| Mon 13 Jun 2011, 7:05 | | TKG - Telkom SA Limited - Telkom SA Limited Group Annual Results for the year |
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TKG
TKG
TKG - Telkom SA Limited - Telkom SA Limited Group Annual Results for the year
ended 31 March 2011
Telkom SA Limited
(Registration number 1991/005476/06)
JSE share code: TKG
ISIN: ZAE000044897
Telkom SA Limited Group Annual Results for the year ended 31 March 2011
Connecting human potential every second of the day
Telkom is one of Africa`s largest integrated communications companies, providing
integrated communications solutions to both enterprise and consumer customers.
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. Information may be accessed on
Reuters under the symbol TKGJ.J and on Bloomberg under the symbol TKG.SJ.
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.
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 including but not limited to those risks
identified in Telkom`s most recent annual report which are available on Telkom`s
website at www.telkom.co.za/ir.
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
document, either to conform them to actual results or to changes in our
expectations.
Group salient features for the year ended 31 March 2011
- Normalised operating revenue down 5.2% to R33.4 billion.
- Voice revenue decreased 16.8% to R13.7 billion.
- Data revenue increased 7.7% to R10.7 billion.
- ADSL subscribers increased 16.1% to 751,625.
- Calling plan subscribers increased 9.5% to 783,193.
- Managed data network sites increased 2.8% to 34,163.
- Normalised operating expenses decreased 1.5% to R29.7 billion.
- Normalised free cash flow decreased 36.8% to R3.5 billion.
- Normalised EBITDA margin decreased to 27.4% from 29.3%.
- Normalised headline earnings per share from continuing operations decreased by
35.2% to 444.9 cents.
- Normalised basic earnings per share decreased 29.9% to 448.1 cents per share.
Normalised Group operating revenue from continuing operations decreased 5.2% to
R33.4 billion, while EBITDA decreased 11.4% to R9.2 billion. The normalised
Group EBITDA margin decreased to 27.4% as at 31 March 2011, compared to 29.3% at
31 March 2010, mainly due to mobile start-up costs and voluntary severance
package expenses incurred.
Normalised headline earnings from continuing operations decreased 35.2% to 444.9
cents per share mainly as a result of the effect of the reduction in mobile
termination rates, mobile business start-up costs and the voluntary severance
package expenses incurred. Normalised basic earnings per share decreased 29.9%
from 639.5 cents per share to 448.1 cents per share at 31 March 2011.
1. OVERVIEW
Johannesburg, South Africa - 13 June 2011, Telkom SA Limited (JSE: TKG) today
announced Group annual results for the year ended 31 March 2011.
Segment structure
The Group`s reporting segments are business units that are separately managed.
The Group consist of three reportable segments.
The Telkom South Africa segment provides fixed-line access and data
communications services through Telkom South Africa. The Mobile segment provides
mobile voice services, data services and handsets sales through 8ta. These
services were launched on 14 October 2010. The Multi-Links continuing operations
segment provides fixed-line and data communications services in Nigeria through
our Multi-Links subsidiary.
Following the decision to exit the CDMA business in Nigeria, this portion of the
Multi-Links results are presented as discontinued operations.
The "other" category is a reconciling item which is split geographically between
International and South Africa. Telkom International category provides internet
services outside South Africa, through the iWayAfrica subsidiary. The South
African category includes Trudon Group, Swiftnet, Data Centre Operations and the
Group`s corporate centre.
The Data Centre Operations was shown as part of the Telkom South Africa segment
in the March 2010 results as the information was still in the process of being
split out. Although information is now available, the results of the Data Centre
Operations were moved to the other category as it does not meet the quantitative
thresholds for disclosure as a separate segment.
Statement by Nombulelo Moholi, Group Chief Executive Officer:
"The year under review has been tough with revenue declining 5.2% to R33.4
billion. Competition, pricing pressures and regulatory intervention have all had
an impact on our revenue. The declines seen in our traditional fixed-line voice
revenue are set to continue. Operating expenditure decreased 1.5% to R29.7
billion despite the 10.3% growth in employee expenditure to R9.7 billion and
mobile start-up expenditure of R1.2 billion. This decrease is largely as a
result of the drop in termination rates payable to the other mobile operators.
The years of investment in our network has allowed our data revenue to grow 7.7%
to R10.7 billion. This is a good achievement given the muted economic conditions
and intensifying competition.
These basic dynamics demand that we focus our efforts on those areas where we
are growing and can differentiate from our competitors. The decision to exit the
Multi-Links CDMA business in Nigeria is but one of the key decisions taken in
the past financial year. We have conducted an extensive review of our network to
ensure that any capital allocation is prefaced on customer requirements,
commercial returns and the ability to differentiate. The restraint in our
capital expenditure is visible in the 27.2% decline in Telkom SA`s capital
expenditure to R2.8 billion. Capital expenditure going into the future will be
aimed at growing our ability to service enterprise customers and other value
clusters and providing far superior broadband speeds. It is about increased
capacity and connectivity. We have to capitalise on Telkom`s strength - the
network and relationships with business - to provide higher speeds and end to
end reliability that cannot be matched by our competitors.
Our focus areas continue to be as follows:
- Leadership and organisation - stable, quality management, the right structures
and enforcing accountability
- EBITDA and cash flow focus - challenge the status quo and demand innovation;
drive revenue through our exclusive differentiators; continued commitment to
cost efficiency; efficient capital allocation to drive revenue growth
- 8ta - provide innovative packages that allow people to talk more and take
advantage of the full range of telecommunication service that only an integrated
fixed and mobile operator can offer
- Drive broadband - through convergence and bundling
- Africa - consolidate existing subsidiaries, exit the Multi-Links business
We were extremely pleased to have launched 8ta during the past financial year.
It is an exciting venture for Telkom and provides an essential tool for
providing customers with a differentiated service through our ability to provide
the full suite of communication tools. It has not been easy. The growth of our
network and distribution channels has encountered delays. It is coming together
though and we look forward to turning our network on and launching services into
the enterprise market during the coming year."
Declaration of ordinary dividend
The ordinary dividend has been calculated with reference to Telkom`s current and
expected future debt and cash flow levels. The level of dividend payments going
forward will continue to 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 16 of 145 cents per share (2010: 125 cents) in respect
of the financial year ended 31 March 2011 have been declared payable on Monday,
11 July 2011 to shareholders recorded in the register of the company at close of
business on Friday, 8 July 2011.
Holders of ordinary shares
Salient dates with regard to the ordinary dividend 2011
Last date to trade cum dividend Friday, 1 July 2011
Shares trade ex dividend Monday, 4 July 2011
Record date Friday, 8 July 2011
Payment date Monday, 11 July 2011
Share certificates may not be dematerialised or rematerialised between Monday, 4
July 2011 and Friday, 8 July 2011, both days inclusive.
On Monday, 11 July 2011, dividends due to holders of certificated securities on
the South African register will either be transferred electronically to
shareholders` bank accounts or, in 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.
2. OPERATIONAL DATA
Year ended 31 March
2010 2011 %
Telkom South Africa
ADSL subscribers1 647,462 751,625 16.1
Calling plan subscribers 715,221 783,193 9.5
Closer subscribers 694,348 753,951 8.6
Supreme call subscribers 20,873 29,242 40.1
WiMAX subscribers 2,979 3,199 7.4
Internet all access subscribers2 511,535 543,316 6.2
Fixed access lines (`000)3 4,273 4,152 (2.8)
Postpaid - PSTN 2,625 2,552 (2.8)
Postpaid - ISDN channels 784 772 (1.5)
Prepaid 744 703 (5.5)
Payphones 120 125 4.2
Fixed-line penetration rate (%) 8.7 8.3 (4.6)
Revenue per fixed access line (ZAR) 5,345 4,863 (9.0)
Total fixed-line traffic (millions of 23,082 20,545 (11.0)
minutes)
Local 6,963 5,563 (20.1)
Long distance 3,238 2,806 (13.3)
Fixed-to-mobile 3,646 3,563 (2.3)
Fixed-to-fixed 47 104 121.3
International outgoing 595 468 (21.3)
International VoIP 60 69 15.0
Subscription based calling plans 3,805 3,988 4.8
Interconnection 4,728 3,984 (15.7)
Domestic mobile interconnection 2,319 2,053 (11.5)
Domestic fixed interconnection 736 951 29.2
International interconnection 1,673 980 (41.4)
Managed data network sites 33,226 34,163 2.8
Telkom Company employees 23,247 22,884 (1.6)
Fixed access lines per employee4 184 182 (1.1)
Telkom Mobile
Total subscribers - 1,199,596
Active subscribers5 - 473,604 -
Prepaid - 440,775 -
Contract - 32,829 -
Base stations constructed - 970 -
Employees6 - 228 -
ARPU5 (Rand) - 22.60 -
Prepaid - 15.86 -
Contract - 238.57 -
Multi-Links
Active fixed-line subscribers 570 2,181 282.6
Employees (including CDMA) 767 617 (19.6)
Permanent 539 419 (22.3)
Expatriate 60 33 (45.0)
Temporary 168 165 (1.8)
Other International
iWayAfrica
Active subscribers7 35,384 25,184 (28.8)
Employees7 562 517 (8.0)
Customer per employee7 63 49 (22.2)
Other South African
Trudon employees 528 520 (1.5)
Swiftnet employees 135 107 (20.7)
1. Excludes Telkom internal lines and includes business, consumer,
corporate, government and wholesale customers.
2. Includes Telkom Internet ADSL, ISDN, WiMAX and dial-up subscribers.
3. Excludes Telkom internal lines.
4. Based on number of Telkom Company employees, excluding subsidiaries.
5. Based on a subscriber who has participated in a revenue generating
activity within the last 90 days.
6. Included in Telkom Company employees.
7. Excluding UUNet joint venture partner`s subscribers and employees in
Kenya.
3. OPERATIONAL OVERVIEW
The telecommunication market dynamics remain extremely challenging, particularly
for a fixed-line incumbent. Traditional voice revenue has been our mainstay
allowing us to invest in extensive network and systems upgrades in order to
facilitate the explosive demand for bandwidth and data services. Call
termination rate reductions and aggressive pass through by competitors places
Telkom at risk and demands aggressive price reduction. Current market experience
confirms this. Data growth however does not offset voice revenue reduction. In
addition, there is a continued migration toward VoIP architectures. Customers
are also increasingly adopting Unified Communication as a service which requires
IP connectivity.
In order to manage these conditions Telkom remains focused on ensuring its
competitiveness in terms of pricing and product and service mix. We also
continue to migrate our customers towards annuity-based packages and provide
innovative bundled packages to our enterprise customers. Bundling voice and data
services is key to retaining our customers which is vital. However, the voice
migration strategy has to be carefully paced in order not to decimate revenue.
Following the launch of 8ta our focus into the future will be on offering fully
converged products that marry mobile voice and data services with the quality
and resilience of the fixed-line services to both the enterprise and residential
markets.
Voice revenue
Voice revenues declined 16.8% to R13,724 million as a result of lower minutes of
use and, to a lesser extent, lower tariffs. Telkom elected to pass 100% of the
benefit of the drop in mobile termination rates from 125 cents per minute to 89
cents per minute to its customers. Local voice revenue declined 11.5% to R2,836
million, long distance voice revenue was down by 12.0% to R1,588 million, fixed
to mobile revenue was down 19.7% to R5,181 million and international outgoing
revenue declined 20.3% to R725 million. Our continued drive to convert customers
to annuity revenue streams saw revenue from subscription based calling plans
grow 10.3% to R1,637 million. Voice annuity revenue, which includes line rental,
calling plans, customer premises equipment rental and value added services grew
3.1% to R7.9 billion. Telkom Closer subscribers grew 8.6% to 753,951 and Supreme
Call subscribers grew 40.1% to 29,242.
We continue to focus on improving customer churn, increasing customer loyalty
and promoting the value offered by fixed-line converged services through many
initiatives and new product launches such as Telkom Simple. Products of this
nature have begun to slow down the rate of decline in the number of lines. We
continue to offer volume based discounts, offering better value in exchange for
extended contracts and migration to shared services.
Interconnection revenue
Interconnection revenue decreased 35.6% to R1,679 million reflecting the 34.4%
decrease in mobile domestic interconnection revenue to R684 million, which
includes fixed-to-mobile revenue (down 5.5% to R501 million) and international
mobile outgoing revenue (down 64.3% to R183 million). The decline in fixed-to-
mobile revenue has been mitigated with some traffic won back as a result of
Telkom`s full pass through of the mobile terminate rate reduction on 1 March
2010. The decline in mobile interconnection revenue is as a result of continuing
mobile substitution and the sharp decline in international mobile outgoing
revenue is as a result of lower volumes and switching to alternate international
gateway providers. Fixed domestic interconnection revenue grew 43.9% to R328
million as Neotel and VANS gained further traction. International
interconnection revenue declined 50.1% to R667 million as switched hubbing
revenue, which is very irregular and driven by exchange rates, decreased 71.4%
to R236 million and international incoming revenue dropped 15.5% to R431
million.
