| Mon 24 Nov 2003, 9:21 | | interim results for the six months ended September |
|
Telkom SA Limited - Group interim results for the six months ended September 30,
2003
Telkom SA Limited
Registration number: 1991/005476/06
JSE and NYSE share code: TKG
ISIN: ZAE000044897
("Telkom")
Group interim results for the six months ended September 30, 2003
Group highlights
Telkom SA Limited, South Africa"s largest communications group announces interim
results for the six months ended September 30, 2003.
- 171.1% growth in interim headline earnings per share to 335.9 cents
- Group EBITDA margin expansion to 37.8%
- 24.9% reduction in group capital expenditure
- Strong interim group operating free cash flow of R3.9 billion
- Group net debt to equity ratio of 85.1%
- Fixed-line data revenue growth of 17.1%
- Vodacom"s other African customer growth of 98.1%
- Interim dividend payment of 90.0 cents per share
Chief Executive Officer"s statement
Sizwe Nxasana, Chief Executive Officer said:
"The Group has delivered an excellent performance across all areas of our
business with financial results exceeding our expectations. We continue to
benefit from the exceptional customer growth in our mobile business and the
margin expansion and strong growth of cash generation in the fixed-line
business.
In the period under review, we have successfully grown our revenue in selected
markets by expanding our integrated product and service offerings; we have
increased profitability and cash flows through strict cost discipline. Telkom
has significantly reduced indebtedness and are pleased to be reinstating our
dividend policy."
Operational review
The six months under review saw the continued delivery on group financial
targets, yielding results ahead of expectations. Significant progress has been
made in improving the competitiveness of the fixed-line business by streamlining
the cost structures and increasing employee efficiencies, with resultant
improvements to the customer experience. The Group has continued to benefit from
the strong growth in the mobile business in South Africa and other African
countries.
Fixed-line
The fixed-line segment delivered solid revenue growth, driven largely by data
volume growth. Margin expansion was achieved through a strong focus on cost
cutting, improving productivity, and enhancing the segment"s competitiveness.
Capital expenditure has been further reduced, with future investment focused in
areas that drive revenue growth and efficiencies.
In the period under review, good growth was achieved in value-added services,
with these services penetrating 58% of the residential customer base. In
particular, there has been a strong take-up of products such as ADSL,
residential ISDN and basic voicemail. Prepaid revenue growth remained strong,
although growth in prepaid customers slowed to 4% due to a clean up of all
inactive customers. Prepaid distribution was further improved through signing
contracts with groups such as Standard Bank, First National Bank and Vodacom.
The Group continued to make great strides in its strategy of becoming the data
service provider of choice, with several new product launches such as VPN
Supreme, a dedicated IP service, CyberTradeMall and TelkomInternet powered by
Satellite. Telkom has started an intensive WiFi feasibility study, having
commissioned the first few hotspots in a pilot programme that will include 100
sites around South Africa. The data business was further improved through
additional business sales force training, system upgrades and improved key
account management.
Operational efficiency enhancements gained momentum, with the successful rollout
of workforce management by the Operational Support Systems (OSS) organisation.
Fixed-line reduced costs, excluding depreciation and amortisation, by R536
million mainly through reductions in payments to other operators, materials and
maintenance, property management costs, operating leases and employee expenses.
Fixed-line employees were reduced by 11% through a controlled and responsible
retrenchment programme and increased employee productivity was reflected in
growth to 142 lines per employee (September 30, 2002: 129).
Mobile
Vodacom again delivered excellent results and maintained its market leadership
position despite increased competition. Vodacom achieved 20% growth in customers
in South Africa, record gross connections of 2.2 million and contract churn of
11%. Vodacom made good progress in the realisation of its African strategy,
reflecting a 98% increase in customers to over 1 million and remains strongly
positioned for further African expansion.
