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TELKOM SA SOC LIMITED - Audited results for the year ended 31 March 2014

Release Date: 13/06/2014 07:05
Code(s): TKG     PDF:  
Wrap Text
Audited results for the year ended 31 March 2014

Telkom SA SOC Limited
(Registration number 1991/005476/30) JSE share code: TKG
ISIN: ZAE000044897

Group annual results
For the year ended 31 March 2014

The information contained in this document is also available on
Telkom’s investor relations website www.telkom.co.za/ir

Group Company Secretary: Xoliswa Mpongoshe

Transfer secretaries: Computershare Investor Services (Proprietary) 
Limited
PO Box 61051, Marshalltown, 2107

Sponsor:
The Standard Bank of South Africa Limited
Standard Bank Centre
5 Simmonds Street, Johannesburg, 2001

Directors:
JA Mabuza (Chairman), SN Maseko (Group Chief Executive Officer),  
JH Schindehütte (Chief Financial Officer), S Botha, Dr CA Fynn,
N Kapila, I Kgaboesele, K Kweyama, L Maasdorp, K Mzondeki, 
F Petersen, LL Von Zeuner

Special note regarding forward-looking statements
Many of the statements included in this document, as well as oral 
statements that may be made by us or by officers, directors or employees 
acting on behalf of us, constitute or are based on forward-looking 
statements.

All statements, other than statements of historical facts,
including, among others, statements regarding our convergence and other 
strategies, future financial position and plans, objectives, capital 
expenditures, projected costs and anticipated cost savings and financing 
plans, as well as projected levels of growth in the communications market, 
are forward looking statements. Forward- looking statements can generally 
be identified by the use of terminology such as “may”, “will”, “should”, 
“expect”, “envisage”, “intend”, “plan”, “project”, “estimate”, 
“anticipate”, “believe”, “hope”, “can”, “is designed to” or similar 
phrases, although the absence of such words does not necessarily mean that 
a statement is not forward looking. These forward-looking statements 
involve a number of known and unknown risks, uncertainties and other 
factors that could cause our actual results and outcomes to be materially 
different from historical results or from any future results expressed or 
implied by such forward-looking statements. Among the
factors that could cause our actual results or outcomes to differ 
materially from our expectations including but not limited to those risks 
identified in Telkom’s most recent annual report which are available on 
Telkom’s website at www.telkom.co.za/ir.

We caution you not to place undue reliance on these forward looking 
statements. All written and oral forward-looking statements attributable 
to us, or persons acting on our behalf, are qualified in their entirety by 
these cautionary statements. Moreover, unless we are required by law to 
update these statements, we will not necessarily update any of these 
statements after the date of this document, either to conform them to 
actual results or to changes in our expectations.

The information contained in this document is also available on
Telkom’s investor relations website www.telkom.co.za/ir.

Telkom SA SOC Limited is listed on the JSE Limited. Information may be 
accessed on Reuters under the symbols TKGJ.J and on Bloomberg under the 
symbol TKG.SJ. Information contained on Reuters and Bloomberg is provided 
by a third party and is not incorporated by reference herein. Telkom has 
not approved or verified such information and does not accept any 
liability for the accuracy of such information.

GROUP SALIENT FEATURES
FOR THE YEAR ENDED 31 MARCH 2014

ADSL subscribers increased 6,5% to 926 944
Managed data network sites increased 6,3% to 47 125
Mobile sites integrated increased 22,3% to 2 428
Operating revenue up 1,1% to R32,5 billion
Fixed-line voice and interconnection revenue decreased 7,4% to R9,4 billion
Fixed-line data revenue decreased 1,1% to R10,3 billion
Mobile revenue increased 72,7% to R2 347 million 
Mobile data revenue increased 80,2% to R656 million. 
Calling plan subscribers increased 1,3% to 867 874
Active mobile subscribers increased 17,6% to 1 803 675 with a blended ARPU 
of R62,79
1 183 LTE sites integrated
EBITDA excluding the once off items improved 3,8% to R8,4 billion
Headline earnings per share excluding the once off items increased
35,1% to 388,0 cents
Operating expenses, excluding depreciation, decreased 2,1% to R18,2 billion
Free cash flow generated remains strong at R1 145 million
Group interest-bearing debt decreased 38,5% to R4,1 billion

OVERVIEW
Johannesburg, South Africa – 13 June 2014, Telkom SA SOC Limited
(JSE: TKG) today announced Group annual results for the year ended
31 March 2014.

Message from Telkom Group CEO Sipho Maseko
Our efforts to turn Telkom around are starting to produce results. Our 
headline earnings per share from continuing operations excluding once offs 
for the year was 388,0 cents, up 35,1% on the previous year. Basic 
earnings per share increased to 285,2 cents from 268,5 cents in the prior 
financial year.

In the past financial year, in line with our guidance to stabilise
revenues, we have achieved revenue growth of 1,1% for the year, confirming 
that we still face significant challenges largely as a result of the 
sustained pressure on our fixed-line revenues. Group reported revenue was 
R32,5 billion compared with R32,1 billion in the prior period. Our 
operating expenses, excluding depreciation, decreased 2,1% to R18,2 
billion, from R18,5 billion last year, a commendable achievement when you 
consider that in real terms this translates to an 8,2% reduction in 
operating expenses. This can be attributed to lower employee cost, lower 
bad debts as we improvedour credit vetting processes and efficiencies 
gained on various cost management initiatives including a reduction in 
marketing expenditure and lower inventory write-offs. We began to realise 
some significant efficiencies in our third party spend by improving our 
facilities management, and rationalising our property portfolio.

This resulted in an improvement in EBITDA, which grew 3,8% to R8,4 
billion. Our free cash flow remained strong at R1,2 billion, after capital 
investment of R6,5 billion, which increased 12,0% year-on- year. This can 
be largely attributed to the substantial investment in our Next Generation 
Network. The Group is lowly geared, with year-on- year net debt decreasing 
0,8% to R2,1 billion, which will ensure that we remain in a position to 
fund our capital expenditure programme.

Prospects
Based on our guidance provided in November 2013, the Group plans to 
reinstate the dividend in the 2015 financial year, subject to the 
financial performance of the Group, the operating environment, growth 
opportunities and debt and cash flow levels. The Board has decided not to 
declare a dividend in respect of the financial year ended 31 March 2014.

Going forward, we expect to see continued pressure on fixed-line
voice revenues, intensified by strong competition, a challenging 
macro-economic environment and effects of regulatory interventions. Our 
objective to further stabilise and grow revenue is dependent on 
effectively positioning our resources to drive value and achieving 
efficiencies across our operating cost base to improve EBITDA margins. 
This will require us to focus our capital expenditure on areas that 
generate satisfactory returns for our shareholders, and to avoid 
unprofitable operations.

We aim to successfully conclude the proposed MTN South Africa and
Business Connexion transactions within the current financial year, 
enabling us to rapidly fill gaps in our service and product offering, 
which we believe will improve Telkom’s competitiveness, profitability and 
ability to provide fully converged solutions to our customers.

Financial Guidance

                                                       2015       2016
                                                 Stabilised Stabilised
                                                    to grow    to grow
Revenue
EBITDA margin (%)                                     26-27      27-28
Capex to revenue (%)                                  14-17      14-17
Net debt to EBITDA                                       =1         =1

Our intention is to reinstate the dividend in the 2015 financial year

The information above has not been reviewed or reported on by our 
auditors.

Further cautionary
Shareholders are referred to the cautionary announcements published
on the Securities Exchange News Service of the JSE Limited on 6 and 
7 March 2014 and on 23 April 2014. Shareholders are advised that Telkom and 
MTN South Africa remain in discussions regarding the potential extension 
of their existing roaming agreement to include bilateral roaming and 
outsourcing of the operation of Telkom’s radio access network, which if 
successfully concluded may have a material effect on the price of Telkom’s 
securities.

Accordingly, shareholders are advised to continue to exercise
caution when dealing in Telkom securities until a further announcement in 
this regard is made.

Results from operations
The Group recorded a profit after tax of R4 billion. This is significantly 
higher than the previous year and was driven by:
• a R2 169 million net curtailment gain recognised on the post- retirement 
medical aid liability and R246 million related tax benefit on the R878 
million settlement;
• the R12 billion asset impairment included in the 2013 financial year;
• R592 million provision for the Competition Commission fines
included in the prior year; and
• R434 million voluntary severance and early retirement cost
included in the prior year.

As we reported at our interim results, the company reassessed the 
underlying assumptions used to determine the value of the post- retirement 
medical aid liability for qualifying employees. The growth assumption for 
the subsidisation amount at retirement was capped at 0% and employees were 
offered a settlement calculated at the economic value of their liability. 
This curtailment and subsequent settlement was the main contributor to a 
net non-cash gain of approximately R2 169 million and a reduction in the 
post- retirement medical aid liability.

The once-off items above are not part of the results from core
operations for the year under review and have therefore been excluded from 
the discussion below.

The Group recorded a profit after tax of R1 577 million (2013: R1 494
million) and EBITDA of R8 370 million (2013: R8 061 million).

The changes from our transformation process are starting to positively 
impact our financial performance. However, we still face significant 
challenges in our fixed-line voice and mobile business, including 
fixed-to-mobile substitution and being the fourth entrant into a highly 
competitive mobile market. Our net revenue decreased by 0,4%, driven by a 
continued decline in fixed voice revenue, partially offset by lower 
payments to mobile operators which resulted from the reduction in mobile 
termination rates. We recorded promising growth of 80,2% in mobile data 
revenue and 69,3% in IT Business services revenue. Data revenue now 
constitutes approximately 33,8% of Group revenue which increased 1,7% 
from the prior reporting period. Data volumes, however, were negatively 
impacted by an increasingly competitive pricing landscape.

We managed to reduce operating cost by 2,1%. This reduction was
largely driven by lower full time and part time employee costs and bonus 
payments, lower bad debts from improved credit vetting systems, and 
savings on materials and maintenance from efficiencies gained from various 
cost management initiatives. In addition, we reduced marketing expenditure 
and managed to limit inventory write-offs.

The Group generated strong cash flows, resulting in a healthy capital 
structure. In addition, interest bearing debt decreased
38,5% to R4,1 billion at 31 March 2014.

Report structure
In line with the Group’s convergence strategy, key performance indicators 
are measured and evaluated on a Group-wide basis. The Group therefore 
consists of one operating segment.

However, this report provides further details of the fixed-line business 
which offers fixed-line access and data communication services through 
Telkom South Africa, and the mobile business which offers mobile voice 
services, data services and handset sales through Telkom Mobile. The 
contribution of the subsidiaries, Trudon and Swiftnet, are also shown 
separately. The Telkom category represents Telkom Company’s contribution 
to the Group including consolidation entries.

The comparative information for March 2013 has been restated as a result 
of the adoption of IAS 19R, the amendment to IAS 16, the reclassification 
of iWayAfrica as a discontinued operation and to account for the change in 
accounting policy regarding the Cell Captive. Refer to note 2.1 in the 
condensed consolidated provisional financial statements.

