
when current liabilities are greater than current assets. Current liabilities
are intended to be financed from operating cash flows, new borrowings and
borrowings available under existing credit facilities.
2007 2008 2009
Rm Rm Rm
22. Segment information
Eliminations represent the
inter-segmental transactions
that have been eliminated
against segment results
The mobile segment represents
the Group`s joint venture with
Vodacom.
Business segment
Consolidated operating revenue 32,441 33,611 35,940
Fixed-line 32,345 32,572 33,659
Elimination (772) (830) (817)
Multi-Links - 845 1,900
Other 873 1,040 1,214
Elimination (5) (16) (16)
Discontinued operations 19,178 22,674 26,174
Mobile 20,573 24,089 27,594
Elimination (1,494) (1,519) (1,531)
Other 106 108 123
Elimination (7) (4) (12)
Consolidated other income 338 472 343
Fixed-line 334 497 524
Elimination (46) (86) (245)
Other 50 61 64
Discontinued operations 46 62 129
Mobile 42 56 119
Other 4 6 10
Consolidated operating expenses 23,028 25,014 29,895
Fixed-line 24,083 24,962 29,849
Elimination (1,505) (1,709) (3,624)
Multi-Links - 942 2,422
Elimination - 56 469
Other 512 928 801
Elimination (62) (165) (22)
Discontinued operations 14,505 17,323 21,214
Mobile 15,185 17,898 21,704
Elimination (745) (805) (876)
Other 77 245 607
Elimination (12) (15) (221)
Consolidated operating profit 9,751 9,069 6,388
Fixed-line 8,596 8,107 4,334
Elimination 687 793 2,562
Multi-Links - (97) (522)
Elimination - (56) (469)
Other 411 173 477
Elimination 57 149 6
Discontinued operations 4,719 5,413 5,089
Mobile 5,430 6,247 6,009
Elimination (749) (714) (655)
Other 33 (131) (474)
Elimination 5 11 209
Consolidated investment income 199 168 181
Fixed-line 3,041 3,975 2,807
Elimination (2,850) (3,832) (2,646)
Multi-Links - 7 5
Other 8 18 15
Discontinued operations 37 29 35
Mobile 37 27 33
Other - 2 2
Consolidated finance charges 857 1,556 2,843
Fixed-line 857 1,277 1,464
Multi-Links - (4) 1,201
Elimination - (33) (164)
Other - 318 353
Elimination - (2) (11)
Discontinued operations 269 247 922
Mobile 269 240 921
Other - 7 1
Consolidated taxation 2,803 2,647 1,660
Fixed-line 2,652 2,630 560
Elimination - - 825
Multi-Links - (131) 141
Elimination - - (24)
Other 151 148 158
Discontinued operations 1,928 2,057 2,021
Mobile 1,918 2,055 2,023
Other 10 2 (2)
Minority interests 94 123 26
Multi-Links - 12 (96)
Other 94 111 122
Discontinued operations 109 74 51
Mobile 109 73 51
Other - 1 -
Profit attributable to equity 6,196 4,911 2,040
holders of Telkom
Fixed-line 8,128 8,175 5,117
Elimination (2,163) (3,039) (909)
Multi-Links - 33 (1,763)
Elimination - (23) (281)
Other 174 (386) (141)
Elimination 57 151 17
Discontinued operations 2,450 3,064 2,130
Mobile 3,171 3,906 3,047
Elimination (749) (714) (655)
Other 23 (139) (471)
Elimination 5 11 209
Consolidated assets 57,426 68,259 59,712
Fixed-line 44,224 47,829 54,593
Elimination (1,547) (1,604) (1,167)
Mobile 14,026 16,743 -
Elimination (353) (278) -
Multi-Links - 2,451 5,834
Elimination - - (860)
Other 1,188 3,283 1,285
Elimination (112) (165) 27
Disposal group 23,215
Mobile 23,412
Elimination (269)
Other 94
Elimination (22)
Investments 1,461 1,499 1,383
Fixed-line 1,621 4,917 10,910
Elimination (341) (3,607) (9,540)
Mobile 181 176 -
Other - 13 13
Disposal group
Mobile 194
Other financial assets 259 614 1,202
Fixed-line 230 445 1,200
Mobile 28 169 -
Other 1 - 2
Disposal group
Mobile 73
Total assets 59,146 70,372 85,779
Consolidated liabilities 15,951 19,689 14,247
Fixed-line 10,154 11,892 13,002
Elimination (458) (495) (514)
Multi-Links - 639 1,564
Elimination - - (265)
Mobile 7,416 8,871 -
