|
FIXED-LINE OPERATING EXPENSES
Year ended Six months ended September 30
March 31,
In ZAR millions 2006 2005 2006 %
Employee expenses 6,470 3,143 3,610 14.9
??Salaries and 4,592 2,240 2,531 13.0
wages
??Benefits 2,410 1,154 1,388 20.3
??Workforce 88 45 14 (68.9)
reduction
expenses
??Employee (620) (296) (323) 9.1
related expenses
capitalised
Payments to other 6,150 3,129 3,099 (1.0)
network
operators1
??Payment to 5,231 2,612 2,620 0.3
mobile operators
??Payment to 919 517 479 (7.4)
international
operators
SG&A 3,086 1,437 1,606 11.8
??Materials and 1,617 799 935 17.0
maintenance
??Marketing 413 159 231 45.3
??Bad debts 187 39 70 79.5
??Other 869 440 370 (15.9)
Services rendered 2,050 945 1,066 12.8
??Property 1,107 529 558 5.5
management
??Consultants and 943 416 508 22.1
security
Operating leases 777 367 386 5.2
Depreciation,
amortisation,
impairment
and write-offs 4,404 2,135 1,734 (18.8)
22,937 11,156 11,501 3.1
1. Payments to other network operators include payments made to Vodacom of
R1,423 million (September 30, 2005: R1,430 million), 50% of which is
eliminated on consolidation
Fixed-line operating expenses, before inter-segmental eliminations, increased
3.1% in the six months ended September 30, 2006, to R11,501 million
(September 30, 2005: R11,156 million), primarily due to increased employee
expenses, services rendered, operating leases and selling, general and
administrative expenses offset by a decrease in depreciation, amortisation,
impairment and write-offs and payment to other operators.
Employee expenses increased 14.9%, largely due to increased salary and wages
and benefits expenses as result of an increased headcount necessary to
deliver on improving service levels and the deployment of the NGN as well as
salary increases, increases to medical aid expenses and increased bonus
provisioning.
Payments to other network operators decreased marginally by 1.0% as a result
of lower payments to international operators, partially offset by higher
payments to mobile operators. Payments to mobile operators increased 0.3%,
largely as a result of increased commitment from the fax to e-mail service
offset by a 0.5% decrease in fixed-to-mobile traffic. Payments to
international operators decreased 7.4% primarily due to the decrease of
volumes in switched hubbing, partiallyoffset by a 7.7% increase in
international outgoing traffic volumes.
Selling, general and administrative expenses increased 11.8% as a result of a
increased marketing expenses, materials and maintenance and bad debts.
Services rendered increased 12.8% with property management expenses
increasing 5.5% as a result of increased maintenance. Consultants and
security costs increased 22.1% primarily as a result of increased cost
associated with the next generation network deployment, customer centricity
programmes and the regulatory accounting and Sarbanes-Oxley compliance
project. Additional increases were as a result of the higher costs of
transporting equipment from warehouses to final drop-off points due to an
increased number of reported faults resulting from adverse weather
conditions.
Operating leases increased 5.2% primarily as a result of increased vehicle
lease rates, increased vehicle maintenance and increased ad-hoc vehicle
rentals offset in part by a 0.2% reduction in the vehicle fleet from 9,710
vehicles at September 30, 2005 to 9,691 vehicles at September 30, 2006.
In recognition of changed usage patterns of certain items of property, plant
and equipment and intangible assets, the Group reviewed their remaining
useful lives as at March 31, 2006. The assets affected were certain items
included in network equipment, support equipment, office equipment and IT
software and hardware. The revised estimated useful lives resulted in a
decrease of 18.8% in the depreciation, amortisation, impairment and write-
offs to R1,734 million (September 30, 2005: R2,135 million).
Fixed-line operating profit decreased 5.6% to R5,202 million (September 30,
2005: R5,512 million)
with an operating profit margin of 31.5% (September 30, 2005: 33.6%).
EBITDA decreased 9.3% to R6,936 million (September 30, 2005: R7,647 million),
with EBITDA margins decreasing to 42.0%. (September 30, 2005: 46.6%).