In addition the following items have been reclassified to provide more 
relevant disclosure:
• Direct cost of R373 million and cost of sales of R1 176 million
have been reclassified from selling, general and administrative expenses 
to direct cost and cost of sales, respectively.
• Sundry revenue of R128 million has been reclassified from selling, 
general and administrative expenses to other income.
• Motor insurance scheme expenses of R84 million, previously included in 
service fees, has been reclassified to employee expenses.

Operational data
                                         2014       2013          %
ADSL subscribers1                     926 944    870 505        6,5
Calling plan subscribers              867 874    856 336        1,3
Closer subscribers                    845 742    830 296        1,9
Supreme call subscribers               22 132     26 040      (15,0) 
WiMAX subscribers                       2 878      3 218      (10,6) 
Internet all access subscribers2      534 441    527 291        1,4
Fixed access lines (‘000)3              3 618      3 800       (4,8)
Post-paid                               2 363      2 427       (2,6)
Post-paid – ISDN channels                 737        756       (2,5) 
Pre-paid                                  439        522      (15,9) 
Payphones                                  79         95      (16,8) 
Ports activated via MSAN access       475 144     73 400      547,3
Fixed-line penetration rate (%)4          7,0        7,3       (0,3)
Revenue per fixed access line
(ZAR)5                                  4 630      4 581        1,1
Total fixed-line traffic (millions
of minutes)                            18 045     18 425       (2,1) 
Managed data network sites             47 125     44 328        6,3
Telkom Company employees6              19 197     21 209       (9,5)
Trudon employees                          468        519       (9,8) 
Swiftnet employees                        116        113        2,7
Fixed access lines per employee6          188        179        5,0
Active mobile subscribers7          1 803 675  1 534 265       17,6
Pre-paid                            1 423 193  1 158 327       22,9
Post-paid                             380 482    375 938        1,2
Mobile base stations constructed        2 592      2 299       12,7
Mobile sites integrated                 2 428      1 985       22,3
LTE sites integrated                    1 183        651       81,7
ARPU (Rand)8                            62,79      60,30        4,1
Pre-paid                                31,92      23,87       33,7
Post-paid                              173,28     156,88       10,5
Churn % – pre-paid                       43,8       56,8       13,0

1. Excludes Telkom internal lines and includes business, consumer, 
corporate, government and wholesale customers.
2. Includes Telkom Internet ADSL, ISDN and WiMAX subscribers.
3. Excludes Telkom internal lines.
4. Penetration rate is based on the 2011 Census population statistics.
5. Revenue per fixed access line has been restated to exclude internal 
revenue in line with the new disclosure.
6. Based on number of Telkom Company employees, excluding subsidiaries.
7. Based on a subscriber who has participated in a revenue
generating activity within the last 90 days.
8. The ARPU for March 2013 has been restated to exclude internal revenue 
and to include Telkom Business mobile.

Financial performance
Group operating revenue

In ZAR millions                             2014     2013         % 
Voice and subscriptions                   16 237   16 951      (4,2) 
Fixed-line usage                           7 934    8 591      (7,6) 
Fixed-line subscriptions                   7 812    7 743       0,9
Mobile voice and subscriptions               491      617     (20,4)
Interconnection                            1 508    1 597      (5,6) 
Fixed-line domestic                          458      562     (18,5) 
Fixed-line international                     971      959       1,3
Mobile interconnection                        79       76       3,9
Data                                      10 981   10 801       1,7
Data connectivity                          5 544    5 595      (0,9)
Leased line facilities                     1 789    1 963      (8,9) 
Internet access and related services       1 676    1 617       3,6
Managed data network services                919    1 005      (8,6)
Multi-media services                          50       52      (3,8) 
Mobile data                                  656      364      80,2
IT Business services                         347      205      69,3
Customer premises equipment sales and
rentals                                    2 186    1 333      64,0
Sales                                        307      327      (6,1) 
Rentals                                      758      704       7,7
Mobile handset and equipment sales         1 121      302     271,2
Other                                        367      227      61,7
Trudon                                     1 112    1 140      (2,5) 
Swiftnet                                      92      94       (2,1) 
Total                                     32 483   32 143       1,1

Group operating revenue increased 1,1% to R32 483 million (2013: R32
143 million), driven by higher mobile handset and equipment sales, growth 
in mobile data and IT Business services data revenue, offset by a decline 
in voice revenue.

Fixed-line voice usage revenue continued on a downward trend, decreasing 
7,6% to R7 934 million (2013: R8 591 million). This can be attributed to a 
2,1% decline in voice minutes, resulting from fixed-to-mobile 
substitution, with a decrease of approximately R190 million relating to 
the pass through of reduced mobile termination rates to fixed-line 
customers. In addition, fixed-line voice usage was impacted by a decline 
in number of lines of 4,8%. The number of business lines decreased due to 
the consolidation of branches and brands as well as the trend of medium 
sized business to reduce the number of services to save costs, including 
the move from standalone offices into multi-tenant office parks.

Fixed-line subscriptions revenue grew 0,9% to R7 812 million (2013: R7 743 
million) as a result of average line rental tariff increases of 6%.

While revenue from our mobile operations grew 72,7%, mobile voice and 
subscriber revenue decreased 20,4%. This can be attributed to the expiry 
of bulk hybrid contracts and a clean-up of our debtors’ book which has 
resulted in an improved quality of our customer base. The decrease in 
post-paid voice revenue was partially offset by higher pre-paid voice and 
subscriptions revenue, supported by an increase in subscribers and ARPU. 
Mobile interconnection revenue increased slightly by 3,9%.

Fixed-line domestic interconnection revenue decreased 18,5% to R458 
million (2013: R562 million), primarily driven by the reduction in fixed 
termination rates.

The 1,3% increase in fixed-line international interconnection revenue to 
R971 million (2013: R959 million) was driven by higher switched hubbing 
revenue. However, this was partially offset by a reduction in volumes of 
international outgoing calls by mobile operators.

Revenue from data connectivity services decreased 0,9% to R5 544
million (2013: R5 595 million), caused by a decline in Diginet and 
Megalines revenue, due to increased competition and migration to Metro 
Ethernet services. This was partially offset by an increase in Metro 
Ethernet services revenue. ADSL revenue increased as a result of a 6,5% 
increase in ADSL subscribers to 926 944 (2013: 870 505). 

With continued self-provisioning by other licenced operators,revenue from 
mobile leased line facilities remained under pressure and declined 8,9% to 
R1 789 million (2013: R1 963 million).

Higher internet and IP Connect revenue was supported by a 3,6%
increase in internet access and related services revenue.

Managed data network services revenue decreased 8,6% to R919 million
(2013: R1 005 million) which was caused by a reclassification of revenue 
to IT services revenue of approximately R62 million from 1 April 2013, 
discounts offered to customers and the migration of customers to lower cost 
solutions. We increased the number of sites by 6,3% to 47 125 (2013: 44 328).

In line with our strategy to focus on data, we offered enticing data
deals and promotional products which led to an increase in data 
subscribers, and a 80,2% increase in mobile data revenue to R656 million 
(2013: R364 million).

We made some key strategic wins in the IT market during the year which 
boosted our IT Business services data revenue which increased
69,3% to R347 million (2013: R205 million).

A strategic decision was made to discontinue sales of PC and gaming 
equipment, which caused a 6,1% decline in customer premises equipment 
sales to R307 million (2013: R327 million). Despite this, our rentals 
increased 7,7% to R758 million (2013: R704 million) due to increased 
uptake in next generation equipment rentals and higher tariffs.

Mobile handset and equipment sales revenue increased 271,2%, driven
by higher bulk sales to dealers and a sharp increase in smartphone and 
tablet sales.

Other revenue increased 61,7% to R367 million (2013: R227 million) as we 
recognised higher revenue from expired cards and higher co-location 
revenue generated from an increase in the number of sites.

Group other income
In ZAR millions                               2014    2013        %
Telkom                                         446     432      3,2
Trudon                                          31      34     (8,8)
Swiftnet                                         2       4    (50,0) 
Total                                          479     470      1,9

Other income includes profit on the disposal of property, plant and 
equipment as well as interest received from debtors and sundry income.

Restatements and reclassifications of comparative information. 
Sundry revenue of R128 million previously included in selling, general and 
administrative expenses was reallocated to other income.

Group direct expenses
In ZAR millions                             2014    2013          %
Payments to other operators                3 944   4 460       11,6
Direct cost                                  560     373      (50,1)
Cost of sales                              1 938   1 176      (64,8) 
Total                                      6 442   6 009       (7,2)

The increase in direct expenses was a result of an increase in
mobile equipment sales and higher subscriber acquisition cost, which was 
partly offset by a decrease in mobile termination rates.

Telkom direct expenses
In ZAR millions                                2014    2013       % 
Payments to other operators                   3 920   4 434    11,6
Mobile network operators                      2 308   2 901    20,4
International network operators                 946     904    (4,6) 
Fixed-line network operators                    338     368     8,2
Data commitments                                328     261   (25,7) 
Direct cost                                     560     373   (50,1) 
Cost of sales                                 1 616     856   (88,8) 
Total                                         6 096   5 663    (7,6)

Payment to other operators decreased 11,6% as a result of a
reduction in mobile termination rates which was moderately offset by 
higher data commitments.

Direct cost grew 50,1% following an increase in mobile sales acquisition 
costs relating to an increase in active mobile subscribers.

The 88,8% increase in cost of sales is largely attributed to the increase 
in cost of mobile handsets and tablets sold.

Group operating expenses
In ZAR millions                               2014     2013       % 
Employee expenses1                           9 306    9 563     2,7
Selling, general and administrative
expenses2,3                                  4 682    5 059     7,5
Service fees1                                3 110    2 996    (3,8)
Operating leases                             1 052      925   (13,7) 
Depreciation, amortisation, impairments
and write-offs4                              5 937    6 180     3,9
Total                                       24 087   24 723     2,6

Restatements and reclassifications of comparative information
1. Motor insurance scheme expenses of R84 million, previous included in 
service fees have been reclassified to employee expenses. In addition 
employee expenses have increased by R144 million as a
result if the adoption of IAS 19R and we have excluded the voluntary 
severance and early retirement cost of R434 million.
2. Sundry revenue of R128 million previously included in other expenses 
was reallocated to other income.
3. The provision for the Competition Commission fine of R592 million
are excluded from the results above and R1 229 million of direct cost and 
cost of sales are reclassified as direct expenses.
4. The R12 billion impairment has been excluded from the results and
impairments and write-offs have increased by R25 million due to the 
amendment to IAS 16.

Group operating expenses decreased by 2,6% to R24 087 million (2013: 
R24 723 million) in the year ended 31 March 2014, primarily due to 
depreciation savings resulting from the R12 billion impairment in
the prior year and lower bad debts.