Elimination (1,468) (1,542) -
Other 374 332 165
Elimination (67) (8) 295
Disposal group 8,498
Mobile 9,611
Elimination (1,128)
Other 15
Interest-bearing debt 10,364 15,733 18,275
Fixed-line 9,082 13,362 17,704
Mobile 1,278 1,815 -
Multi-Links - 532 550
Other 4 24 21
Disposal group 7,052
Mobile 7,052
Other -
Other financial liabilities 229 1,290 228
Fixed-line 58 167 226
Mobile 158 204 -
Other 13 919 2
Disposal group
Mobile 48
Tax liabilities 594 323 50
Fixed-line - 7 12
Mobile 556 290 -
Other 38 26 38
Disposal group 275
Mobile 275
Other -
Total liabilities 27,138 37,035 48,673
Other segment information
Capital expenditure for 8,648 10,108 8,725
property, plant and equipment
Fixed-line 5,545 6,044 5,866
Mobile 3,069 2,475 -
Multi-Links - 1,312 2,754
Other 34 277 105
Disposal group 3,013
Mobile 2,979
Other 34
Capital expenditure for 1,598 1,791 906
intangible assets
Fixed-line 1,049 749 824
Mobile 539 985 -
Multi-Links - - 37
Other 10 57 45
Disposal group 590
Mobile 590
Other -
Depreciation and amortisation 3,316 3,620 4,457
Fixed-line 3,298 3,470 4,036
Multi-Links - 118 296
Elimination - - 69
Other 18 32 50
Elimination - - 6
Discontinued operations 1,703 1,980 2,373
Mobile 1,681 1,955 2,341
Other 22 25 32
Impairment and asset write-offs 284 514 822
Fixed-line 284 262 321
Multi-Links - 23 462
Other - 229 39
Discontinued operations 12 15 57
Mobile 12 15 57
Other - - -
Workforce reduction expense - 24 3 8
fixed-line
23. Related parties
Details of material
transactions and balances with
related parties not disclosed
separately in the condensed
consolidated provisional annual
financial statements were as
follows:
With joint venture:
Vodacom Group (Proprietary)
Limited
Related party balances
Trade receivables 61 51 61
Trade payables (353) (346) (325)
Related party transactions
Revenue (755) (816) (891)
Expenses 1,494 1,525 1,533
Audit fees 3 3 2
Revenue includes interconnect
fees and lease and installation
of transmission lines.
Expenses mostly represent
interconnect expenses.
With shareholders:
Government
Related party balances
Trade receivables 271 326 386
Related party transactions
Revenue (2,458) (2,623) (2,767)
With entities under common
control:
Major public entities
Related party balances
Trade receivables 59 28 52
Trade payables (6) (25) (3)
The outstanding balances are
unsecured and will be settled
in cash in the ordinary course
of business.
Related party transactions
Revenue (435) (486) (446)
Expenses 238 243 212
Rent received (29) (21) (20)
Rent paid 27 22 19
Key management personnel
compensation:
(Including directors`
emoluments)
Related party transactions
Short-term employee benefits 116 155 62
Post employment benefits 4 4 6
Termination benefits - 27 -
Equity compensation benefits 8 29 39
Other long-term benefits 17 - -
Terms and conditions of
transactions with related
parties
The sales to and purchases from
related parties of
telecommunication services are
made at arm`s length prices.
Except as indicated above,
outstanding balances at the
year-end are unsecured,
interest free and settlement
occurs in cash. Apart from the
bank guarantee to the amount
not exceeding USD3 million
provided to Africa Online
Limited, there have been no
guarantees provided or received
for related party receivables
or payables. Except as
indicated above for the year
ended March 31, 2009, Telkom
has impaired the loans
receivable from its
subsidiaries by R2,178 million
(2008: R217 million; 2007:
Rnil). This assessment is
undertaken each financial year
through examining the financial
position of the related party
and the market in which the
related party operates.