Telkom has been successful in winning back some revenue lost to least cost
routers and has also optimised interconnection routes resulting in lower
settlement rates and higher retention on international outgoing calls.
Telkom is pleased to have secured asymmetric mobile termination rates. Asymmetry
is positive for 8ta and may or may not be positive for Telkom`s fixed-line
service depending on the level of pass through and traffic patterns.
The mobile termination rate cut from 125 cents per minute to 89 cents per minute
effective from March 2010 impacted Telkom`s fixed-to-mobile voice revenue by
R1,199 million. Telkom elected to pass through 100% of the benefit of the
reduction to its customers. Payments to other operators decreased R1,025 million
resulting in a net loss for Telkom of R174 million. Telkom will continue to
share some of the benefits of further mobile termination rate cuts with our
customers.
Broadband and data revenue
Total data revenue increased 7.7%% to R10,699 million despite significant price
reductions. Data connectivity services revenue increased 4.5% to R5,324 million
which includes the 18.1% increase in ADSL revenue to R1,631 million. Leased line
revenue increased 8.7% to R2,182 million. The growth in this line item is
slowing down, which reflects the self-provisioning by mobile operators. Internet
access and related services revenue increased 5.5% to R1,816 million and managed
data network services revenue increased 20.2% to R1,242 million. Managed network
sites grew 2.8% to 34,163.
Telkom is facing competition on price for traditional data services. We continue
to maximise the benefit of our capacity and ability to provide quality and
security and continue to invest in our network to provide customers with
differentiated, innovative IP based converged services. We are working towards
providing full communication and converged solutions, including mobility and
data centre services that offer significant value. We anticipate launching
mobile business services in the second half of the 2011 calendar year.
ADSL subscribers increased 16.1% to 751,625 when compared to the 31 March 2010
reporting period. Telkom`s share of net additions within the entire broadband
market is declining as a result of the rapid growth in mobile broadband.
Broadband does however remain a growth driver for Telkom. In order to capitalise
on this growth it is necessary for Telkom to invest significantly in shortening
the local loop, additional fibre and Metro Ethernet. Fixed-line broadband needs
to differentiate itself from mobile offerings through far higher speeds and
quality. Research indicates that customers are prepared to pay more for higher
value services. The next few years will see Telkom begin to offer its customers
in selected areas all of the above.
Telkom will continue to up-sell and cross-sell higher bandwidth converged
products to both consumer and enterprise segments.
Operating expenses
Operating expenditure decreased 1.5% to R29,671 million. This was largely as a
result of the reduction in payment to other operators of 26.2% to R5,584
million. Employee expenses increased 10.3% to R9,745 million as a result of R739
million voluntary employee severance package expenses incurred and the 8.3%
average annual salary increase. Selling, general and administrative expenses
increased 5.2% to R5,706 million, service fees increased 7.2% to R2,891 million
mainly due to electricity increases and operating leases grew 11.7% to R848
million. Telkom`s start-up mobile business, 8ta, incurred operating expenses of
R1,230 million.
Telkom is firmly committed to reducing its cost base. This must be done in a
manner that ensures sustainable, long term benefits. We have continued
optimising staff vacancies through natural attrition and have been actively
managing overtime and contractors spend in order to manage costs as far as
possible. We launched voluntary severance packages for management employees with
186 employees electing to take advantage of the packages. In March 2011 we
launched similar packages for bargaining unit employees. 1,830 employees took
advantage of these packages. The total cost of voluntary severance packages was
R739 million.
Other initiatives focus on increasing revenue per customer, product and channel
rationalisation, contact centre consolidation, better management of capitalised
cost and capital work in progress and process optimisation throughout the
business. Management is aware that cost reduction, no matter how difficult, is
essential.
8ta - Telkom`s mobile service
Telkom is at an inflection point with growth in traditional fixed-line voice
revenues declining. We believe that there is a market opportunity in South
Africa as mobile voice and especially mobile data are still experiencing growth.
Telkom has a competitive advantage by virtue of its existing business and
customer base. A product range spanning both mobile and fixed value pools will
assist Telkom to defend itself more effectively against competitors and to grow
revenues. The mobile business is designed to also assist Telkom in addressing
fixed-line cost challenges and to position Telkom more competitively in the
market. To this end Telkom will undertake best endeavours to attain the market
share required to achieve its required IRR.
8ta was launched on 14 October 2010. At 31 March 2011 we had 1,199,596
subscribers that have completed the RICA process.
At 31 March 2011 8ta branding had been completed at 20 Telkom Direct Stores and
six new stand-alone 8ta flagship stores have been completed. We had 51,800
airtime point of sales, 22,300 sim card point of sales and 398 contract point of
sales. 970 base stations had been constructed. As previously announced, we are
working through an order to build a further 2,000 base stations.
8ta`s approach is one of simplicity, quality, value and authenticity. Marketing
has been aimed at creating brand awareness and affinity. Focus has now shifted
on to communicating product benefits in key targeted segments within prepaid and
postpaid markets. These include consumer and enterprise.
We have experienced start-up challenges particularly in the case of our
distribution channel and network build out. Completing complex integrated IT
projects is taking longer than expected, delaying the launch of new products. It
is vital that these systems are flawless in order to provide our customers with
high quality of service and truly innovative products. We are overcoming these
issues and ironing out operational processes. To date, products and customer
service have been well received.
8ta achieved revenue of R81 million and an EBITDA loss of R1,103 million. As a
result of our delayed launch and network and systems build out our guidance with
regard to break-even EBITDA is pushed out to the financial year ending 31 March
2014.
Cybernest
Cybernest has been in operation for a year and a half and has gained
considerable traction in the market. While the majority of the R1,240 million
revenue achieved in the twelve months to 31 March 2011 is generated from Telkom,
non-Telkom revenue has increased 92.3% to R75 million. We are focusing our
efforts on large customers with customised solutions and addressing smaller
customers with packaged offers. Cybernest continues to optimise its network
design to provide flexible solutions to high bandwidth client requirements. We
continue with capacity increases, improving the network management and
connectivity and increasing automation to improve productivity. We also continue
to build our sales team and build credibility with customers through our
strategic partnerships with industry leaders. Our product portfolio is growing
as we moved up the IT value chain and we are working closely with Telkom SA`s
enterprise team to offer customers expanded products and services. We remain
optimistic about the prospects for this business.
Trudon
Trudon`s revenue increased by 4.8% to R1,167 million while EBITDA declined 1.3%
to R551 million. Operating profit decreased 2.3% to R513 million.
The core printed directories business has reached maturity in South Africa. To
keep pace with the changes in the marketplace, Trudon is evolving from being a
publisher of traditional print products to being a local search solutions
provider. Print usage by subscribers has reduced and younger users access
information primarily through internet and mobile channels, rather than printed
white or yellow pages. Trudon has no choice but to follow this migration and
build up its capabilities and capacity to offer these products. This move will
require capital investment of R145 million over the following two financial
years.
iWayAfrica
During the year under review iWay Africa saw a decline in revenues of 11.2% to
R413 million. The consumer business suffered from the effects of new and cheaper
entrants into the market, specifically mobile operators and undersea cable
operators. We expect to stop the declining margins and revenue trends in the
next year by:
- Completing the consolidation of Africa Online and MWEB Africa and rebranding
it as a single operating unit named iWayAfrica.
- Focusing on enterprise market and reducing consumer orientation.
- Re-orienting sales staff focus and training to target enterprise market.
- Completing the consolidation of distributors, technical and sales force.
- Restructuring of sales staff remuneration.
- Support of the SSA multinational enterprises expanding into Africa.
The Group`s operating loss deteriorated significantly from the prior year to a
loss of R87 million. This has primarily been driven by lower access revenues
coupled with contracted bandwidth cost (specifically satellite) which could not
be cancelled.
To address customer churn, we are migrating some Satellite customers to our
wireless platforms where available.
iWayAfrica has been awarded the best VSAT operator of the year in Africa by the
recent SatCom conference. We are leveraging on this reputation to strengthen our
market position in the enterprise market and to support position in the
enterprise market and to support the South African multinational companies that
are expanding into the rest of Africa.
Multi-Links
On 31 March 2011, Telkom and Visafone Communications Limited ("Visafone")
entered into a legally binding agreement to sell Multi-Links` CDMA business to
Visafone, subject to conditions precedent. Certain conditions precedent have not
been met and the transaction will not proceed.
The Telkom board resolved on 10 June 2011 to stop all funding to Multi-Links
Telecommunications Ltd.
Regulatory
The two most pressing regulatory pressures currently are spectrum fees and local
loop unbundling. Telkom is committed to continually engage with ICASA for the
benefit of both the industry and Telkom.
Spectrum licence fees and access - ICASA introduced Administrative Incentive
Pricing (AIP) of spectrum through Regulations on 27 August 2010. These
Regulations set the various pricing formulae that will be used in future to
determine spectrum fees payable by licensees. The main aim of the regulations is
to create incentives for spectrum users to optimise the effective and efficient
use of the radio frequency spectrum, by incentivising the use of higher
frequencies and in non-urban areas. The objective is to ensure that spectrum
fees calculated through AIP reflect the market value of the radio frequency
spectrum.
Currently there is uncertainty regarding the implementation of the various
formulae and data tables. Telkom and other industry players have formally
requested further engagements with the Authority on the regulations. The
indication from the Authority is that the implementation date of these
regulations will be postponed. The implementation of these regulations has been
postponed by ICASA to 1 April 2012 to allow ICASA to get the necessary systems
in place to implement the new pricing formulae. Telkom is awaiting a formal
communication by ICASA in this regard.
The new proposed fee structure is expected to substantially increase the total
spectrum fees payable by Telkom. Telkom is working on various options to reduce
this amount using the incentive mechanisms built into the pricing formulae;
however even after such optimisations, Telkom`s spectrum fees are still expected
to increase by a significant amount.
Local Loop Unbundling - Local Loop Unbundling (LLU) in its original form is a
regulatory mandated process that allows multiple telecommunications operators to
access and provide services over the last-mile copper infrastructure (i.e. from
the local exchange to the customer premises) that is traditionally owned by the
incumbent operator. The risk that LLU poses to Telkom`s profitability is
dependent upon the form and details of implementation that will be imposed by
ICASA, neither of which are known at this point in time. In addition, Telkom is
not the same company it was when LLU was first considered and the market has
changed significantly, particularly access technology. Telkom is of the view
that any process which ICASA may follow to introduce LLU is likely to be
undertaken on a legal basis which is not clearly defined in the EC Act. The
process will thus be open to interpretation and possibly result in disputes.
Telkom has analysed various LLU options, and will continue to engage with key
stakeholders.
Strategic direction
Telkom currently has neither the agility to seize market opportunities nor the
ability to absorb competitive pressures ad infinitum. Therefore, a step change
in the way we invest and operate this business is vital.
Firstly, we have to aggressively tackle the cost conundrum. Labour support is
vital in this area. Secondly we need to grow our agility in order to increase
our resilience. Operational agility means designing the right business
structures and processes to spot and execute quickly on revenue and cost
opportunities. Both are equally important. Then we need to identify the most
important elements of our business in terms of profitability and growth and
equip these areas with financial resources and our best skills.
This will take time and careful capital investment in our differentiators.
Guidance
Capital expenditure for the group is expected to range between 20% and 25% of
revenue over the current financial year including the impact of our mobile
investment.
The targeted net debt to EBITDA is aimed at 1.4 times. In the short term we will
operate at lower levels pending the cash outflows associated with the mobile
related capital expenditure.
4. FINANCIAL PERFORMANCE
The Telkom Group believes that normalised earnings more accurately reflect the
Group`s operational performance.
Unless otherwise indicated, the discussion below is based on normalised results,
excluding the items below, and is based on continuing operations.
The statement of comprehensive income for the year ended 31 March 2011 has been
adjusted to remove the effects of the impact of the Soccer World Cup contract
entered into with the Department of Communications, the amortisation of the FIFA
brand intangible asset, the impairment of the net asset value of Multi-Links,
fair value gain on the Vodacom shares held, STC on the special dividend declared
in June 2010 and a tax credit relating to the 2010 capital gains tax liability.