Group operating expenditure contribution
In ZAR millions                                  2014    2013     % 
Telkom                                         23 704  24 319   2,5
Trudon                                            294     322   8,7
Swiftnet                                           89      82  (8,5) 
Total                                          24 087  24 723   2,6

Telkom operating expenditure
In ZAR millions                                2014    2013        % 
Employee expenses1                            9 037   9 287      2,7
Salaries and wages                            7 103   7 285      2,5
Benefits1                                     2 315   2 479      6,6
Workforce reduction expenses2                    75      43    (74,4)
Employee related expenses capitalised          (456)   (520)   (12,3) 
Selling, general and administrative
expenses3,4,5                                 4 695   5 050      7,0
Materials and maintenance                     3 020   3 104      2,7
Marketing3                                      799     856      6,7
Bad debts                                       170     315     46,0
Other4,5                                        706     775      8,9
Service fees1                                 3 096    2 984    (3,8)
Property management                           1 741    1 659    (4,9) 
Consultants, security and other1              1 355    1 325    (2,3) 
Operating leases                              1 004      880   (14,1)
Buildings                                       455      385   (18,2) 
Equipment                                        35       35       – 
Vehicles                                        514      460   (11,7) 
Depreciation, amortisation, impairments
and write-offs6                               5 872    6 118     4,0
Depreciation                                  4 588    5 044     9,0
Amortisation                                    652      873    25,3
Impairment and write-offs6                      632      201  (214,4)
Total                                        23 704   24 319     2,5

Restatements and reclassifications of comparative information
1. Motor insurance scheme expenses of R84 million, previous included in 
service fees have been reclassified to employee expenses. In addition 
benefits have increased by R144 million as a result if the adoption of IAS 
19R and R276 million relating to voluntary severance packages.
2. Voluntary severance and early retirement cost of R710 million
excluded.
3. Market research expenses of R81 million has been reallocated from 
marketing expenses to other expenses.
4. Sundry revenue of R128 million previously included in other expenses 
was reallocated to other income.
5. The provision for the Competition Commission fine of R592 million is 
excluded from the results above and R1 229 million of direct cost and cost 
of sales are reclassified as direct expenses.
6. The R12 billion impairment has been excluded from the results and 
impairments and write-offs have increased by R25 million due to the 
amendment to IAS 16.

Employee expenses were 2,7% lower due to lower full time salary cost as 
headcount decreased by 9,5%. Part time employee costs, lower provision for 
bonus and lower overtime also contributed to the decrease. This was 
negated by a 6,8% average salary increase for bargaining unit employees, a 
3,6% average salary increase for management employees and a R103 million 
curtailment loss on the retirement fund in the 2014 financial year. The 
curtailment loss relates to the impact on plan assets as a result of the 
closing of the voluntary severance and early retirement packages offered 
in the 2013 financial year.

Selling, general and administrative expenses decreased 7,0% to R4 695 million 
(2013: R5 050 million), as a result of lower bad debts which 
decreased 46,0% due to improved credit vetting, lower materials and 
maintenance expenses, resulting from various cost saving initiatives, 
lower inventory write-offs and marketing expenses. This, however, was 
partly offset by higher licence fees. 

Space optimisation projects, repairs and renovation of mobile buildings 
and masts and higher electricity costs led to a 4,9% increase in property 
management expenses. Consultants, security and other service fees increased 
2,3%, which was driven by higher costs incurred relating to the Company’s 
transformation programme.

Building leases increased 18,2% as a result of annual escalations and an 
increase in the number of mobile sites acquired. The 11,7% increase in 
vehicle leases was mainly attributed to a cost to terminate 500 vehicles 
early, which saw a decrease in number of vehicles to 6 066 (2013: 6 848).

Depreciation decreased 4,0% to R5 872 million (2013: R6 118 million). 
This decline relates to the R12 billion impairment of the asset 
base in March 2013. However, this was partially offset by accelerated 
depreciation from reviewing the useful lives of new connections installed 
to customer premises and a 60,8% increase in depreciation of our mobile 
assets. The increase in mobile depreciation is driven by the continued 
expansion of the mobile network.

Impairment and write-offs increased significantly to R632 million
(2013: R201 million). With effect from 1 April 2013, Telkom adopted an 
amendment to IAS 16, property, plant and equipment (PPE) which clarifies 
that spare parts previously included in inventory be classified as PPE if 
they meet the definition of PPE. Consequently, certain legacy and 
technologically aged items were reclassified to PPE from inventory. An 
impairment was recognised regarding these assets in line with the 
requirements of IFRS.

Mobile operating expenditure
Telkom Mobile, details of operating expenditure are provided below. 

In ZAR millions                              2014    2013         % 
Payments to other operators                   482     482         – 
Direct cost                                   461     294     (56,8) 
Cost of sales                               1 056     416    (153,8) 
Employee expenses                             359     333      (7,8) 
Selling, general and administrative
expenses                                      988   1 077       8,3
Service fees                                  144     245      41,2
Operating leases                              220     187     (17,6) 
Depreciation, amortisation, impairments
and write-offs                                598     372     (60,8) 
Total                                       4 308   3 406     (26,5)

EBITDA
In ZAR millions                              2014    2013         %
Telkom                                      7 797   7 474       4,3
EBITDA margin (%)                            24,9    24,2       0,7
Trudon                                        573     580      (1,2)
EBITDA margin (%)                            51,5    50,9       0,6
Swiftnet                                        –       7    (100,0) 
EBITDA margin (%)                               –     7,4      (7,4) 
Total                                       8 370   8 061       3,8

INVESTMENT INCOME
Investment income consists of interest received on short-term investments 
and bank accounts. Investment income decreased by 36,9%
to R176 million (2013: R279 million) as a result of lower cash balances 
held by the Group.

FINANCE CHARGES AND FAIR VALUE MOVEMENTS
Finance charges include interest paid on local and foreign borrowings, 
amortised discounts on bonds and commercial paper bills, fair value gains 
and losses on financial instruments and foreign exchange gains and losses 
on foreign currency denominated transactions and balances.

Foreign exchange and fair value gains decreased 20,4% to R344 million 
(2013: R432 million). This decrease was caused by lower fair
value gains on derivatives due to the implementation of hedge accounting 
effective 1 October 2013 and partially offset by higher fair value gains 
realised on the underlying assets held by the Cell Captive. Interest 
expense decreased 3,0% to R636 million (2013: R656 million) as a result of 
a 38,5% decrease in interest bearing debt from 31 March 2014 and lower 
interest rates.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
The Group’s capital structure remains strong. Net debt, including
financial assets and liabilities, decreased 0,8% to R2 108 million from 
R2 125 million as at 31 March 2013, resulting in a net debt to EBITDA ratio 
of 0,3 times. On 31 March 2014, the Group had cash balances, including 
other financial assets and liabilities, of R1 930 million (2013: R4 461 million).

Current liabilities decreased in the year ended 31 March 2014 as we 
settled the R2,0 billion syndicated loan.

FREE CASH FLOW

In ZAR millions                              2014     2013         % 
Cash generated from operations before
dividends paid as reported                  6 490    7 649     (15,2) 
Add back: Payment to Competition
Commission                                    291        –         –
Add back: Payment to insurer for post-
retirement medical aid                        878        –         –
Add back: Voluntary severance and early
retirement cost                               710        –         – 
Less: Taxation refund received               (854)
Normalised cash generated from
operations before dividends paid            7 515    7 649      (1,8) 
Cash paid for capital expenditure          (6 370)  (5 627)    (13,2) 
Free cash flow                              1 145    2 022     (43,4)

Free cash flow decreased 43,4% to R1 145 million (2013: R2 022 million) as 
a result of an increase in foreign payments as a result of the weakening 
of the Rand against the major currencies and a 13,2% increase in our capital 
expenditure. 

GROUP CAPITAL EXPENDITURE
Our capital expenditure programme is aligned to our strategy to build our 
Next Generation Network and grow mobile and converged service offerings.

Group capital expenditure, which includes spend on intangible assets, 
increased 12,0% to R6 458 million (2013: R5 768 million) and represents 
19,9% of Group operating revenue (2013: 17,9%).

In ZAR millions                               2014    2013        % 
Baseline                                     1 837   2 057     10,7
Network evolution                            2 439   1 232    (98,0) 
Mobile                                       1 368   1 548     11,6
Sustenance                                     198     310     36,1
Effectiveness and efficiency                   162     121    (33,9) 
Support                                        357     377      5,3
Other                                           27      26     (3,8)
Trudon                                          45      63     28,6
Swiftnet                                        25      34     26,5
Total                                        6 458   5 768    (12,0)

Baseline capital expenditure of R1 837 million (2013: R2 057 million) 
consists largely of the deployment of technologies to support the growing 
data services business, links to the mobile cellular operators and access 
line deployment in selected high growth commercial and business areas. The 
reduction in expenditure for the year is due to the provision of ADSL and 
Metro Ethernet services under the Next Generation Network programme, 
included in the network evolution category.

Expenditure on network evolution of R2 439 million (2013: R1 232 million) 
related to the continued rollout of the Next Generation Network programme 
which aims to modernise the legacy voice network, provide high speed 
broadband in selected areas and to address the associated operational and 
business support systems. The expenditure on this programme has increased 
as it accelerates beyond the initial phase.

Mobile capital expenditure decreased 11,6% to R1 368 million (2013:
R1 548 million), due to the shift to a more concentrated rollout in the 
four major metropolitan areas.

The sustenance category expenditure of R198 million (2013: R310 million) 
was largely linked to the replacement of obsolete power systems as well as 
the replacement and modernisation of the access and core network.

The increase in the effectiveness and efficiency category to R162 million 
(2013: R121 million) was as a result of the movement of staff from leased 
buildings to owned buildings and various IT efficiency projects.

The support capital expenditure of R357 million (2013: R377 million)
is primarily related to rebranding Telkom stores during the year,
the provision of new buildings and building extensions in support of
network growth and building compliance upgrades. This capital expenditure 
decreased 5,3% because a number of projects which were started in previous 
years were completed.

Group annual financial statements 
for the year ended 31 March 2014

The information contained in this document is also available on
Telkom’s investor relations website www.telkom.co.za/ir

AUDITORS
This summarised report is extracted from audited information, but is
not itself audited. The annual financial statements were audited by Ernst 
& Young Inc. who expressed an unmodified opinion thereon. The audited 
annual financial statements and the auditor’s report thereon are available 
for inspection at the company’s registered office. The directors take full 
responsibility for the preparation of the preliminary, provisional or 
abridged report and the financial information has been correctly extracted 
from the underlying annual financial statements.

BOARD APPROVAL
The condensed consolidated provisional annual financial statements were 
authorised for issue by the Board of Directors of Telkom (Board) on 
12 June 2014.

PREPARER AND SUPERVISOR OF CONDENSED CONSOLIDATED PROVISIONAL ANNUAL 
FINANCIAL STATEMENTS
These condensed consolidated provisional annual financial statements
were prepared by Mr Robin Coode (Group Executive Accounting) and 
supervised by Mr Deon Fredericks (Acting Chief Financial Officer).