24. Significant events
Capability Management
Telkom will seek to manage costs and address service delivery constraints by
realigning its structure and resources to better match its transforming
information, communications and technology business.
The transformation of the communications industry and increasing market and
competitive pressure has put communication companies such as Telkom under
increasing revenue and expense constraints while being required to improve
customer service. As a result Capability Management is designed to ensure
that the capabilities needed to succeed in a converged communications market
are established through the optimal utilisation of external as well as
internal capabilities, extracting efficiencies, where possible, through scale
of a rapidly maturing retail and wholesale market and better organised
functional areas in a more deregulated and liberalised communications market.
Capability Management includes the internal consolidation of certain
functional areas and the optimisation of strategic supplier and service
provider relationships improving performance in other functional areas.
Capability Management will be concerned with addressing the margin and
service delivery pressures by reassessing the operational service delivery
methodology currently deployed with a view of increasing flexibility,
reducing expense while improving service delivery across the Telkom Group.
Given the challenges we face in rolling out broadband, converged and data
services, maintaining our legacy network and expanding our operations across
the African continent, employees` skills and performance must be aligned with
our strategy to ensure financial, operational and transformational targets,
customer expectations and shareholder expectations are met.
The immediate objective therefore is to remodel service delivery. This is one
of the strategic initiatives under Project Renaissance and will focus on the
following:
Identify and assess existing capabilities
Establish a Telkom Group Capability Inventory
Determine future capability requirements
Identify and develop a set of optimal service delivery options for
achieving current and future strategic objectives
Enable Telkom SA, Telkom International and Telkom Data Centre Operations to
- Improve resource efficiency
- Improve capital productivity
- Improve service delivery
A memorandum of understanding was entered into between Telkom and Organised
Labour which included issues such as the deferment of the Managed Services
Partner outsourcing project implementation post April 2009 and the
establishment of a Restructuring Forum where all restructuring initiatives
will be debated between the parties concerned. We will be engaging with
labour to map the way forward.
Telkom Management Services (Proprietary) Limited (`TMS`)
TMS was registered as a company during August 2008. Telkom`s Board approved
the establishment of TMS as a part of Telkom`s strategic plan to grow revenue
and expand geographic reach.
Appointment of director
On November 10, 2008 Telkom announced the appointment of Mr Peter Nelson as
Chief Financial Officer and director of the Company with effect from December
8, 2008.
Acquisition of M-Web Africa Limited (`M-Web Africa`) and majority equity
stake in M-Web Namibia (Proprietary) Limited (`M-Web Namibia`)
On November 10, 2008, Telkom International (Proprietary) Limited, a wholly-
owned subsidiary of Telkom, announced it has entered into agreements to
acquire 100% of M-Web Africa and 75% of M-Web Namibia. The purchase price for
the M-Web Africa Group including AFSAT and M-Web Namibia is US$55 million
(approximately R498 million). These shareholdings will be acquired from
Multichoice Africa Limited and MIH Holdings Limited respectively, which are
members of the Naspers Limited Group.
M-Web Africa is an internet services provider in Sub-Saharan Africa
(excluding South Africa) which also provides network access services in some
countries and is headquartered in Mauritius with operations in Namibia,
Nigeria, Kenya, Tanzania, Uganda and Zimbabwe, an agency arrangement in
Botswana and distributors in 26 Sub-Saharan African countries.
The successful conclusion of the agreements being entered into is subject to
conditions precedent, including regulatory approvals being obtained in
certain African jurisdictions.
Subsequent to year-end on April 21, 2009, the conditions precedent to the
sale were fulfilled.
Telkom Renaissance
On November 14, 2008, Telkom`s Board of Directors approved the new
organisation structure which is designed to fit Telkom`s defend and growth
strategy. The new structure is effective April 1, 2009 and is being managed
through a project called Telkom Renaissance.
The Telkom Group has been restructured into three operating business units
namely Telkom South Africa, Telkom International and Telkom Data Centre
Operations. The Telkom Renaissance initiative will occur over the next 24
months to ensure that all the necessary remodelling, reorganising,
revitalising and re-engineering happens in order to make the new structure
function optimally.