The statement of comprehensive income for the year ended 31 March 2010 has been
adjusted to remove the effects of the sale and unbundling of our 50% share in
Vodacom, the profit on sale of Telkom Media, the impairment of the goodwill and
net asset value of Multi-Links, the impact of the Soccer World Cup contract
entered into with the Department of Communications and the amortisation of the
FIFA brand intangible asset to enable year on year comparison.
The reported results for March 2010 have been restated for the effect of the
CDMA business relating to Multi-Links being classified as a disposal Group held
for sale.
The impact of the items discussed above on Group earnings as reported is as
follows:
Reconciliation of normalised group statement of comprehensive income
Effects of Other
Continuing operations Reported Vodacom unusual
In ZAR millions March 2010 transaction items
Operating revenue 35,611 - (398)(6)
Other income 18,995 (18,535)(1) (68)(7)
Operating expenses 34,790 (951) (3,703)
Employee expenses 9,785 (951)(2) -
Payments to other operators 7,563 - -
Selling, general and 5,780 - (357)(6)
administrative expenses
Service fees 2,696 - -
Operating leases 759 - -
Depreciation, amortisation, 8,207 - (3,346)(8)
impairment and write-offs
Results from operating activities 19,816 (17,584) 3,237
Investment income 503 - -
Gain on distribution of asset 25,688 (25,688)(3) -
Finance charges and fair value 1,068 (15) -
movements
Interest 1,143 - -
Foreign exchange and fair value (75) (15)(4) -
movement
Profit before taxation 44,939 (43,257) 3,237
Taxation 4,485 (2,751)(5) (168)(9)
Profit from continuing operations 40,454 (40,506) 3,405
EBITDA
EBITDA margin (%)
Basic earnings per share - 7,994.4
continuing operations
Headline earnings per share - 260.5
continuing operations
Rand/Naira exchange rate
Closing rate at beginning of the
year
Closing rate at end of the year
Year average rate (Source:
Reuters)
Other
Continuing operations Normalised Reported unusual
In ZAR millions March 2010 March 2011 items
Operating revenue 35,213 33,454 (66)(6)
Other income 392 541 -
Operating expenses 30,136 29,924 (253)
Employee expenses 8,834 9,745 -
Payments to other operators 7,563 5,584 -
Selling, general and 5,423 5,772 (66)(6)
administrative expenses
Service fees 2,696 2,891 -
Operating leases 759 848 -
Depreciation, amortisation, 4,861 5,084 (187)(10)
impairment and write-offs
Results from operating activities 5,469 4,071 187
Investment income 503 213 -
Gain on distribution of asset - - -
Finance charges and fair value 1,053 1,084 25
movements
Interest 1,143 907 -
Foreign exchange and fair value (90) 177 25(4)
movement
Profit before taxation 4,919 3,200 162
Taxation 1,566 985 (35)(11)
Profit from continuing operations 3,353 2,215 197
EBITDA 10,330
EBITDA margin (%) 29.3
Basic earnings per share - 639.5 411.2
continuing operations
Headline earnings per share - 686.7 434.2
continuing operations
Rand/Naira exchange rate
Closing rate at beginning of the N15.56
year
Closing rate at end of the year N20.58
Year average rate (Source: N19.34
Reuters)
Continuing operations Normalised Variance
In ZAR millions March 2011 %
Operating revenue 33,388 (5.2)
Other income 541 38.0
Operating expenses 29,671 1.5
Employee expenses 9,745 (10.3)
Payments to other operators 5,584 26.2
Selling, general and 5,706 (5.2)
administrative expenses
Service fees 2,891 (7.2)
Operating leases 848 (11.7)
Depreciation, amortisation, 4,897 (0.7)
impairment and write-offs
Results from operating activities 4,258 (22.1)
Investment income 213 (57.7)
Gain on distribution of asset - -
Finance charges and fair value 1,109 (5.3)
movements
Interest 907 20.6
Foreign exchange and fair value 202 (324.4)
movement
Profit before taxation 3,362 (31.7)
Taxation 950 39.3
Profit from continuing operations 2,412 (28.1)
EBITDA 9,155 (11.4)
EBITDA margin (%) 27.4 (6.5)
Basic earnings per share - 448.1 (29.9)
continuing operations
Headline earnings per share - 444.9 (35.2)
continuing operations
Rand/Naira exchange rate
Closing rate at beginning of the N20.58 32.3
year
Closing rate at end of the year N22.90 11.3
Year average rate (Source: N21.16 9.4
Reuters)
(1) Profit on disposal of our 15% share in Vodacom.
(2) Compensation expense recognised in terms of IFRS2 relating to the amendment
of the Telkom Conditional Share Plan.
(3) Gain on distribution of our 35% share in Vodacom.
(4) Fair value (loss)/gain on the Vodacom shares held.
(5) Includes R1,353 million capital gains taxation on the sale of Vodacom, R977
million secondary taxation on companies on the R19 special dividend and R421
million reversal of the deferred taxation asset raised.
(6) Revenue and expenses recognised on the contract entered into with the
Department of Communications.
(7) Profit on sale of Telkom Media.
(8) Includes R3,266 million impairment of Multi-Links goodwill and R80 million
amortisation of the FIFA brand intangible asset.
(9) Includes R135 million secondary taxation on companies on the R2.60 special
dividend paid and R33 million reversal of the Swiftnet deferred taxation asset
raised.
(10) Includes R99 million impairment of Multi-Links assets, R47 million
amortisation of the FIFA brand intangible asset and R41 million impairment of
the iWay brand intangible asset.
(11) Includes R90 million secondary taxation on companies on the R1.75 special
dividend paid, R65 million taxation credit relating to the 2010 capital gains
taxation liability and R10 million derecognition of the deferred taxation
liability as a result of the impairment of the iWay brand.
NORMALISED GROUP OPERATING REVENUE
Year ended 31 March
In ZAR millions 2010 2011 %
Telkom South Africa 33,448 31,467 (5.9)
Telkom Mobile - 81 -
Multi-Links 70 151 115.7
Other International
iWayAfrica 465 413 (11.2)
Other South African
Trudon 1,114 1,167 4.8
Swiftnet 111 127 14.4
Data Centre Operations 39 1,240 3,079.5
Corporate centre 91 83 (8.8)
Eliminations (125) (1,341) 972.8
Total 35,213 33,388 (5.2)
Group operating revenue decreased by 5.2% to R33,388 million (2010: R35,213
million) in the year ended 31 March 2011. The decrease is mainly due to the 100%
pass through to customers of the reduction in mobile termination rates effective
from 1 March 2010, lower switched hubbing activities and lower traffic volumes.
Data Centre Operations includes R1,165 million of revenue from Telkom SA in
terms of the transfer pricing policy effective from 1 April 2010. This revenue
is eliminated on consolidation.
Normalised Telkom South Africa operating revenue
Year ended 31 March
In ZAR millions 2010 2011 %
Subscriptions and connections 6,814 6,763 (0.7)
Traffic 13,893 12,045 (13.3)
Local 3,205 2,836 (11.5)
Long distance 1,805 1,588 (12.0)
Fixed-to-mobile 6,452 5,181 (19.7)
Fixed-to-fixed 37 78 110.8
International outgoing 910 725 (20.3)
Subscription based calling plans 1,484 1,637 10.3
Interconnection 2,608 1,679 (35.6)
Mobile 1,043 684 (34.4)
Fixed 228 328 43.9
International 1,337 667 (50.1)
Data 9,930 10,699 7.7
Leased lines and other 7,922 8,517 7.5
Mobile leased facilities 2,008 2,182 8.7
Other 203 281 38.4
Total 33,448 31,467 (5.9)
Operating revenue from the Telkom South Africa segment decreased by 5.9% to
R31,467 million (2010: R33,448 million) primarily due to lower fixed-to-mobile
traffic revenue and lower international and mobile interconnection revenue,
partially offset by growth in data revenue.
Subscription and connections revenue decreased slightly by 0.7% to R6,763
million (2010: R6,814 million) largely as a result of a decrease in the number
of postpaid and prepaid access lines.
Traffic revenue decreased by 13.3% mainly due to a reduction in mobile
termination rates and lower fixed-to-mobile volumes due to 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 10.3% to R1,637 million primarily due to increased
volumes as a result of a 9.5% increase in the number of subscribers to 783,193
(2010: 715,221).
Interconnection revenue decreased by 35.6% to R1,679 million (2010: R2,608
million) largely as a result of a decrease of 50.1% in international
interconnection revenue and a 34.4% decrease in mobile interconnection revenue.
International interconnection revenue decreased primarily due to lower volumes
on switched hubbing. The decrease in mobile interconnection revenue is mainly as
a result of the decrease in mobile termination rates. Fixed interconnection
revenue increased mainly due to increased volumes from Neotel, Sentech and VANS.
Data revenue increased 7.7% to R10,699 million (2010: R9,930 million) mainly due
to revenue generated by the 2010 Soccer World Cup, a growing demand for
services, including ADSL, a 7.5% increase in revenue from leased line facilities
to mobile operators, growth in managed data network services and an increase in
internet access and related services.
NORMALISED GROUP OTHER INCOME
Year ended 31 March
In ZAR millions 2010 2011 %
Telkom South Africa 263 409 55.5
Telkom Mobile - -
Multi-Links 3 1 (66.7)
Other International
iWay Africa 18 15 (16.7)
Telkom Management Services - 8 -
Telkom International 77 19 (75.3)
Other South African
Trudon 55 41 (25.5)
Swiftnet 6 6 -
Corporate centre 395 150 (62.0)
Eliminations (425) (108) (74.6)
Total 392 541 38.0
Other income includes profit on the disposal of investments, property, plant and
equipment and intangible assets as well as interest received from debtors and on
loans to subsidiaries. The increase is mainly due to profit on the sale of a
portion of our right of use in the SAT-3 undersea cable, partially offset by
lower interest received from debtors due to the lowering of the interest rate
charged. Interest received from subsidiaries by the corporate centre was
significantly lower for the year ended 31 March 2011 due to the impairment of
the Multi-Links loans as well as part of the Multi-Links loan being interest
free from 30 September 2009 onwards. Interest received from subsidiaries is
eliminated on consolidation.
NORMALISED GROUP OPERATING EXPENSES
Year ended 31 March
In ZAR millions 2010 2011 %
Employee expenses 8,834 9,745 (10.3)
Payments to other operators 7,563 5,584 26.2
Selling, general and administrative 5,423 5,706 (5.2)
expenses
Service fees 2,696 2,891 (7.2)
Operating leases 759 848 (11.7)
Depreciation, amortisation, impairments 4,861 4,897 (0.7)
and write-offs
Total 30,136 29,671 1.5
Group operating expenses decreased by 1.5% to R29,671 million (2010: R30,136
million) in the year ended 31 March 2011, primarily due to a decrease in
payments to other operators partially offset by the expenditure incurred by the
mobile business and an increase in employee expenses. The decrease in payments
to other operators is mainly due to the reduction in mobile termination rates
and lower international switched hubbing volumes in Telkom South Africa. The
increase in employee expenses is primarily due to voluntary employee severance
package expenses incurred of R739 million. Higher selling, general and
administrative expenses are mainly attributable to the start-up of the Mobile
business, offset by a decrease in maintenance and material expenses and lower
licence fees in Telkom South Africa and a decrease in marketing fees in
Corporate Centre. Service fees increased as a result of higher consulting fees
paid mainly for the start-up of the mobile business and the exit of the CDMA
business in Nigeria. Operating leases increased mainly as a result of an
increase in vehicle leases.
Normalised operating expenditure contribution per segment
Year ended 31 March
In ZAR millions 2010 2011 %
Telkom South Africa 25,103 24,682 1.7
Telkom Mobile 45 1,230 -
Multi-Links 326 385 (18.1)
Other International
iWay Africa 510 515 (1.0)
Telkom International 314 70 77.7
Telkom Management Services 14 36 (157.1)
Other South African
Trudon 644 695 (7.9)
Swiftnet 111 124 (11.7)
Data Centre Operations 957 1,054 (10.1)
Corporate centre 2,330 2,271 2.5
Eliminations (218) (1,391) (538.1)
Total 30,136 29,671 1.5
The 1.5% decrease in group operating expenses was primarily driven by a decrease
in Telkom SA and Telkom International`s operating expenses partially offset by
the inclusion of mobile operating expenditure in the current year. Telkom SA`s
operating expenses decreased mainly as a result of the reduction in mobile
termination rates partially offset by voluntary employee severance package
expenses incurred. Also included in Telkom SA expenditure in the 2011 financial
year is service fees paid to data centre operations in terms of the transfer
pricing policy of R1,165 million that is eliminated on consolidation. Telkom
international`s operating expenditure is lower mainly as a result of lower expat
fees incurred for Multi-Links.