Condensed consolidated provisional statement of profit or loss and other 
comprehensive income
for the year ended 31 March 2014
                                                         Restated*
                                                   2014      2013
                                         Notes       Rm        Rm
Continuing operations
Total revenue                                4   33 061    32 853
Operating revenue                                32 483    32 143
Payments to other operators                       3 944     4 460
Cost of sales                              5.1    2 498     1 549
Net operating revenue                            26 041    26 134
Other income                                        479       470
Operating expenses                               21 918    37 749
Employee expenses                          5.2    7 137     9 997
Selling, general and administrative
expenses                                   5.3    4 682     5 651
Service fees                               5.4    3 110     2 996
Operating leases                                  1 052       925
Depreciation, amortisation, impairment
and write-offs                             5.5    5 937    18 180
Operating profit/(loss)                           4 602   (11 145)
Investment income                                   176       279
Finance charges and fair value movements            292       224
Finance charges                                     636       656
Foreign exchange and fair value
movements                                          (344)     (432) 
Profit/(loss) before taxation                     4 486   (11 090) 
Taxation                                     6      494       442
Profit/(loss) from continuing operations          3 992   (11 532) 
Loss from discontinued operations            7      (49)     (104) 
Profit/(loss) for the year                        3 943   (11 636)
Other comprehensive income
Items that may be reclassified
subsequently to profit and loss
Exchange gains/(losses) on translating
foreign operations                                    4        (3) 
Recycling of foreign currency
translation reserve                                 122         –
Items that will not be reclassified to 
profit and loss
Defined benefit plan actuarial gains/
(losses)                                          2 277      (138)
Defined benefit plan asset ceiling 
limitation                                       (1 106)      (38)
Income tax relating to components of other 
comprehensive income                          8    (157)       49
Other comprehensive income/(loss) for 
the year, net of taxation                         1 140      (130) 
Total comprehensive income/(loss) for
the year                                          5 083   (11 766)
Profit/(loss) attributable to:
Owners of Telkom                                  3 822   (11 759) 
Non-controlling interests                           121       123
Profit/(loss) for the year                        3 943   (11 636) 
Total comprehensive income/(loss)
attributable to:
Owners of Telkom                                  4 962   (11 889) 
Non-controlling interests                           121       123
Total comprehensive income/(loss) for
the year                                          5 083   (11 766) 
Total operations
Basic earnings/(loss) per share (cents)      9    748,5  (2 303,0) 
Diluted earnings/(loss) per share
(cents)                                      9    744,8  (2 303,0)
Continuing operations
Basic earnings/(loss) per share (cents)      9    758,1  (2 282,6) 
Diluted earnings/(loss) per share
(cents)                                      9    754,3  (2 282,6)

*The amounts have been restated due to the adoption of IAS 19R and the 
amendment to IAS 16 as well as the change in the accounting policy related 
to the Cell Captive. Group amounts have also been restated due to the sale 
of the iWayAfrica Group. The layout of the statement of profit or loss and 
other comprehensive income has been changed to provide more relevant 
disclosures.
Other income, employee expenses, selling, general and administrative
expenses and service fees have been restated. Refer to notes
5.1, 5.2 and 5.3.

Condensed consolidated provisional statement of financial position
At 31 March 2014
                                                Restated* Restated*
                                          2014      2013      2012
                                Notes       Rm        Rm        Rm
Assets
Non-current assets                      31 039    30 353    42 714
Property, plant and
equipment                               25 123    24 881    36 507
Intangible assets                        2 833     2 581     3 555
Other investments                        2 759     2 499     2 260
Deferred expenses                           35        50        47
Other financial assets                      74        83        48
Finance lease receivables                  202       219       244
Deferred taxation                           13        40        53
Current assets                           8 366    11 222     9 825
Inventories                                646       760       617
Income tax receivable                        8        16        26
Current portion of finance
lease receivables                          118       131       128
Trade and other receivables              5 565     5 797     5 692
Other financial assets                     187     2 134     2 195
Cash and cash equivalents          11    1 842     2 384     1 167
Total assets                            39 405    41 575    52 539
Equity and liabilities
Equity attributable to
owners of the parent                    22 771    17 798    29 687
Share capital                            5 208     5 208     5 208
Treasury shares                           (771)     (771)     (771)
Share-based compensation
reserve                                     11         –         –
Non-distributable reserves               2 580     2 164     1 887
Retained earnings                       15 743    11 197    23 363
Non-controlling interests                  377       379       434
Total equity                            23 148    18 177    30 121
Non-current liabilities                  6 156    10 270    12 715
Interest-bearing debt              13    3 775     3 899     5 897
Other financial liabilities                  –        12        26
Employee related provisions        14    1 388     5 152     4 885
Non-employee related
provisions                         14      108       238        36
Deferred revenue                           869       952     1 132
Deferred taxation                           16        17       739
Current liabilities                     10 101    13 128     9 703
Trade and other payables                 5 119     4 659     4 285
Shareholders for dividend                   21        22        23
Current portion of
interest-bearing debt              13      321     2 758     1 289
Current portion of employee
related provisions                 14    1 597     2 605     1 652
Current portion of non-
employee related provisions        14      731       786       240
Current portion of deferred
revenue                                  1 431     1 740     1 995
Income tax payable                         782       501        87
Current portion of other
financial liabilities                       98        54       129
Credit facilities utilised         11        1         3         3
Total liabilities                       16 257    23 398    22 418
Total equity and
liabilities                             39 405    41 575    52 539

*The amounts have been restated due to the adoption of IAS 19R,
amendment to IAS 16 as well as the change in the accounting policy related 
to the Cell Captive.

Condensed consolidated provisional statement of changes in equity
For the year ended 31 March 2014
                                                       2014     2013
                                                         Rm       Rm
Balance at 1 April                                   18 229   30 141
Change in accounting policy (refer to note 2.1)         (52)     (20) 
Restated balance at 1 April                          18 177   30 121
Attributable to owners of Telkom                     17 798   29 687
Non-controlling interests                               379      434
Total comprehensive income/(loss) for the year        5 083  (11 766)
Profit/(loss) for the year                            3 943  (11 636)
Other comprehensive income/(loss)                     1 140     (130) 
Exchange gains/(losses) on translating foreign
operations                                                4       (3) 
Recycling of foreign currency translation
reserve                                                 122        – 
Net defined benefit plan remeasurements               1 014     (127) 
Dividend declared*                                     (123)    (176) 
Acquisition of non-controlling interests                  –       (2) 
Increase in share-compensation reserve                   11        – 
Balance at 31 March                                  23 148   18 177
Attributable to owners of Telkom                     22 771   17 798
Non-controlling interests                               377      379

*Dividend declared to the non-controlling interests of the Trudon
Group.

Condensed consolidated provisional statements of cash flows
For the year ended 31 March 2014
                                                     2014      2013
                                           Note        Rm        Rm
Cash flows from operating activities                6 366     7 472
Cash receipts from customers                       32 455    31 693
Cash paid to suppliers and employees              (26 143)  (23 211) 
Cash generated from operations                      6 312     8 482
Interest received                                     358       520
Finance charges paid                                 (585)     (666) 
Taxation refund**                                     854         – 
Taxation paid                                        (449)     (687) 
Cash generated from operations before
dividend paid                                       6 490     7 649
Dividend paid                                        (124)     (177)
Cash flows from investing activities               (4 333)   (5 519) 
Proceeds on disposal of property, plant
and equipment and intangible assets                    67        39
Proceeds on disposal of investment                      –        31
Additions to property, plant and
equipment and intangible assets                    (6 370)   (5 627) 
Decrease in repurchase agreements                   1 970        29
Loans repaid by joint venture                           –         9
Cash flows from financing activities               (2 583)     (731) 
Loans raised                                          300     2 042
Loans repaid                                       (3 036)   (2 743)
Finance lease repaid                                 (156)     (189) 
Settlement of derivatives                             309       159
Net (decrease)/increase in cash and
cash equivalents                                     (550)    1 222
Net cash and cash equivalents at
beginning of year*                                  2 381     1 164
Effect of foreign exchange rate gains/
(losses) 
on cash and cash equivalents                           10        (5)
Net cash and cash equivalents at end of
year*                                        11     1 841     2 381

*Refer to note 7 for cash flow activities on discontinued operations
of the iWayAfrica Group over which control was relinquished on disposal.
**Refer to note 16.

Notes to the condensed consolidated provisional annual financial 
statements
For the year ended 31 March 2014

1. Corporate information
Telkom SA SOC Limited (Telkom) is a Company incorporated and domiciled in 
the Republic of South Africa (South Africa) whose shares are publicly 
traded. The main objective of Telkom, its subsidiaries and associate (the 
Group) is to supply telecommunication, multimedia, technology, information 
and other related information technology services to Telkom’s customers, 
as well as mobile communication services, in South Africa.

2. Basis of preparation and accounting policies
Basis of preparation
The condensed consolidated provisional annual financial statements
have been prepared in accordance with IAS 34 Interim Financial Reporting 
and in compliance with the Listings Requirements of the JSE Limited and 
the South African Companies Act, 2008.

The condensed consolidated provisional annual financial statements are 
presented in South African Rand, which is the Group’s functional currency. 
All financial information presented in Rand has been rounded off to the 
nearest million.

The condensed consolidated provisional annual financial statements are 
prepared on the historical cost basis, with the exception of certain 
financial instruments initially (and sometimes subsequently) measured at 
fair value. Details of the Group’s significant accounting policies are set 
out below and are consistent with those applied in the previous financial 
year except for the following:
• IAS 16 (amendment) Property, Plant and Equipment: Classification
of Service Equipment
• IAS 19R Employee Benefits
• IFRS 10 Consolidation of Cell Captive

Significant accounting judgements, estimates and assumptions 
In preparing these condensed consolidated provisional annual financial 
statements, the significant judgements made by management in applying 
the Group’s accounting policies and the key sources of estimation 
uncertainty were consistent with those applied to the consolidated 
financial statements for the year ended 31 March 2013 with the exception 
of the curtailment to the Post-retirement Medical Aid liability, hedge 
accounting, taxation, the employee share scheme and government grants.

Significant accounting policies
The condensed consolidated provisional annual financial statements have 
been prepared in accordance with the accounting policies adopted in the Group’s 
last annual financial statements for the year ended 31 March 2013, except for 
the adoption of the amendments, new standards described below and the 
application of fair value hedge accounting.

2.1 Adoption of new standards and amendments
IAS 16 (amendment) Property, Plant and Equipment: Classification of
Service Equipment
The amendment clarifies that spare parts and servicing equipment are
classified as property, plant and equipment rather than inventory when 
they meet the definition of property, plant and equipment. Previously the 
Group classified strategic spare parts which were not considered as major 
parts, as inventory.

Following the amendment, the Group reclassified spare parts with a 
carrying amount of R357 million (31 March 2012: R352 million) from 
inventory to property, plant and equipment. The useful lives of the spare 
parts have been estimated to be approximately five years.

IAS 19R Employee Benefits
IAS 19R Employee Benefits prescribes a number of changes to the accounting 
for employee benefits. As a result of adopting the revised standard, the 
Group has changed it’s accounting policy with respect to the basis for 
determining the income or expense related to the Group’s defined benefit plans. 
These adjustments were made on a retrospective basis.

