| Mon 14 Nov 2005, 7:02 | | Telkom SA Limited - Abridged Group interim results |
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Telkom SA Limited - Abridged Group interim results for the six
months ended September 30, 2005
Telkom SA Limited
(Registration number 1991/005476/06)
JSE and NYSE share symbol: TKG ISIN: ZAE000044897
Abridged Group interim results for the six months ended September
30, 2005
Highlights
* Basic earnings per share growth of 46.3% to 792.7 cents per
share
* Headline earnings per share growth of 35.0% to 775.9 cents per
share
* Group net debt to equity reduced to 44.1%
Highlights
Financial highlights
Johannesburg, South Africa - November 14, 2005, Telkom SA Limited
(JSE and NYSE: TKG), South Africa"s largest communications group
today announced Group interim results for the six months ended
September 30, 2005. The Group delivered a strong performance
across both business segments primarily as a result of continued
growth in the mobile sector and cost reductions in the fixed line
business.
The company paid an annual dividend of 400 cents per share and a
special dividend of 500 cents per share on July 8, 2005.
Group financial highlights for the six months ended September 30,
2005
Operating revenue up 9.9% to R23,456 million
37.3% growth in operating profit to R7,517 million
44.5% Group EBITDA margin
11.5% decrease in net debt to R10,935 million, and net debt to
equity of 44.1%
Headline earnings increased by 35.0% to 775.9 cents per share
Basic earnings increased by 46.3% to 792.7 cents per share
Statement by Papi Molotsane, Chief Executive Officer:
"The Telkom Group has once again delivered a strong set of
financial results from both business segments.
Through focused strategies implemented previously and continued in
the current period and the dedication shown by the Telkom Group
employees, the Group has generated excellent cash flows resulting
in an improved balance sheet. This was achieved despite capital
expenditure being funded from operating cash flow, the payment of
an annual and special dividend and the repurchase of Telkom
shares.
Profit growth is a result of strong mobile and data revenue
growth, cost reductions in the fixed line business, continued
growth in Vodacom"s South African customer base and reduced
finance charges.
The second half of the financial year will be characterised by a
profound focus on customer service excellence and the acceleration
of broadband adoption. We are well positioned to drive further
growth of the business and to make a meaningful contribution to
the economy and all South Africans."
Earnings momentum maintained
The Group has delivered a strong performance for the six months
ended September 30, 2005. Group operating revenue increased by
9.9% to R23,456 million and operating profit increased 37.3% to
R7,517 million. The Group EBITDA margin increased to 44.5%
compared to 40.6% at September 30, 2004 mainly due to lower
employee costs as a result of workforce reductions and expanded
mobile margins.
Headline earnings per share grew 35.0% to 775.9 cents and basic
earnings per share grew 46.3% to 792.7 cents. The strong growth in
earnings was attributed to a 37.3% increase in operating profit
and a 20.3% reduction in net finance charges.
Cash generated from operations increased 14.9% to R8,625 million
and facilitated capital expenditure of R3,084 million and the
repurchase of Telkom shares to the value of R1,502 million. Our
net debt to equity ratio of 44.1% at September 30, 2005 is below
the announced targeted range of between 50% and 70%.
Operational review
Creating and delivering stakeholder value
During the six months ended September 30, 2005, the Group
continued with its strategy to create and deliver value for
stakeholders through focusing on customer growth and retention,
driving operational excellence and sustaining marketplace
development through new product and service innovations. Telkom"s
operational and financial performance remains strong enabling the
Group to deliver exceptional returns to shareholders.
The fixed-line business posted modest growth in revenue of 4.3% as
a result of low effective tariff increases and declining traffic
volumes as a result of increased broadband adoption and the
resultant loss of internet dial up minutes. This was offset by the
increasing adoption of data services in consumer, small and medium
business markets. Fixed-line operating margins increased by 23.2%
mainly as a result of improved efficiencies and the further
implementation of cost reductions.
Driven by continued customer growth in South Africa and other
African countries, the mobile business maintained its strong
performance. Vodacom firmly remained the market leader in South
Africa. It achieved a substantial increase of 41.8% in customers
and an increased level of 5,635 million in gross connections in
South Africa and other African countries. The declining trend in
ARPU remains in tact as volume growth continues in the lower
income segments.
