| Mon 23 Jun 2003, 10:12 | | Telkom preliminary audited annual results for the |
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Telkom SA Limited
(Registration number 1991/005476/06)
JSE and NYSE share code: TKG ISIN: ZAE000044897
("Telkom")
Telkom preliminary audited annual results for the year ended March, 31 2003
Commentary
Telkom, South Africa"s largest communications group announces preliminary
audited annual results for the year ended March 31, 2003. Consolidated operating
revenue increased by 10.0% to R37,600 million (US$4,759 million), operating
profit increased 55.4% to R6,514 million (US$ 825 million) and basic earnings
per share increased 33.5% to 292.6 cents (US$c 37.0) for the year ended March
31, 2003.
Group financial highlights:
* Group operating margin increased from 12.3% to 17.3%
* Group EBITDA growth of 33.4% to R12,807 million
* Group EBITDA margin increased from 28.1% to 34.1%
* Group capital expenditure reduced 36.6% to R5,712 million
* Reduced net debt to equity ratio from 129.9% to 109.5%.
Group operational highlights
In 2003 the group delivered a strong operational performance. The fixed-line
business improved its competitive positioning with enhanced levels of service
and innovative product offerings. Cost savings were achieved across the group
and customer growth in the mobile business continued to be strong. The year
under review saw the following key achievements:
* The listing of Telkom on the JSE Securities Exchange South Africa and the
New York Stock Exchange on March 4, 2003
* Strong growth in mobile customers of 26.0% and 20.6% growth in ISDN
channels
* Solid growth in fixed-line data revenue of 15.2%
* 15.4% growth in fixed-line prepaid customers
* The launch of ADSL in August 2002
* The launch of the intercontinental submarine cable, Afrolinque in May 2002
* The official launch of Vodacom Congo in the DRC in May 2002
* Telkom and Vodacom synergies framework
* The launch of the Telkom Agency for Career Opportunities, an innovative
programme specifically focused on the responsible redeployment and re-skilling
of redundant employees
Subsequent to year-end, Telkom successfully concluded a three-year agreement
with all its unions effective April 1, 2003. The agreement provides for a 9%
wage increase in the year ending March 31, 2004, an 8% in the year ending March
31, 2005 and a 7% in the year ending March 31, 2006. In addition, the increase
in Telkom"s contributions to medical aid schemes will be limited to wage
increases.
During the year the Minister of Communications and ICASA made further
progress in the liberalisation of the telecommunications sector. A process has
commenced to issue an additional license to provide public switched
telecommunications services to a second national operator. An evaluation
committee appointed by the Minister of Communications has recommended that two
of the four bidders for this license be prequalified. The Minister has indicated
that she expects to grant this license in the second half of 2003.
In May 2003, the Minister of Communications announced the fees that would be
required to obtain the 1800MHz radio frequency spectrum. However, the licences
have not yet been issued.
Financial review
Telkom"s strong group results in 2003 are supported by solid revenue growth,
improvements in operational efficiencies, reduced capital expenditures and
reduced interest expense on lowered outstanding debt. However, the results are
impacted by two factors, namely: large non-core or one-off items in 2002 and
2003 and the fluctuations arising from measuring derivatives at fair value and
due to the volatility of the exchange rate during the year.
Group operating profit before interest and taxation increased 55.4% to R6,514
million in 2003 and, excluding the following significant one-off or non-core
items, group operating profit before interest and taxation increased 29.8% in
2003:
* Net profit on sale of investments, property, plant and equipment of R104
million (2002: R30 million)
* Asset write-offs of R189 million (2002: R445 million)
* Goodwill amortisation and impairment of R89 million (2002: R66 million)
* The provision for the supplier dispute with Telcordia, excluding interest,
of R58 million (2002: R325 million)
* IPO expenditure of R213 million (2002: Nil)
* Reduction of the fixed-line bad debt provision of R276 million (2002: R153
million increase)
The group utilises derivative instruments to hedge its foreign currency
denominated debt, floating interest rate exposure and foreign operational and
capital expenditure. In terms of IAS 39, "Financial instruments: Recognition and
Measurement" the significant fluctuations in the currency resulted in a net fair
value and foreign exchange loss of R1,285 million (2002: R635 million gain). The
value of the Rand measured against the US Dollar increased 30.0% from R11.44 per
$1.00 at March 31, 2002 to R8.01 at March 31, 2003. The value of Rand as
measured against the US Dollar decreased 42.9% in the year ended March 31, 2002.