MOBILE SEGMENT
The mobile segment accounted for 35.8% of Group operating revenue (September
30, 2005: 31.4%) (after inter-segmental eliminations) and 27.8% of Group
operating profits (September 30, 2005: 22.5%). Vodacom"s operational
statistics are presented below at 100%, but all financial figures represent
the 50% that is proportionately consolidated in the Group and presented
before inter-segmental eliminations.
SUMMARY
Year ended
March 31, Six months ended September 30
In ZAR millions 2006 2005 2006 %
Operating revenue 17,021 8,088 9,733 20.3
Operating profit 4,435 2,113 2,483 17.5
EBITDA 5,907 2,782 3,289 18.2
Capital 2,571 1,238 1,571 26.9
expenditure1
Operating profit 26.1 26.1 25.5 (2.3)
margin (%)
EBITDA margin (%) 34.7 34.4 33.8 (1.8)
Capex to revenue 15.1 15.3 16.1 5.2
(%)
1. Including spend on intangibles
MOBILE OPERATING REVENUE
Year ended
March 31, Six months ended September 30
In ZAR millions 2006 2005 2006 %
Airtime and access 10,043 4,791 5,656 18.1
Data 1,019 447 722 61.5
Interconnect1 3,348 1,593 1,861 16.8
Equipment sales 1,993 955 1,156 21.0
International 486 242 278 14.9
airtime
Other 132 60 60 -
17,021 8,088 9,733 20.3
1. Interconnect revenue includes revenue from Telkom fixed-lines of R712
million (September 30, 2005: R715 million), which is eliminated on
consolidation
Operating revenue from the mobile segment increased 20.3%, before inter-
segmental eliminations, to R9,733 million (September 30, 2005: R8,088
million), primarily driven by customer growth partially offset by declining
Average Monthly Revenue Per User (ARPUs) in all operations. Revenue from
Vodacom"s operations outside of South Africa as a percentage of Vodacom"s
total mobile operating revenue increased to 9.7% to R943 million (September
30, 2005: R706 million).
The growth in revenue can largely be attributed to a 34.7% increase in
Vodacom"s total customers to 25,8 million as of September 30, 2006,
(September 30, 2005: 19,1 million), resulting from strong growth in prepaid
and contract customers in South Africa and 65.8% growth in customers outside
of South Africa. In South Africa, total ARPUs decreased 15.6% to R124
(September 30, 2005: R147) for the six months ended September 30, 2006.
Contract ARPUs decreased 10.2% to R528 (September 30, 2005: R588) and prepaid
ARPUs decreased 14.1% to R61 (September 30, 2005: R71) for the six months
ended September 30, 2006.
Vodacom"s continued focus on the implementation of upgrade and retention
policies in the six months ended September 30, 2006, ensured contract churn
of only 11.0% (September 30, 2005: 9.3%). Prepaid churn of 47.7% for the six
months ended September 30, 2006, (September 30, 2005: 18.7%) was largely the
result of a once-off rule change to disconnect 2.4 million SIM cards, which
were only carrying call forward traffic to voicemail.
Data revenue increased 61.5% and represents 7.4% of mobile revenue. The
growth was largely due to the popularity of SMS and data initiatives such as
3G, HSDPA, Blackberry Mobile TV, Vodafone live! as well as other data
products. Vodacom South Africa transmitted 2.2 billion SMS messages
(September 30, 2005: 1.5 billion over its network during the six months ended
September 30, 2006.
Mobile interconnect revenue increased by 16.8%, primarily due to an increase
in the number of fixed-line calls terminating on Vodacom"s network as a
result of the increased number of Vodacom customers and South African mobile
users.
Equipment sales increased 21.0% primarily due to the growth of the customer
base and cheaper handsets combined with added functionality of new phones
based on new technologies. South African handset sale volumes increased by
22.2% to 2,2 million units (September 30, 2005: 1.8 million).