Normalised Telkom South Africa operating expenditure (excluding mobile)
Year ended 31 March
In ZAR millions 2010 2011 %
Employee expenses 7,109 7,977 (12.2)
Salaries and wages 5,604 5,909 (5.4)
Benefits 2,059 1,851 10.1
Voluntary employee severance packages - 650 -
Employee related expenses capitalised (554) (433) 21.8
Payments to other network operators 7,443 5,193 30.2
Mobile network operators 4,847 3,704 23.6
International network operators 2,323 1,085 53.3
Fixed-line network operators 273 404 (48.0)
Selling, general and administrative 3,610 3,443 4.6
expenses
Materials and maintenance 2,035 1,843 9.4
Marketing 273 377 (38.1)
Bad debts 357 361 (1.1)
Other 945 862 8.8
Service fees 2,214 3,333 (50.5)
Property management 1,278 1,336 (4.5)
Security and other 936 954 (1.9)
Data Centre Operations transfer - 1,043 -
pricing
Operating leases 623 647 (3.9)
Buildings 158 164 (3.8)
Equipment 55 31 43.6
Vehicles 410 452 (10.2)
Depreciation, amortisation, impairments 4,104 4,089 0.4
and write-offs
Depreciation 3,367 3,394 (0.8)
Amortisation 480 525 (9.4)
Impairments and write-offs 257 170 33.9
Total 25,103 24,682 1.7
Telkom South Africa`s operating expenses, excluding mobile expenditure,
decreased by 1.7% in the year ended 31 March 2011, to R24,682 million (2010:
R25,103 million), primarily due to lower payments to international operators as
a result of lower volumes on switched hubbing and lower payments to mobile
operators due to the reduction in mobile termination rates, partially offset by
the introduction of a transfer pricing policy from 1 April 2010 for services
rendered by Cybernest of R1,165 million and voluntary employee severance package
expenses.
Employee expenses increased by 12.2% in the year ended 31 March 2011, primarily
due to voluntary employee severance package expenses incurred of R650 million
incurred and higher salaries and wages as a result of average annual salary
increases of 8.3% partially offset by lower headcount and Telkom Conditional
Share Plan expenses included in the prior year.
Payments to international network operators decreased 53.3% due to lower volumes
on switched hubbing and mobile international traffic. Payments to mobile
operators decreased 23.6%, largely due to the reduction in mobile termination
rates with effect from 1 March 2010. The decrease in mobile termination rates
contributed to a R1,199 million decrease in fixed-to-mobile revenue and R1,025
million to the decrease in payments to mobile operators.
Selling, general and administrative expenses decreased by 4.6% primarily as a
result of lower materials and maintenance resulting from cost saving initiatives
and lower provision for licence fees due to lower gross profit generated from
Electronic Communications Services and Electronic Communication Network
Services, partially offset by higher marketing expenses mainly relating to the
2010 Soccer World Cup.
Service fees increased by 50.5% primarily due to a R1,043 million intercompany
charge by Cybernest for services performed as the transfer pricing policy was
introduced on 1 April 2010. This cost is eliminated on consolidation.
Vehicle leases increased as a result of inflation increases, partially offset by
a 4.1% reduction in the number of vehicles from 7,928 to 7,606.
Mobile operating expenses (part of Telkom South Africa operating expenses but
excluded from above)
Year ended 31 March
In ZAR millions 2010 2011 %
Employee expenses 19 140 -
Payments to other network operators - 161 -
Selling, general and administrative 21 769 -
expenses
Service fees 3 87 -
Operating leases 2 27 -
Depreciation, amortisation, - 46 -
impairments and write-offs
Total 45 1,230 -
8ta employed 228 employees at 31 March 2011. Payments to other operators consist
mainly of payments to MTN in terms of the roaming agreement. Selling, general
and administrative expenses relate mostly to network maintenance, cost of
handsets sold and marketing expenses. Service fees relate to consultants
assisting with the implementation of the business plan. Operating leases relate
mostly to rental of buildings.
NORMALISED EBITDA PER SEGMENT
Year ended 31 March
In ZAR millions 2010 2011 %
Telkom South Africa 12,712 11,283 (11.2)
EBITDA margin (%) 38.0 35.9
Telkom Mobile (45.0) (1,103.0) -
EBITDA margin (%) - (1,361.7)
Multi-Links (139) (213) (53.2)
EBITDA margin (%) (198.6) (141.1)
Other International (211) (116) 45.0
EBITDA margin (%) (45.4) (28.1)
Other South African (1,685) (646) 61.7
EBITDA margin (%) (124.4) (24.7)
Eliminations (302) (50) 83.4
Total 10,330 9,155 (11.4)
INVESTMENT INCOME
Investment income consists of interest received on short-term investments and
bank accounts. Investment income decreased by 57.7% to R213 million (2010: R503
million), largely as a result of lower cash balances and short term deposits.
NORMALISED 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 5.3% to R1,109 million
(2010: R1,053 million) in the year ended 31 March 2011. The increase was mainly
as a result of foreign exchange and fair value losses of R202 million (2010: R90
million gain) due to lower investment growth in assets held by the cell captive
compared to 2010 and the revaluation of the Telcordia provision on settlement of
this liability. This was partly offset by a 20.6% decrease in interest expense
to R907 million (2010: R1,143 million) as a result of 14.2% decrease in the
Group`s interest bearing debt to R8,355 million (2010: R9,737 million) and lower
prevailing interest rates.
NORMALISED TAXATION
The consolidated taxation expense from continuing operations decreased to R950
million (2010: R1,566 million) due to lower profit levels and taxation
concessions. The consolidated effective taxation rate for the year ended 31
March 2011 was 28.3% (2010: 31.8%).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
The Group`s financial position remains strong. Net debt, after financial assets
and liabilities, from continuing operations decreased by 3.9% to R4,907 million
from R4,723 million as at 31 March 2010 resulting in a net debt to EBITDA ratio
of 0.5 times at 31 March 2011. On 31 March 2011, the Group had cash balances of
R1,773 million (2010: R3,793 million). The proceeds retained from the Vodacom
transaction contributed to the higher balances as at 31 March 2010.
The decrease in cash is mainly attributable to the mobile expansion capital and
operational expenditure, the settlement of the Telcordia dispute (approximately
R608 million) and the repayment of private placing debt instruments with a
nominal value of R1,780 million on maturity and the dividend payment of R3 per
share.
NORMALISED FREE CASH FLOW
Year ended 31 March
In ZAR millions 2010 2011 %
Cash generated from operations 8,063 6,778 (15.9)
Add back: Capital gains taxation on 1,353 - -
Vodacom transaction
Add back: STC on R19 dividend 977 - -
Add back: STC on special dividend 135 90 (33.3)
Add back: Payment to Telcordia - 608 -
Add back: Voluntary severance package - 147 -
expenditure
Less: Saving from voluntary severance - (97) -
packages
Less: Cash flows from investing (5,021) (4,045) (19.4)
activities excluding Vodacom proceeds
and investment in cell captive.
Normalised free cash flow 5,507 3,481 (36.8)
Excluding the effects of the R608 million payment to Telcordia regarding the
supplier dispute, STC on the special dividend and voluntary severance packages
the Group`s free cash flow decreased 36.8% to R3,481 million from R5,507 million
as at 31 March 2010.
GROUP CAPITAL EXPENDITURE
Group capital expenditure which includes spend on intangible assets, decreased
by 11.4% to R4,763 million (2010: R5,377 million) and represents 14.3% of group
revenue.
Year ended 31 March
In ZAR millions 2010 2011 %
Telkom South Africa 3,892 2,835 (27.2)
Telkom Mobile 181 1,475 714.9
Multi-Links 1,036 223 (78.5)
Other International
iWay Africa 49 11 (77.6)
Telkom International 1 - -
Other South African
Trudon 42 53 26.2
Swiftnet 22 16 (27.3)
Data Centre Operations 97 107 10.3
Corporate centre 57 44 (22.8)
Total 5,377 4,764 (11.4)
The decrease in capital expenditure was mainly driven by a decrease in the
capital expenditure of Multi-Links as a result of the decision to exit the CDMA
business, partially offset by an increase in mobile capital expenditure.
Telkom South Africa capital expenditure
Year ended 31 March
In ZAR millions 2010 2011 %
Baseline 2,380 1,736 (27.1)
Network evolution 654 550 (15.9)
Sustainment 58 101 74.1
Effectiveness and efficiency 402 155 (61.4)
Support 381 265 (30.4)
Regulatory and other 17 28 64.7
Total 3,892 2,835 (27.2)
Telkom South Africa`s capital expenditure, which includes spending on intangible
assets, decreased by 27.2% to R2,835 million (2010: R3,892 million) and
represents 9.0% of Telkom South Africa`s revenue (2010: 11.6%).
Baseline capital expenditure of R1,736 million (2010: R2,380 million) was
largely for the deployment of technologies to support the growing data services
business (including the ADSL footprint), links to the mobile cellular operators
and expenditure for access line deployment in selected high growth commercial
and business areas. The lower expenditure for the period can be attributed to a
more measured approach to the rollout of infrastructure to meet short-term
demand and revenue generating services.
Expenditure on network evolution of R550 million (2010: R654 million) was mainly
to continue with the submarine cable projects to address international growth
expected during the next decade and to provide next generation voice
infrastructure on the national switching layer to relieve identified legacy
capacity requirements.
The sustainment category expenditure of R101 million (2010: R58 million) was
largely for the replacement of obsolete batteries and direct-current power
systems.
Telkom continues to focus on its operations support systems with current
emphasis on provisioning and fulfilment, assurance and customer care and
hardware technology upgrades on the enterprise networks. During the year ended
31 March 2011, R155 million (2010: R402 million) was spent on the implementation
of several systems.
The support capital expenditure of R265 million (2010: R381 million) is mainly
for provision of new buildings and building extensions in support of network
growth and for the development and upgrading of existing equipment buildings,
including the associated AC power and air conditioning.
The expenditure on regulatory requirements of R28 million (2010: R17 million) is
primarily for a system to store and manage customer identification documentation
and for the initial phase of the Number Portability project.
Audit opinion
The consolidated annual financial statements, from which these provisional
condensed consolidated financial statements have been derived, have been audited
by the Company`s auditors, Ernst & Young Inc. Their unqualified audit opinion is
available for inspection at the Company`s registered office.
Condensed consolidated provisional statement of comprehensive income
for the year ended 31 March 2011
Restated*
2010 2011
Notes Rm Rm
Continuing operations
Total revenue 4 36,474 34,026
Operating revenue 35,611 33,454
Other income 5 18,995 541
Operating expenses 34,790 29,924
Employee expenses 6.1 9,785 9,745
Payments to other operators 6.2 7,563 5,584
Selling, general and administrative 5,780 5,772
expenses
Service fees 2,696 2,891
Operating leases 759 848
Depreciation, amortisation, impairment 6.3 8,207 5,084
and write-offs
Results from operating activities 19,816 4,071
Investment income 503 213
Gain on distribution of assets 5 25,688 -
Finance charges and fair value 7 1,068 1,084
movements
Interest 1,143 907
Foreign exchange and fair value (75) 177
(gains)/losses
Profit before taxation 44,939 3,200
Taxation 8 4,485 985
Profit from continuing operations 40,454 2,215
Loss from discontinued operations 9 2,869 873
Profit for the year 37,585 1,342
Other comprehensive income
Exchange differences on translating (1,676) 30
foreign operations
Realised exchange differences on (193) -
translating foreign operations
Defined benefit plan actuarial 130 (741)
gains/(losses)
Defined benefit plan asset limitations (597) 584
Income tax relating to components of 10 463 44
other comprehensive income
Other comprehensive income for the (1,873) (83)
year, net of taxation
Total comprehensive income 35,712 1,259
Profit attributable to:
Owners of Telkom 37,458 1,222
Non-controlling interests 127 120
Profit for the year 37,585 1,342
Total comprehensive income attributable
to:
Owners of Telkom 35,585 1,139
Non-controlling interests 127 120
Total comprehensive income for the year 35,712 1,259
Total operations
Basic and diluted earnings per share 11 7,425.7 239.9
(cents)
Continuing operations
Basic and diluted earnings per share 11 7,994.4 411.3
(cents)
* The amounts have been restated for the effect of the CDMA business relating to
Multi-Links Telecommunications Limited being classified as a disposal group held
for sale.