Group operating revenue
Operating revenue increased in both the fixed-line and mobile segments,
resulting in an overall increase of 10.0% (2002: 9.1%) to R37,600 million (2002:
R34,197 million). Fixed-line operating revenue, after inter-segmental
eliminations, increased 5.8% (2002: 5.8%) primarily due to increased average
tariffs and solid growth in data services. Mobile operating revenue, after inter
segmental eliminations, increased 27.5% (2002: 25.5%) primarily due to customer
growth.
Group operating expenses
Operating expenses increased 3.6% (2002: 13.8%) to R31,086 million (2002:
R30,006 million) due to increased operating expenses in the mobile segment.
These were partially offset by a 1.0% decrease (2002: 13.0% increase) in the
fixed-line operating expenses primarily due to reduced selling, general and
administrative expenses. The increase in mobile operating expenses of 23.4%
(2002: 16.8%) was primarily due to increased competition resulting in increased
incentive costs. Mobile payments to other operators also increased as a result
of the increased outgoing traffic and the higher volume growth of outgoing
traffic terminating on other mobile networks relative to traffic terminating on
the fixed-line network.
Investment income
Investment income consists of interest received on trade receivables, short-
term investments and bank accounts. Investment income decreased 17.2% (2002:
8.2% decrease) to R424 million (2002: R512 million) largely as a result of the
following factors: a more rapid collection of trade debtors; lower interest
received due to lower average balances in investments and bank accounts and
reduced interest on the receivable owing from the South African Revenue Services
as they repaid R844 million on September 3, 2002 of their balance outstanding of
R1,081 million at March 31, 2002.
Finance charges
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. Finance
charges increased 62.9% (2002: 18.7% decrease) to R4,154 million (2002: R2,550
million) due to a significant increase in group net fair value and exchange
losses on financial instruments from a net gain of R635 million in 2002 to a net
loss of R1 285 million in 2003, partially offset by a 9.9% decrease (2002: 23.8%
increase) in interest expense to R2,869 million (2002: R3,185 million). The
decrease in interest expense was primarily due to lower balances on foreign
loans. The net fair value losses on financial instruments of R1,285 million was
primarily due to the fair value of derivative instruments for foreign loans and
purchases of foreign goods and services.
Taxation
Consolidated tax expense increased 20.2% (2002: 22.1%) to R1,049 million
(2002: R873 million). The consolidated effective tax rate was 37.7% in the 2003
financial year and 40.5% in the 2002 financial year. The high effective tax rate
in the year ended March 31, 2002 was primarily due to non-deductible expenses at
Telkom.
Net profit and earnings per share
Net profit increased 33.5% to R1,630 million in the year ended March 31, 2003
primarily due to increased operating profit in both the fixed-line and mobile
segments. These increases were partially offset by increases in finance charges
due to the net loss on the revaluation of derivative instruments.
Group basic earnings per share increased 33.5% (2002: 24.7% decrease) to 292.6
cents (2002: 219.2 cents) and group headline earnings per share increased 4.9%
(2002: 12.4% decrease) to 314.0 cents (2002: 299.3 cents).
Group capital expenditure
Group capital expenditure decreased 36.6% (2002: 8.9% decrease) to R5,712
million (2002: R9,004 million). Fixed-line capital expenditure decreased 42.4%
to R4,013 million (2002: R6,962 million) and was 13.5% (2002: 24.9%) of fixed-
line revenue. Fixed line capital expenditure was lower than the budgeted amount
of R4,932 million as a result more stringent investment criteria for capital
investment, savings resulting from the relative strength of the Rand against the
US Dollar and Euro and projects carried forward to the 2004 financial year. The
group"s capital expenditure strategy has shifted to selective investment in the
fixed-line segment on a smaller scale based on customer demand and economic
viability. Capital investments will continue in growing business areas such as
data services and in network evolution, business improvements and business
operational support systems.
Despite African expansion, Cell C roaming investment, GPRS launch and the
installation of 1800MHz equipment, mobile capital expenditure decreased 16.8% to
R1,699 million (2002: R2,042 million) and was 17.2% (2002: 25.3%) of mobile
revenue. Capital expenditure for the South African mobile operations was 13.4%
(2002: 20.1%) of South African mobile revenue.
Consolidated capital expenditures in property, plant and equipment for the
2004 financial year is budgeted to be R6,429 million, of which approximately
R4,977 million is budgeted to be spent in the fixed-line segment and R1,452
million in the mobile segment, which is the group"s 50% share of Vodacom"s total
budgeted capital expenditure of R2,903 million. The increase in the fixed-line
capital budget compared to the actual investment in 2003 is as a result of
projects carried forward to the 2004 financial year and the increase in
operational support systems investment as well as the provision for regulatory
capital expenditure.