Having cleared several regulatory hurdles, Vodacom is planning to launch as the
second licensed mobile operator in Mozambique in December 2003. Vodacom is also
currently considering a proposed investment in Nigeria"s second largest mobile
operator, which may see it entering this rapidly expanding market.
Vodacom repaid its shareholder loans of R920 million (Telkom share: R460
million) in June 2003, and paid an interim dividend of R600 million (Telkom
share: R300 million) in September 2003.
Regulatory developments
On July 15, 2003, the Department of Communications communicated their plans to
introduce a Convergence Act that will provide a licensing and regulatory
framework for a converged telecommunications, broadcasting and information
technology industry. This will supplement or replace current sector-specific
legislation. No formal timeline for the tabling in Parliament of the new
legislation has been communicated, but Government will continue to interact with
the industry in its development. On November 4, 2003, the Minister of
Communications announced her intention to licence the second national operator
(SNO) within eight weeks. The license will be issued to an entity consisting of
an integrated 30% of state-owned enterprises Transtel and Eskom, 19% to the
empowerment consortium, Nexus Connexion and 51% to a suitable investor to be
identified. On November 12, 2003 Government tabled in Parliament a proposed
amendment to the Telecommunications Act to define the multi-media and carrier-of
carriers licensee Sentech as a public operator. On November 14, 2003, Telkom
filed its fixed-line average tariff adjustments of 2.7% effective from January
2004 with ICASA.
BEE achievements
Black Economic Empowerment (BEE) is an important business imperative for Telkom,
with procurement forming the cornerstone of its strategy. The Group"s BEE
procurement programme involved more than R5 billion in the 2003 financial year
and is based on empowering small and medium businesses through a developed
sustainable procurement programme.
The Group considers itself a leader in a number of BEE strategic initiatives in
South Africa and has been actively involved in the development of the ICT BEE
Charter. Telkom"s commitment to BEE and corporate social investment as a
progressive leader in the ICT sector has been recognised over the last six
months through eight awards including the Black Business Quarterly Corporate
Social Investment Award, the 2002 Current Achiever Award in the Corporate
Category of the Metropolitan Eastern Cape Awards, the Digital Partnership Award,
four awards and citations under the Professional Management Review Africa
Corporate Care Awards and the African ICT Achiever Award for the most
progressive company in the ICT sector.
Financial review
The Group has delivered a strong set of interim financial results demonstrating
management"s commitment to meet targets. Group operating revenue increased 9.8%
to R20,110 million and operating profit increased 51.2% to R4,250 million for
the six months ended September 30, 2003. EBITDA margins during the same period
expanded to 37.8% compared to 32.3% in the prior period primarily as a result of
the strict cost discipline in the fixed-line business.
Headline earnings per share grew 171.1% to 335.9 cents per share (September 30,
2002: 123.9 cents) and basic earnings per share grew 158.2% to 298.5 cents
(September 30, 2002: 115.6 cents). Strong earnings growth was delivered despite
the net losses of R561 million (September 30, 2002: R367 million) arising from
measuring derivatives at fair value and the relative volatility of the currency
during the period.
Net cash from operating activities was R5,771 million which fully covered cash
requirements for group capital expenditure of R1,763 million and facilitated the
repayment of R3,458 million in net debt. The balance sheet was strengthened with
net debt to equity of 85.1% at September 30, 2003.
Impact of the appreciation of the Rand
The appreciation of the Rand is positive for Telkom in the long-term as a
significant portion of capital and operating expenditure is denominated in
foreign currency. The value of the Rand as measured against the Dollar has
appreciated 27.6% in the six month period ended September 30, 2003 to an average
of R7.57 per $1.00 from R10.45 per $1.00 in the prior year six month period.
While such appreciation negatively impacted Telkom"s international
interconnection revenues and the translation of Vodacom"s revenues from
international operations, the appreciation of the Rand resulted in savings in
foreign denominated operating and capital expenditure and contributed to the
improvement in operating margins. Although the strong Rand positively
contributed to operating profit, it negatively impacted net reported earnings as
a result of the R561 million loss on the net fair value and exchange losses of
financial instruments.