Condensed consolidated provisional statement of financial position
at 31 March 2011
Audited
2010 2011
Notes Rm Rm
Assets
Non-current assets 44,518 43,943
Property, plant and equipment 37,938 37,304
Intangible assets 4,338 3,965
Investments 1,437 2,103
Deferred expenses 156 83
Finance lease receivables 250 239
Deferred taxation 58 56
Other financial assets 341 193
Current assets 12,301 10,315
Inventories 14 1,274 1,121
Income tax receivable 2 105
Current portion of deferred expenses 48 10
Current portion of finance lease 109 118
receivables
Trade and other receivables 5,981 5,503
Other financial assets 1,032 1,674
Cash and cash equivalents 15 3,855 1,784
Assets of disposal group classified as 9 - 89
held for sale
Total assets 56,819 54,347
Equity and liabilities
Equity attributable to owners of the 29,925 29,635
parent
Share capital 5,208 5,208
Treasury shares 16 (1,171) (771)
Share-based compensation reserve* 2,060 -
Non-distributable reserves 620 1,764
Retained earnings 23,208 24,467
Reserves of disposal groups classified 9 - (1,033)
as held for sale
Non-controlling interests 339 387
Total equity 30,264 30,022
Non-current liabilities 14,204 14 974
Interest-bearing debt 17 7,925 8,198
Other financial liabilities 19 69
Employee related provisions 18 4,315 4,711
Non-employee related provisions 18 40 29
Deferred revenue 1,068 1,073
Deferred taxation 837 894
Current liabilities 12,351 8,899
Trade and other payables 19 5,549 4,782
Shareholders for dividend 23 21
Current portion of interest-bearing 17 1,812 157
debt
Current portion of employee related 18 1,963 1,932
provisions
Current portion of non-employee related 18 593 86
provisions
Current portion of deferred revenue 2,051 1,771
Income tax payable 165 16
Other financial liabilities 133 123
Credit facilities utilised 15 62 11
Liabilities of disposal group 9 - 452
classified as held for sale
Total liabilities 26,555 24,325
Total equity and liabilities 56,819 54,347
* Share-based compensation reserve has been transferred to retained earnings as
a result of the final vesting and closure of the Telkom Conditional Share Scheme
in June 2010.
Condensed consolidated provisional statement of changes in equity
for the year ended 31 March 2011
2010 2011
Rm Rm
Balance at 1 April 35,495 30,264
Attributable to owners of Telkom 34,642 29,925
Non-controlling interests 853 339
Total comprehensive income for the year 35,712 1,259
Profit for the year 37,585 1,342
Other comprehensive income (1,873) (83)
Exchange differences on translating foreign (1,345) 30
operations
Exchange differences realised (193) -
Net defined benefit plan losses and asset (335) (113)
limitations
Dividend declared (41,737) (1,587)
Increase in share-based compensation reserve 1,330 86
Disposal of non-controlling interests (536) -
Balance at 31 March 30,264 30,022
Attributable to owners of Telkom 29,925 29,635
Non-controlling interests 339 387
Condensed consolidated provisional statement of cash flows
for the year ended 31 March 2011
2010 2011
Note Rm Rm
Cash flows from operating activities (3,317) 5,188
Cash receipts from customers 36,925 33,200
Cash paid to suppliers and employees (24,198) (25,107)
Cash generated from operations 12,727 8,093
Interest received 802 498
Finance charges paid (578) (635)
Taxation paid (4,888) (1,178)
Cash generated from operations before 8,063 6,778
dividend paid
Dividend paid (11,380) (1,590)
Cash flows from investing activities 15,580 (4,545)
Proceeds on disposal of property, plant 21 297
and equipment and intangible assets
Proceeds on disposal of investment 20,599 -
Additions to property, plant and (4,545) (4,333)
equipment and intangible assets
Acquisition of subsidiaries and joint (495) (9)
venture
Additions to other investments - (500)
Cash flows from financing activities (10,098) (2,715)
Loans raised 2,727 980
Loans repaid (11,315) (2,399)
Acquisition of non-controlling interests (2) -
Finance lease capital repaid (399) (165)
Increase in net financial assets (1,109) (1,131)
Net increase/(decrease) in cash and cash 2,165 (2,072)
equivalents
Net cash and cash equivalents at 1,780 3,793
beginning of year
Effect of foreign exchange rate (152) 52
differences of cash and cash equivalents
Net cash and cash equivalents at end of 15 3,793 1,773
year*
* For 2011 cash flow activities on discontinued operation refer to note 9.
Notes to the condensed consolidated provisional annual financial statements for
the year ended 31 March 2011
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, multimedia, technology, information and other
related information technology services to the general public, as well as mobile
communication services in South Africa and certain other African countries.
2. Basis of preparation and significant accounting policies
Basis of preparation
The condensed consolidated provisional annual financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting and in compliance
with the Listing Requirements of the JSE Limited and the Companies Act of South
Africa, 1973.
These condensed consolidated provisional annual financial statements are
presented in Rand, which is the Group`s functional currency. All financial
information presented in Rand has been rounded to the nearest million.
The condensed consolidated provisional annual financial statements are prepared
on the historical cost basis with the exception of certain financial instruments
that are measured at fair value and share-based payments which are measured at
grant date fair value.
Significant accounting policies
Except as described below the accounting policies applied by the Group in the
condensed consolidated provisional annual financial statements are consistent
with those applied in the previous year.
Adoption of amendments to standards and new interpretations
IAS 24 (revised) Related Party Disclosures
The Group has early adopted the revised IAS 24 in full. The revised standard
clarifies and simplifies the definition of a related party and removes the
requirement for Government-related entities to disclose details of all
transactions with Government and other Government-related entities, refer to
note 22. The change in the definition of a related party has no material impact
on the Group.
The disclosures relating to the relief for Government-related entities to
disclose details of all transactions with Government and Government-related
entities have been applied retrospectively. Telkom discloses only those
transactions that are individually or collectively significant when transacting
with Government and major public entities.
IFRIC 13 (amendment) Customer Loyalty Programmes
The Group has early adopted the amendment to IFRIC 13. The interpretation
addresses the accounting by an entity that grants award credits to its
customers. The amendment clarifies that the fair value of the award credits
takes into account the amount of discounts or incentives that would otherwise be
offered to customers who have not earned award credits from the initial sale.
These principles were already incorporated in determining the fair values of
award credits subject to customer loyalty programmes on the Group accounting
policies, therefore, there was no material retrospective impact on the Group
financial statements.
IFRIC 18 Transfers of Assets from Customers
As of 1 April 2010, the Group adopted IFRIC 18. The interpretation clarifies the
requirements of IFRS for agreements in which an entity receives from a customer
an item of property, plant and equipment that the entity must then use either to
connect the customer to a network or to provide the customer with ongoing access
to a supply of goods or services.
This interpretation does not have a material impact on contracts that Telkom has
with external customers.
Change in accounting policy
IAS 31 Interests in Joint Ventures
As of 1 April 2010, the Group changed its accounting policy for interests in
joint ventures from proportionate consolidation to equity accounting.
The Group believes that equity accounting aligns it with the expected changes
that will be introduced with IFRS 11 Joint Arrangements.
The Number Portability Company which was acquired in April 2010 and the Group`s
share in UUNET, through iWayAfrica Group, will be accounted for in terms of the
new policy.
This change in accounting policy had no retrospective impact on the Group
financial statements. The impact of UUNET is not material.
2. Basis of preparation and significant accounting policies (continued)
Significant accounting policies (continued)
The following new standards, amendments to standards and interpretations which
are mandatory for financial periods beginning on or after 1 January 2010 have
been adopted and do not have a material impact on the Group:
IFRS 8 (amendment) Operating Segments - Disclosure of information about segment
assets
IAS 1 (amendment) Presentation of Financial Statements - Current/Non-current
classification of convertible instruments
IAS 7 (amendment) Statement of Cash Flows - Classification of expenditures on
unrecognised assets
IAS 17 (amendment) Leases - Classification of leases of land and buildings
IAS 32 (amendment) Financial Instruments - Classification of rights issue
IAS 36 (amendment) Impairment of Assets - Unit of accounting for goodwill
impairment test
IAS 38 (amendment) Intangible Assets - Additional consequential amendments
arising from revised IFRS 3
IAS 38 (amendment) Intangible Assets - Measuring the fair value of an item of an
intangible asset acquired in a business combination
IAS 39 (amendment) Financial Instruments - Scope exemption for business
combination contracts
IAS 39 (amendment) Financial Instruments - Cash flow hedge accounting
IAS 39 (amendment) Financial Instruments - Assessment of loan prepayments
penalties as embedded derivatives
IAS 39 (amendment) Financial Instruments - Eligible hedged items
IFRIC 9 (amendment) Reassessment of Embedded Derivatives - Scope of IFRIC 9 and
revised IFRS 3
IFRIC 16 (amendment) Hedges of a Net Investment in a Foreign Operation -
Amendment to the restriction on the entity that can hold hedging instruments
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
Standards and interpretations in issue not yet adopted and not yet effective
The new standards, amendments to standards and interpretations in issue have not
yet been adopted and are not yet effective. All standards are effective for
annual periods beginning on or after the stated effective date.
IFRS 3 Business Combinations - Amendments resulting from May 2010 Annual
improvements to IFRSs (effective 1 July 2010)
IFRS 7 Financial Instruments Disclosures - Amendments resulting from May 2010
Annual improvements to IFRSs (effective 1 January 2011)
IFRS 7 Financial Instruments Disclosures - Amendments enhancing disclosures
about transfers of financial assets (effective 1 July 2011)
IFRS 9 Financial Instruments - Classification and Measurement (effective 1
January 2013)
IFRS 10 Consolidated Financial Statements (effective 1 January 2013)
IFRS 11 Joint Arrangements (effective 1 January 2013)
IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013)
IFRS 13 Fair Value Measurements (effective 1 January 2013)
IAS 1 Presentation of Financial Statements - Amendments resulting from May 2010
Annual improvements to IFRSs (effective 1 January 2011)
IAS 12 Income Taxes - Limited scope amendment (recovery of underlying assets)
(effective 1 January 2012)
IAS 27 Consolidated and Separate Financial Statements - Amendments resulting
from May 2010 Annual Improvements to IFRSs (effective 1 July 2010)
IAS 34 Interim Financial Reporting - Amendments resulting from May 2010 Annual
Improvements to IFRSs (effective 1 January 2011)
IFRIC 14 Prepayments of a minimum funding requirement (effective 1 January 2011)
The condensed consolidated provisional annual financial statements were
authorised for issue by the Board of Directors on 10 June 2011.
3. Segment information
The Group`s reporting segments are business units that are separately managed.
The Group consists of three reportable segments, namely Telkom South Africa,
Telkom Mobile and Multi-Links.
The Telkom South Africa segment provides fixed-line access, fixed-mobile and
data communications services through Telkom South Africa.
The Telkom Mobile segment provides mobile voice services, data services and
handset sales through 8ta.
The Multi-Links segment provides fixed-line, data and international
communications services in Nigeria through the Multi-Links subsidiary.
The Other category is a reconciling item which is split geographically between
International and South Africa.
The International category provides internet services outside South Africa,
through the iWayAfrica Group (formerly Africa Online Limited and MWEB Africa
Limited) and management services through the Telkom Management Services Company.
The South African category includes Trudon Group, Swiftnet, Data Centre
Operations and the Group`s Corporate Centre.
The Data Centre Operations was shown as part of the Telkom South Africa segment
in the March 2010 results as the financial information was still in the process
of being split out. As the information is now available the results of the Data
Centre Operations were moved to the Other category as it does not meet the
quantitative thresholds for disclosure as a separate segment. In addition a
transfer pricing policy was implemented with effect from 1 April 2010 for
internal transactions between the Data Centre Operations and other business
units. Included in the Data Centre Operations under the Other category is
internal revenue of R1,165 million for the year ended 31 March 2011 that is
eliminated on consolidation.
Telkom Mobile is a new segment following the launch of 8ta on 14 October 2010.
The Multi-Links comparatives have been restated to show the effect of the
discontinued operations of the CDMA business.