Vodacom"s international airtime revenue is largely international calls by
Vodacom"s customers, roaming revenue from Vodacom customers making and
receiving calls while abroad and revenue from international customers roaming
on Vodacom"s network. International airtime revenue increased 14.9%.
MOBILE OPERATING EXPENSES
Year ended
March 31, Six months ended September 30
In ZAR millions 2006 2005 2006 %
Employee expenses 1,019 472 539 14.2
Payments to other 2,317 1,084 1,337 23.3
operators1
SG&A 7,328 3,552 4,286 20.7
Services rendered 65 28 37 32.1
Operating leases2 435 190 269 41.6
Depreciation,
amortisation,
impairment
and write offs 1,472 669 806 20.5
12,636 5,995 7,274 21.3
1. Payments to other operators include payments to Telkom fixed-line of R120
million (September 30, 2005: R103 million), which are eliminated on
consolidation
2. Operating leases include payments to Telkom fixed-line of R217 million
(September 30, 2005: R183 million), which are eliminated on consolidation
Mobile operating expenses, before inter-segmental eliminations, increased by
21.3% in the six months ended September 30, 2006, primarily due to increased
employee expenses, selling and distribution costs, services rendered,
operating leases and payments to other operators.
Mobile employee expenses increased 14.2%, primarily due to a 1.3% increase in
the total number of employees to 5,499 to support the growth in operations.
Employee productivity has improved in all of Vodacom"s operations, as
measured by customer per employee, increasing by 32.9% to 4,683 customers per
employee.
Mobile payments to other operators increased 23.3% to R1,337 million
(September 30, 2005: R1,084 million) in the six months ended September 30,
2006, primarily as a result of increased outgoing traffic terminating on the
other mobile networks relative to traffic terminating on the fixed-line
network
Mobile selling, general and administrative expenses increased 20.7% in the
six months ended September 30, 2006, primarily due to an increase in selling,
distribution and marketing expenses mainly driven by new technologies and
enhancing brand presence in all operations to support the growth in South
African and other African operations.
Mobile depreciation, amortisation, impairment and write-offs increased by
20.5% to R806 million in the six months ended September 30, 2006 primarily as
a result of a partial impairment reversal of Vodacom Mozambique"s asset
impairment in the prior period.
Telkom"s 50% share of Vodacom"s profit from operations increased 17.5% to
R2,483 million and the mobile operating profit margin decreased to 25.5%.
Mobile EBITDA increased 18.2% to R3,289 million with EBITDA margins
decreasing to 33.8%.
8. Employees
FIXED-LINE
Year ended
March 31, Six months ended September 30
2006 2005 2006 %
Telkom Company 25,575 25,636 25,826 0.7
Lines per employee 184 185 181 (2.2)
Subsidiaries 581 586 608 3.8
Fixed-line 26,156 26,222 26,434 0.8
employees at
period end
MOVEMENT IN FIXED-LINE EMPLOYEES
(Telkom Company only, excluding subsidiaries)
Year ended Six months ended
March 31, September 30
2006 2005 2006
Opening balance 28,972 28,972 25,575
Appointments 686 199 793
Employee losses (4,083) (3,535) (542)
Workforce (2,990) (2,972) (6)
reductions
Voluntary early (674) (670) (4)
retirement
Voluntary (2,295) (2,281) (2)
severance
Involuntary (21) (21) -
reductions
Natural attrition (1,093) (563) (536)
Closing balance 25,575 25,636 25,826
MOBILE EMPLOYEES
Year ended
March 31, Six months ended September 30
2006 2005 2006 %
South Africa 4,148 4,119 4,137 0.4
Customers per 4,620 3,829 4,883 27.5
employee
Other African 1,154 1,181 1,184 0.3
countries
Customers per 3,776 2,836 4,689 65.3
employee
Vodacom Group1 5,459 5,426 5,499 1.6
Customers per 4,308 3,524 4,683 32.9
employee1
1. Including employees for holding company and Mauritius of 178 (September
30, 2005:126)
9. Condensed Consolidated Interim Financial Statements
REVIEW REPORT of the independent auditors
Our auditors, Ernst & Young, have reviewed the condensed consolidated interim
financial statements as set out on pages 22 to 54. Their unqualified review
report is available for inspection at the Company"s registered office.