Group operating revenue
Group operating revenue increased 9.8% (September 30, 2002: 10.9%) to R20,110
million (September 30, 2002: R18,316 million) in the six months ended September
30, 2003. Fixed-line operating revenue, after inter-segmental eliminations,
increased 5.5% (September 30, 2002: 6.5%) primarily due to solid growth in data
services and increased traffic revenue. Mobile operating revenue, after inter-
segmental eliminations, increased 25.2% (September 30, 2002: 29.9%) primarily
due to customer growth.
Group operating expenses
Group operating expenses increased 2.3% (September 30, 2002: 8.0%) to R15,860
million (September 30, 2002: R15,505 million) in the six months ended September
30, 2003 due to increased operating expenses in the mobile segment. This was
partially offset by a 2.5% decrease (September 30, 2002: 3.5% increase) in fixed
line operating expenses primarily due to reduced payments to operators, employee
expenses and operating leases, partially offset by an increase in depreciation.
The increase in mobile operating expenses of 16.4% (September 30, 2002: 27.7%)
was primarily due to increased competition resulting in increased incentive
costs and expenses to support customer growth. Mobile payments to other
operators also increased as a result of the increased outgoing traffic and the
higher volume growth of more expensive outgoing traffic terminating on other
mobile networks relative to traffic terminating on the lower cost fixed-line
network.
Investment income
Investment income consists of interest received on trade receivables, short-term
investments and bank accounts. Investment income increased 71.1% (September 30,
2002: 50.3% decrease) to R260 million (September 30, 2002: R152 million) largely
as a result of higher interest received due to surplus cash balances.
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 5.2% (September 30, 2002: 3.6% decrease) to R1,871 million (September
30, 2002: R1,779 million) due to a 52.9% increase in group net fair value and
exchange losses on financial instruments of R561 million (September 30, 2002:
R367 million), partially offset by a 7.2% decrease (September 30, 2002: 0.6%
decrease) in interest expense to R1,310 million (September 30, 2002: R1,412
million). The decrease in interest expense was primarily due to lower balances
on local loans.
Taxation
Consolidated tax expenses increased 104.6% (September 30, 2002: 121.4%) to R933
million (September 30, 2002: R456 million) in the six months ended September 30,
2003. The consolidated effective tax rate for the six months ended September 30,
2003 was 35.4% (September 30, 2002: 38.5%). The lower effective tax rate in the
six months ended September 30, 2003 was primarily due to a higher proportion of
non-deductible expenses in the prior period. The effective tax rate is higher
than the statutory tax rate of 30% partly due to Secondary Tax on Companies
(STC) payable on dividends declared by Vodacom and Telkom Directory Services.
Net profit and earnings per share
Net profit increased 158.2% (September 30, 2002: 73.6%) to R1,663 million
(September 30, 2002: R644 million) in the six months ended September 30, 2003.
Group basic earnings per share increased 158.2% (September 30, 2002: 73.6%) to
298.5 cents (September 30, 2002: 115.6 cents) and group headline earnings per
share increased 171.1% (September 30, 2002: 76.5%) to 335.9 cents (September 30,
2002: 123.9 cents).
Group cash flow
Cash flows from operating activities increased 66.7% (September 30, 2002: 4.9%)
to R5,771 million (September 30, 2002: R3,462 million) primarily due to
increased operational cash flows and decreased interest paid. Cash flows
utilised in investing activities decreased 22.8% (September 30, 2002: 32.8%
decrease) to R1,893 million (September 30, 2002: R2,453 million) primarily due
to the reduction in group capital expenditure.
Funding sources
Solid operating performance across the Group combined with strict cost
discipline has resulted in a strengthened balance sheet. Net debt, after
financial assets and liabilities, decreased 21.1% to R17,018 million (September
30, 2002: R21,558 million). The balance sheet at September 30, 2003
strengthened, resulting in a net debt to equity ratio of 85.1% from 123.4% at
September 30, 2002.