Group cash flow
Cash flows from operating activities increased 19.3% (2002: 32.5%) to R9,748
million (2002: R8,171 million) primarily due to increased operational cash
flows, tax refunds and decreased interest expenses. Cash flows utilised in
investing activities decreased 38.0% (2002: 7.2%) to R5,731 million (2002:
R9,250 million) primarily due to the reduction in group capital expenditure.
In the 2003 financial year, loans repaid and the increase in net financial
assets exceeded loans raised by R2,872 million. The group"s repayments in 2003
include a net repayment of R1,371 million of commercial paper bills, a
repurchase of R689 million of the TL03 local bond, a repayment of the R359
million loan from European Investment Bank and the repayment of a R200 million
12.5% coupon unsecured loan. Vodacom repaid R1,379 million of its South Africa
debt, Telkom"s 50% share of R690 million is included in loans repaid. Vodacom"s
foreign debt increased R583 million as they utilised their extended credit
facility for Vodacom Congo, and drew down on a project financing facility;
Telkom"s 50% share of R291 million is included in loans raised.
Funding sources
The group remains committed to the repayment of its debt and maintained its
investment grade credit ratings with Moody"s (Baa3) and Standard & Poors (BBB-).
Net debt after financial assets and liabilities decreased 8.1% to R20,096
million (2002: R21,858 million). The balance sheet at March 31, 2003
strengthened, with a net debt to equity ratio of 109.5% from 129.9% at March 31,
2002. Total debt decreased 11.7% to R22,417 million (2002: R25,401 million).
As of March 31, 2003, 90.4% (2002: 86.2%) of the group debt was fixed rate
debt and 9.6% (2002: 13.8%) was floating rate debt. In September 2003, a 10.75%
unsecured local bond (TL03) with a weighted average yield to maturity of 10.9%
matures. In May 2004 a 13% unsecured local bond (TL08) with a weighted average
yield to maturity of 16.5% matures. The group intends to refinance its debt
using operational free cash flows and new debt raised in the market.
Segment commentary
The operating structure comprises two segments, fixed-line and mobile. The
fixed-line segment provides fixed-line voice and data communications services
through Telkom; directory services through our 64.9% owned subsidiary, Telkom
Directory Services; and wireless data services through our wholly-owned
subsidiary, Swiftnet. The mobile segment consists of a 50% interest in Vodacom.
Fixed-line
The fixed-line segment accounted for 77.7% (2002: 80.7%) of group operating
revenues (after inter-segmental eliminations) and 66.7% (2002: 56.7%) of group
operating profit, respectively, at March 31, 2003.
Fixed-line operating revenue
In ZAR millions Year ended March 31
2002 2003 % change
Subscriptions and connections 4,410 4,595 4.2
Traffic 17,168 18,001 4.9
Local 4,876 5,616 15.2
Long distance 3,794 3,562 (6.1)
Fixed-to-mobile 7,323 7,539 2.9
International outgoing 1,175 1,284 9.3
Interconnection 1,798 1,773 (1.4)
Data 3,913 4,507 15.2
Directories and other 687 759 10.5
Total fixed-line operating revenues 27,976 29,635 5.9
Operating revenue from our fixed-line segment, before inter-segmental
eliminations, increased 5.9% (2002: 5.8%) primarily due to increased traffic
revenue, as a result of average tariff increases and growth in data services
revenue. Traffic was adversely affected in both the 2003 and 2002 financial
years by the increasing substitution of calls placed using mobile services
rather than fixed-line services. Traffic declined 0.7% (2002: 0.3% decrease),
however, revenue per fixed access line continued to improve, increasing 5.5%
(2002: 10.1%) to R4,989 (2002: R4,729). This was due to increased average
tariffs, higher penetration of value-added voice services and increased
penetration of higher revenue generating access services. Data revenue increased
15.2% (2002: 17.6%) mainly due to higher demand for data services.
Fixed-line operating expenses
In ZAR millions Year ended March 31
2002 2003 % change
Employee expenses 6,611 6,698 1.3
Payments to other network operators 6,759 6,726 (0.5)
SG&A 4,650 3,312 (28.8)
Services rendered 2,138 2,489 16.4
Operating leases 1,148 1,155 0.6
Depreciation and amortisation 4,363 5,105 17.0
Other income (118) (198) 67.8
Total fixed-line operating expenses 25,551 25,287 (1.0)
Fixed-line operating expenses, before inter-segmental eliminations, were
relatively flat in the 2003 financial year, decreasing 1.0% (2002: 13.0%
increase) to R25,287 million (2002: R25,551 million) primarily due to reduced
selling, general and administrative expenses. Selling, general and
administrative expenses were impacted in the 2002 financial year by the
inclusion of a R346 million write-off of Telcordia-related assets and the
inclusion of a R325 million provision, before interest and legal costs, related
to the Telcordia dispute. Excluding these items, selling, general and
administrative expenses decreased primarily due to a R276 million reduction in
the bad debt provision on our balance sheet, as well as lower materials and
maintenance expenses due to reduced losses in respect of cable theft and lower
fault rates. Bad debts written-off against the provision decreased by 39.5%
(2002: 1.8% increase) to R491 million (2002: R812 million). The decrease in
fixed-line operating expenses was partially offset by increased depreciation and
amortisation and services rendered, while operating leases, payments to other
network operators and employee expenses remained relatively constant.