The standard replaces the interest cost on the defined benefit obligation 
and the expected return on plan assets with a net interest cost based on 
the net defined benefit asset or liability and the discount rate, measured 
at the beginning of the year. This has increased profit or loss charge as 
the discount rate applied to assets is lower than the expected return on 
assets. This has no effect on total comprehensive income as the increased 
charge in profit or loss is offset by a credit in other comprehensive 
income relating to the actuarial gains and losses and asset limitations.

In addition, unvested past service costs can no longer be deferred
and recognised over the future vesting period. Instead all past service costs 
are recognised at the earlier of when the amendment occurs and when the 
Group recognises related restructuring or termination costs. Until 2013, 
the Group’s unvested past service costs were recognised as an expense on a 
straight line basis over the average period until the benefits became vested. 
With the transition to IAS 19R, past service costs are recognised immediately 
if the benefits have vested immediately following the introduction of, or 
changes to a pension plan. The effect has been that the profit or loss has 
increased by R104 million as at 31 March 2013 (2012: R95 million). The effect 
on the defined benefit obligation was an increase of R3 million as at 
31 March 2013 (2012: R5 million).

IFRS 10 Consolidated Financial Statements
The Company has changed its accounting policy with respect to the
basis for determining the cost of the investment to fair value basis in 
line with IFRS 10. As a result the Group has deconsolidated the Cell 
Captive and the net effect in the Group is zero.

Employee benefits, strategic inventory and fair valuing of Cell
Captive impact

Impact on consolidated statement of financial position 
as at 31 March 2013
                                                  As at       As at
                                               31 March    31 March
                                                   2013        2012
                                                     Rm          Rm
Increase in the defined benefit 
obligation due to past service cost
recognition                                          (3)         (5)
Decrease in deferred tax liabilities                  –           9
Increase in property, plant and equipment
due to service equipment restatement                 357*        352
Decrease in strategic inventory due to
service equipment restatement                       (406)       (376) 
Increase in the investment in Cell
Captive preference shares                              7           – 
Decrease in trade and other receivables               (7)         (5) 
Decrease in cash and cash equivalents                 (3)         (1) 
Decrease in trade and other payables                   3           6
Net impact                                           (52)        (20)
*Depreciated amount.

Impact on consolidated statement of profit or loss and other comprehensive 
income for the year ended 31 March 2013
                                                 Year to    Year to
                                                31 March   31 March
                                                    2013       2012
                                                      Rm         Rm
Profit or loss:
Increase in employee benefit expenses               (144)      (132) 
Decrease in tax expenses                              40         37
Increase in depreciation due to service
equipment restatement                                (25)       (24)
Decrease in deferred tax liabilities                   7          7
Decrease in other income                             (16)        (8) 
Decrease in service fees                               6          3
Decrease in investment income                        (22)       (23) 
Increase in fair value gains                          28         28
Decrease in taxation                                   4          –
Net decrease in profit for the year                 (122)      (112) 
Equity holders of the parent                        (122)      (112) 
Other comprehensive income
Increase in remeasurement movement in OCI            146        127
Increase in tax effect on remeasurement
movements in OCI                                     (41)       (35)
Net increase in other comprehensive income           105         92
Equity holders of the parent                         105         92

There was no material impact on the Group’s consolidated statement
of cash flows. The basic and diluted earnings per share moved from a loss 
of 2 276,2 cents as previously reported to a loss of 2 303,0 cents for the 
year ended 31 March 2013. The headline earnings and diluted headline 
earnings per share moved from 87,0 cents as previously reported to 60,1 
cents for the year ended 31 March 2013.

2.2. The following new standards, amendments to standards and 
interpretations that have been adopted and do not have a material impact 
on the Group

Pronouncement      Title                           Effective date
IFRS 1 First-time  Exception to the retrospective  1 January 2013
Adoption of IFRS   application of IAS 20 to 
                   existing government loans at 
                   the date of transaction.

IFRS 1 First-time  Amendments permits the
Adoption of IFRS   repeated application of IFRS    1 January 2013
                   1, borrowing costs on certain 
                   qualifying assets.

IFRS 1 First-time  Amendment to the basis of       Immediately
Adoption of IFRS   conclusion to clarify the 
                   meaning of ‘effective 
                   IFRSs’.

IFRS 2 Share-      Amendments of the definition    1 July 2014
based Payments     of ‘vesting conditions’ and
                   ‘market conditions’ and the
                   addition of the definitions of
                   ‘performance condition’ and
                   ‘service condition’.

IFRS 3 Business    Accounting for contingent       1 July 2014
Combinations       consideration that is 
                   classified as an asset or 
                   liability. The contingent 
                   consideration shall be 
                   measured at fair value at 
                   each reporting date.

IFRS 7 Financial   Amendments enhancing            1 January 2013
Instruments        disclosures about offsetting 
Disclosures        of financial assets and 
                   financial liabilities.
 
IFRS 13 Fair       Amendment to clarify the        Immediately
Value Measurement  measurement of short-term 
                   receivables and payables 
                   with no stated interest rate, 
                   at invoice amount without 
                   discounting, when the effect 
                   of not discounting is immaterial.

IAS 32 Financial   Amendments to clarify tax       1 January 2013
Instruments:       effects of distribution to 
Presentation       holders of equity instruments.
 
IAS 34 Interim     Amendments to clarify interim   1 January 2013
Financial          financial reporting segment 
Reporting          information for total assets 
                   and total liabilities to enhance 
                   consistency with the requirements 
                   of IFRS 8.
 
IAS 36 Impairment  Amendment to disclosures of     1 January 2014
of Assets          the recoverable amount of 
                   impaired non-financial assets 
                   as a consequence of issuing IFRS 
                   13 Fair Value Measurement.


IFRIC 20           Recognition, classification and 1 January 2013
Stripping Costs    measurement of the production 
in the Production  stripping costs as an asset.
Phase of a
Surface Mine

Standards and interpretations in issue not yet adopted and not yet 
effective
The new standards, amendments to standards and interpretations in issue 
have not yet been adopted and are not yet effective. All standards are 
effective for annual periods beginning on or after the stated effective 
date.

Pronouncement       Title                             Effective date
IFRS 3 Business     Amendment to scope exception      1 July 2014
Combinations        of joint ventures in paragraph
                    2(a).

IFRS 7 Financial    Amendments requiring disclosures  1 January 2018*
Instruments         about the initial application 
Disclosures         of IFRS 9.
 
IFRS 7 Financial    Additional hedge accounting       1 January 2018*
Instruments         disclosures resulting from the 
Disclosures         introduction of a hedge 
                    accounting chapter in IFRS 9.

IFRS 8 Operating    Amendment relating to             1 July 2014
Segments            aggregation of segments and   
                    reconciliation of the total 
                    reportable segments’ assets to 
                    the entity’s assets if segment 
                    assets are reported regularly.

IFRS 9 Financial    Classification and measurement    1 January 2018*
Instruments         of financial assets and 
                    financial liabilities and 
                    derecognition requirements.

IFRS 13 Fair Value  Amendment of scope                1 July 2014
Measurement         exclusion in IFRS 13.52 to 
                    include all contracts accounted 
                    for within the scope of 
                    IAS 39 and IFRS 9, regardless 
                    of whether they meet the 
                    definition of financial asset 
                    or financial liability as defined 
                    in IAS 32.

IFRS 14 Regulatory  The new standard describes the     1 January 2016
Deferral Accounts   financial reporting requirements 
                    for regulatory deferral account 
                    balances’ that arise when an entity 
                    provides goods or services to 
                    customers at a price or rate that 
                    is subject to rate regulation.

IFRS 15 Revenue     Revenue from contracts with        1 January 2017
from Contracts      customers
with Customers 

IAS 16 Property,    Revaluation method: proportionate  1 July 2014
Plant and           restatement of accumulated 
Equipment           depreciation of an item of  
                    property, plant and equipment.
 
IAS 19 Employee     Defined benefit plans: Employee    1 July 2014
Benefits            contributions. The amendment 
                    clarifies the requirements that 
                    relate to how contributions from 
                    employees or third parties that are 
                    linked to service should be  
                    attributed to periods of service.

IAS 24 Related      Amendment requires disclosure of  1 July 2014
Party Disclosures   key management personnel services,
                    provided to the reporting entity  
                    or to the parent of the reporting  
                    entity, as a related party in the  
                    reporting entity.

IAS 32 Financial    Amendments to application         1 January 2014
Instruments:        guidance on the offsetting of 
Presentation        financial assets and financial 
                    liabilities and the related
                    net credit exposure.
   
IAS 38 Intangible   Revaluation method:               1 July 2014
Assets              proportionate restatement of 
                    accumulated amortisation 
                    of an intangible asset.

IAS 39 Financial    Amendments for novation of        1 January 2014
instruments:        derivatives and the continuation 
Recognition and     of hedge accounting.
Measurement 
 
IAS 40 Investment   Interrelationship between IFRS    1 July 2014
Property            3 and IAS 40 when classifying 
                    property as investment property 
                    or owner-occupied property.

IFRIC 21 Levies     Interpretation on the             1 January 2014
                    accounting for levies imposed 
                    by governments.

*The international Accounting Standards Board (IASB) has announced
the amendments tentatively.

3. Segment information
The Executive Committee (Chief operating decision maker) manages the 
business on a combined basis. This reflects the financial
information reviewed by the Executive Committee when making decisions 
about performance and resource allocation and is consistent with the 
manner in which the Telkom network generates revenue, ie on a combined 
basis. As a result, Telkom has a single operating and reporting segment. 
No Group geographical information is provided as the majority of the 
Group’s operations are carried out in South Africa.

The Telkom segment provides fixed-line access, fixed-line usage, data 
communications services (through Telkom and Cybernest), mobile voice and 
data services and handset sales.

                                                         Restated
                                                  2014       2013
                                                    Rm         Rm
4.Total revenue                                 33 061     32 853
Operating revenue                               32 483     32 143
Other income (excluding profit on disposal 
of property, plant and equipment, intangible 
assets, investments and profit on disposal of
subsidiary)                                        402        431
Investment income                                  176        279
Operating revenue increased due to
higher mobile handset and equipment sales, 
growth in mobile and IT Business services 
data revenue, offset by a decline in voice 
revenue.

Change in comparative
Other income has increased by R128 million 
as it was reclassified from selling and 
administrative expenses to sundry income.

This is income in nature and it is more
appropriate to report this income under 
the other income category instead 
of being offset against selling, general 
and administration expenditure.

5.Operating expenses
5.1 Cost of sales                               2 498      1 549
The increase in the cost of sales is mainly 
due to increased customer premises equipment 
sales.

Change in comparatives
In order to achieve a more relevant
presentation a decision was made to reclassify 
items from selling, general and administrative 
expenses to cost of sales. Refer to note 5.3.

5.2 Employee expenses*                         7 137      9 997
The decrease in employee expenses is mainly 
due to a net curtailment gain 
of R2,2 billion related to the post- 
retirement medical aid benefit that 
has been reduced. The average salary increase 
and the adoption of IAS 19R adversely impacted 
employee expenses. 