Interest bearing debt decreased 23.9% to R17,540 million (September 30, 2002:
R23,050 million) in the six months ended September 30, 2003. In the six months
ended September 30, 2003, loans repaid and the increase in net financial assets
exceeded loans raised by R3,810 million. The Group"s repayments in the six
months ended September 30, 2003, included a repayment of R4,311 million of the
Telkom TL03 local bond, which was partially financed by the issuing of
commercial paper bills amounting to R800 million.
Dividends
The Telkom board of directors has declared a once-off interim dividend of 90.0
cents per share, payable on December 29, 2003. The board aims to pay a
progressively increasing dividend annually. The level of dividend will be based
upon a number of factors, including the assessment of financial results, the
group"s debt level, interest coverage and future expectations, including
internal cash flows.
Auditors" review report
The joint auditors Ernst & Young and KPMG Inc have reviewed the interim
condensed consolidated financial statements. Their unqualified review report is
available for inspection at the company"s registered office.
Outlook
Going forward, the Telkom Group believes it is well positioned to deliver
shareholder returns by focusing on remaining competitive and ensuring increased
operational efficiencies and productivity. Customer retention and growth will
remain a key priority for the group.
The strength of the Group"s integrated business ensures that we can respond
effectively to volatile macro-economic conditions and tap into exciting
opportunities that exist in all markets, especially the rest of the African
continent.
NE Mtshotshisa SE Nxasana
Non-executive chairman Chief executive officer
November 24, 2003
Johannesburg
Operational data
Year ended 6 months ended September 30,
March 31,
2003 2002 2003 %
Fixed-line
Fixed access lines 4,844 4,895 4,812 (1.7)
(thousands)
Revenue per fixed access 4,989 2,456 2,575 4.8
line (ZAR)
Total fixed-line traffic 32,868 16,441 16,635 1.2
(millions of minutes)
Internet customers 98,690 75,317 111,364 47.9
Managed data network sites 7,729 6,636 7,979 20.2
Full-time, fixed-line 35,361 38,009 33,828 (11.0)
employees (excluding TDS
and Swiftnet)
Fixed lines per fixed-line 137 129 142 10.1
employee
Mobile
Total customers 8,647 7,670 9,592 25.5
(thousands)
South Africa
Customers (thousands) 7,874 7,130 8,522 19.5
Churn (%) 30.4 30.7 39.1 27.4
Average monthly revenue 183 181 179 (1.1)
per customer (ZAR)
Number of employees 3,904 3,845 3,844 -
Number of customers per 2,017 1,854 2,217 19.6
employee
Other African countries
Customers (thousands) 773 540 1,070 98.1
Condensed consolidated interim income statement
for the six months ended September 30, 2003
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Notes Rm Rm Rm
Operating revenue 2 37,600 18,316 20,110
Other income 234 47 87
Operating expenses
Employee expenses 7,208 3,707 3,646
Payments to other 6,185 3,105 2,967
operators
Selling, general and 7,888 3,842 4,366
administrative expenses
Services rendered 2,541 1,108 1,122
Operating leases 1,205 684 500
Depreciation and 6,293 3,106 3,346
amortisation
Operating profit 6,514 2,811 4,250
Investment income 424 152 260
Profit before finance 6,938 2,963 4,510
charges
Finance charges 4,154 1,779 1,871
Profit before tax 2,784 1,184 2,639
Taxation 1,049 456 933
Profit after tax 1,735 728 1,706
Minority interests 105 84 43
Net profit for the 1,630 644 1,663
year/period
Basic and diluted 5 292.6 115.6 298.5
earnings per share
(cents)
Headline earnings per 5 314.0 123.9 335.9
share (cents)
Condensed consolidated interim balance sheet
at September 30, 2003
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Notes Rm Rm Rm