Restated
2010 2011
Rm Rm
Business segments
Consolidated operating revenue 35,611 33,454
Telkom South Africa 33,846 31,533
Telkom Mobile - 81
Multi-Links 70 151
Other 1,820 3,030
International 465 413
South African 1,355 2,617
Elimination of intersegmental revenue (125) (1,341)
Consolidated operating profit 5,429 4,211
Telkom South Africa 8,568 7,147
Telkom Mobile (45) (1,149)
Multi-Links (253) (233)
Other (2,509) (1,496)
International (278) (166)
South African (2,231) (1,330)
Elimination of intersegmental transactions (332) (58)
Reconciliation
Adjusted EBIT for reportable segments 5,429 4,211
Gain on sale of investment 18,603 -
Compensation expense (951) -
Impairment of property, plant and equipment and (3,265) (140)
intangible assets
Operating profit 19,816 4,071
Investment income 503 213
Gain on distribution of asset 25,688 -
Finance charges and fair value movement (1,068) (1,084)
Profit before taxation and discontinued 44,939 3,200
operations
4. Total revenue 36,474 34,026
Operating revenue 35,611 33,454
Other income (excluding profit on disposal of 360 359
property, plant and equipment, intangible assets
and investments, refer to note 5)
Investment income 503 213
Operating revenue decreased mainly due to a reduction in interconnection revenue
as a result of the mobile termination rate cut and lower volumes on switched
hubbing.
5. Other income 18,995 541
Other income (included in Total revenue, refer 360 359
to note 4)
Interest received from trade receivables 294 285
Sundry income 66 74
Profit on disposal of property, plant and 32 182
equipment and intangible assets
Profit on disposal of subsidiary and joint 18,603 -
venture
The increase in the profit on disposal of assets is mainly due to a finance
lease arrangement relating to indefeasible rights of use (IRU`s) in respect of
the S3SW and EIG cable system.
The R18,603 million profit on disposal in the 2010 financial year relates to
R18,535 million for Vodacom (15% holding) and R68 million for Telkom Media.
In the 2010 financial year, Telkom also unbundled the remaining 35% share in
Vodacom to existing shareholders in Telkom. A gain on distribution of assets of
R25,688 million was recognised in the profit for the year.
Restated
2010 2011
Rm Rm
6. Operating expenses
6.1 Employee expenses 9,785 9,745
Salaries and wages 6,718 7,085
Medical aid contributions 17 19
Retirement contributions 528 581
Post-retirement pension and retirement fund (129) (160)
Post-retirement medical aid 388 425
Telephone rebates 49 67
Share-based compensation expense 1,330 86
Other benefits* 394 1,166
Bonuses 1,048 911
Employee expenses capitalised (558) (435)
*Other benefits
Other benefits include skills development,
annual leave, performance incentive and
voluntary employee severance packages costs.
Voluntary employee severance packages cost
amounted to R739 million (2010: RNil million).
The increase in salaries and wages is mainly due
to an average salary increase of 8.3% and a
percentile adjustment for bargaining unit as
agreed upon with unions in September 2010.
The share-based compensation expense has
decreased by R1,244 million due to the final
vesting in June 2010.
6.2 Payments to other operators 7,563 5,584
Payments to other network operators consist of
expenses in respect of interconnection with
other network operators.
The decrease in payment to mobile operators is
mainly due to mobile termination rates reduction
and volume decrease that can be attributed to
the growth in the mobile market.
6.3 Depreciation, amortisation, impairment and 8,207 5,084
write-offs
Depreciation of property, plant and equipment 3,896 4,025
Amortisation of intangible assets 728 733
Impairment of property, plant and equipment and 3,266 140
intangible assets
Write-offs of property, plant and equipment and 317 186
intangible assets
The impairment charge for the 2011 financial
year relates to iWayAfrica Group brand
impairment of R41 million (2010: RNil million)
and to Multi-Links` fixed-line business, R99
million (2010: R3,263 million).
Restated
2010 2011
Rm Rm
7. Finance charges and fair value movements 1,068 1,084
Finance charges on interest-bearing debt 1,143 907
Local debt 1,365 1,021
Foreign debt 11 3
Less: Finance charges capitalised (233) (117)
Foreign exchange gains and losses and fair value (75) 177
movement
Foreign exchange (gains)/losses (133) 50
Fair value adjustments on derivative 58 127
instruments
Capitalisation rate for borrowing costs (%) 11.7 11.4
Fair value adjustments on derivative instruments were due to currency
fluctuations and lower interest rates impacting negatively on forward exchange
contracts and interest rate swap agreements, partially reduced by growth in the
assets held by the Cell Captive.
8. Taxation 4,485 985
South African normal company taxation 2,772 722
Deferred taxation 780 103
Secondary Taxation on Companies (`STC`) 931 157
Foreign taxation 2 3
Included in the current year`s normal company taxation and deferred taxation
expense is capital gains tax of RNil million (2010: R1,345 million) and a
reversal of RNil million (2010: R454 million) relating to deferred taxation
assets on the investments which were held for sale.
The STC expense was provided for at a rate of 10% on the amount by which
dividends declared by Telkom exceeded dividends received. Included in the 2010
financial year is the impact of the Vodacom transaction dividend.
Restated
2010 2011
Rm Rm
9. Discontinued operations and disposal groups held for sale
9.1 Discontinued operations
Telkom Media (Proprietary) Limited
On 4 May 2009 Telkom sold its 75% shareholding in Telkom Media to Shenzhen Media
South Africa (Proprietary) Limited for a nominal amount. 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:
Revenue* 2 -
Expenses* 104 -
Profit before taxation of discontinued 106 -
operations
Taxation - -
Profit after taxation of discontinued operations 106 -
* Revenue comprises operating revenue, other income and investment income.
Expenses comprises operating expenses and finance charges and reversal of
onerous lease in Telkom Media in 2010.
Operating results for 2010 were all non-cash items, thus there were no cash
flows for the one month in 2010.
9. Discontinued operations and disposal groups
held for sale (continued)
9.2 Disposal groups held for sale
CDMA business of Multi-Links Telecommunications
Limited
On 26 November 2010 the Telkom Board announced
its decision to exit the CDMA business of Multi-
Links Telecommunications Limited (`Multi-
Links`). On 31 March 2011, Telkom and Visafone
Communications Limited (`Visafone`) entered into
a legally binding agreement regarding the sale
of the Multi-Links` CDMA business through a
number of transaction steps. The sale is
conditional on inter-alia regulatory approvals
and renegotiation of the Helios contract. Upon
the successful closing of the transaction,
Telkom will retain Multi-Links` fibre network
and fixed line operations in Nigeria.
Analysis of the results of discontinued
operations:
Revenue* 1,832 1,033
Expenses* (4,807) (1,691)
Loss before taxation of discontinued operations (2,975) (658)
Taxation - -
Loss after taxation of discontinued operations (2,975) (658)
Pre-tax loss recognised on the re-measurement of - (215)
assets of disposal group to fair value less cost
to sell
Taxation - -
After-tax loss recognised on the re-measurement (2,975) (873)
of assets of disposal group to fair value less
cost to sell
Loss for the year from discontinued operations (2,975) (873)
* Revenue comprises operating revenue, other
income and investment income. Expenses comprises
operating expenses, finance charges and
impairment of R139 million (2010: R1,897
million).
The major classes of assets and liabilities of
the business classified as a disposal group:
Assets 89
Property, plant and equipment 29
Inventories 13
Trade and other receivables 23
Cash and cash equivalents 14
Deferred expenses 10
Liabilities 452
Interest-bearing debt 7
Non-current portion of provisions 5
Current portion of provisions 2
Trade and other payables 367
Current portion of deferred revenue 18
Credit facilities utilised 53
Reserve of disposal group held for sale
Exchange difference on translating the disposal (1,033)
group (included in other comprehensive income)
The net cash flows attributable to the
operating, investing and financing activities of
discontinued operations:
Operating cash flows (607)
Investing cash flows (118)
Financing cash flows 693
Total cash outflow (32)
2010 2011
Rm Rm
10. Taxation effects of other comprehensive
income
Tax effects relating to each component of other
comprehensive income
Exchange differences on translating foreign (1,676) 30
operations
Tax effect of exchange differences on 331 -
translating foreign operations
Net foreign currency translation differences for (1,345) 30
foreign operations
Realised exchange differences on translating (193) -
foreign operations
Tax effect of realised exchange differences on - -
translating foreign operations
Net realised exchange differences on translating (193) -
foreign operations
Defined benefit plan actuarial gains/(losses) 130 (741)
Tax effect of defined benefit plan actuarial (35) 207
balance
Net defined benefit plan actuarial 95 (534)
gains/(losses)
Defined benefit plan asset limitations (597) 584
Tax effect of defined benefit plan asset 167 (163)
limitations
Net defined benefit plan asset limitations (430) 421
Other comprehensive income for the year before (2,336) (127)
taxation
Tax effect of other comprehensive income for the 463 44
year
Other comprehensive income for the year net of (1,873) (83)
taxation
Restated
2010 2011
11. Earnings per share
Total operations
Basic and diluted earnings per share 7,425.7 239.9
(cents)**
Headline earnings and diluted headline 67.8 332.3
earnings per share (cents)*
Continuing operations
Basic and diluted earnings per share 7,994.4 411.3
(cents)**
Headline earnings and diluted headline 260.5 434.2
earnings per share (cents)*
Discontinuing operations
Basic and diluted earnings per share (568.8) (171.3)
(cents)**
Headline earnings and diluted headline (192.7) (101.8)
earnings per share (cents)*
Reconciliation of weighted average number of
ordinary shares:
Ordinary shares in issue 520,783,900 520,783,900
Weighted average number of treasury shares (16,346,068) (11,472,604)
Weighted average number of shares 504,437,832 509,311,296
outstanding
Reconciliation of diluted weighted average
number of ordinary shares
Weighted average number of shares 504,437,832 509,311,296
outstanding
Expected future vesting of shares - -
Diluted weighted average number of shares 504,437,832 509,311,296
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 3/2009 issued in this regard.
** The Telkom Conditional Share Plan was
concluded with a final vesting in June 2010,
therefore no adjustment in the weighted
average number of shares as a result of the
expected future vesting of shares allocated
to employees under this plan. Due to the
plan being concluded, there is no further
dilutive effect on basic earnings per share.
Restated
2010 2011
Rm Rm
Total operations
Reconciliation between earnings and headline
earnings:
Profit from total operations 37,585 1,342
Non-controlling interests (127) (120)
Earnings as reported 37,458 1,222
Profit on disposal of investments (18,603) -
Profit on disposal of property, plant and (32) (182)
equipment and intangible assets
Impairment loss on property, plant and 5,163 494
equipment and intangible assets
Write-offs of property, plant and equipment 317 186
and intangible assets
Gain on distribution of assets (25,688) -
Tax effects 1,727 (27)
Headline earnings 342 1,693
Continuing operations
Reconciliation between earnings and headline
earnings:
Profit from continuing operations 40,454 2,215
Non-controlling interests (127) (120)
Earnings from continuing operations 40,327 2,095
attributable to equity holders of Telkom
Profit on disposal of investments (18,603) -
Profit on disposal of property, plant and (32) (182)
equipment and intangible assets
Impairment loss on property, plant and 3,266 140
equipment and intangible assets
Write-offs of property, plant and equipment 317 186
and intangible assets
Gain on distribution of assets (25,688) -
Tax effects 1,727 (27)
Headline earnings 1,314 2,212
Discontinuing operations
Reconciliation between earnings and headline
earnings:
Loss from discontinued operations (2,869) (873)
Non-controlling interests - -
Earnings from discontinued operations (2,869) (873)
attributable to equity holders of Telkom
Impairment loss on property, plant and 1,897 354
equipment and intangible assets
Headline earnings (972) (519)
Dividend per share
Dividend per share (cents) 375.0 300.0
The calculation of dividend per share is
based on dividends of R1,532 million (2010:
R1,894 million) and 510,638,013 (2010:
505,008,190) number of ordinary shares
outstanding on the date of dividend
declaration.
Vodacom dividend (cents) 7,750.0 -
The Vodacom dividend consists of a once-off
cash dividend of Nil cents (2010: 1,900.0
cents) per share totalling RNil million
(2010: R9,740 million) and a 35% unbundling
share valued at Nil cents (2010: 5,850.0
cents) per share with a total value of RNil
million (2010: R29,990 million).
2010 2011
Rm Rm
12. Net asset value per share (cents) 5,919.9 5,803.5
The calculation of net asset value per share
is based on net assets of R29,635 million
(2010: R29,925 million) and 510,638,289
(2010: 505,496,644) number of ordinary
shares outstanding.
13. Capital expenditure incurred
Property, plant and equipment 4,964 4,333
Intangible assets 910 431
Capital expenditure was for the deployment
of technologies to support the growing data
services business, links to the mobile
cellular operators, expenditure for access
line deployment and construction of mobile
base stations.
Included in intangible assets for 2010 was
the acquisition of MWEB Africa Group for
R497 million.
