Wrap Text
Group annual results for the year ended 31 March 2015
Telkom SA SOC Limited
(Registration number 1991/005476/30)
JSE share code: TKG
ISIN: ZAE000044897
Group Annual Results
For the year ended 31 March 2015
The information contained in this document is also available on
Telkom’s investor relations website www.telkom.co.za/ir
Special note regarding forward-looking statements
Many of the statements included in this document, as well as verbal
statements that may be made by us or by officers, directors or employees
acting on our behalf, 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. Factors that could cause our
actual results or outcomes to differ materially from our expectations,
include but are not limited to those risks identified in Telkom’s most
recent annual report, which is 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 verbal 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, so that they conform either to
the 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 2015
All commentary, messaging and indicators in this report exclude retrenchment,
voluntary early retirement and severance package costs of R591 million, the
related tax impact of R165 million and the tax benefit on the post-retirement
medical aid payment of R546 million for the year ended 31 March 2015. The
comparative numbers exclude the R2 169 million net curtailment gain on the
post-retirement medical aid liability and the related tax benefit of R246 million.
HEPS at 532,5cps, up +60%
BEPS at 542,3cps, up +135,7%
Group Revenue R31,7bn
Operating expenses R17,7bn
Free cash flow generated, strong at R3,9bn
EBITDA excluding once-off items increased 15,1% to R9,0bn
Achievements
* Net revenue up 3,1% to R26,0 billion
* Group net debt decreased 92,8% to R151 million
* Free cash flow generated increased 240,4% to R3,9 billion
* Mobile net revenue increased 174,1% to R954 million
* Mobile data revenue increased 50,6% to R988 million
* Active mobile subscribers increased 21,2% to 2 186 774 with a blended
ARPU of R75,05
* EBITDA, excluding the one-off items, improved 15,1% to R9,0 billion
* Headline earnings per share, excluding the one-off items, increased
60,0% to 532,5 cents
* Operating expenses, excluding depreciation, decreased 1,2% to
R17,7 billion
Challenges
* Fixed-line voice usage revenue decreased 13,5% to R6,9 billion
* 22,0% decrease in leased line revenue
Improvements
* Fixed-line data revenue increased 1,5% to R10,4 billion
* ADSL subscribers increased 7,9% to 1 005 286
* Managed data network sites increased 1,0% to 47 599
* Mobile sites integrated increased 3,4% to 2 510
* Mobile LTE sites integrated increased 11,3% to 1 317
Overview
Johannesburg, South Africa – 8 June 2015, Telkom SA SOC Limited
(JSE: TKG) today announced group annual results for the year ended
31 March 2015
Message from Telkom Group CEO Sipho Maseko
We are pleased to announce our results for the year ended 31 March
2015. On a like-for-like basis, i.e. excluding items that do not form part
of the results from normal business operations, net revenue increased 3,1
percent to R26,0 billion; while group operating costs, excluding
depreciation, were down 1,2 percent to R17,7 billion. Our normalised
EBITDA rose by 15,1 percent to R9,0 billion.
Our Retail Consumer segment performed well with excellent results from our
mobile business, which increased its net revenues by 174,1 percent to R954
million. Fixed line data revenue increased 1,5 percent to R10,4 billion
and mobile data revenue increased 50,6 percent to R988 million. We continued
to see pressure on voice usage, particularly in our Enterprise business,
resulting in an 11,9 percent decrease in fixed line voice and interconnection
revenue to R8,3 billion. Despite the high churn rates in our Consumer business,
we grew our ADSL subscribers by 7,9 percent to 1 005 286. Revenue from leased
line facilities remained under pressure and declined 22,0 percent to R1 395
million.