Assets
Non-current assets 43,233 43,386 41,120
Property, plant and 7 41,046 41,172 39,185
equipment
Intangible assets 364 442 352
Investments 1,086 867 1,203
Deferred taxation 8 737 905 380
Current assets 9,921 11,195 9,887
Inventories 621 887 584
Trade and other 6,110 6,163 6,312
receivables
Short-term investment 26 - 48
Income tax receivable 276 237 -
Other financial assets 1,771 2,823 1,234
Cash and cash 9 1,117 1,085 1,709
equivalents
Total assets 53,154 54,581 51,007
Equity and liabilities
Capital and reserves 18,348 17,475 19,987
Share capital and 10 8,293 8,293 8,293
premium
Non-distributable (11) 112 38
reserves
Retained earnings 10,066 9,070 11,656
Minority interests 194 214 207
Non-current liabilities 20,504 21,340 17,112
Interest bearing debt 11 16,346 17,097 12,857
Finance leases 1,107 1,047 1,124
Deferred taxation 8 497 523 641
Provisions 2,554 2,673 2,490
Current liabilities 14,108 15,552 13,701
Trade and other 5,229 6,025 4,630
payables
Current portion of 11 4,677 5,953 4,683
interest bearing debt
Current portion of 7 5 10
finance leases
Deferred income 1,030 838 1,083
Income tax payable 177 76 159
Other financial 567 - 475
liabilities
Current portion of 2,141 1,291 1,849
provisions
Credit facilities 9 280 1,364 812
utilised
Total equity and 53,154 54,581 51,007
liabilities
Condensed consolidated interim statement of changes in equity
for the six months ended September 30, 2003
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
Balance at April 1 16,832 16,832 18,348
Net profit for the 1,630 644 1,663
year/period
Fair value adjustment on (37) (22) 7
investments
Foreign currency reserve (121) (23) (31)
Share issue expenses 44 44 -
Balance at March 18,348 17,475 19,987
31/September 30
Condensed consolidated interim cash flow statement
for the six months ended September 30, 2003
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Note Rm Rm Rm
Operating activities 9,748 3,462 5,771
Cash receipts from 37,494 18,021 19,896
customers
Cash paid to suppliers (25,431) (13,980) (13,640)
and employees
Cash generated from 12,063 4,041 6,256
operations
Investment income 384 152 259
Finance charges paid (2,776) (1,168) (549)
Dividends paid (25) - (26)
Taxation 102 437 (169)
refunded/(paid)
Investing activities (5,731) (2,453) (1,893)
Expenditure to maintain
operations
Proceeds on disposal of 193 2 9
investments, property,
plant and equipment
Proceeds on disposal of 16 - -
subsidiaries and joint
ventures
Additions to property, (5,671) (2,346) (1,763)
plant and equipment
Additions to intangible - - (54)
assets
Additions to other (269) (109) (85)
investments
Financing activities (3,026) (1,178) (3,810)
Listing costs (154) - -
Loans raised 9,117 7,599 1,619
Loans repaid (11,526) (8,614) (5,077)
Finance lease raised 5 2 -
Increase in net (468) (165) (352)
financial assets
Net increase/(decrease) 991 (169) 68
in cash and cash
equivalents
Net cash and cash (98) (98) 837
equivalents at
beginning of the year
Effect of foreign (56) (12) (8)
exchange rate
differences
Net cash and cash 9 837 (279) 897
equivalents at end of
the year/period
Notes to the condensed consolidated interim financial statements
for the six months ended September 30, 2003
1. Basis of preparation and accounting policies
The condensed consolidated interim financial statements have been prepared in
accordance with IAS 34 (Interim Financial Reporting) and comply with the South
African Companies Act, 1973. The accounting policies of the Group applied in the
presentation of the interim financial statements for the six month period ended
September 30, 2003 are consistent with those applied in the financial statements
for the year ended March 31, 2003.