This initiative is a complete transformation of the way Telkom focuses on
servicing its customers and creating value for its stakeholders. It is a
positive, purposeful change towards a more accountable and competitive
company. This change is a necessary part of Telkom`s strategy to maintain and
grow market share in South Africa whilst building a strong footprint on the
African continent.
25. Subsequent events
AT&T strategic agreement (`AT&T`)
On April 16, 2009, Telkom and AT&T, the global communications leader, entered
into a strategic agreement which aims to extend AT&T`s global networking
reach to Sub-Saharan Africa and boost Telkom`s strategy to grow a strong ICT
footprint on the African continent. The agreement will allow both companies
to explore ways to provide global seamless communication and technology
solutions and services to multinational customers, either based in or seeking
to extend their operations in Sub-Saharan Africa.
Under the terms of the Memorandum of Understanding, the two companies will
begin work towards definitive agreements that would directly connect the
Telkom regional network and the AT&T global network; deliver a wider
geographic footprint of telecommunication services, both in Sub-Saharan
Africa and other global points; enhance mobile service capabilities for
corporate customers in Sub-Saharan Africa; Extend global VPN (Virtual Private
Network) services to support the state of the art network requirements of
customers either headquartered in or seeking to expand sites in Sub-Saharan
Africa; explore other potential opportunities in areas such as Telepresence,
hosting and professional services; and expand the existing global wholesale
voice services relationship between Telkom Group and AT&T.
Telkom Media (Proprietary) Limited (`Telkom Media`)
On August 31, 2006 Telkom created a new subsidiary, Telkom Media with a Black
Economic Empowerment (BEE) shareholding. ICASA awarded Telkom Media a
commercial satellite and cable subscription broadcast licence on September
12, 2007.
On March 31, 2008, the Telkom Board took a decision to substantially reduce
its investment in Telkom Media and as such Telkom Media reduced its
operational expenses and commitments to a minimum.
An extensive process to identify potential buyers of Telkom`s interest in
Telkom Media was launched and, at the reporting date expectations were that
operations would be abandoned. Subsequent to year-end, negotiations with the
potential buyer were concluded. On May 4, 2009, Telkom sold its 75% interest
in Telkom Media to Shenzhen Media South Africa (Proprietary) Limited for a
nominal amount.
New York Stock Exchange Listing
Given the current global economic climate and the absolute necessity for
Telkom to reduce its cost profile, the Board has decided to delist from the
New York Stock Exchange. Maintaining a listing in the United States is
expensive and takes considerable management time. The methodology employed
and discipline gained from compliance with the Sarbanes-Oxley reporting
requirements will be retained to ensure strict corporate governance
compliance and transparent financial reporting.
Telkom is comfortable that the Johannesburg Stock Exchange provides
sufficient access to capital from both South African and global investors.
Telkom intends to maintain a level 1 American Depository Receipt programme to
facilitate over-the-counter trading in the United States of America.
Dividend
The Telkom Board declared an ordinary dividend of 115 cents per share (2008:
660 cents) and special dividend of 260 cents per share (2008: 0 cents).
Bookbuilding of Vodacom Group (Proprietary) Limited shares
On June 2, 2009, Telkom announced the successful completion of the
accelerated bookbuilding of Vodacom shares, raising ZAR1.54 billion for
"ineligible shareholders". The directors of Telkom, in consultation with
Vodafone, determined that Telkom US shareholders would be regarded as
"ineligible shareholders" for the unbundling of Vodacom shares to
shareholders of Telkom completed on May 25, 2009 and would therefore not
receive Vodacom shares in such distribution. The proceeds from the offering,
net of applicable fees, expenses, taxes and charges, will be distributed to
the "ineligible shareholders" in proportion to their entitlement to Vodacom
shares.
Other matters
The directors are not aware of any other matter or circumstance since the
financial year ended March 31, 2009 and the date of this report, not
otherwise dealt with in the financial statements, which significantly affects
the financial position of the Group and the results of its operations.
The information contained in this document is also available on Telkom`s
investor relations website www.telkom.co.za/ir.
Telkom SA Limited is listed on the JSE Limited and the New York Stock
Exchange Inc. Information may be accessed on Reuters under the symbols TKG.J
and TKG.N and on Bloomberg under the symbol TKG.JH. Information contained on
Reuters and Bloomberg is provided by a third party and is not incorporated by
reference herein. Telkom has not approved or verified such information and
does not accept any liability for the accuracy of such information.