We set out to achieve further stability in the business and largely
attained it under challenging conditions. We are nearing the completion of
the stability phase of our turnaround, which included:
* A continued strengthening of our balance sheet with the settlement of
the post-retirement medical aid liability for certain pensioners and
addressing our fixed asset base
* Continue our cost interventions to ensure a sustainable and variable cost
base going forward
* Maintaining good cash management with free cash flow of R3.9 billion
* Maintaining a low gearing ratio with very low net debt to enable us to
be nimble as we move ahead with plans to grow our revenues organically and
inorganically
* Continue to focus on the execution of our strategy as we await the South
African Competition Tribunal (Competition Tribunal) decision on the
Business Connexion Group Ltd (BCX) transaction following its
recommendation for approval by the South African Competition Commission
(Competition Commission), and our agreement with MTN still being reviewed
by the Competition Commission
We previously indicated that we have improved capital expenditure
efficiency. Through our disciplined approach to where we deploy
capital we have achieved a capex to revenue ratio of 16,3 percent. In
order to drive our convergence strategy we continue to invest in an all-IP
network. We also invested in improving parts of our mobile network, where
necessary.
Our net debt was reduced by 92,8 percent to R151 million and our free cash
flow increased to R3,9 billion. Our healthy financial position will not
only allow us to take advantage of any promising opportunities that could
come our way, it has also made it possible for us to pay a dividend this
year.
Declaration of ordinary and special dividend
Ordinary final dividend number 17 of 215 cents per share (March 2014: 0 cents
per share) and a special dividend of 30 cents per share in respect of the
year ended 31 March 2015 has been declared payable on Monday, 20 July 2015
to shareholders recorded in the register of the company at close of business
on Friday, 17 July 2015. Our strong financial position and healthy cash balances
warrants a special dividend of 30 cents per share as we reintroduce dividend
payments for the first time since 2011. The total dividend approved by the board
is therefore 245 cents per share. The dividend will be subject to a local dividend
withholding tax rate of 15 percent which will result in a net final dividend
of 182,75 cents per ordinary share and net special dividend of 25,5 cents per ordinary share to those shareholders not exempt from paying dividend withholding tax. The ordinary and special dividends will be paid out of cash balances.
The ordinary dividend has been calculated with reference to Telkom’s
current and future debt and cash flow levels. The level of dividend
payments going forward will be based on a number of factors, including the
consideration of the financial performance, capital and operating expenditure
requirements, the group’s debt level, interest coverage, internal cash flows,
prospects and available growth opportunities.
The number of ordinary shares in issue at date of this declaration is 522 969 350
which includes the issuing of 2 185 452 ordinary shares on 4 June 2015 to be
allotted in terms of the Telkom employee share plan. Telkom SA SOC Limited’s
tax reference number is 9414001710.
Salient dates with regard to the ordinary and special dividend 2015
Declaration date Friday, 5 June 2015
Last date to trade cum dividend Friday, 10 July 2015
Shares trade ex dividend Monday, 13 July 2015
Record date Friday, 17 July 2015
Payment date Monday, 20 July 2015
Share certificates may not be dematerialised or rematerialised between
Monday, 13 July 2015 and Friday, 17 July 2015, both days inclusive.
On Monday, 20 July 2015, dividends due to holders of certificated
securities on the South African register will either be transferred
electronically to shareholders’ bank accounts or, in the absence of
suitable mandates, dividend cheques will be posted to such shareholders.
Dividends in respect of dematerialised shareholders will be credited to
shareholders’ accounts with their relevant CSDP or broker.
Prospects
We expect the challenging operating environment of the year under review
to prevail in the year ahead, compounded by increasing competitive
pressures and regulatory interventions. Our response will be to maintain
good cost discipline and a careful and considered approach to capex, and
to make good use of our strong balance sheet by taking advantage of any
new opportunities for growth.