14. Inventories 1,274 1,121
Gross inventories 1,861 1,392
Write-down of inventories to net realisable (587) (271)
value
The decrease in gross inventory is mainly
due to the reduction of cable holding and
outside plant material within the
installation and maintenance category. This
was then offset by an increase in Telkom
mobile handsets and microwave equipment for
backbone rollout.
The decrease in write-down of inventory is
due to a lower provision for technology
obsolescence as stock holding levels have
decreased from prior year.
2010 2011
Rm Rm
15. Net cash and cash equivalents 3,793 1,773
Net cash and cash equivalents 3,793 1,773
Cash shown as current assets 3,855 1,784
Cash and bank balances 828 757
Short-term deposits 3,027 1,027
Credit facilities utilised (62) (11)
The significant decrease in cash and bank
balances and short-term deposits is due to
the payment of mobile expansion capital
expenditure and operating expenses, the
advancement of USD132 million (R956 million)
to Multi-Links for operational expenses, the
settlement of the Telcordia dispute of R608
million as well as the repayment of the
Private Placing debt instruments (PP02 and
PP03) of R1,780 million.
16. Treasury shares (1,171) (771)
The reserve represents amounts paid by
Telkom to Rossal No 65 (Proprietary)Limited
and Acajou Investments (Proprietary)
Limited, subsidiaries for the acquisition of
Telkom`s shares to be utilised in terms of
the Telkom Conditional Share Plan (`TCSP`).
The TCSP was closed in June 2010. The future
use of the remaining shares is subject to
management review.
At 31 March 2011, 2,002,055 (2010:
7,143,700) and 8,143,556 (2010: 8,143,556)
ordinary shares in Telkom, with a fair value
of R74 million (2010: R244 million) and R301
million (2010: R278 million) are held as
treasury shares by its subsidiaries Rossal
No 65 (Proprietary) Limited and Acajou
Investments (Proprietary) Limited,
respectively.
The decrease in the number of treasury
shares is due to 5,141,645 (2010: 4,457,699)
shares that vested in terms of the TCSP
during the current financial year.
The fair value of these shares at the date
of vesting was R194 million (2010: R169
million).
2010 2011
Rm Rm
17. Interest-bearing debt
Non-current interest-bearing debt 7,925 8,198
Local debt 6,863 6,918
Foreign debt 156 429
Finance leases 906 851
Current portion of interest-bearing debt 1,812 157
Local debt 1,711 -
Foreign debt 55 98
Finance leases 46 59
Repayments/refinancing
The Group repaid Private Placings debt
instruments (PP02 and PP03) with a nominal
value of R1,780 million on maturity.
The R157 million nominal value of the
current portion of interest-bearing debt as
at 31 March 2011 is expected to be
repaid/refinanced from available cash,
operational cash flows and issue of new debt
instruments.
Management believes that sufficient funding
will be available at the date of
repayment/refinancing.
The Group entered into a USD127 million
Export Credit Agency (ECA) facility
agreement during the year. This facility is
being utilised to finance equipment for the
8ta network roll out. The facility is
expected to be fully utilised during the
next financial year and is repayable over
five years.
18. Provisions
Non-current portion of provisions 4,355 4,740
Employee related 4,315 4,711
Non-employee related 40 29
Current portion of provisions 2,556 2,018
Employee related 1,963 1,932
Non-employee related 593 86
The increase in non-current provisions is
due to the increase in post-retirement
medical aid. This is due to the interest
cost, service fee and the change in
actuarial assumptions.
The reduction of the current portion of
provisions is attributable to the settlement
of the Telcordia dispute of R608 million.
In the current year the provisions have been
split between employee related and non-
employee related.
19. Trade and other payables 5,549 4,782
The decrease in vendors` balances is due to
reduced purchases requirements for projects
made in the current financial year and also
due to the strengthening of the Rand against
major currencies in the financial year.
Included in the current financial year is
Voluntary Early Retirement Packages (`VERP`)
and Voluntary Severance Packages (`VSP`) of
R592 million, partially offset by the
reclassification of certain Multi-Links
Telecommunications Limited trade and other
payables as liabilities held for sale.
2010 2011
Rm Rm
20. Commitments
Capital commitments authorised 7,270 7,522
Commitments against authorised capital 1,680 1,072
expenditure
Authorised capital expenditure not yet 5,590 6,450
contracted
Capital commitments comprise commitments for
property, plant and equipment and software
included in intangible assets.
Included in the commitments against
authorised capital expenditure and
authorised capital expenditure not yet
contracted, is R873 million (2010: RNil
million) and R1,132 million (2010: RNil
million) respectively which relates to
Telkom Mobile.
Management expects these commitments to be
financed from internally generated cash and
other borrowings.
21. Contingencies
Supplier dispute
Telcordia settlement
The arbitrator`s award was delivered on 11 June 2010. The arbitrator awarded an
amount of USD30.5 million, excluding interest from March 2001, to Telcordia.
Telkom paid an amount of USD8.7 million during 2007, which was in respect of
conceded claims. The amount of the claim, plus interest thereon, as at 30 June
2010 was approximately USD82.7 million. The parties settled the matter on the
basis that Telkom pay an amount of USD80 million, plus applicable VAT, which was
paid.
Radio Surveillance Security Services (Proprietary) Limited (`RSSS`)
RSSS has invoiced Telkom for an amount of R97 million for apparent system
upgrades in terms of M3010 standards and/or replacement of alarm systems, dating
back to 2008. According to Telkom`s investigations, there are no records of any
contracts concluded with RSSS for the upgrade and/or replacements of alarm
systems, nor is there any acceptance of quotations previously provided by RSSS.
Telkom also has no record of any written instructions to RSSS in this regard or
purchase orders being placed for the provision of M3010 upgrades and/or system
alarm replacements. Telkom`s internal legal counsel has advised that this
invoice should not be paid.
Helios Towers Nigeria
Multi-Links has on 20 December 2010, initiated a civil action against Helios
regarding the validity of the Master Lease Agreement. The matter has been heard
and judgement was passed on 7 June 2011 in favour of Helios.
Helios brought a counter application against Multi-Links on 23 December 2010 in
which they, amongst other things, requested an interim status quo order (to keep
the status of the parties` positions in terms of the contract intact for an
interim period); an interdict against the sale of Multi-Links` assets and a
claim for damages in the amount of USD252 million relating to so called
"anticipatory breach of contract". The interim status quo order was granted to
Helios in December 2010 but, in terms of Nigerian Court rules, expired seven
days after it was granted. The Court refused the interdict preventing the sale.
The damages claim of Helios has not yet been heard. Certain cost orders have
been awarded against Helios. The parties are still continuing to perform in
terms of the Master Lease Agreement.
Telkom remains committed to exiting Multi-Links` CDMA business.
African Prepaid Services Nigeria (`APSN`)
Multi-Links has terminated the Super Dealer Agreement with APSN on 25 November
2010, as a result of their breach of contract. APSN has in turn terminated the
agreement based on alleged breaches by Multi-Links. In terms of the agreement,
the parties agreed that any dispute will be referred to arbitration in South
Africa. APSN has indicated that they will refer their claim to arbitration.
Multi-Links has not yet received APSN`s particulars of claim. Multi-Links is
preparing its counter claim.
Competition Commission
Telkom is party to a number of legal proceedings filed by several parties with
the South African Competition Commission (`CC`), alleging certain anti-
competitive practices described below. Some of the complaints filed at the CC
have been referred by the CC to the Competition Tribunal (`CT`) for
adjudication.
Should the CT find that Telkom committed a prohibited practice as set out in the
Competition Act, the CT may impose a maximum administrative penalty of 10% of
Telkom`s annual turnover in the RSA during Telkom`s preceding financial year, in
respect of the SAVA and Omnilink, Internet Solutions and Multiple Complaints
Referral matter respectively. In the IS matter, IS has requested that the CC
imposes two administrative penalties. However, Telkom has been advised by
external legal counsel that the CT has to date not imposed the maximum penalty
on any offender in respect of the contraventions Telkom is being accused of.
The South African Value Added Network Services (`SAVA`) and Omnilink
This matter relates to the complaints filed by SAVA on 7 May 2002 and a
complaint filed by Omnilink in August 2002 against Telkom at the CC, regarding
certain alleged anti-competitive practices by Telkom such as refusal to give a
competitor access to an essential facility, engaging in exclusionary acts,
inducing a supplier not to deal with a competitor and price discrimination. The
matter is proceeding before the CT. Telkom filed its opposing affidavit and the
CC filed its replying affidavit. The CC also filed an amendment application to
include an allegation of an alleged contravention of sections 8(a) and 8(c) of
the Competition Act. It is Telkom`s view that this was an attempt by the CC to
include excessive price and margin squeeze cases respectively. The application
was heard on 21 April 2011.
The CT issued its ruling on 4 May 2011, granting the CC leave to amend its
papers in certain nominal respects, but dismissed the CC`s application to
include the allegation of an alleged contravention of section 8(a) and 8(c) of
the Competition Act. The CC delivered its amended complaint referral on 12 May
2011. The main matter has been set down for hearing at the CT from 17 to 28
October 2011 and from 1 to 9 December 2011.
Internet Solutions (`IS`)
IS filed a complaint at the CC in December 2007, alleging certain anti-
competitive practices by Telkom such as excessive pricing, margin squeeze,
bundling, price discrimination and exclusionary acts. Certain parts of this
complaint were referred to the CT by the CC. The non-referred parts of the
complaint were self-referred by IS. IS self-referred allegations such as
exclusionary conduct in respect of the retail broadband (including ADSL) market,
excessive pricing in respect of ADSL and leased lines below 2Mbps and price
discrimination with regard to Telkom`s VPN Supreme product. Telkom filed an
exception to IS` referral papers. The CT ruled that IS must amend its papers,
and IS filed its amended papers. However, the papers remain excipiable and
Telkom has thus filed a second exception application on 4 April 2011. IS did not
deliver answering papers to Telkom`s application within the requisite time
period. Should Telkom`s exception application be upheld, IS` amended referral
may be set aside, alternatively the CT may order IS to amend its papers, in
which case Telkom will have to plead to IS` amended papers. Telkom has not set
the matter down for hearing as yet.
Competition Commission Multiple Complaints Referral
The CC served a notice of motion on Telkom on 26 October 2009, in which it
referred complaints against Telkom by MWEB and Internet Solutions (`IS`) as well
as the Internet Service Providers Association (`ISPA`), MWEB, IS and Verizon SA
respectively, to the CT. The CC alleged certain anti-competitive practices by
Telkom, such as excessive pricing, refusal of access to an essential facility,
exclusionary acts, refusal to supply scarce goods to a competitor and bundling.
Telkom opposed the Multiple Complaints Referral and filed an exception
application on 15 March 2010 in respect thereof, and the CC filed its answer to
the exception application. The exception application was heard on 11 October
2010 and dismissed on 4 February 2011. Telkom is preparing its responding
affidavit to the main referral.
Phuthuma Networks (Proprietary) Limited (`Phuthuma`)
Telkom was informed by the CC that a complaint was filed by Phuthuma at the CC,
wherein Phuthuma alleges that "Telkom has contravened section 8(c) of the
Competition Act no 89 of 1998, as amended, by abusing its dominant position in
engaging in anti-competitive conduct in the telegraphic and telex maritime
services market by unilaterally awarding these services to Network Telex". The
CC non-referred the complaint on 28 June 2010. However, Phuthuma self-referred
its complaint to the CT on 20 July 2010, alleging that Telkom engaged in an
exclusionary act by appointing Network Telex in 2007 "without any formal
procurement process". Telkom filed its opposing affidavit in which it raised
certain preliminary points, and Phuthuma filed its replying affidavit. Telkom`s
preliminary points were upheld by the CT on 2 March 2011 and Phuthuma`s
complaint was dismissed with costs. Phuthuma is appealing this decision and has
filed a notice of appeal to the Competition Appeal Court on 24 March 2011.
High Court
Phuthuma Networks (Proprietary) Limited (`Phuthuma`)
On 20 August 2009 Phuthuma served a summons on Telkom for damages arising from a
tender published on 30 November 2007 for outsourcing of the Telex and Gentex
services and for the provision of a solution to support the maritime industry
requirements. The tender was cancelled on 10 June 2009, without any award being
made, due to the expiration of the validity period. Phuthuma has alleged that
Telkom had awarded the tender to a third party outside a fair, transparent,
competitive and cost effective procurement process. It has claimed damages of
R3,730,433,545.00, alternatively R5,513,876,290.00, and further alternatively
R1,771,683,580.00 plus interest at 15.5% per annum to date of payment from April
2008, alternatively from 30 April 2009 being the date of notice in terms of Act
40 of 2002, further alternatively from date of service of this summons plus
costs of suit and further and/or alternative relief. Telkom is defending the
matter, which is set down for hearing from 24 October 2011 to 18 November 2011
in the North Gauteng High Court.