Fixed-line operating profits increased 79.3% (2002: 36.5% decrease) to R4,348
million (2002: R2,425 million) with operating margins increasing to 14.7% (2002:
8.7%). Fixed-line EBITDA increased 39.3% (2002: 15.7% decrease) to R9,453
million with EBITDA margins increasing to 31.9% (2002: 24.3%).
Mobile
The mobile segment accounted for 22.3% of group operating revenues (2002:
19.3%) (after inter-segmental eliminations) and 33.3% of group operating profits
(2002: 43.3%). Vodacom is the largest mobile communications network operator in
South Africa with an estimated 57% share of mobile customers as of March 31,
2003 based on total estimated customers. Vodacom also has investments in mobile
operators in Lesotho, Tanzania and the Democratic Republic of the Congo.
Vodacom"s operational statistics are presented below at 100%, but all financial
figures are the 50% proportionately consolidated into the group.
Mobile operating revenue
In ZAR millions Year ended March 31
2002 2003 % change
Airtime 4,743 5,650 19.1
Interconnection 2,150 2,655 23.5
Equipment sales 814 1,132 39.1
International services 151 270 78.8
Other sales and services 217 183 (15.7)
Total mobile operating revenue 8,075 9,890 22.5
During the year, the mobile segment delivered strong revenue growth of 22,5%,
before inter-segmental eliminations, to R9,890 million (2002: R8,075 million),
primarily driven by customer growth and an increase in equipment sales. Revenue
from Vodacom"s operations outside of South Africa as a percentage of Vodacom"s
total mobile operating revenue increased to 6.2% (2002: 4.6%).
The growth in revenue can largely be attributed to a 26.0% increase in
Vodacom"s total customers to 8.6 million as of March 31, 2003 (2002: 6.9
million) resulting from strong growth in prepaid customers in South Africa and
significant growth in customers outside of South Africa. In South Africa, total
average monthly revenue per user (ARPUs) increased marginally to R183 (2002:
R182). Contract ARPUs increased by 12.3% to R629 (2002: R560). During the year,
South African contract churn decreased to 11.9% in 2003 (2002: 14.5%). Prepaid
churn, however, remained relatively high at 34.0% (2002: 30.1%) due to greater
competition, lower barriers to entry for prepaid customers and the volatile
nature of the prepaid customer base.
Mobile operating expenses
In ZAR millions Year ended March 31
2002 2003 % change
Employee expenses 568 509 (10.4)
Payments to other network operators 689 1,109 61.0
SG&A 3,688 4,614 25.1
Services rendered 57 65 14.0
Operating leases 237 273 15.2
Depreciation and amortisation 1,035 1,188 14.8
Other operating income (15) (34) 126.7
Total mobile operating expenses 6,259 7,724 23.4
Mobile operating expenses, before inter-segmental eliminations, increased by
23.4%, largely in line with the growth in revenue of 22.5%. Mobile selling,
general and administrative expenses increased 25.1% in the year ended March 31,
2003 primarily due to an increase in selling and distribution expenses to
support the growth in South African and other African operations and the
increased competitiveness in the South African market.
Mobile payments to other network operators increased 61.0% in the year ended
March 31, 2003 as a result of increased outgoing traffic and a higher volume
growth of outgoing traffic terminating on the other mobile networks relative to
traffic terminating on the fixed-line network. The cost of terminating calls on
other mobile networks is higher than calls terminating on Telkom"s fixed-line
network.
Profit from operations increased 19.3% (2002: 42.2%) to R2,166 million (2002:
R1,816 million) and operating profit margin decreased marginally to 21.9% (2002:
22.5%). Mobile EBITDA increased 17.6% (2002: 36.1%) to R3,354 million with
EBITDA margins decreasing to 33.9% (2002: 35.3%).
Dividends
The board of directors has decided not to declare a dividend at this time, as
it believes it would be prudent to continue to focus on debt reduction in line
with the group strategy.
Audit report
The comprehensive financial statements, from which the preliminary results
have been derived, have been audited by the joint auditors Ernst & Young and
KPMG. Their unqualified opinion is available for inspection at the company"s
registered office.
Outlook
Increased competition and emerging technologies place greater importance on
the need to further develop our group strategy to maintain our leadership
position and deliver value for shareholders.