The next phase of Telkom’s turnaround strategy continues as we reposition
the business for commercial sustainability, which will allow us to realise
our ambition of connecting South Africans. Our actions have thus far
delivered results, but we need to become more efficient. We are reviewing
our current operating model. A major part of this review is looking at a
deep functional separation between our wholesale and retail businesses. We
foresee an infrastructure business unit which will be accountable for
network deployment and network efficiency. For this operating model to
succeed, we must have an efficient and high-performing network. We will
update the market regarding our plans during the third quarter of the
calendar year.
We must also have a highly efficient and cost effective workforce. Within
our workforce there are significant opportunities to create a
highly-skilled and productive team by ensuring that employees have the
right skills and capabilities to support the changing business. Much
like most telecoms operators globally, we must move towards a leaner
and more productive workforce. As previously indicated, our aim is to
achieve a staff cost to revenue ratio of 25% over the next four years.
The 2016 financial year will see an acceleration of our efforts in
pursuit of this objective.To this end, we will continue to engage with
our major labour unions.
We are pleased that the Competition Commission has recommended to
the Competition Tribunal that the BCX transaction should be approved with
conditions.
The Competition Commission’s recommendation is a significant and positive
development as it allows for the commencement of the next phase in the
approval process, which is for the Competition Tribunal to set the matter
down for hearing.
Financial guidance
The guidance provided below excludes the impact of the successful
conclusion of the MTN and BCX transactions discussed above.
2016
Net revenue Stabilise
EBITDA margin 26% – 27%
Capex to revenue 15% – 18%
Net debt to EBITDA =1
Mobile EBITDA Break-even
The financial guidance above has not been reviewed or reported on by
our auditors.
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 subsidiary, Swiftnet, is also shown separately. The
Telkom category represents Telkom Company’s contribution to the Group,
including consolidation entries.
The comparative information for March 2014 has been restated as a result of
the reclassification of Trudon as a discontinued operation. Refer to note
2.3 in the condensed consolidated provisional annual financial statements.
In addition, the following item in the comparative reporting period has
been reclassified to provide more relevant disclosure:
* Income relating to undersea cables activities that are not in the
ordinary course of business of R83 million has been reclassified from
operating revenue to other income.
Results from continuing operations
The group recorded a profit after tax of R2,9 billion (March 2014: R3,6
billion). This is 19,5 percent lower than the previous year and was driven
by a one-off R2 169 million net gain recognised on the curtailment of the
post-retirement medical aid liability included in the comparative
reporting period as well as retrenchment, voluntary early retirement and
severance package costs of R591 million for 1 205 employees in the current
year.
The one-off items above are not part of the results from normal operations
for the year under review and have therefore also been excluded from the
discussion below.
The group recorded a normalised profit after tax of R2 769 million
(March 2014: R1 175 million) and EBITDA of R8 978 million (March
2014: R7 798 million), resulting in a 60,0 percent increase in headline
earnings per share. The increase was driven by the benefit from lower
payments to mobile operators and lower employee expenses due to the
curtailment of the post-retirement medical aid liability as well as higher
investment income. This was partly offset by lower gains on foreign
exchange and fair value movements as a result of the implementation of
hedge accounting and lower gains recognised on the underlying assets held
by the cell captive.
We managed to reduce the EBITDA loss of our Mobile business by 48,7
percent by increasing service and subscriptions revenue (excluding
equipment sales) by 48,0 percent. We also recorded promising growth of
50,6 percent in mobile data revenue and 82,4 percent in IT Business
Services revenue. Data revenue now constitutes approximately 35,9 percent
of group revenue, which increased 4,5 percent from the prior year.
However, we still face significant challenges in our fixed-line voice
revenue as fixed-to-mobile substitution continues. Fixed-line data revenue
continues to be impacted by lower pricing driven by competition.
We managed to reduce operating costs by 1,2 percent. This reduction was
largely driven by lower employee, effective marketing and security costs
and a decrease in vehicle leases. Increased bad debts and property
management costs partly offset these savings.
The group generated strong cash flows as we took a measured approach when
considering capital investment as well as focusing on managing our balance
sheet more efficiently. This resulted in a healthy capital structure with
net debt decreasing by 92,8 percent to R151 million at 31 March 2015.