Condensed consolidated interim income statement for the six months ended
September 30, 2006
Restated Restated Reviewed
March 31, September 30, September 30,
2006 2005 2006
Notes Rm Rm Rm
Total revenue 3.1 48,260 23,761 25,476
Operating revenue 3.2 47,625 23,447 25,147
Other income 4 480 287 213
Operating 33,428 16,109 17,675
expenses
Employee expenses 7,489 3,615 4,149
Payments to other 6,826 3,404 3,609
operators
Selling, general 10,273 4,925 5,839
and
administrative
expenses
Services rendered 2,114 973 1,103
Operating leases 850 388 435
Depreciation,
amortisation,
impairment and 5 5,876 2,804 2,540
write-offs
Operating profit 14,677 7,625 7,685
Investment income 397 217 170
Finance charges 1,223 744 437
Interest 1,346 704 673
Foreign exchange (123) 40 (236)
and fair value
effect
Profit before 13,851 7,098 7,418
taxation
Taxation 6 4,523 2,739 2,844
Profit for the 9,328 4,359 4,574
year/period
Attributable to:
Equity holders of 9,189 4,288 4,500
Telkom
Minority interest 139 71 74
9,328 4,359 4,574
Basic earnings 8 1,746.1 807.4 868.1
per share (cents)
Diluted earnings 8 1,736.6 804.6 866.4
per share (cents)
Dividend per 8 900.0 900.0 900.0
share (cents)
Condensed consolidated interim balance sheet
at September 30, 2006
Restated Restated Reviewed
March 31, September 30, September 30,
2006 2005 2006
Notes Rm Rm Rm
Assets
Non-current 44,813 42,879 45,082
assets
Property, plant 10 37,274 36,542 39,165
and equipment
Intangible assets 11 3,910 3,411 4,042
Investments 12 2,894 2,513 1,170
Deferred expenses 254 144 256
Finance lease - - 117
receivables
Deferred taxation 13 481 269 332
Current assets 12,731 10,624 10,269
Short-term 69 10 65
investments
Current portion 226 229 244
of deferred
expenses
Inventories 14 814 822 1,266
Trade and other 6,399 6,473 7,400
receivables
Financial assets 275 394 576
Cash and cash 15 4,948 2,696 718
equivalents
Total assets 57,544 53,503 55,351
Equity and
liabilities
Equity
attributable to
equity holders
of Telkom 29,165 24,210 27,675
Share capital and 16 6,791 6,791 5,339
premium
Treasury shares 16 (1,809) (1,809) (1,775)
Share-based 17 151 91 203
compensation
reserve
Non-distributable 1,128 757 1,233
reserves
Retained earnings 22,904 18,380 22,675
Minority interest 301 313 325
Total equity 29,466 24,523 28,000
Non-current 12,391 14,470 12,148
liabilities
Interest-bearing 18 7,655 9,702 8,544
debt
Provisions 12 2,677 2,666 1,128
Deferred revenue 991 967 985
Deferred taxation 13 1,068 1,135 1,491
Current 15,687 14,510 15,203
liabilities
Trade and other 6,103 5,796 6,866
payables
Shareholders for 7 4 6 9
dividend
Current portion 18 3,468 2,228 3,722
of interest-
bearing debt
Current portion 1,660 1,026 1,375
of provisions
Current portion 1,975 1,783 1,961
of deferred
revenue
Income tax 6 1,549 1,576 583
payable
Financial 235 350 122
liabilities
Credit facilities 15 693 1,745 565
utilised
Total liabilities 28,078 28,980 27,351
Total equity and 57,544 53,503 55,351
liabilities
Condensed consolidated interim statement of changes in equity
for the six months ended September 30, 2006
Attributable to ordinary
shareholders
Share Share Treasury
capital premium shares
Rm Rm Rm
Balance at 5,570 2,723 (1,812)
April 1, 2005
as previously
reported
Change in
accounting
policy - Net
investment in
a
foreign
operation
(Refer to
note 2)
Restated 5,570 2,723 (1,812)
balance at
April 1, 2005
Total
recognised
income and
expense -
Profit for
the period
Dividend
declared of
900 cents per
share (Refer
to note 7)
Transfer to
non-
distributable