Driving greater adoption of data services across all markets
Telkom increased fixed-line data revenue (before inter-segmental
eliminations) by 17.5% during the six months ended September, 30,
2005. In the consumer and small business market, ADSL adoption
accelerated as a result of reduced tariffs, new lower speed ADSL
products and extensive marketing campaigns. ADSL services
increased 161.2% to 95,290. Telkom has partnered with Intel in
successfully trialling WiMAX to enable future broadband demand to
be captured, to complement ASDL deployment. Telkom successfully
launched the Telkom Internet PC bundles combining a personal
computer, inclusive minutes and internet access via dial up, ISDN
or ADSL.
Telkom remains focused on becoming the ICT solutions partner for
corporate and business customers as evidenced by the increasing
penetration of value added data services such as data hosting and
managed network care to corporate and business customers,
resulting in 32% growth in managed data network sites.
Lowering the cost and expanding the reach of telecommunications in
South Africa
In line with Telkom"s desire to bring down costs of doing business
in South Africa, Telkom announced an overall average tariff
decrease of 3% on its basket of products and services with effect
from September 1, 2005. This is well below Government"s target
inflation range of between 3% and 6%.
There is still a need to rebalance certain tariffs to eliminate
any cross subsidisation and allow for effective competition in all
areas going forward.
Telkom also focused on offering value-for-money services to meet
the current needs of customers, The Group therefore concentrated
on brininging new products to the market, launching bundled minute
packages and calling plans.
Utilising technology to create value
Telkom"s long term success is dependent on deploying an Internet
Protocol (IP)-based Next Generation Network.
Investment in the evolution of Telkom"s network is a key
imperative to transform Telkom from its Time Division Multiplex
(TDM) network to an IP-based Next Generation Network. Telkom
intends to adopt a phased approach driven by customer
requirements. The Group seeks to ensure that maximum benefit is
derived from existing equipment and will manage the required
investment. Telkom is trialling a converged, softswitching
capability to support VoIP solutions which provide advanced call
control, hosted IP telephony and IP PBX solutions. In the PBX
arena, Telkom already has a comprehensive offering aligned to
customer requirements. In addition, Telkom has established new
Global VoIP points of presences in various international centres
in an effort to attract global telecommunication traffic.
Operations Support Systems continued to drive productivity and
efficiency gains. Ongoing progress in the areas of customer
relationship management and service provisioning and assurance,
have resulted in cost savings, improved customer service and
increased efficiencies - especially in the automated workforce
management arena.
Operational excellence
Telkom has increased its focus on improving customer service and
customer satisfaction levels. The company embarked on a country-
wide drive to reposition and transform the company"s customer
service branches and TelkomDirect, into world-class retail outlets
which will simplify and further improve the customer interface. At
the same time, Telkom continued with the process of closing down
non-viable outlets.
A key factor in delivering customer satisfaction is network
reliability. Telkom continues to invest in equipment and skills to
improve reliability and reduce network down time. Over the period
the Group has continued to achieve higher levels of network
reliability. Despite some short-term service-related challenges in
the fixed-line business in the last quarter of the 2005 financial
year, Telkom managed to reduce the overall fault rate. The field
force team, which delivers service to customers, achieved
significant savings through an 8.1% reduction in the vehicle
fleet, reduced dispatches due to a reduction in repeat faults and
theft and breakage incidents. Telkom continued optimisation of its
property portfolio.
Meaningful investment in our workforce
In a challenging business environment, the commitment, skills and
experience of Telkom"s employee base remains a key competitive
differentiator. Customer service and satisfaction can only be
achieved through content, enthusiastic and dedicated employees. To
maintain this leadership position and to align itself with
changing market conditions and technology, Telkom has continued to
invest substantially in building its skills base. During the
period under review, R190 million (September 30, 2004: R198
million) was spent on training and development of staff, totalling
51,047 training days. There has been a dedicated effort on
furthering technical skills training (17,952 days) and a continued
focus on advanced leadership development programmes as well as
specific programmes aimed at developing technical skills among
female employees.
After conducting a comprehensive health profile among its
employees, in 2003 Telkom launched an integrated wellness
programme, "Thuso" (Sotho for "Help"). The programme includes
voluntary counselling, testing and treatment to combat HIV/Aids
and to provide care to employees and their families in all their
health-related needs.
