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Trading statement and operational update
Telkom SA SOC Limited
(Registration number 1991/005476/30)
JSE share code: TKG
ISIN: ZAE000044897
("Telkom" or the "Group")
Trading statement and operational update
In terms of paragraph 3.4(b) of the Listings Requirements of the JSE Limited ("JSE"), companies are required to
publish a trading statement as soon as they become reasonably certain that the financial results for the period
to be reported on next will differ by at least 20% from those of the prior corresponding period.
The full year results to be reported on include items that do not form part of the results from normal business
operations and as such have been “normalised” in order to provide shareholders with better clarity in this
regard and have been listed separately below.
Accordingly, shareholders are advised that reported and normalised earnings for the year ended 31 March
2015 are expected to differ from the prior corresponding period as indicated below:
31 March 2014
As previously 31 March 2015
reported Expectation
(cents)
Basic earnings per share
Reported 758.1 10%-30% lower 76cps - 227cps lower
Normalised 285.2 100%-120% higher 285cps - 342cps higher
Headline earnings per share
Reported 861.0 20%-40% lower 172cps - 344cps lower
Normalised 388.0 40%-60% higher 155cps - 232cps higher
The 31 March 2015 results to be reported on include the following significant items that are not part of the
results from normal business operations:
- Provision for retrenchment and voluntary severance and retirement packages of approximately R591
million with a related tax benefit of approximately R165 million in the current period; and
- An approximately R546 million tax benefit on the payment to an insurer for the transfer of post-
retirement medical aid liability for certain pensioners.
In addition, the results of the prior corresponding period include the following items that are not part of the
results from normal business operations:
- The net curtailment gain recognised on the post-retirement medical aid liability of R2 169 million in the
prior corresponding period and the related tax benefit of R246 million.
The increase in normalised basic earnings for the year ended 31 March 2015 is mainly as a result of:
- Lower payments to mobile operators resulting from the benefit of approximately R743 million from the
reduction in termination rates;
- lower asset impairments and write offs; and
- a decrease in expenses relating to the post-retirement medical aid liability due to the curtailment and
settlement of part of the liability.
This was partially offset by:
- Lower foreign exchange gains as a result of the implementation of hedge accounting from 1 October
2013.
The primary reason for the higher increase in normalised basic earnings per share (100% - 120% higher) when
compared to the increase in normalised headline earnings per share (40% - 60% higher) is the higher asset
impairments and write offs in the prior corresponding period, and higher gain on sale of assets in the current
period, which are both excluded from the calculation of headline earnings per share.
Trading Conditions and operating performance for the year ended 31 March 2015.
Our performance for the full year to 31 March 2015 continued the trend experienced and reported on in our
interim results where a challenging operating environment was once again compounded by competitive
pressures and regulatory interventions.
We have managed to further stabilise the business and have performed reasonably well despite these
challenges.
Revenue
We continue to see pressure on our fixed line voice usage and lease line revenue streams in line with the
trends that we reported for the six months ended 30 September 2014. The commendable performance
observed in our mobile business continued in the second half of the year driven once again by growth in
subscribers and higher postpaid and pre-paid ARPU’s as we attracted an improved quality of customer. Our
mobile data offering is performing well with usage and revenue growing year on year. This as well as good
data growth in our consumer market was instrumental in us achieving flat growth in gross revenue despite
these challenges. Net revenue reflects a modest increase driven by the lower payments to mobile operators.
An increase in other income was due to an increase in profit on the sale of non-core parts of our property and
real estate portfolio.
Operating expenditure
The group has continued to focus on the restructuring of our cost base and imposed efficiency interventions to
achieve profit growth in our core business.
Although we managed to further improve on cost efficiencies in certain areas, we experienced delays in the
implementation of other initiatives. The delayed initiatives included the workforce reduction initiative and the
renegotiation of certain key contracts.
Cost management achievements include a reduction in marketing expenses, consulting and business
transformation expenses as well as reduced vehicle costs. We also reduced expenditure relating to our post-
retirement medical aid liability for in-service members, certain pensioners and part time staff. These savings
were partially offset by annual salary increases, higher bad debts and higher electricity costs as the economy
and the challenges around energy supply negatively impacted our results.
Our performance therefore saw revenues stabilising and our continuous focus on cost and operating
efficiencies resulting in an improvement in our EBITDA margin in line with our guidance.
Further restructuring of our balance sheet saw the removal of a post-retirement medical aid obligation to
certain pensioners of approximately R 2 billion from our balance sheet in the second half of the year.
Capital expenditure
The year ended 31 March 2015 saw a more disciplined allocation of our capital resources in line with the
measured approach adopted in the year ended 31 March 2014. This approach focuses on revenue generating
and profitable areas of our business as well as efficiencies. We have forced prioritisation within the capital
allocation process which resulted in the lower CAPEX to revenue ratio of between 14% - 17%.
Telkom will release its results for the year ended 31 March 2015 on or about Monday, 8 June 2015.
This updated trading statement has neither been reviewed nor reported on by the Group's external auditors.
Pretoria
29 April 2015
Sponsor
The Standard Bank of South Africa Limited
Date: 29/04/2015 11:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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