The preparation of the condensed consolidated interim financial statements
requires Telkom"s management to make estimates and assumptions that may affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the condensed consolidated interim
financial statements, and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
The results of the interim period are not necessarily indicative of the results
for the entire year.
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
2. Operating revenue 37,600 18,316 20,110
Fixed line 29,199 14,355 15,151
Mobile 8,401 3,961 4,959
Fixed line 29,199 14,355 15,151
Subscriptions, connections 4,595 2,239 2,466
and other usage
Traffic 18,001 8,911 9,221
Domestic (local and long 9,178 4,510 4,907
distance)
Fixed to mobile 7,539 3,770 3,658
International (outgoing) 1,284 631 656
Interconnection 1,598 825 647
Data 4,265 1,996 2,351
Directories and other 740 384 466
3. Restructuring expenses 244 169 120
(included in employee
expenses)
The Group recognises the cost of restructuring charges associated with
management"s plan to right skill and align the size of its workforce to a
comparable level for world-class telecommunication companies.
The total number of employees affected by the restructuring is 694 (September
30, 2002: 498 and a further 1,193 notified, March 31, 2003: 2,124). These
employees include operating personnel, product development and corporate staff.
4. Impairment and write-off of 205 16 259
property, plant and
equipment (included in
selling, general and
administrative expenses)
During the period, the Group raised an impairment provision of R149m on an earth
station. This asset was developed to route traffic between the Public Switch
Telecommunication Network ("PSTN") of Telkom and the Satellite Access Node
("SAN") of a satellite company.
The satellite company has not met its current outstanding financial obligations
to Telkom and management is of the opinion that no future payments will be
received. Management has assessed the asset and it appears unlikely that there
will be future economic benefits flowing to the Company.
Additionally the Group incurred property, plant and equipment write-offs, as
these assets are no longer in service.
5. Earnings per share
Basic and diluted earnings per share
The calculation of earnings per share is based on net profit for the period/year
of R1,663m (September 30, 2002: R644m, March 31, 2003: R1,630m) and ordinary
shares in issue of 557,031,819 (September 30, 2002: 557,031,819, March 31, 2003:
557,031,819).
Headline earnings per share
The calculation of headline earnings per share is based on headline earnings of
R1,871m (September 30, 2002: R690m, March 31, 2003: R1,749m) and 557,031,819
(September 30, 2002: 557,031,819, March 31, 2003: 557,031,819) ordinary shares
issued.
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
5. Earnings per share
(continued)
Reconciliation between
earnings and headline
earnings:
Earnings as reported 1,630 644 1,663
Adjustments:
Net profit on disposal of (104) (7) (9)
investments, property, plant
and equipment
Property, plant and 189 - 259
equipment impairment and
write-offs
Goodwill amortisation 73 36 35
Goodwill impairment 16 16 -
Tax and outside shareholder (55) 1 (77)
effects
Headline earnings 1,749 690 1,871
Basic and diluted earnings 292.6 115.6 298.5
per share (cents)
Headline earnings per share 314.0 123.9 335.9
(cents)
6. Net asset value per share 3,293.9 3,137.2 3,588.1
(cents)
The calculation of net asset
value per share is based on
net assets of R19,987m
(September 30, 2002:
R17,475m, March 31, 2003:
R18,348m) and 557,031,819
(September 30, 2002:
557,031,819
March 31, 2003: 557,031,819)
issued shares.
7. Property, plant and
equipment
During the period the Group
acquired property, plant and
equipment of R1,763m. A
major portion of this
expenditure relates to
network modernisation.
8. Deferred taxation 240 382 (261)
Deferred tax assets 737 905 380
Deferred tax liabilities (497) (523) (641)
The higher taxable income in
the current period resulted
in the Group reducing its
tax losses, thus utilising a
portion of the deferred tax
asset.