reserves
Foreign
currency
translation
reserve (net
of tax of
RNil)
Net increase
in Share-
based
compensation
reserve
(Refer to
note 17)
Shares vested 3
and re-issued
(Refer to
notes 16 and
17)
Acquisition
of subsidiary
Shares bought (121) (1,381)
back and
cancelled
(Refer to
note 16)
Restated 5,449 1,342 (1,809)
balance at
September 30,
2005
Restated 5,570 2,723 (1,812)
balance at
April 1, 2005
Total
recognised
income and
expense -
Profit for
the year
Dividend
declared of
900 cents per
share (Refer
to note 7)
Transfer to
non-
distributable
reserves
Foreign
currency
translation
reserve (net
of tax of
RNil)
Net increase
in Share-
based
compensation
reserve
(Refer to
note 17)
Shares vested 3
and re-issued
(Refer to
notes 16 and
17)
Acquisition
of subsidiary
Shares bought (121) (1,381)
back and
cancelled
(Refer to
note 16)
Restated 5,449 1,342 (1,809)
balance at
March 31,
2006
Total
recognised
income and
expense -
Profit for
the period
Dividend
declared of
900 cents per
share (Refer
to note 7)
Transfer to
non-
distributable
reserves
Foreign
currency
translation
reserve (net
of tax of R5
million)
Net increase
in Share-
based
compensation
reserve
(Refer to
note 17)
Shares vested 34
and re-issued
(Refer to
notes 16 and
17)
Acquisition
of minorities
(Refer to
note 23)
Shares bought (110) (1,342)
back and
cancelled
(Refer to
note 16)
Balance at 5,339 - (1,775)
September 30,
2006
Attributable to ordinary shareholders
Share- Non-
based
Compen- Distri- Retained Minority Total
sation butable
reserve reserves earnings Total interest equity
Rm Rm Rm Rm Rm Rm
Balance at 68 361 19,231 26,141 220 26,361
April 1, 2005
as previously
reported
Change in
accounting
policy - Net
investment in
a
foreign (1) 1 - -
operation
(Refer to
note 2)
Restated 68 360 19,232 26,141 220 26,361
balance at
April 1, 2005
Total 4,288 4,288 71 4,359
recognised
income and
expense -
Profit for
the period
Dividend (4,801) (4,801) (4,801)
declared of
900 cents per
share (Refer
to note 7)
Transfer to 339 (339) - -
non-
distributable
reserves
Foreign 58 58 (1) 57
currency
translation
reserve (net
of tax of
RNil)
Net increase
in Share-
based
compensation
reserve
(Refer to 26 26 26
note 17)
Shares vested (3) - -
and re-issued
(Refer to
notes 16 and
17)
Acquisition - 23 23
of subsidiary
Shares bought (1,502) (1,502)
back and
cancelled
(Refer to
note 16)
Restated 91 757 18,380 24,210 313 24,523
balance at
September 30,
2005
Restated 68 360 19,232 26,141 220 26,361
balance at
April 1, 2005
Total 9,189 9,189 139 9,328
recognised
income and
expense -
Profit for
the year
Dividend (4,801) (4,801) (78) (4,879)
declared of
900 cents per
share (Refer
to note 7)
Transfer to 716 (716) - -
non-
distributable
reserves
Foreign 52 52 (7) 45
currency
translation
reserve (net
of tax of
RNil)
Net increase
in Share-
based
compensation
reserve
(Refer to 86 86 86
note 17)
Shares vested (3) - -
and re-issued
(Refer to
notes 16 and
17)
Acquisition - 27 27
of subsidiary
Shares bought (1,502) (1,502)
back and
cancelled
(Refer to
note 16)
Restated 151 1,128 22,904 29,165 301 29,466
balance at
March 31,
2006
Total 4,500 4,500 74 4,574
recognised
income and
expense -
Profit for
the period
Dividend (4,678) (4,678) (53) (4,731)
declared of
900 cents per
share (Refer
to note 7)
Transfer to 49 (49) - -
non-
distributable
reserves
Foreign 56 56 14 70
currency
translation
reserve (net
of tax of R5
million)
Net increase
in Share-
based
compensation
reserve
(Refer to 86 86 86
note 17)
Shares vested (34) - -
and re-issued
(Refer to