Telkom"s commitment to quality training and skills development is
demonstrated by their SETA (Sector Education and Training
Authorities) accreditation. In critical areas where skills
shortages have been identified, Telkom is focusing on recruiting
and acquiring the right people and enhancing the skills base of
the Group.
Telkom is continuing to look for innovative ways to improve the
employee"s experience of working for Telkom.
Maintaining leadership in the mobile market in South Africa
Vodacom"s exceptional performance and customer growth once again
exceeded expectations, further demonstrating the robust growth of
the cellular industry in South Africa and Vodacom"s ability to
maintain its leadership position in this market. Vodacom South
Africa added gross connections of 4.2 million customers, the
highest level ever and increased market share to an estimated 57%.
Vodacom continued to focus on customer care and retention, which
saw contract customer churn at 9.3% and a lower Prepaid churn at
18.7%.
Vodacom grew data revenues by 52.6% to R893 million (Telkom"s 50%
share is R447 million), largely as a result of the strong growth
in SMS"s transmitted and new data initatives such as Vodafone
live!, 3G and GPRS BlackBerryRegistered, giving Vodacom a distinct
competitive advantage in the mobile phone arena.
The growth in the South African mobile market continued to improve
Telkom"s performance with the increase in the provision for
cellular links for the 3G network.
Over 3.3 million mobile customers outside of South Africa
Vodacom grew its customer base in other African countries by 56.4%
to over 3.3 million (September 30, 2004: 2.1 million). Vodacom
Tanzania grew its customer base by 68.7% to 1.6 million and
maintained the estimated market share of 58%, further entrenching
its leadership position. Vodacom Congo extended its estimated
market share to 49% and grew its customer base to 1.2 million and
expects substantial growth from this market going forward given
the low level of mobile penetration. The investment in Mozambique
continues to make inroads with 336,000 customers.
The Regulatory environment
Telkom faces regulatory challenges and through dialogue and a co-
operative spirit hopes to achieve a regulatory framework that is
clear, fair and beneficial to the industry.
The Department of Communications held a Pricing Colloquium on
October 11 and 12, 2005, The purpose of the colloquium was to
investigate pricing and competitive issues in the South African
telecommunications market. Telkom is aware of the proceedings and
highlighted specific areas as needing attention. Telkom continues
to work closely with the Department of Communications and we
expect a fair and responsible approach by the Department towards
Telkom and Vodacom.
Issues that received the most attention were:
Unbundling of the local loop;
Cost based access to international cables being made available;
Self-provision of VANS; and
The prohibition of ADSL caps.
There is uncertainty as to whether VANS operators will be allowed
to provide Voice Over Internet Protocol or VoIP, to the general
public or only to their own customers to whom they provide value
added data services.
Developments in the regulatory arena during the period included:
On July 17, 2005 ICASA published its findings in terms of section
27 of the Telecommunications Act on the enquiry into the provision
of the ADSL service. ICASA found that Telkom should not charge a
monthly access fee for ADSL services but an initial once-off fee.
In addition ICASA found that the 3 gigabyte cap on the service was
harmful to consumers and will look to increase the cap. Telkom has
since made oral and written submissions to ICASA.
The Minister approved the price control regulation effective from
September 1, 2005 to July 31, 2008. The price control regulation
states Telkom may not increase tariffs on a basket of products and
service by more than CPI less a producitivity factor of 3.5%.
Telkom will file its tariffs in accordance with the new regulation
with effect from August 1 each year.
On September 30, 2005, the Minister approved regulations on Number
Portability.
The Electronic Communications Bill and the ICASA Amendment Bill
were passed by the National Assembly on November 3, 2005. Both
Bills will now be sent to the National Council of Provinces, which
acts as a second House of Parliament before finally being sent to
President Thabo Mbeki for signing. Both are expected to be
effective early in 2006.
Broad-based Black Economic Empowerment (BEE)
As a South African company, BEE is an important growth imperative
for Telkom. The Group recognises the need for the creation of a
sustainable marketplace by enlarging the domestic market to
support ongoing revenue and profit growth.
Telkom and Vodacom were actively involved in the development of
the BEE Charter for the ICT sector. A final draft was sent to the
Minister of Communications in May 2005 and it is now in the
process of Cabinet approval. Under the Charter Telkom believes it
would be considered a "good contributor" to broad-based BEE.