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
9. Net cash and cash equivalents 837 (279) 897
Cash and bank balances 916 1,085 648
Short-term deposits 201 - 1,061
Cash shown as current assets 1,117 1,085 1,709
Credit facilities utilised (280) (1,364) (812)
Undrawn borrowing facilities
General banking facilities 3,018 2,200 2,468
The general banking facilities
are unsecured, bear interest at
a rate linked to prime, have no
specific maturity date and are
subject to annual review. The
facilities are in place to
ensure liquidity.
Borrowing capacity
The directors may exercise all
of Telkom"s powers to borrow
money and to mortgage or
encumber Telkom"s property or
any part thereof and to issue
debentures, whether secured or
unsecured, whether outright or
as security for debt, liability
or obligation of Telkom or of
any third party. For this
purpose the borrowing powers of
the directors are unlimited.
10. Number of shares in issue
557,031,817 (September 30,
2002: 557,031,819; March 31,
2003: 557,031,817) ordinary
shares of R10 each.
1 (September 30, 2002: Nil,
March 31, 2003: 1) Class A
ordinary share of R10
1 (September 30, 2002: Nil;
March 31, 2003: 1)
Class B ordinary share of R10
11. Interest bearing debt
(excluding finance leases)
Current portion of interest 4,677 5,953 4,683
bearing debt
Local debt 4,527 5,892 4,356
Foreign debt 150 61 327
Long-term portion of interest 16,346 17,097 12,857
bearing debt
Local debt 11,473 11,011 8,438
Foreign debt 4,873 6,086 4,419
11. Interest bearing debt (excluding finance leases)
Movement in borrowings for the six months ended September 30, 2003
Facility
Vodacom Congo (RDC) obtained revolving credit facilities totalling R134m (Group
share: R67m).
Repayments
The TL03 locally registered bond with a nominal value of R4,311m at March 31,
2003 was redeemed on September 30, 2003. The redemption was financed by cash
flows from operations and the issuing of R800m (nominal value) of commercial
paper bills.
A total of R48m was repaid by Vodacom Tanzania Limited and Vodacom Congo (RDC)
s.p.r.l relating to the extended credit facilities.
Refinancing of current portion of interest-bearing debt.
The refinancing of R4,683m of the current portion of interest bearing debt will
depend on the market circumstances at the time of repayment. Management believes
that sufficient funding facilities will be available at the date of refinancing.
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
12. Commitments
Capital commitments 5,929 6,670 4,665
authorised
Fixed line 4,977 4,901 3,152
Mobile 952 1,769 1,513
Commitments against 435 2,793 1,130
authorised capital
expenditure
Fixed line 104 1,852 227
Mobile 331 941 903
Authorised capital 5,494 3,877 3,535
expenditure not yet
committed
Fixed line 4,873 3,049 2,925
Mobile 621 828 610
Management expects these commitments to be financed from internally generated
cash and other borrowings.
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
13. Contingencies
Contingent liabilities
Third parties 161 29 98
Guarantee of employee 192 175 184
housing loans
Third parties
These amounts represent sundry disputes with third parties that are not
individually significant and that the Group does not intend to settle.
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 Telkom is settled before any pension payment can be made to the
employee.
Supplier dispute
Expenditure of R594m was incurred up to March 31, 2002 for the development and
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 in that year, the Company wrote off R119m of
this investment in the fixed-line business. Following an assessment of the
viability of the project, the balance of the Telcordia assets were written off
in the 2002 financial year. During March 2001, the dispute was taken to
arbitration, where Telcordia was seeking approximately US$130m plus interest at
a rate of 15,50% per year for money outstanding and damages. In September 2002,
a partial ruling was issued by the arbitrator in favour of Telcordia. On
November 5, 2002, Telkom brought an application in the High Court in South
Africa to review the partial award. The hearing of the review application
commenced on August 11, 2003 and is presently ongoing. Telcordia also petitioned
the United States District Court for the District of Columbia to confirm the
partial ruling, which petition Telkom has successfully resisted. Telcordia,
however, have since filed a notice to appeal. The arbitration proceeding and the
amount of Telkom"s liability are not expected to be finalised until December
2003. Telkom had provided US$47m (March 31, 2003: US$44m) for its estimate of
probable liabilities, which include interest and legal fees at September 30,
2003.