Special note regarding forward-looking statements
Many of the statements included in this document, as well as oral statements
that may be made by us or by officers, directors or employees acting on
behalf of us, constitute or are based on forward-looking statements within
the meaning of the US Private Securities Litigation Reform Act of 1995,
specifically Section 27A of the US Securities Act of 1933, as amended, and
Section 21E of the US Securities Exchange Act of 1934, as amended.
All statements, other than statements of historical facts, including, among
others, statements regarding our mobile and other strategies, future
financial position and plans, objectives, capital expenditures, projected
costs and anticipated cost savings and financing plans, as well as projected
levels of growth in the communications market, are forward-looking
statements. Forward-looking statements can generally be identified by the use
of terminology such as "may", "will", "should", "expect", "envisage",
"intend", "plan", "project", "estimate", "anticipate", "believe", "hope",
"can", "is designed to" or similar phrases, although the absence of such
words does not necessarily mean that a statement is not forward-looking.
These forward-looking statements involve a number of known and unknown risks,
uncertainties and other factors that could cause our actual results and
outcomes to be materially different from historical results or from any
future results expressed or implied by such forward-looking statements. Among
the factors that could cause our actual results or outcomes to differ
materially from our expectations are those risks identified in Item 3. "Key
Information - Risk Factors" of Telkom`s most recent annual report on Form 20F
filed with the US Securities and Exchange Commission and its other filings
and submissions with the SEC which are available on Telkom`s website at
www.telkom.co.za/ir, including, but not limited to, the effect of global
economic and financial conditions, any changes to our mobile strategy and our
ability to successfully implement such strategy, successfully roll-out fixed-
mobile capability and services and organisational changes thereto; our
ability to reorganise our structure and reduce costs, our ability to improve
performance at our Multi-Links subsidiary, increased competition in the South
African fixed-line, mobile and data communications markets; our ability to
implement our strategy of transforming from basic voice and data connectivity
to fully converged solutions; developments in the regulatory environment;
continued mobile growth and reductions in Telkom`s net interconnect margins;
Telkom`s ability to expand its operations and make investments and
acquisitions in other African countries and the general economic, political,
social and legal conditions in South Africa and in other countries where
Telkom invests; our ability to improve and maintain our management
information and other systems; our ability to attract and retain key
personnel and partners; our negative working capital; changes in technology
and delays in the implementation of new technologies; our ability to reduce
theft, vandalism, network and payphone fraud and lost revenue to non-licensed
operators; the amount of damages Telkom is ultimately required to pay to
Telcordia Technologies Incorporated; the outcome of regulatory, legal and
arbitration proceedings, including tariff approvals and the outcome of
Telkom`s hearings before the Competition Commission and others; any
requirements that we unbundle the local loop, our ability to negotiate
favourable terms, rates and conditions for the provision of interconnection
services and facilities leasing services or if ICASA finds that we have
significant market power or otherwise imposes unfavourable terms and
conditions on us; our ability to implement and recover the substantial
capital and operational costs associated with carrier preselection, number
portability and the monitoring, interception and customer registration
requirements contained in the South African Regulation of Interception of
Communications and Provisions of Communication-Related Information Act and
the impact of these requirements on our business; Telkom`s ability to comply
with the South African Public Finance Management Act and South African Public
Audit Act and the impact of the Municipal Property Rates Act; fluctuations in
the value of the Rand and inflation rates; the impact of unemployment,
poverty, crime, HIV infection, labour laws and labour relations, exchange
control restrictions and power outages in South Africa; and other matters not
yet known to us or not currently considered material by us.
We caution you not to place undue reliance on these forward-looking
statements. All written and oral forward-looking statements attributable to
us, or persons acting on our behalf, are qualified in their entirety by these
cautionary statements. Moreover, unless we are required by law to update
these statements, we will not necessarily update any of these statements
after the date of this annual report, either to conform them to actual
results or to changes in our expectations.
22 June 2009
Sponsor: UBS South Africa (Pty) Ltd
Date: 22/06/2009 14:00:01 Produced by the JSE SENS Department.
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completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