Change in comparatives
Other benefits increased by R84 million
due to the reclassification of employee 
vehicle insurance expense from security and 
other expenses (under service fees). These are 
short-term  employee benefits derived from 
employment with Telkom and has therefore 
been reclassified accordingly to provide more 
relevant disclosure.

*Restated due to the adoption of IAS 19R 
(refer note 2.1).

5.3 Selling, general and administrative 
expenses                                       4 682      5 651

The decrease in selling, general and 
administrative expenses is mainly due 
to a decrease in maintenance and material
expenses, lower bad debts and the Competition
Commission fine that was accounted for in
2013.

Included in selling, general and 
administrative expenses is a net loss of 
R29 million on the disposal of the iWayAfrica
Group. This net loss includes foreign exchange 
losses of R122 million and disposal costs of 
R6 million. This relates to the cumulative 
amount of foreign exchange differences 
previously recognised in other comprehensive 
income, now realised in profit or loss due 
to the disposal of the iWayAfrica Group.

Change in comparatives
Selling, general and administrative expenses 
have decreased by R1 549 million, due to the 
reclassification of expenses to cost of sales. 
In addition, sundry income of R128 million
was reclassified to other income. This was
done in order to provide more relevant 
disclosure.

5.4 Service fees                              3 110      2 996
The increase in service fees is driven by 
costs relating to the transformation process, 
higher utilities and maintenance costs on 
Telkom properties.

Change in comparative
Service fees decreased by R84 million due 
to the reclassification of employee vehicle 
insurance expenses to employee expenses. 
These are short-term employee benefits derived 
from employment with Telkom and has therefore 
been reclassified accordingly to provide more 
relevant disclosure. Refer to note 5.2.

5.5 Depreciation, amortisation, impairment 
and write-offs                                 5 937   18 180

Depreciation of property, plant and equipment  4 616    5 097
Amortisation of intangible assets                689      906

Impairment of property, plant and 
equipment and intangible assets                  392   12 000
Write-offs of property, plant and 
equipment and intangible assets                  240      177

Depreciation and amortisation decreased as a
result of a lower asset base after a R12 
billion impairment of assets in March 2013, 
partially offset by accelerated depreciation 
emanating from the review of the useful lives 
of drop wires installed at customer premises. 
The impairment at year end relates to property, 
plant and equipment that was reclassified from 
inventories following a change in the 
accounting policy.

6.Taxation                                       494      442
South African normal company taxation            625    1 101
Deferred taxation                               (131)    (659)

Normal tax decreased mainly as a result of 
employee related provisions that realised 
during the current year. Deferred tax income 
decreased due to the deferred tax asset which 
is limited to zero. During 2013 the full 
deferred tax opening balance was limited 
through the statement of profit or loss.

7. Discontinued operation
Pan African business, iWayAfrica and Africa
Online Mauritius
On 20 December 2013, Telkom sold the Pan
African business, iWayAfrica and Africa Online 
Mauritius, through a private sale to Gondwana 
International Networks.

iWayAfrica was formed as the result of the 
amalgamation of MWEB Africa and Africa Online 
in 2007 when MWEB Africa was purchased by Telkom. 
The iWayAfrica business operates in eight countries 
on the continent offering terrestrial wireless 
and VSAT services to business and residential 
markets, as well as via its channel partners in 
many other countries on the continent.

Telkom’s investment in iWayAfrica was already 
fully impaired at 31 March 2012. Gondwana
took over the assets and liabilities (including 
amounts owed by Telkom) for a nominal consideration.

Analysis of the results of the discontinued 
operations:
Revenue*                                           240      403
Expenses*                                         (289)    (496)
Loss before taxation of the discontinued 
operations                                         (49)     (93)
Taxation                                             –      (11)
Loss after taxation of the discontinued 
operations                                         (49)    (104)

*Revenue comprises operating revenue, other 
income and investment income. Expenses comprise 
operating expenses and finance charges.

The net cash flows attributable to the operating, 
investing and financing activities of discontinued 
operations:
Operating cash flows                               (38)        – 
Total cash outflow*                                (38)        –
*Cash flows included for 2014 are up to 
December 2013. At 20 December 2013, on the 
disposal date, iWayAfrica had R48 million cash 
on hand.

8.Taxation effects of other comprehensive 
income
Tax effects relating to each component of
other comprehensive income                           
Exchange gains/(losses) on translating foreign 
operations                                             4       (3) 
Recycling of foreign currency translation 
reserve                                              122        –
Net foreign currency translation gains/(losses) 
for foreign operations                               126      (3)
Defined benefit plan actuarial gains/(losses)*     2 277    (138)
Tax effect of defined benefit plan actuarial 
gains/(losses)*                                     (306)     39 
Net defined benefit plan actuarial gains/
(losses)*                                          1 971     (99)
Defined benefit plan asset ceiling limitation     (1 106)    (38)
Tax effect of defined benefit plan asset ceiling 
limitation                                           149      10
Net defined benefit plan asset ceiling
limitation                                          (957)    (28)
Other comprehensive income/(loss) for the
year before taxation                               1 297    (179)
Tax effect of other comprehensive income/
(loss) for the year                                 (157)     49
Other comprehensive income/(loss) for the year, 
net of taxation                                    1 140    (130)
*Restated due to the adoption of IAS 19R.

9. Earnings per share
Total operations
Basic earnings/(loss) per share
(cents)                                     748,5    (2 303,0) 
Diluted earnings/(loss) per share
(cents)                                     744,8    (2 303,0)
Headline earnings per share
(cents)*                                    851,4        60,1
Diluted headline earnings per share
(cents)*                                    847,1        60,1
Continuing operations
Basic earnings/(loss) per share
(cents)                                     758,1    (2 282,6) 
Diluted earnings/(loss) per share
(cents)                                     754,3    (2 282,6) 
Headline earnings per share
(cents)*                                    861,0        86,2
Diluted headline earnings per share
(cents)*                                    856,6        86,2
Discontinued operation
Basic loss per share (cents)                (9,6)       (20,4) 
Diluted loss per share (cents)              (9,5)       (20,4) 
Headline loss per share (cents)*            (9,6)       (26,1) 
Diluted headline loss per 
share (cents)*                              (9,5)       (26,1)

Reconciliation of weighted average 
number of ordinary shares:
                                        Number of    Number of 
                                           shares       shares
Ordinary shares in issue              520 783 900  520 783 900
Weighted average number of treasury
shares                                (10 190 084) (10 190 084) 
Weighted average number of shares
outstanding                           510 593 816  510 593 816
Reconciliation of diluted weighted 
average number of ordinary shares 
Weighted average number of shares
outstanding                           510 593 816  510 593 816
Expected future vesting of shares       2 587 629            – 
Diluted weighted average number of
shares outstanding                    513 181 445  510 593 816
*The disclosure of headline earnings 
is a requirement of the JSE Limited 
and is not a recognised measure 
under IFRS. It has been calculated 
in accordance with the South African 
Institute of Chartered Accountants’ 
circular 2/2013 issued in this regard.
Total operations
Reconciliation between earnings 
and headline earnings***
Profit/(loss) for the year                 3 943     (11 636)
Non-controlling interests                   (121)       (123) 
Profit/(loss) attributable to
Owners of Telkom                            3 822     (11 759)
Profit on disposal of property, plant 
and equipment and intangible
assets                                       (77)         (39)
Loss on disposal of subsidiary                 23            – 
Impairment loss on property, plant
and equipment and intangible
assets**                                      392       12 000
Profit on disposal of joint venture             –         (30)
Write-offs of property, plant and
equipment and intangible assets               240         178
Taxation effects                              (53)        (43)
Headline earnings                           4 347         307
Continuing operations
Reconciliation between earnings and
headline earnings*** 
Profit/(loss) from continuing operations    3 992     (11 532)
Non-controlling interests                    (121)       (123) 
Profit/(loss) attributable to
Owners of Telkom                            3 871     (11 655) 
Profit on disposal of property,
plant and equipment and intangible
assets                                        (77)         (39) 
Loss on disposal of subsidiary                 23            – 
Impairment loss on property, plant
and equipment and intangible
assets**                                      392       12 000
Write-offs of property, plant and
equipment and intangible assets               240          177
Taxation effects                              (53)         (43) 
Headline earnings                           4 396          440
Discontinued operation 
Reconciliation between earnings and 
headline earnings***
Loss from discontinued operation              (49)        (104) 
Loss attributable to owners of
Telkom                                        (49)        (104) 
Profit on disposal of joint venture             –          (30) 
Write-offs of property, plant and
equipment and intangible assets                 –            1
Headline loss                                 (49)        (133)
* Net of taxation.
**The impairment resulted in deferred 
taxation consequences that were not 
recognised in the
statement of financial position.
***The amounts have been restated
due to the adoption of IAS 19R and
the amendment to IAS 16 as well as 
the sale of the iWayAfrica Group.

10. Capital additions and disposals
Property, plant and equipment
Additions                                   5 695        4 807
Disposals                                     (17)         (22) 
Intangible assets
Additions                                     763          961
Disposals                                       –           (1) 
A major portion of additions to
property, plant and equipment relates 
to the expansion of existing 
networks and the next generation network.

Intangible assets additions mainly 
relate to software.

11.Net cash and cash equivalents           1 841        2 381
Cash shown as current assets               1 842        2 384
Cash and bank balances                       193          231
Short-term deposits                        1 649        2 153
Credit facilities utilised                    (1)          (3)

The decrease in cash and cash equivalents is mainly due to the 
repayment of the syndicated loan of R2 billion. This was partly
offset by the utilisation of repurchase agreements.

12. Financial risk management
Exposure to continuously changing market conditions has made management of financial risk critical for the Group. Treasury policies, risk limits and control procedures are continuously monitored by the Board of Directors through its Audit Committee and Risk Committee.

The condensed consolidated provisional annual financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at 31 March 2014. The Group enters into derivative transaction as hedging instruments from the current financial year.

12.1 Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is exposed to liquidity risk as a result of uncertain cash flows as well as capital commitments of the Group.

Liquidity risk is managed by the Group’s Treasury team in accordance with policies and guidelines formulated by the Group’s executive committee. In terms of its borrowing requirements the Group ensures that sufficient facilities exist to meet its immediate obligations.

Compared to the 2013 financial year-end, there was no material change in the contractual undiscounted cash out flows for financial liabilities.

12.2 Fair value of financial instruments
The carrying amount of financial instruments approximate fair value, with the exception of interest-bearing debt (at amortised cost) which has a fair value of R4 752 million (2013: R7 661 million) and a carrying amount of R4 096 million (2013: R6 657 million) (refer to note 13).

Valuation techniques and assumptions applied for the purposes
of measuring fair value

Type of             Fair value at   Valuation     Significant
financial           31 March 2014   technique     inputs
instrument
Receivables,        R4 783 million  Undiscounted  Probability 
bank balances,                      future        of default
repurchase                          estimated  
agreements,                         cash flows  
and other                           due to  
liquid                              short-term  
funds,                              maturities  
payables and                        of these 
accruals, credit                    instruments
facilities utilised 
and shareholders 
for dividends
 
Derivatives         R163 million   Discounted   Yield curves
                                   cash flows         Market                                                                            interest rate
                                                      Market                                                                                  foreign 
                                               currency rate

Borrowings          R4 752 million Discounted         Market                                                                cash flows  interest rate
                                   and quoted         Market                                                               bond prices        foreign 
                                               currency rate
                                   
The estimated net fair values as at the reporting date, have been determined using available market information and appropriate valuation methodologies as outlined below. This value is not necessarily indicative of the amounts that the Group could realise in the normal course of business. 