Site restoration costs
The Group has an obligation to incur site restoration costs. No sites have been
identified that would require material restoration to be performed in the
foreseeable future.
13. Contingencies (continued)
The Group exposure is 50% of the following item:
Vodacom Congo (RDC) s.p.r.l
The Vodacom Group has a 51% equity interest in Vodacom Congo (RDC) s.p.r.l.,
("Vodacom Congo"), which commenced business on December 11, 2001. This
investment is governed by a shareholders" agreement, which provides the other
shareholder with certain protective and participating rights and therefore, in
terms of IAS 31: "Accounting for interest in Joint Ventures", Vodacom Congo may
not be consolidated as a subsidiary as it is considered to be a joint venture
resulting in it being proportionally consolidated in the condensed consolidated
interim financial statements for the six months ended September 30, 2003 and
2002 and for the year ended March 31, 2003.
Vodacom, in terms of the shareholders" agreement, is ultimately responsible for
the funding of the operations of Vodacom Congo. The shareholders" agreement also
gives Vodacom the right to appoint management and the majority of the Board of
the Company. Vodacom also has a management agreement to manage the company on a
day-to-day basis. Currently Vodacom Congo is incurring losses, which are
expected to continue in the short term. The 49% portion attributable to the
other joint venture partner in respect of the liabilities and losses as at
September 30, 2003 and 2002 and March 31, 2003 were as follows:
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
Net accumulated loss (186) (87) (294)
Total liabilities (522) (384) (783)
Total assets 658 714 848
Preference shares (368) (368) (368)
Negative working capital ratio
At each of the financial periods ended September 30, 2003, September 30, 2002
and for the year ended March 31, 2003 the Group had a negative working capital
ratio. A negative working capital ratio arises when current liabilities are
greater than the current assets. Current liabilities, including the short-term
portion of long-term debt, are intended to be financed from operating cash
flows, new borrowings and borrowings available under existing credit facilities.
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
14. Segment information
The intercompany
transactions are reflected
as net and are thus
eliminated against segment
results
Business segment
Consolidated revenue 37,600 18,316 20,110
Fixed line 29,635 14,563 15,372
Mobile 9,890 4,720 5,647
Elimination (1,925) (967) (909)
Consolidated operating 6,514 2,811 4,250
profit
Fixed line 4,348 1,894 3,025
Mobile 2,166 920 1,225
Elimination - (3) -
Consolidated investment 424 152 260
income
Fixed line 730 183 541
Mobile 36 8 30
Elimination (342) (39) (311)
Consolidated finance charges 4,154 1,779 1,871
Fixed line 3,758 1,660 1,703
Mobile 438 158 179
Elimination (42) (39) (11)
Consolidated taxation 1,049 456 933
Fixed line 449 194 547
Mobile 600 262 386
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
14. Segment information
(continued)
Other segment information
Capital expenditure for 5,712 2,346 1,763
property, plant and
equipment
Fixed line 4,013 1,487 1,199
Mobile 1,699 859 564
15. Related parties
With joint venture:
Vodacom Group (Proprietary)
Limited
Related party balances
Trade receivable 35 41 41
Trade payable (253) (272) (248)
Related party transactions
Income (436) (208) (221)
Expenses 1,489 759 688
Audit fees - IPO related 14 - -
fees
IPO costs 25 - -
Interest received (42) (20) (11)
Audited Reviewed Reviewed
March 31, September 30, September 30,
2003 2002 2003
Rm Rm Rm
15. Related parties
With shareholder:
Thintana Communications LLC
Management fees