Telkom has identified the areas of equity ownership, preferential
procurement and skills development as focus areas for broad-based
BEE.
Group performance
Group operating revenue
Group operating revenue increased 9.9% to R23,456 million
(September 30, 2004: R21,338 million) in the six months ended
September 30, 2005. Fixed-line operating revenue, after inter-
segmental eliminations, increased 4.1% to R16,083 million
primarily due to solid growth in data services and increased
subscription revenue. Mobile operating revenue, after inter-
segmental eliminations, increased 25.3% to R7,373 million
primarily due to customer growth.
Group operating expenses
Group operating expenses increased 1.4% to R16,226 million
(September 30, 2004: R15,997 million) in the six months ended
September 30, 2005 due to a 12.4% increase in operating expenses
in the mobile segment to R5,671 million (after inter-segmental
eliminations). This was partially offset by a 3.6% decrease in the
fixed-line operating expenses to R10,5554 million (after inter-
segmental eliminations) primarily due to reduced employee
expenses, depreciation, amortisation, impairment and write-offs,
services rendered and operating leases, partially offset by an
increase in payments to other operators. The increase in mobile
operating expenses of 12.4% was primarily due to increased gross
connections 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 short-term
investments and bank accounts. Investment income increased 61.9%
to R217 million (September 30, 2004: R134 million) primarily as a
result of higher balances in investment and bank accounts due to
higher cash flow generated from operations.
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 decreased 20.3%
to R745 million (September 30, 2004: R935 million) in the six
months ended September 30, 2005, due to a 21.6% decrease in
interest expense to R704 million (September 30, 2004: R898
million) as a result of the redemptions of local and foreign
loans, the decrease in the the interest expense was partially
offset by an increase in Group net fair value and exchange losses
on financial instruments of R41 million (September 30, 2004: R37
million) primarily as a result of currency movements.
Included in the Group net fair value and exchange losses as an
offset is an increase in unrealised gains of R72 million on the
underlying assets and investments of the Cell Captive created to
fund post retirement medical benefits of Telkom.
Taxation
Consolidated tax expenses increased 65.2% to R2,708 million
(September 30, 2004: R1,640 million) in the six months ended
September 30, 2005. The consolidated effective tax rate for the
six months ended September 30, 2005 was 38.7% (September 30, 2004:
35.1%). Telkom Company"s effective tax rate was 32.6% (September
30, 2004: 25.5%). The higher effective tax rate for Telkom Company
in the six months ended September 30, 2005 was primarily due to
the secondary taxation on companies payable in respect of
dividends paid. Vodacom"s effective tax rate decreased to 37.9%
(September 30, 2004: 43.4%). The lower effective tax rate for
Vodacom is largely as a result of the non-deductable expenses of
September 30, 2004 not re-occuring.
Profit for the year and earnings per share
Profit for the period attributable to the equity holders of Telkom
increased 41.4% to R4,210 million (September 30, 2004: 2,977
million) in the six months ended September 30, 2005.
Group basic earnings per share increased 46.3% to 792.7 cents
(September 30, 2004: 541.8 cents) and Group headline earnings per
share increased 35.0% to 775.9 cents (September 30, 2004: 574.9
cents).
Group balance sheet
Solid operating performance across the Group combined with strict
cost discipline and debt repayment has resulted in a strengthened
balance sheet. Net debt, after financial assets and liabilities,
decreased 12% to R10,935 million (September 30, 2004: R12,362
million). The balance sheet at September 30, 2005 strengthened,
resulting in a net debt to equity ratio of 44.1% from 53.5% at
September 30, 2004. On September 30, 2005 the Group had cash
balances of R2,696 million.
The Group intends to maintain a targeted net debt to equity range
of between 50% and 70% by increasing distributions to shareholders
in the form of dividends and share buy-backs while maintaining
financial flexibility for potential growth opportunities. During
the six months ended September 30, 2005, 12.1 million shares were
repurchased for R1,502 million. These shares bought back are in
the process of being cancelled from the issued share capital by
the Registrar of Companies. Interest bearing debt, including
credit facilities utilised, decreased 15.4% to R13,675 million
(September 30, 2004: R16,168 million) in the six months ended
September 30, 2005. In April 2005 the 5500 million Eurobond
matured and was refinanced with R600 million nominal value of the
existing TL06 bond, with the balance being refinanced with short-
term commercial paper borrowings. The Group repaid R1,621 million
of the newly issued commercial paper by September 30, 2005.