Bihati Solutions (Proprietary) Limited (`Bihati`)
The matter arises from a tender award which was made on 8 November 2007 outside
the validity period of 120 days, relating to construction of network services.
In November 2009 the Board resolved to apply to the North Gauteng High Court to
set aside the aforementioned award. Concurrently with the Telkom application to
set aside the award, Bihati also applied to the North Gauteng High Court for the
review and setting aside of the Board`s decision. On 7 January 2011 the North
Gauteng High Court granted Telkom`s application and dismissed Bihati`s
application. Bihati`s application for leave to appeal was dismissed on 25 March
2011. Bihati has petitioned for leave to appeal against the North Gauteng High
Court decision.
South African National Road Agency (`SANRAL`)
During October 2009, SANRAL applied to the KwaZulu Natal High Court for an
interdict and declaratory order against Telkom. SANRAL requested the Court to
grant an order preventing Telkom from installing facilities without compliance
to the SANRAL Act and to remove facilities installed by Telkom in the N2
National road reserve in KwaZulu Natal as part of Telkom`s FIFA project. On 25
October 2010, the Court granted a declaratory which prohibits Telkom from
entering SANRAL`s land without compliance to the SANRAL Act. On 18 January 2011
Telkom was granted leave to appeal against the full judgement and is awaiting a
date for appeal.
Restated
2010 2011
Rm Rm
22. Related parties
Details of material transactions and balances with
related parties were as follows:
With shareholders:
Government of South Africa
Related party balances
Trade receivables 353 354
Related party transactions
Revenue (2,861) (2,904)
Individually significant revenue* (1,070) (1,151)
City of Cape Town (75) (95)
Department of Correctional Services (73) (66)
Department of Health: Gauteng (36) (65)
Department of Justice (78) (97)
South African National Defence Force (CSF) (72) (68)
South African Police Services (523) (557)
South African Revenue Services (68) (49)
S.I.T.A. (Pty) Limited (145) (154)
Collectively significant revenue* (1,791) (1,753)
* The nature of the individually and collectively
significant revenue consists mostly of data
revenue. The prior year revenue stream consisted
mostly of voice revenue.
At 31 March 2011, the Government of South Africa
held 39,76% (2010: 39,76%) of Telkom`s shares and
the Public Investment Corporation held 3,92% (2010:
3,92%) of Telkom`s shares and a further 8,95%
(2010: 8,95%) through Black Ginger 33 (Proprietary)
Limited.
Restated
2010 2011
Rm Rm
With entities under common control:
Major public entities
Related party balances
Trade receivables 39 25
Trade payables (8) (1)
The outstanding balances are unsecured and will be
settled in cash in the ordinary course of business.
Related party transactions
Revenue (381) (332)
Expenses 222 163
Individually significant expenses 190 151
South African Post Office 110 55
Eskom 72 84
South African Broadcast Services 8 12
Collectively significant expenses 32 12
Rent received (29) (28)
Individually significant rent received: South (25) (24)
African Post Office
Collectively significant rent received (4) (4)
Rent paid 22 24
Individually significant rent paid: South African 13 14
Post Office
Collectively significant rent paid 9 10
Key management personnel compensation:
(Including directors` emoluments)
Related party transactions
Short-term employee benefits 137 137
Post-employment benefits 7 7
Equity compensation benefits 21 12
Terms and conditions of transactions with related
parties
Except as indicated above, outstanding balances at
the year-end are unsecured, interest free and
settlement occurs in cash. There have been no
guarantees provided or received for related party
receivables or payables.
23. Significant events
Resignation of Telkom Group Chief Executive Officer
Telkom announced on 4 June 2010 that Mr Reuben September will retire as Group
Chief Executive Officer (`GCEO`) and also relinquish his directorship at the
expiry of his contract. Mr Reuben September agreed with the Telkom Board to step
down as GCEO and resigned as a director from 7 July 2010.
Appointment and resignation of Acting Group Chief Executive Officer
Mr Jeffrey Hedberg served as Acting GCEO. His contract expired at the end of
March 2011. The Board of Directors have requested Mr Hedberg to remain at Telkom
in an advisory capacity until the release of the Group`s annual results in June
2011.
Appointment of Group Chief Executive Officer
On 17 March 2011, the Telkom Board announced the appointment of Nombulelo Moholi
as Group Chief Executive Officer (`GCEO`) with effect from 1 April 2011.
The Telkom Board believes that this appointment provides leadership, continuity
and stability at an important time given the number of key strategic and
operational deliverables.
Resignation of Telkom Group Chief Financial Officer
Telkom announced on 13 July 2010 that Mr Peter Nelson resigned as Group Chief
Financial Officer (`GCFO`) and also relinquished his directorship.
Appointment of Acting Group Chief Financial Officer
While under the leadership of the Acting Group CEO, Jeffrey Hedberg, the Group
has initiated the process of appointing a new GCFO. Mr Deon Fredericks, Group
Executive: Accounting Services is acting as GCFO until the process is finalised.
Change in chairman and directors of Telkom
Mr Jeff Molobela retired as Chairman of Telkom and he was re-appointed as a non-
executive director of the Telkom Board for a period of three years with effect
from 16 February 2011.
Telkom is grateful to Mr Molobela for his leadership, dedication, contribution
and service during his tenure as chairman of the Board.
Mr Polelo Lazarus Zim was appointed as a non-executive director for a three year
period and as Chairman for a one year period with effect from 16 February 2011.
Mr Brian Molefe resigned as a non-executive director of the Board of Telkom with
effect from 20 April 2010 as a result of the end of his employment contract with
the Public Investment Corporation Limited.
Mr Younaid Waja was appointed as a non-executive director on the Board of Telkom
with effect from 20 April 2010.
Mr David Barber resigned as a non-executive director of the Board of Telkom with
effect from 20 April 2010.
Dr Ekwow Spio-Garbrah`s appointment as a non-executive director of the Board of
Telkom was terminated with effect from 1 May 2010.
Dr Victor Lawrence`s appointment as a non-executive director was terminated with
effect from 15 February 2011.
Mr Navin Kapila was appointed as a non-executive director for a three year
period with effect from 16 February 2011.
Ms Reitumetse Jackie Huntley and Ms Julia Ntombikayise Hope were re-appointed as
non-executive directors for a period of three years, with effect from 16
February 2011.
Telkom concluded a roaming agreement with MTN South Africa
On 14 April 2010, Telkom announced that in line with its mobile strategy it
concluded a five year national roaming agreement with MTN South Africa in terms
of which Telkom and its customers will have national access to MTN`s 2G and 3G
network throughout South Africa. Telkom placed orders to build 2,000 new base
stations in selected high density areas over the next two years.
The capital outlay for mobile related investments over the next five years is
expected to be approximately R6 billion. The conclusion of the roaming agreement
with MTN South Africa enhances Telkom`s ability to offer Telkom customers
extensive national mobile coverage from day one of launch and accordingly, is
key to the delivery of a successful mobile strategy.
Voluntary severance packages
The Telkom Board approved the offering of voluntary severance packages (`VSPs`)
and voluntary early retirement packages (`VERPs`) to all management and
bargaining unit employees. The key exit dates were 28 April 2010 until 2 July
2010 for the management employees and 31 March 2011 and 30 April 2011 for the
bargaining unit employees. 186 management employees accepted packages resulting
in a cost of R147 million. 1,632 bargaining unit employees accepted packages at
31 March 2011 resulting in a cost of R536 million. 189 bargaining unit employees
accepted packages at 30 April 2011 resulting in a cost of R53 million. It is
expected that 9 bargaining unit employees will accept packages at the end of
July 2011 at a cost of R3 million. Employees exiting on 31 March 2011 qualified
for six months` notice pay and those exiting on 30 April 2011 qualified for four
months` notice pay.
The offer is aimed at enabling the Group to achieve its business objectives by
specifically focusing on implementing a strategic workforce plan linked to the
long-term business strategy and optimising staff levels.
Integration of MWEB Africa Limited and Africa Online Limited
During the year management initiated the integration of MWEB Africa Limited and
Africa Online Limited subsidiaries under the brand of iWayAfrica Group.
Management believes the integration will achieve financial synergies by
improving economies of scale and eliminating duplication of functions. The
integration process is ongoing.
Telkom launches its mobile brand under a new name called 8ta
On 18 October 2010 Telkom launched it`s new mobile brand called "8ta".
The launch of Telkom`s mobile brand under the new name 8ta is undoubtedly the
most significant achievement to date, one that will allow Telkom to not only
counter the threat posed by competition such as fixed-to-mobile substitution
(and the resulting decline in fixed-line voice revenue) but also grow Telkom
revenue by providing mobile services and products to consumer and business
markets.
Launching a retail brand is a massive undertaking that consists of a myriad of
components - among other things the network and technology aspects, billing,
products and services, distribution channels and the marketing drive to create
awareness and generate sales.
Key brand attributes:
8ta is built on a number of core pillars. These give the brand a unique
personality that tells the customer what 8ta stands for and why it is different
to other brands in the mobile market:
- Value: "more bang for your buck", in other words more value for your money.
- Simplicity: products that are easy to understand, buy and use.
- Quality: network clarity and reliability, as well as the quality of the
customer experience we offer.
- Innovation: deploying new mobile technologies and rapidly bringing new
services to the market.
- Authenticity: a South African brand for South Africa.
Public Finance Management Act (PFMA)
Telkom`s three year exemption from certain sections of the PFMA ended on 25
October 2010. On 17 November 2010 the Minister of Finance approved a further
three year exemption expiring on 26 October 2013.
Disposal of Multi-Links CDMA business
On 26 November 2010, Telkom announced that the Board had mandated management to
review options for the exit of the CDMA business of Multi-Links
Telecommunications Limited in Nigeria.
On 31 March 2011, Telkom and Visafone Communications Limited (`Visafone`)
entered into a legally binding agreement regarding the sale of the Multi-Links`
CDMA business to Visafone.
The sale is conditional on inter-alia regulatory approvals and renegotiation of
the Helios contract. Upon the successful closing of the transaction, Telkom will
retain Multi-Links` fibre network and fixed-line operations in Nigeria.
Expiry of the Class A and B shares in terms of Telkom`s Articles of Association
In terms of Telkom`s Memorandum and Articles of Association, the holders of the
Class A and B shares in the ordinary share capital of Telkom, were defined as a
"significant shareholder", which were afforded certain extraordinary rights.
The Government of the Republic of South Africa was the A shareholder and
Thintana Communications (the previous strategic equity partner) was the B
shareholder. Thintana Communications ceased to be a significant shareholder in
November 2005.
The Government of the Republic of South Africa is the largest shareholder in
Telkom SA Limited, holding 39,8% of Telkom`s issued share capital. The
Government`s extraordinary rights as contained in Telkom`s Memorandum and
Articles of Association persisted until 4 March 2011 - eight years from the
listing date of Telkom on the JSE, the date also, upon which the Government
ceased to be a significant shareholder. The Class A share has ipso facto been
converted into ordinary shares.
The Memorandum and Articles of Association of Telkom will be harmonised into a
Memorandum of Incorporation (`MOI`) to bring it in line with the JSE Listings
Requirements, King III and the new Companies Act 71 of 2008.
24. Subsequent events
Multi-Links
On 31 March 2011, Telkom and Visafone Communications Limited ("Visafone")
entered into a legally binding agreement to sell Multi-Links` CDMA business to
Visafone, subject to conditions precedent. Certain conditions precedent have not
been met and the transaction will not proceed.
The Telkom board resolved on 10 June 2011 to stop all funding to Multi-Links
Telecommunications Ltd.
Dividends
The Telkom Board declared an ordinary dividend of 145 cents (2010: 125 cents)
per share and a special dividend of Nil cents (2010: 175 cents) per share on 10
June 2011, payable on 11 July 2011 to shareholders registered on 8 July 2011.
The Secondary Taxation on Companies impact is R47 million.
Other matters
The directors are not aware of any other matter or circumstance since the
financial year ended 31 March 2011 and the date of this report, or otherwise
dealt with in the financial statements, which significantly affects the
financial position of the Group and the results of its operations.
www.telkom.co.za
13 June 2011
Sponsor: UBS South Africa (Pty) Ltd
Date: 13/06/2011 07:05:03 Produced by the JSE SENS Department.
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