Derivatives are recognised at fair value. The fair values of derivatives are determined using quoted prices or, where such prices are not available, a discounted cash flow analysis is used. These amounts reflect the approximate values of the net derivative position at the reporting date. The fair values of listed investments are based on quoted market prices.

The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future payments discounted at market interest rates. As a result they differ from carrying values.

The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their carrying amount due to the short-term maturities of these instruments.

12.3 Fair value hierarchy
The table below analyses financial instruments carried at fair value and amortised cost, by valuation method.

The different levels have been defined as follows:
(a) Quoted prices in active markets for identical assets or liabilities (level 1).
(b) Inputs other than quoted prices, that are observable for the asset or liability (level 2).
(c) Inputs for the asset or liability that are not based on observable market data (level 3).

The following table presents the Group’s assets and liabilities that are measured at fair value and amortised cost:

                           Total   Level 1  Level 2   Level 3
2014                          Rm        Rm       Rm        Rm
Assets measured at 
fair value
Forward exchange
contracts                    139         –      139         – 
Investment in Cell
Captive preference
shares                     2 755     2 755        –         –
Firm commitments               4         –        4         – 
Cross currency swaps         118         –      118         – 
Liabilities measured at
fair value
Forward exchange
contracts                    (61)        –     (61)         –
Firm commitments             (37)        –     (37)         – 
Liabilities measured at
amortised cost
Interest-bearing debt     (4 752)   (3 445)  (1 307)        –

2013
Assets measured at 
fair value
Forward exchange
contracts                    132         –      132         –
Investment in Cell
Captive preference
shares                     2 496       595    1 901         –
Transfer to level 1*           –     1 901  (1 901)         – 
Cross currency swaps         105         –      105         – 
Liabilities measured at
fair value
Interest rate swaps         (51)         –     (51)         –
Forward exchange
contracts                   (15)         –     (15)         – 
Liabilities measured at
amortised cost
Interest-bearing debt    (7 661)    (3 882) (3 779)         – 

The fair value of the financial assets and financial
liabilities are sensitive to exchange rate and interest rate movements.The Rand depreciated against major currencies for the financial year resulting in unrealised fair value gains. The volatility of the exchange rates also had an impact on the fair values of these instruments.

*During the 2013 financial year, the Investment in Cell Captive’s preference shares with a market value of R1 901 million was transferred from fair value level 2 to fair value level 1. The reason for the transfer is that the prices for each of the assets held in the absolute return investment portfolio were obtained from recognised market sources.

                                                  2014     2013
                                                    Rm       Rm
13. Interest-bearing debt
Non-current interest-bearing debt                3 775    3 899
Local debt                                       2 815    2 730
Foreign debt                                       307      456
Finance leases                                     653      713
Current portion of interest-bearing debt           321    2 758
Local debt                                           –    2 494
Foreign debt                                       236      207
Finance leases                                      85       57
The Company repaid the syndicated loan of 
R2 billion out of available cash 
during the reporting period.
The current portion of interest-bearing 
debt of R321 million (nominal) is 
expected to be repaid from available
operational cash flow and/or the issue of 
new debt instruments.
Management believes that sufficient funding 
facilities will be available 
at the date of repayment.

14. Provisions
Non-current portion of provisions                1 496    5 390
Employee related                                 1 388    5 152
Non-employee related                               108      238
Current portion of provisions                    2 328    3 391
Employee related                                 1 597    2 605
Non-employee related                               731      786
The decrease in non-current employee related 
provisions is mainly due to the effect of the 
net curtailment gain of R2,2 billion recognised 
on the post-retirement medical aid benefit. 
Telkom allowed eligible employees the option 
to transfer their post-retirement medical aid 
benefit to an insurer. The Company curtailed the 
medical cap increase to 0% for active 
members due to rising operational costs and 
affordability. Of the 9 302 eligible employees, 
7 654 employees exercised their option to transfer 
their benefit to an insurer.

Non-employee related provisions decreased due 
to the partial payment of the fine imposed by the 
Competition Commission.

The reduction of the current portion of employee 
related provisions is attributable to the post-
retirement medical aid curtailment and decreased 
bonus provision due to lower headcount.

15. Commitments
Capital commitments authorised                   5 055    7 542
Commitments against authorised capital
expenditure                                      1 132    2 855
Authorised capital expenditure not yet
contracted                                       3 923    4 687
Capital commitments are largely attributable 
to purchases of property, plant and equipment 
and software.

16. Contingencies 
CONTINGENT LIABILITIES 
Competition matters
Competition Commission Multiple Complaints Referral
In 2009 the Competition Commission (CC) referred complaints against Telkom by MWeb and IS as well as the Internet Service Providers’ Association, MWeb, IS and Verizon respectively, to the CT (the Multiple Complaints Referral). Telkom and the CC signed a settlement agreement on 14 June 2013, in settlement of the Multiple Complaints Referral. In terms of this settlement agreement, Telkom admitted that its conduct during the complaint period amounted to a contravention of sections 8(c)(margin squeeze) and 8(d)(iii)(bundling and tying) of the Competition Act. In terms of the settlement agreement, Telkom has agreed to pay an administrative penalty of R200 million, payable in three equal instalments, payable in 2013, 2014 and 2015. Telkom furthermore committed to certain price reductions in the 2014, 2015 and 2016 financial years as well as to certain behavioural remedies.

Matters before ICASA
Phutuma Networks (Pty) Ltd (Phutuma)
Phutuma filed a complaint against Telkom at ICASA’s Complaints and Compliance Committee (the CCC) in February 2010.The matter was ultimately heard during May 2014, during which Phutuma withdrew its complaint at the CCC. The CCC intimated that it would recommend to ICASA that certain regulatory issues should be addressed by ICASA. Phutuma’s complaint at the CCC is thus finalised.

End-user and Service Charter Regulations
Allegations have been made at the CCC regarding Telkom’s alleged non-compliance with the requirements of the End-user and Service Charter Regulations relating to the clearance of reported faults. A hearing has taken place and, the CCC has ruled that Telkom is not in breach of the regulations and recommend that ICASA review the regulations which, as they stand, are not capable of implementation. Telkom, however, has already initiated administrative review proceedings seeking to set-aside the applicability of the Regulations since the CCC ruling is not binding on ICASA and the risk remains for similar referrals. The review application has not been finalised as yet.

Telkom/ICASA, Neotel and CCC
Neotel requested Telkom to provide access to Telkom’s local loop in November 2010 in terms of the Electronic Communications Facilities Leasing Regulations of 2010. Telkom declined the request and Neotel submitted a formal complaint to ICASA. ICASA referred the complaint to the CCC, which made an order (the CCC Order), directing Telkom to provide Neotel access to Telkom’s local loop. Telkom launched an interim relief application (for an order that the CCC Order not be implemented pending the review application) and a review application in the High Court to review and set aside the CCC Order. The parties have since agreed to a court order by consent in terms of which Telkom withdrew its application for interim relief and ICASA in turn undertook not to implement the CCC Order pending the outcome of Telkom’s application for review. No date has been set down as yet for the hearing of the review application.

Supplier dispute
Radio Surveillance Security Services (Pty) Ltd (RSSS)
RSSS served two summonses on Telkom for the sums of R215 661 866 (including VAT) and 
R9 913 782 (including VAT) respectively but Telkom has settled the lesser amount. Telkom is defending the larger claim and has filed a plea and counterclaim for R22 million.Pleadings have closed and preparation for trial is under way.

High Court
Phutuma Networks (Pty) Ltd (Phutuma)
In August 2009 Phutuma served a summons on Telkom, claiming for damages arising from a tender published by Telkom in November 2007 for the outsourcing of the Telex and Gentex services and for the provision of a solution to support the maritime industry requirements. Phutuma has claimed damages of R3 730 433 545, alternatively 
R5 513 876 290, and further alternatively R1 771 683 580 plus interest at 15,5% per annum to date of payment from April 2008, alternatively from 30 April 2009 being the date of a notice in terms of Act 40 of 2002, further alternatively from date of service of this summons plus legal costs. At the hearing of the matter the court granted absolution from the instance plus costs. Phutuma has filed a notice of appeal against the judgement but has not yet set down its application for leave to appeal.

African Pre-paid Services Nigeria Limited (APSN) v Multi-Links: 
Arbitration matter
Multi-Links Telecommunications (MLT), a previously wholly owned subsidiary of Telkom in Nigeria, concluded a Super Dealer Agreement (SDA) with African Pre-paid Services (APS). APS ceded and assigned all of its rights and obligations in terms of the SDA to African Pre-paid Services Nigeria (APSN). APSN cancelled the SDA on the basis of an alleged repudiation by MLT of the agreement and APSN launched arbitration proceedings in South Africa against MLT claiming damages (9 claims) in the total sum of USD 481 199 101. MLT defended the matter and filed a counterclaim in the amount of USD 123 million. Telkom sold its shareholding in MLT to HIP Oils Topco Limited (HIP Oils). In terms of an indemnity contained in the Sale and Purchase agreement between Telkom and HIP Oils, Telkom is liable for all amounts in excess of USD 10 million in respect of the claim between APSN and MLT. APSN has since reduced its claim to USD 457 million. MLT has obtained a High Court order to stay the arbitation hearing pending the outcome of the damages action instituted by Telkom and MLT against Blue Label Telecoms, APSN and others.

Other
HIP Oils Topco Ltd (HIP Oils)
With the sale of Telkom’s shares in Multi-Links to HIP Oils, Telkom provided a taxation indemnity and a “creditors” indemnity to HIP Oils and Multi-Links where such liability or obligation was incurred prior to 3 October 2011 and to the extent that such liability exceeded the amounts set out in Schedule 4 (the creditors list) to the Sale and Purchase Agreement. Telkom has undertaken to indemnify any actual or contingent liabilities, obligations or other indebtedness of any nature owed or owing to trade, financial and other creditors of Multi-Links where such liability, obligation or other indebtedness was incurred and not disclosed to HIP Oils prior to the completion date. Multi-Links and HIP Oils ceded the balance of the proceeds of their claim which was instituted against Blue Label Telecoms and others by Multi-Links, to Telkom, in terms of an out and out cession, which balance will be determined after consideration of all amounts due by Telkom to Multi-Links and vice versa.

Tax matters
Telkom received an assessment from SARS in respect of the 2010 year of assessment to which Telkom has objected. The Group is regularly subject to an evaluation, by tax authorities, of its direct and indirect tax filings. The consequence of such reviews is that disputes can arise with tax authorities over the interpretation or application of certain tax rules applicable to the Group’s business. These disputes may not necessarily be resolved in a manner that is favourable to the Group. Additionally, the resolution of the disputes could result in an obligation to the Group.