Included in foreign interest bearing debt at September 30, 2004
was R1,632 million in commercial paper bills that have matured .
Telkom maintains an active dialog with the principal credit rating
agencies, who review our ratings periodically. Moody"s Investor
Services and Standard & Poor"s have rated our foreign debt Baa1
and BBB respectively.
Group cash flow
Cash flows from operating activities decreased 84.4% to R875
million (September 30, 2004: R5,595 million) primarily due to
higher taxation and dividend payments offset partially by
increased operational cash flows. Cash flows utilised in investing
activities increased 35.3% to R3,078 million (September 30, 2004:
R2,275 million) primarily due to increased capital expenditure in
both the mobile and fixed-line segments. Cash raised in financing
activities of R859 million (September 30, 2004, cash utilised:
R3,988 million) is due to the loans raised to refinance the
Eurobond, as well as cash inflows from maturing financial assets.
These cash inflows were offset by the R1,502 million share buy-
back and the repayment of commercial paper bills.
Group capital expenditure
Group capital expenditure increased 49.2% to R3,096 million
(September 30, 2004: R2,075 million) and represents 13.2% of Group
revenue (September 30, 2004: 9.7%) in line with the Group"s
announced guidance of maintaining capital expenditure in the range
of 12% to 15% of Group revenues.
Fixed-line capital expenditure increased 35.7% to R1,858 million
(September 30, 2004: R1,369 million) and represents 11.3% of fixed-
line revenue (September 30, 2004: 8.7%). Baseline expansion and
core support capital expenditure of R1,017 million (September 30,
2004: R775 million) was largely for the deployment of technologies
to support the growing data services business and expenditure for
access line deployment in selected high growth residential areas.
The continued focus on rehabilitating the access network and
increasing the efficiencies in the transport network contributed
to the network evolution capital expenditure of R206 million
(September 30, 2004: R219 million).
Telkom continued to focus on its operations support system
investment with current emphasis on workforce management,
provisioning and fulfilment, assurance and customer care. During
the six months ended September 30, 2005, R515 million (September
30, 2004: R312 million) was spent on the implementation of several
systems.
Mobile capital expenditure (50% of Vodacom"s capital expenditure)
increased 75.4% to R1,238 million (September 30, 2004: R706
million) and represents 15.3% of mobile revenue (September 30,
2004: 10.7%) as a result of increased investment in South Africa
for increased capacity and investment in new technologies such as
3G, Vodafone live! and BlackBerryRegistered.
Share repurchase, employee share ownership and dividends
In the six months ended September 30, 2005 the company repurchased
12.1 million shares amounting to R1.5 billion (including costs)
which are to be cancelled as issued share capital and restored as
authorized but unissued share capital.
On June 23, 2005 the board approved and granted with a grant date
of June 1, 2005, 2,024,387 shares to employees in terms of the
Telkom Conditional Share Plan.
The Telkom board of directors declared an annual dividend of 400
cents per share and a special dividend of 500 cents per share on
June 2, 2005, which was paid on July 8, 2005.
The Company aims to pay an increasing dividend annually. The level
of dividend will be based upon a number of factors, including the
assessment of financial results, available growth opportunities,
capital expenditure requirements, the Group"s debt level, interest
coverage and future expectations, including internal cash flows.
As previously communicated, Telkom aims to pay steadily growing
annual dividends and therefore does not intend to declare an
interim dividend.
Strategic direction
Telkom"s vision is to be a leading customer and employee centered
ICT solutions service provider. It is focused on balancing the
needs of all stakeholders through long-term sustainable and
profitable growth. Its commitment to the socio-economic
transformation of South Africa underpins this strategy.
The accelerated liberalisation of the market, in particular the
implications of the Convergence Bill, now referred to as the
Electronic Communications Bill, not yet approved at the time of
writing, is clearly material to Telkom"s strategic intentions.