We will continue to improve the competitiveness of our fixed line business by
improved customer service, innovative products and competitive pricing. We have
also started to work more closely with Vodacom on potential synergies in areas
such as marketing, procurement and products, that will build value for both
operators. Our performance will be further enhanced by our commitment and
ability to drive operational efficiencies, increase cash flows and reduce debt.
NE Mtshotshisa SE Nxasana
Non-executive chairman Chief executive officer
June 23, 2003
Johannesburg
Telkom SA Limited
Registration number: 1991/005476/06
Registered office: Telkom Towers North,
152 Proes Street,
Pretoria, 0002, South Africa
Postal address: Private Bag X881, Pretoria, 0001
Board of directors: NE Mtshotshisa (Chairman), SE Nxasana (CEO),
SM McKenzie (COO)*, CK Tan (CSO)#, JP Klug*,
Tan Sri Dato "Ir. Md. Radzi Mansor#, RP Menell,
MP Moyo, TA Sekano, CL Valkin, TG Vilakazi,
VV Mashale (Company Secretary)
* American # Malaysian
Sponsor: UBS Securities South Africa (Proprietary) Limited
Transfer secretaries: Computershare Investor Services Limited
Summary group financial statements and operational data
Operational data
Year ended March 31
2002 2003 % change
Fixed-line
Fixed access lines (thousands) 4,924 4,844 (1.6)
Postpaid
PSTN 3,554 3,285 (7.6)
ISDN channels 467 563 20.6
Prepaid 708 817 15.4
Payphones 195 179 (8.2)
Fixed-line penetration rate (%) 11.1 10.7 (3.6)
Revenue per fixed access line (ZAR) 4,729 4,989 5.5
Total fixed-line traffic (millions of minutes) 32,973 32,868 (0.3)
Local 20,252 20,396 0.7
Long distance 4,895 4,728 (3.4)
Fixed-to-mobile 4,390 4,135 (5.8)
International outgoing 375 439 17.1
Interconnection 3,061 3,170 3.6
Internet customers 48,995 98,690 101.4
Managed data network sites 5,684 7,729 36.0
Number of full-time, fixed-line employees
(excluding TDS and Swiftnet) 39,444 35,361 (10.4)
Fixed lines per fixed-line employee 125 137 9.6
Mobile
Total customers (thousands) 6,863 8,647 26.0
South Africa
Customers (thousands) 6,557 7,874 20.1
Contract 1,090 1,181 8.3
Prepaid 5,439 6,664 22.5
Community services telephones 28 29 3.6
Churn (%) 27.2 30.4 11.8
Contract (%) 14.5 11.9 (17.9)
Prepaid (%) 30.1 34.0 13.0
Average monthly revenue per customer (ZAR) 182 183 0.5
Contract 560 629 12.3
Prepaid 93 90 (3.2)
Community services 1,719 1,861 8.3
Number of employees 3,859 3,904 1.2
Number of customers per employee 1,699 2,017 18.7
Other African countries
Customers (thousands) 306 773 152.6
Average monthly revenue per customer
Lesotho (ZAR) 144 104 (27.8)
Tanzania (USD) 27 22 (18.5)
Democratic Republic of the Congo (USD) n/a 20 n/a
Number of employees 494 502 1.6
Number of customers per mobile employee 619 1,540 148.8
Audited consolidated income statements
in ZAR millions Year ended March 31
2002 2003 %
Operating revenue 34,197 37,600 10.0
Other income 144 234 62.5
Employees expenses (7,166) (7,208) 0.6
Payments to other operators (5,762) (6,185) 7.3
SG&A (8,402) (7,888) (6.1)
Services rendered (2,195) (2,541) 15.8
Operating leases (1,217) (1,205) (1.0)
Depreciation and amortisation (5,408) (6,293) 16.4
Operating profit 4,191 6,514 55.4
Investment income 512 424 (17.2)
Finance charges (2,550) (4,154) 62.9
Profit before tax 2,153 2,784 29.3
Taxation (873) (1,049) 20.2
Profit after tax 1,280 1,735 35.5
Minority interests (59) (105) 78.0
Net profit for the year 1,221 1,630 33.5
Number of ordinary shares (millions) 557 557 -
Basic and diluted earnings per share (cents) 219,2 292.6 33.5
Headline earnings per share (cents) 299,3 314.0 4.9
Dividends per share (cents) - - -
Audited consolidated cash flow statements
in ZAR millions Year ended March 31
2002 2003 % change
Operating activities 8,171 9,748 19.3
Cash receipts from customers 34,053 37,494 10.1
Cash paid to suppliers and employees (22,470) (25,431) 13.2
Cash generated from operations 11,583 12,063 4.1
Income from investments 528 384 (27.3)
Finance charges paid (3,026) (2,776) (8.3)
Dividends paid - (25) -
Taxation (paid)/refunded (914) 102 (111.2)
Investing activities (9,250) (5,731) (38.0)
Proceeds on disposal of property, plant
and equipment 139 193 38.8