CONTINGENT ASSETS 
High Court
Former Senior Executive of Telkom
In April 2013 Telkom issued a summons against a former senior executive of Telkom, claiming an amount of USD 6 million, for damages suffered as a result of certain irregularities. The matter arises from the former executive’s conduct whilst at Multi-Links. The matter is being defended and is set down for hearing on 2 September 2014.

Blue Label Telecoms Limited and five others
In May 2013 Telkom (and Multi-Links Telecommunications, Nigeria) issued a summons against Blue Label Telecoms Limited, certain subsidiaries of Blue Label and certain individuals, including a former senior executive of Telkom, claiming an amount of USD 
528 071 116. The claim is for damages suffered by Telkom arising out of a Super Dealer Agreement (SDA) concluded between African Pre-paid Services (Pty) Ltd (a subsidiary of Blue Label) and Multi-Links as well as for a breach of fiduciary duties owed to Telkom and Multi-Links. In October 2013, HIP Oils (the holding company of Multi-Links) and Multi-Links ceded the balance of proceeds of its claim against Blue Label and others to Telkom by way of a cession, which balance will be determined after consideration of monies due by Telkom and itself under the Share Sale Agreement concluded between Telkom and HIP Oils. In November 2013 APSN filed its plea and a counterclaim for damages against Telkom for USD 451 million or so much of it as APSN does not recover from Multi-Links arising from Telkom’s alleged unlawful interference in the contractual relationship between APSN and Multi-Links causing Multi-Links to repudiate the SDA. APSN also filed a counterclaim against Multi- Links for USD 457 million. Both Telkom and Multi-Links have opposed the counterclaim. Multi-Links (MLT) Telkom is claiming an amount of USD 20,9 million from MLT in respect of amounts due by MLT to Telkom with regards to the provision of resources, legal costs and an interest free loan. In October 2013, MLT signed an out and out cession of its claim against Blue Label and five other defendants in favour of Telkom, which made provision for the payment of monies due by MLT to Telkom and vice versa from the proceeds of any monies recovered in the Blue Label action, by way of an accounting and deduction process.

Tax matters
As noted in the 2013 consolidated annual financial statements, the 2012 tax return was submitted and has since then been provisionally assessed. In 2014 a similar transaction arose, however the 2014 tax return has not been submitted. Since the tax treatment of the loss arising in 2012 and 2014 is based on a specific set of circumstances and a complex legislative environment, the contingent asset will only be recognised once 
the matter has been resolved with SARS. The outcome of the SARS process, will determine the recognition of the tax refund of R854 million in relation to 2012, currently included in trade and other payables.

17. Related parties
Details of material transactions and balances with related parties were as 
follows:
                                                   2014    2013
                                                     Rm      Rm
With shareholders: 
Government of South Africa 
Related party balances
Trade receivables                                   456     446
Related party transactions
Revenue                                          (3 307) (3 017) 
Individually significant revenue*                (1 322) (1 345) 
City of Cape Town                                   (45)    (66) 
Department of Correctional Services                 (90)    (93) 
Department of Health: Gauteng                       (51)    (50) 
Department of Justice                              (114)   (118) 
South African National Defence Force                (72)    (72) 
South African Police Services                      (597)   (601) 
South African Revenue Services                      (38)    (42) 
S.I.T.A. (Pty) Ltd                                 (206)   (195) 
South African Post Office                           (52)    (50) 
Department of Internal Affairs                      (57)    (58) 
Collectively significant revenue**               (1 985) (1 672) 
At 31 March 2014, the Government of 
South Africa held 39,8% (2013: 39,8%) of Telkom’s
shares and the Public Investment Corporation 
held 13,5% (2013: 11,7%) of Telkom’s shares. 

With entities under common control
Major public entities
Related party balances
Trade receivables                                    35      48
Trade payables                                       (1)      – 
Related party transactions
Revenue**                                          (253)   (260) 
Expenses                                            250     237
Individually significant expenses                   236     223
South African Post Office                            89      96
Eskom                                               136     127
South African Broadcasting Corporation               11       – 
Collectively significant expenses                    14      14
*The nature of the individually and 
collectively significant revenue 
consists mostly of data revenue.
**Restated.
Rent received                                       (49)    (43) 
Individually significant rent received:
South African Post Office                           (43)    (39)
Collectively significant rent received               (6)     (4) 
Rent paid                                            29      26
Individually significant rent paid:                  19      17
Collectively significant rent paid                   10       9
Key management personnel compensation: 
(Including directors and prescribed 
officers’ emoluments)
Related party transactions
Short-term employee benefits                        139     189
Post-employment benefits                             10      10
Termination benefits                                  2      24
Equity compensation benefits                          6       -

Financial assistance to Executive Director
During the period under review, the shareholders at an annual general meeting approved a share scheme which inter alia provides for financial assistance to top management to purchase Telkom shares. A loan in the amount of approximately R6 million was paid to the CFO to purchase Telkom's shares during the current financial year. However, the granting of the loan was inconsistent with the provisions of the Companies Act, making the transaction null and void. The Board acknowledged that it could not ratify the granting of the loan and was obligated to claim the approximately R6 million back from the CFO. The loan was paid back in full by the CFO to Telkom on 16 January 2014.

Terms and conditions of transactions with related parties
Outstanding balances at the year-end are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided or received for related party receivables or payables.

18. Significant events
Results of the Telkom annual general meeting regarding directors 
re-appointments All Board members were re-elected as per the annual general meeting ordinary resolutions with the exception of Mr J Molobela who withdrew his nomination to be re-elected as director with effect from 27 September 2013. Mr B du Plessis did not stand for re-election for the Board.

Suspension of Chief Financial Officer
Shareholders are advised that Mr Jacques Schindehütte, the Chief Financial Officer of Telkom SA SOC Ltd, (Telkom) has been suspended by the Board of Directors of Telkom (the Board) effective 24 October 2013, pending the finalisation of a disciplinary process. The suspension follows the findings of an investigation by an independent law firm, commissioned by the Board, following receipt of certain allegations levelled against Mr Schindehütte by an anonymous whistleblower. A disciplinary process was instituted against Mr Schindehütte, which is still ongoing.

Mr Deon Fredericks has been acting as Chief Financial Officer of Telkom with effect from 24 October 2013.

Employee Forfeitable Share Plan (Employee FSP)
A new forfeitable share plan was approved at the annual general meeting per special resolution where no more than 5% of Telkom’s amount of issued shares will be allocated to employees.

Post-retirement Medical Aid curtailment
Telkom announced during August 2013 that eligible employees have the option to transfer their post-retirement medical aid benefit to an insurer. The Company curtailed the medical cap increase to 0% as from 1 October 2013 for active members due to revenue
remaining under pressure, rising operational costs and affordability. Of the 9 302 eligible employees 7 654 employees exercised their option to transfer their benefit to an insurer on 11 October 2013. The approximate net curtailment gain recognised was R2,2 billion.

Appointment of Chief Information Officer
Telkom announced on 21 October 2013 that Mr L De Villiers has been appointed as Chief Information Officer with effect from 1 November 2013.

Appointment of Chief Marketing Officer
Telkom announced on 15 November 2013 that Mr V Scarcella has been appointed as Chief Marketing Officer with effect from 1 February 2014.

Appointment of Chief Procurement Officer
Telkom announced on 5 December 2013 that Mr IM Russel has been appointed as Chief Procurement Officer with effect from 1 February 2014.

Appointment of Chief Technology Officer
Telkom announced on 15 February 2014 that Mr AN Samuels has been appointed as Chief Technology Officer with effect from 13 February 2014.

Appointment of Chief Risk Officer
Telkom announced on 1 April 2014 that Adv GJ Rasethaba has been appointed as Chief Risk Officer with immediate effect.

Fair value hedge accounting
The Group implemented fair value hedge accounting for foreign currency risk hedging instruments from 1 October 2013 in an attempt to mitigate earnings volatility.

MTN and Telkom radio access network (RAN) assets transaction
On 7 March 2014, Telkom announced it signed a heads of agreement with MTN South Africa to take over financial and operational responsibility for the roll-out and operation of Telkom’s RAN. The parties will conclude reciprocal roaming agreements to enable customers of either party to roam on the network of the other party. The telecoms industry, in both South Africa and globally, are facing an unprecedented shift from traditional voice towards data. In order to meet this demand the parties have entered into the proposed transaction. Telkom will be able to provide its customers with effective access to the latest state of the art networks without having to incur the 
significant capital expenditure needed to achieve such national coverage. 

As a result of the proposed transaction, the range of services available to customers will increase, the customer experience will be enhanced and significant scale efficiencies, beneficial to both parties and their customers, would be realised.

The proposed transaction is subject to conclusion by the parties of various binding commercial agreements to give effect to the proposed transaction, and various other approvals, including approvals by regulatory authorities as may be required for the implementation of the proposed transaction.

19. Subsequent events
Restructuring of the organisation
The Company has been experiencing significant challenges as manifested in the financial underperformance. The Company continues to experience declining revenues and increasing costs to serve customers. This makes for an unsustainable financial position.

In response to these challenges Telkom has undertaken a thorough review and investigation into all operations and processes which entailed, among others, looking at issues such as cost drivers and the effectiveness of the organisational structure. By flattening the organisational structure or reducing the number of layers in the structure, Telkom aims to facilitate speedy decision-making and be as close to customers as possible. Telkom aims to manage employee costs down to be competitive in different areas of business.

Telkom identified flattening and delayering its structure as a critical action. Telkom has undertaken a consultation process in line with section 189 and 189(a) of the Labour Relation Act to carry out the proposed delayering.

Acquisition of Business Connexion (BCX)
Telkom announced its firm intention to make an offer regarding the possible acquisition of BCX. The Company has embarked on a strategy to improve performance and restore profitability. One of the key considerations of this strategy is to grow beyond its core business of connectivity by expanding into IT services.

BCX is a leading player in the South African IT services market with strong capabilities in Managed IT Infrastructure, including Data Centres. This proposed acquisition enables Telkom’s scale expansion into IT services and helps reinforce the company’s core connectivity business. Telkom believes that this combination will create a leading ICT company in South Africa with unrivalled capabilities throughout the country.

The proposed acquisition is in line with the global trend of IT and Telecoms convergence that is driving the development of rapidly changing products and services and re-shaping the overall ICT and Telecoms business landscape. This convergence trend has seen many traditional IT companies merge with telecommunications companies and is fundamental to the strategies of trailblasing companies such as Google, Apple and Amazon. This is the beginning of the process and there are a number of key milestones to attain and work to be done, including approval by the Competition Authorities and the Regulator.

Additional funding
The Company has secured a R1 billion loan to extend its debt maturity 
profile.

Other matters
The directors are not aware of any other matter or circumstance since the financial year ended 31 March 2014 and the date of this report, or otherwise dealt with in the financial statements, which significantly affects the financial position of the Group and the results of its operations.

13 June 2014

Sponsor:

The Standard Bank of South Africa Limited
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