Telkom believes that it is strongly positioned to compete in a
liberalised market. Telkom believes that customer service
excellence through a content and dedicated workforce with greater
product and service choice and value for customers will ensure
long-term value creation. Telkom intends to pursue opportunities
to provide the full spectrum of ICT solutions including voice,
data, video and internet services through broadband penetration.
To ensure that Telkom can sustain the creation of value relative
to developments in its dynamic market environment, management have
determined certain shifts in strategic emphasis. Telkom has chosen
to increase its focus on customers and employees while continuing
to balance the needs of all stakeholders.
Telkom will focus on the following imperatives to support growth:
Enhancing customer satisfaction through customer centricity;
Retaining revenue and generating growth;
Evolving the network to a next generation network in order to
support profitable growth through prudent cost management;
Engaging its employees; and
Reposition Telkom stakeholder management to create healthy
external relationships.
The realisation of Telkom"s strategic intentions ultimately lies
in the hands of Telkom"s people. Product, service and operational
innovation vests mostly in people. As such, Telkom has committed
to invest significantly in its people as the drivers of
innovation, excellence and growth.
Telkom"s growth is not limited to South Africa and opportunities
are being explored outside our borders where growth potential
exists.
The evolution to an IP network is a business imperative. Not only
does Telkom believe that costs over the longer term of operating
the network will reduce, but Telkom will also have the ability to
deliver fully converged products and services to meet our
customers" needs in the rapidly changing technological
environment. Acceleration of Telkom"s broadband penetration is a
critical element of this strategy.
Increased investment in Telkom"s network in a phased approach will
be required to exploit new opportunities in the ICT solutions
market and bring down the cost of telecommunications in South
Africa.
Given the centrality of ICT to economic growth and social
development, Telkom remains strategically important to the
achievement of national objectives and will continue to invest
significantly in the development of a viable and vibrant
marketplace.
Telkom has a strong, capable and diverse management team with a
clear sense of direction and a commitment to driving shareholder
returns. The Group stands ready for a new and exciting phase of
development.
NE Mtshotshisa LRR Molotsane
Non-executive Chairperson Chief Executive Officer
14 November, 2005
Company registered office Board of directors
Telkom SA Limited Nomazizi Mtshotshisa (Chairman)
1991/005476/06,
Telkom Towers North, 152 Proes Papi Molotsane (CEO)
Street Thenjiwe Chikane; Brahm du
Plessis; Tshepo Mahloele;
Pretoria, 0002, South Africa Thabo Mosololi; Marius Mostert;
Sibusiso Luthuli; Dumisani
Private Bag X881, Pretoria, 0001 Tabata; Yekani Tenza; Lazarus
Zim
Sponsor
UBS South Africa (Proprietary) Limited
This information is also available on Telkom"s investor relations
website http://www.telkom.co.za/ir
Summarised Group financial statements
Audit review report
The condensed consolidated interim financial statements, from
which the abridged results have been derived, were reviewed by our
auditors, Ernst & Young. Their unqualified review report is
available for inspection at the company"s registered office.
The condensed consolidated interim financial statements are
available on Telkom"s Investor Relations website and the company"s
registered office, and will be sent to shareholders.