Proceeds on disposal of subsidiaries and
joint ventures 13 16 23.1
Additions to property, plant and equipment (9,004) (5,671) (37.0)
Intangible assets acquired (97) - -
Additions to other investments (119) (269) 126.1
Purchase of subsidiaries and minority interest (182) - -
Financing activities 66 (3,026) -
Listing costs (44) (154) 250.0
Loans raised 14,286 9,117 (36.2)
Loans paid (15,041) (11,526) (23.4)
Finance lease raised - 5 -
Increase/(decrease) in net financial assets 865 (468) (154.1)
Net decrease in cash and cash equivalents (1,013) 991 (197.8)
Net cash and cash equivalents at beginning
of the year 867 (98) (111.3)
Effect of foreign exchange rate differences 48 (56) (216.7)
Net cash and cash equivalents at end
of the year (98) 837 (954.1)
Audited segment information
in ZAR millions Year ended March 31
2002 2003 %
Group revenues 34,197 37,600 10.0
Fixed-line 27,976 29,635 5.9
Mobile 8,075 9,890 22.5
Inter-company eliminations (1,854) (1,925) 3.8
EBITDA 9,599 12,807 33.4
Fixed-line 6,788 9,453 39.3
Mobile 2,851 3,354 17.6
Inter-company eliminations (40) - -
Depreciation and amortisation 5,408 6,293 16.4
Fixed-line 4,363 5,105 17.0
Mobile 1,035 1,188 14.8
Inter-company eliminations 10 - -
Operating profit 4,191 6,514 55.4
Fixed-line 2,425 4,348 79.3
Mobile 1,816 2,166 19.3
Inter-company eliminations (50) - -
Investment income 512 424 (17.2)
Fixed-line 839 730 (13.0)
Mobile 16 36 125.0
Inter-company eliminations (343) (342) (0.3)
Finance charges 2,550 4,154 62.9
Fixed-line 2,557 3,758 47.0
Mobile 36 438 -
Inter-company eliminations (43) (42) (2.3)
Taxation 873 1,049 20.2
Fixed-line 278 449 61.5
Mobile 595 600 0.8
Capital expenditure 9,004 5,712 (36.6)
Fixed-line 6,962 4,013 (42.4)
Mobile 2,042 1,699 (16.8)
Audited consolidated balance sheets
in ZAR millions Year ended March 31
2002 2003
ASSETS
Non-current assets 44,211 43,233
Property, plant and equipment 41,918 41,046
Intangible assets 530 364
Investments 751 1,086
Deferred taxation 1,012 737
Current assets 10,997 9,921
Inventories 624 621
Trade and other receivables 5,720 6,110
Short-term investment 29 26
Income tax receivable 1,081 276
Other financial assets 2,819 1,771
Cash and cash equivalents 724 1,117
Total assets 55,208 53,154
EQUITY AND LIABILITIES
Capital and reserves 16,832 18,348
Share capital and premium 8,293 8,293
Share issue expenses (44) -
Non-distributable reserves 134 (11)
Retained earnings 8,449 10,066
Minority interest 133 194
Non-current liabilities 25,597 20,504
Interest bearing debt 21,505 16,346
Finance leases 1,028 1,107
Deferred taxation 463 497
Provisions 2,601 2,554
Current liabilities 12,646 14,108
Trade and other payables 6,663 5,229
Current portion of interest bearing debt 2,041 4,677
Current portion of finance leases 5 7
Deferred income 958 1,030
Income tax payable 193 177
Other financial liabilities - 567
Current portion of provisions 1,964 2,141
Credit facilities utilised 822 280
Total equity and liabilities 55,208 53,154
Audited consolidated statements of changes in equity
in ZAR millions Year ended March 31
2002 2003
Balance at April 1 14,972 16,832
Change in accounting policy on adoption of IAS 39 629 -
Restated balance 15,601 16,832
Net profit for the year 1,221 1,630
Fair value adjustments on investments 5 (37)
Foreign currency reserves net of tax 49 (121)
Share issue expenses (capitalised)/reversed (44) 44
Balance at March 31 16,832 18,348
Notes to the summary group financial statements
1. Basis of preparation and accounting policies
The group has prepared financial statements as required by the South African
Companies" Act, 1973 and in accordance with International Financial Reporting
Standards for all periods presented. The accounting policies of the group
applied in the presentation of the group preliminary annual results for the year
ended March 31, 2003 are consistent with those applied in the financial
statements for the year ended March 31, 2002.
in ZAR millions Year ended March 31
2002 2003
2. Impairment losses 445 205
The group impaired R16 million of the goodwill arising
on the acquisition of 40% of Swiftnet (Proprietary)
Limited in 2003 as a result of the current performance
of that company.