notes 16 and
17)
Acquisition - (11) (11)
of minorities
(Refer to
note 23)
Shares bought (2) (1,454) (1,454)
back and
cancelled
(Refer to
note 16)
Balance at 203 1,233 22,675 27,675 325 28,000
September 30,
2006
Condensed consolidated interim cash flow statement
for the six months ended September 30, 2006
Audited Reviewed Reviewed
March 31, September 30, September 30,
2006 2005 2006
Notes Rm Rm Rm
Cash flows from 9,506 875 772
operating
activities
Cash receipts from 46,958 22,756 24,369
customers
Cash paid to (27,234) (14,131) (15,323)
suppliers and
employees
Cash generated from 19,724 8,625 9,046
operations
Interest received 482 253 276
Dividend received 50 27 3
Finance charges (1,316) (712) (593)
paid
Taxation paid 6 (4,550) (2,470) (3,234)
Cash generated from
operations
before dividend 14,390 5,723 5,498
paid
Dividend paid 7 (4,884) (4,848) (4,726)
Cash flows from (7,286) (3,078) (4,102)
investing
activities
Proceeds on
disposal of
property,
plant and equipment 92 138 6
and intangible
assets
Proceeds on 493 15 275
disposal of
investment
Additions to
property, plant and
equipment
and intangible (7,396) (3,084) (4,193)
assets
Additions to other (475) (147) (190)
investments
Cash flows from (258) 859 (817)
financing
activities
Shares bought back (1,502) (1,502) (1,403)
Loans raised 4,123 3,678 2,148
Loans repaid (7,399) (5,892) (1,368)
Finance lease (24) (11) (15)
capital repaid
Decrease/(increase) 4,544 4,586 (179)
in net financial
assets
Net
increase/(decrease)
in
cash and cash 1,962 (1,344) (4,147)
equivalents
Net cash and cash
equivalents
at beginning of the 2,301 2,301 4,255
year
Effect of foreign (8) (6) 45
exchange rate
differences
Net cash and cash
equivalents
at end of the 15 4,255 951 153
year/period
Notes to the condensed consolidated interim financial statements
for the six months ended September 30, 2006
1. Corporate information
Telkom SA Limited (`Telkom") is a limited liability company incorporated and
domiciled in the Republic of South Africa (`South Africa") whose shares are
publicly traded. The company, its subsidiaries and joint ventures (`the
Group") is the leading provider of fixed-line voice and data communications
services in South Africa and mobile communications services through the
Vodacom Group (Proprietary) Limited (`Vodacom") in South Africa and certain
other African countries. The Group"s services and products include:
- fixed-line voice services, including subscriptions and connections
services, local, long distance, fixed-to-mobile and international voice
services, interconnection and hubbing communications services, international
voice-over-internet protocol services, subscription based value-added voice
services and customer premises equipment sales and rental;
- fixed-line data services, including domestic and international data
transmission services, such as point-to-point leased lines, ADSL services and
packet-based services, managed data networking services and internet access
and related information technology services;
- directory and wireless data services through our TDS Directory Operations
and Swiftnet subsidiaries, respectively; and
- mobile communications services, including voice services, data services,
value-added services and handset sales through Vodacom.
The condensed consolidated interim financial statements of the Group for the
six months ended September 30, 2006 were authorised for issue in accordance
with a resolution of the directors on November
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