Condensed consolidated interim income statement for the six
months ended September 30, 2005
Audited Restated Reviewed
March 31 Sept 30 Sept 30
2005 2004 2005
Notes Rm Rm Rm
Operating revenue 2 43,117 21,338 23,456
Other income 280 133 287
Operating expenses 32,175 15,997 16,226
Employee expenses 3 8,111 3,855 3,615
Payments to other 6,132 3,056 3,404
operators
Selling, general and 8,820 4,451 4,925
administrative
expenses
Services rendered 2,021 1,022 973
Operating leases 803 419 388
Depreciation, 4 6,288 3,194 2,921
amortisation,
impairment and write-
offs
Operating profit 11,222 5,474 7,517
Investment income 350 134 217
Finance charges 1,695 935 745
Interest 1,686 898 704
Foreign exchange and 9 37 41
fair value effect
Profit before taxation 9,877 4,673 6,989
Taxation 3,070 1,639 2,708
Profit for the 6,807 3,034 4,281
year/period
Attributable to:
Equity holders of 6,724 2,977 4,210
Telkom SA Ltd
Minority interest 83 57 71
6,807 3,034 4,281
Basic earnings per 5 1,241.8 541.8 792.7
share (cents)
Diluted earnings per 5 1,239.4 540.9 790.0
share (cents)
Dividend per share 5 110.0 110.0 900.0
(cents)
Headline earnings
per share (cents) 5 1 274.1 574.9 775.9
Diluted headline 5 1 271.6 574.0 773.3
earnings per share
(cents)
Condensed consolidated interim balance sheet
at September 30, 2005
Restated Restated Reviewed
March 31 Sept 30 Sept 30
2005 2004 2005
Notes Rm Rm Rm
Assets
Non-current assets 42,686 41,261 42,868
Property, plant and 7 37,328 36,548 37,156
equipment
Investment properties 25 26 24
Intangible assets 8 2,278 2,394 2,656
Investments 2,277 1,660 2,513
Other financial assets 134 120 107
Operating lease assets 14 13 15
Deferred expenses 118 86 128
Deferred taxation 512 414 269
Current assets 14,911 11,390 10,517
Current portion of other 4,940 995 287
financial assets
Short-term investments 69 10 10
Current portion of deferred 214 289 229
expenses
Inventories 658 621 822
Trade and other receivables 5,820 6,372 6,473
Cash and cash equivalents 9 3,210 3,103 2,696
Total assets 57,597 52,651 53,385
Equity and liabilities
Equity attributable to 26,827 23,100 24,818
equity holders of Telkom SA
Ltd
Share capital and premium 10 8,293 8,293 6,791
Treasury shares 10 (1,812) (1,812) (1,809)
Share-based compensation 11 68 21 91
reserve
Non-distributable reserves 361 269 759
Retained earnings 19,917 16,329 18,986
Minority interest 220 244 314
Total equity 27,047 23,344 25,132
Non-current liabilities 13,590 13,061 14,137
Interest-bearing debt 12 9,504 9,000 9,702
Other financial liabilities 83 166 63
Deferred taxation 1,226 1,047 1,382
Operating lease liabilities 57 58 61
Deferred revenue 260 232 263
Provisions 2,460 2,558 2,666
Current liabilities 16,960 16,246 14,116
Credit facilities utilised 9 909 998 1,745
Trade and other payables 6,782 5,287 5,796
Shareholders for dividend 7 7 6
Current portion of interest- 12 4,499 6,170 2,228
bearing debt
Current portion of deferred 1,394 1,384 1,452
revenue
Current portion of 1,428 1,077 1,026
provisions
Income tax payable 1,711 1,077 1,576
Current portion of other 230 245 287
financial liabilities
Total liabilities 30,550 29,307 28,253
Total equity and 57,597 52,651 53,385
liabilities
Condensed consolidated interim cash flow statement
for the six months ended September 30, 2005
Audited Restated Reviewed
March 31 Sept 30 Sept 30
2005 2004 2005
Notes Rm Rm Rm
Operating activities 15,711 5,595 875
Cash receipts from 43,561 21,052 22,756
customers
Cash paid to suppliers (24,939) (13,548) (14,131)
and employees
Cash generated from 18,622 7,504 8,625
operations
Interest received 477 214 280
Finance charges paid (1,272) (759) (712)
Taxation paid (1,487) (757) (2,470)
Cash generated from 16,340 6,202 5,723
operations before
dividend paid
Dividend paid (629) (607) (4,848)
Investing activities (6,306) (2,275) (3,078)
Proceeds on disposal of 37 6 138
property, plant and
equipment and intangible
assets
Proceeds on disposal of 267 55 15
investment
Additions to property, (5,880) (2,195) (3,084)
plant and equipment and
intangible assets
Additions to other (592) (22) (147)
investments
Acquisition of 16 (138) (119) -
subsidiaries
Financing activities (9,897) (3,988) 859
Purchase of treasury (1,710) (1,688) -
shares
Share buy-back - - (1,502)
Loans raised 1,157 640 3,678
Loans repaid (5,027) (2,845) (5,892)
Finance lease capital (13) (5) (11)
repaid
(Increase)/decrease in (4,304) (90) 4,586
net financial assets
Net decrease in cash and (492) (668) (1,344)
cash equivalents
Net cash and cash 2,796 2,796 2,301
equivalents at beginning
of the year
Effect of foreign (3) (23) (6)
exchange rate differences
Net cash and cash 9 2,301 2,105 951
equivalents at end of the
year/period
Change in comparatives
The Group reclassified Finance costs accrued from Cash paid to
suppliers and employees to Finance charges paid with R463 million
for the six months ended September 30, 2004 (March 31, 2005: R463
million).