Additionally the group incurred further property, plant
and equipment write-offs and impairments.
3. Restructuring costs 373 244
Telkom has continued to incur restructuring costs,
as a result of a plan to reduce the workforce.
2,124 employees were affected (2002: 2,960).
4. Number of shares in issue
557 031 819 ordinary shares of R10 each.
5. Net asset value per share (cents) 3,021.7 3,293.7
The calculation of net asset value per share is based
on net assets of R18,348 million at March 31, 2003
(2002: R16,832 million) and 557 031 819(2002:
557 031 819) issued shares.
6. Basic and diluted earnings per share (cents) 219.2 292.6
The calculation of basic and diluted earnings per share
is based on net profit of R1,630 million
(2002: R1,221 million)and 557 031 819 (2002: 557 031 819)
issued shares.
There are no dilution factors at present; as a result
basic and diluted earnings per share are equal.
7. Headline earnings reconciliation
Earnings as reported 1,221 1,630
Adjustments:
Net profit on disposal of investments, property,
plant and equipment (30) (104)
Property, plant and equipment impairment and write-offs 445 189
Goodwill amortisation 66 73
Goodwill impairment - 16
Tax and outside shareholder effects (35) (55)
Headline earnings 1,667 1,749
Headline earnings per share (cents) 299.3 314.0
The calculation of headline earnings per share is based
on headline earnings of R1,749 million
(2002: R1,667 million) and 557 031 819 (2002: 557 031 819)
ordinary shares in issue.
8. Net cash and cash equivalents (98) 837
Cash 724 1,117
Credit facilities utilised (822) (280)
Unutilised banking facilities (Rbn) 2,2 3.0
The general banking facilities have no specific maturity
date, but are subject to annual review. The facilities
are in place to ensure continuing liquidity.
9. Additions to property, plant and equipment 9,004 5,712
Land and buildings 48 60
Network equipment 1,719 2,479
Furniture and office equipment 67 22
Support equipment - 341
Data-processing equipment 337 354
Under construction 6,727 2,416
Other 106 40
10. Interest bearing debt
Current portion of interest bearing debt: 2,041 4,677
Local debt 1,982 4,527
Foreign debt 59 150
Long-term portion of interest bearing debt 21,505 16,346
Local debt 16,009 11,473
Foreign debt 5,496 4,873
Total long-term portion of interest bearing debt 21,505 16,346
Year ended March 31
in ZAR millions 2002 2003
11. Contingencies
Third parties 65 161
Guarantee of employee housing loans 208 192
Third parties
These amounts represent sundry disputes against third parties that are not
individually significant and that the company does not envisage settling.
Guarantee of employee housing loans
Telkom guarantees to settle a certain portion of employees" housing loans. The
amount guaranteed differs depending on factors such as employment period and
salary rates. When an employee leaves the employment of Telkom, any housing debt
guaranteed by the company is settled before any payment can be made over to the
employee.
The maximum amount of the guarantee in the event of default is disclosed
above.
Supplier dispute
Expenditure of R594 million was incurred up to March 31, 2002 for the
development and the installation of an integrated end-to-end customer assurance
and activation system to be supplied by Telcordia.In the 2001 financial year,
the agreement with Telcordia was terminated and the company wrote-off R119
million of this investment in the fixed-line business. Following an assessment
of the viability of the assets relating to the Telcordia initiative, the balance
of the assets was written-off in the 2002 financial year. During March 2001, the
dispute was taken to arbitration, where Telcordia was seeking approximately
US$130 million plus interest at a rate of 15,5% per year for money outstanding
and damages. In September 2002, a partial ruling was issued by the arbitrator in
favour of Telcordia. Telkom has since brought an application to the High Court
in August 2003. Telcordia also petitioned the United States District Court to
confirm the parital finding, which petition Telkom has resisted. A hearing date
for this petition has been scheduled for June 25, 2003. The arbitration
proceedings and the amounts of Telkom"s liability are not expected to be
finalised until late 2003 or early 2004. Telkom"s provision of US$44 million for
its estimate of probable liabilities, including interest, was recognized as at
March 31, 2003.
Site restoration costs
The group has a constructive, but not legal, obligation to incur site
restoration costs. No sites have been identified that would require material
restoration to be performed in the foreseeable future.
Vodacom Congo (R.D.C.) S.P.R.L.