Condensed consolidated interim statement of changes in equity
for the six months ended September 30, 2005
Restated Restated Reviewed
March 31 Sept 30 Sept 30
2005 2004 2005
Rm Rm Rm
Balance at April 1 - as 22,571 22,571 27,047
previously stated
Attributable to equity holders 22,371 22,371 26,827
Minority interest 200 200 220
Change in accounting policies (30) (30) -
Balance at April 1 - as 22,541 22,541 27,047
restated
Profit for the year/period 6,807 3,034 4,281
Transfer to non-distributable 279 121 339
reserves
Transfer from retained (279) (121) (339)
earnings
Foreign currency translation 12 52 58
reserve
Fair value adjustment on (22) 10 -
investments
(Purchase)/re-issue of (1,574) (1,574) 3
treasury shares
Dividend declared (673) (628) (4,801)
Share buy-back - - (1,502)
Increase in share-based 68 21 23
compensation reserve
Purchase of subsidiary 5 5 23
Business combination (117) (117) -
Balance at March 31, September 27,047 23,344 25,132
30
Attributable to equity holders 26,827 23,100 24,818
Minority interest 220 244 314
Notes to the condensed consolidated interim financial
statementsfor the six months ended September 30, 2005
1. Basis of preparation and accounting policies
The condensed consolidated interim financial statements have been
prepared in accordance with IAS34: 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,
2005 are consistent with those applied in the financial statements
for the year ended March 31, 2005, except as described below. The
results of the interim period are not necessarily indicative of
the results for the entire year. These reviewed financial
statements should be read in conjunction with the audited
financial statements for the year ended March 31, 2005.
The preparation of condensed consolidated interim financial
statements requires the use of estimates and assumptions that
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 the
reported amounts of revenue and expenses during the reporting
periods. Although these estimates are based on management"s
knowledge of current events and actions that the Group may
undertake in the future, actual results ultimately may differ from
those estimates.
Adoption of new and revised International Financial Reporting
Standards and changes in accounting policies
The following are the new and revised accounting standards that
have been adopted effective April 1, 2005 and the subsequent
impact on the accounting policies:
IAS16 Property, plant and equipment
Each significant component included in an item of property, plant
and equipment is now separately recorded and depreciated. Useful
lives and residual values are now reviewed on an annual basis. The
adoption does not materially impact the Group"s results or cash
flow information for the period ended September 30, 2004 or the
year ended March 31, 2005.
IAS17 Leases
A lease of land and buildings is classified by considering the
land and buildings elements separately. Minimum lease payments are
allocated between the land and buildings elements in proportion to
the relative fair values of the leasehold interest in the land and
buildings elements of the lease. With regards to finance leases,
initial direct costs are added to the amount recognised as an
asset. The adoption does not materially impact the Group"s results
or cash flow information for the period ended September 30, 2004
or the year ended March 31, 2005.
> IAS24 Related Party Disclosures (only disclosure impact)
> IAS40 Investment Property (no significant impact)
> IFRIC1 Changes in Existing Decommissioning, Restoration and
Similar Liabilities (no significant impact)
> IFRS4 Insurance Contracts (no significant impact)
> IAS19 Employee Benefits
With effect from April 1, 2005 the Group has early adopted the
amendments to IAS19. These amendments had no effect on the Group"s
results for the six months ended September 30, 2005 nor the
financial position at that date.
Restatements
The Group has restated certain comparative figures as at September
30, 2004 and March 31, 2005 as a result of the following:
> The Group restated lease payments and receipts under operating
leases in order to recognise the expenses on a straight-line basis
over the lease terms. The Group previously recognised the expenses
based on the amount paid or payable for each period. This reduced
profit for the period ended September 30, 2004 by R2 million and
retained earnings by R32 million.
> The Group previously classified all computer software as
property, plant and equipment. The Group reclassified computer
software cost and accumulated depreciation that are not considered
integral to the related hardware to intangible assets.
Consequently the Group also reclassified software depreciation to
amortisation of intangible assets. The change in classification
does not impact the Group"s results or cash flow information for
the period ended September 30, 2