The group has a 51% equity interest through Vodacom in Vodacom Congo (R.D.C.)
S.P.R.L. ("Vodacom Congo"), which commenced business on December 11, 2001.
Vodacom, in terms of the shareholders" agreement, is ultimately responsible for
the funding of the operations of Vodacom Congo for the first three years. The
49% portion attributable to the joint venture partner of the liabilities and
losses were as follows:
Year ended March 31
in ZAR millions 2002 2003
Net loss (19) (186)
Total liabilities (30) (522)
Total assets 440 658
Preference shares (368) (368)
Accordingly, the group exposure is 50% of the
above amounts.
12. Capital commitments
Year ended March 31
in ZAR millions 2002 2003
Capital commitments authorised not committed 5,272 5,494
Fixed-line 4,847 4,873
Mobile 425 621
Capital commitments authorised and committed 810 435
Fixed-line 85 104
Mobile 725 331
These commitments are expected to be financed mainly
from internally generated cash and other borrowings.
13. Related party transactions
With joint venture (Vodacom - 50% share)
Income (370) (436)
Expenses 1,484 1,489
Audit fees - IPO-related fees - 14
IPO costs - 25
Interest received (36) (42)
With shareholders
Thintana Communications LLC - Management fees 396 273
Government - Revenue 1,382 1,873
Related party balances
With joint venture (Vodacom)
Trade receivables 41 35
Trade payables (272) (253)
With shareholders
Government - Trade receivables 134 193
Employees - Other receivables 170 126
With affiliate directors
March 31, 2003
Mr Eric Molobi resigned as a director of Telkom on July 31, 2002 and was no
longer the Chairman of the board of Directors at March 31, 2003.
Ms Nomazizi Mtshotshisa, Chairman of the board of directors at March 31,
2003, is a director of Beslyn Investments, a company that has a contract to
supply Telkom with protective clothing.
Mr Tlhalefang Sekano is Chairman of Letlapa Security and a director of
Telesafe Security. Letlapa Security owns an interest in Telesafe Security, a
security company that provides physical security services at Telkom.
March 31, 2002
Mr Eric Molobi, the Chairman of the board of directors on March 30, 2002, had
the following interests as Chief Executive Officer of Kagiso Trust Investments
(Proprietary) Limited:
- A 25% holding by Kagiso Trust Investments (Proprietary) Limited in BUA
Telecoms, a company that is a vendor to the group.
- A 25% holding by Kagiso Trust Investments (Proprietary) Limited in debis
Fleet Management (Proprietary) Limited, a fleet management company to which the
group has outsourced its vehicle fleet.
- A 50,1% holding by Kagiso Trust Investments (Proprietary) Limited in Kagiso
Treasury Services (Proprietary) Limited who manages Telkom"s treasury function.
14. Subsequent events
On September 1, 2002, Telkom issued an information memorandum inviting
potential investors to provide preliminary submissions to purchase a substantial
portion of the fixed-line property portfolio and lease that property back to us.
On May 23, 2003, Telkom announced that it had terminated its information
memorandum relating to the proposed sale and lease-back transaction. The
directors are not aware of any other matter or circumstance since the financial
year-end, not otherwise dealt with in the financial statements, which
significantly affects the financial position of the group and the results of
operation.
15. Negative working capital
For the year ended March 31, 2003, and 2002, the group"s current liabilities
are greater than the current assets. Current liabilities will be financed from
operating cash flows, new borrowings and existing credit facilities.
16. Comparative
Certain comparatives have been reclassified in accordance with current period
classification and presentation.
Special note regarding forward-looking statements
All statements contained herein, as well as oral statements that may be made
by Telkom or by officers, directors or employees acting on behalf of the Telkom
group, that are not statements of historical fact constitute "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995, specifically Section 21E of the U.S. Securities Exchange Act of
1934, as amended. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that could cause our actual results to be
materially different from historical results or from any future results
expressed or implied by such forward-looking statements. Among the factors that
could cause our actual results or outcomes to differ materially from our
expectations are those risks identified under the caption "Risk Factors"
contained in the prospectus relating to Telkom"s initial public offering filed
with the U.S. Securities Exchange Commission and available on Telkom"s website
at www.telkom.co.za, including, but not limited to, increased competition in the
South African fixed-line and mobile communications markets; developments in the
regulatory environment; Telkom"s ability to reduce expenditure; the outcome of
arbitration or litigation proceedings with Telcordia Technologies Incorporated;
general economic, political, social and legal conditions in South Africa and in
other countries where Vodacom invests; fluctuations in the value of the Rand;
and other matters not yet known to us or not currently considered material by
us. You should not 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 press release,
either to conform them to actual results or to changes in our expectations.
www.telkom.co.za