Operational data
March 2015 March 2014 %
ADSL subscribers1 1 005 286 931 858 7,9
Closer subscribers 833 363 845 742 (1,5)
Internet all access subscribers2 574 761 534 441 7,5
Fixed access lines (’000)3 3 439 3 618 (4,9)
Post-paid 2 325 2 363 (1,6)
Post-paid – ISDN channels 697 737 (5,4)
Pre-paid 372 439 (15,3)
Payphones 45 79 (43,0)
Ports activated via MSAN access 964 196 475 144 102,9
Fixed-line penetration rate (%)4 6,6 7,0 (0,4)
Revenue per fixed access line (ZAR) 4 639 4 630 0,2
Total fixed-line traffic (millions of
minutes) 16 315 18 045 (9,6)
Managed data network sites 47 599 47 125 1,0
Telkom Company employees5 18 333 19 197 (4,5)
Swiftnet employees 108 116 (6,9)
Fixed access lines per employee5 188 188 –
Active mobile subscribers6 2 186 774 1 803 675 21,2
Pre-paid 1 607 649 1 423 193 13,0
Post-paid 579 125 380 482 52,2
Mobile base stations constructed 2 601 2 592 0,3
Mobile sites integrated 2 510 2 428 3,4
LTE sites integrated 1 317 1 183 11,3
ARPU (Rand) 75,05 62,79 19,5
Pre-paid 39,68 31,92 24,3
Post-paid 196,89 173,28 13,6
Churn % – pre-paid 51,0 43,8 (7,2)
1. Includes 8 238 (March 2014: 4 914) internal lines. ADSL subscribers
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. Based on number of Telkom Company employees, excluding subsidiaries.
6. Based on a subscriber who has participated in a revenue- generating
activity within the last 90 days.
Financial performance
Group operating revenue
In ZAR millions March 2015 March 2014 %
Voice and subscriptions 15 589 16 237 (4,0)
Fixed-line usage 6 867 7 934 (13,5)
Fixed-line subscriptions 8 005 7 812 2,5
Mobile voice and subscriptions 717 491 46,0
Interconnection 1 493 1 508 (1,0)
Fixed-line domestic 452 458 (1,3)
Fixed-line international 931 971 (4,1)
Mobile interconnection 110 79 39,2
Data 11 383 10 898 4,5
Data connectivity1 5 441 5 461 (0,4)
Leased line facilities 1 395 1 789 (22,0)
Internet access and related
services 1 832 1 676 9,3
Managed data network services 1 046 919 13,8
Multi-media services 48 50 (4,0)
Mobile data 988 656 50,6
IT Business Services revenue 633 347 82,4
Customer premises equipment sales
and rentals 2 704 2 186 23,7
Sales 247 307 (19,5)
Rentals 865 758 14,1
Mobile handset and equipment sales 1 592 1 121 42,0
Other 415 367 13,1
Swiftnet 91 92 (1,1)
Total 31 675 31 288 1,2
Reclassification of comparative information
1. Income relating to the undersea cables activities that are not in the
ordinary course of business of R83 million has been reclassified from
data connectivity revenue to other income.
Group operating revenue increased 1,2 percent to R31 675 million
(March 2014: R31 288 million), driven by higher mobile voice and
data revenue, higher IT Business Services revenue and higher equipment
sales. This was partly offset by the continuous decline in fixed-line
voice revenue and lower data leased line revenue resulting from
self-provisioning by other licensed operators.
Fixed-line voice usage revenue continued its downward trend, decreasing
13,5 percent to R6 867 million (March 2014: R7 934 million). This can be
attributed to a 9,6 percent decline in voice minutes, resulting from
fixed-to-mobile substitution and a 4,9 percent decline in the number of
lines. The decrease was in business as well as residential lines. Business
lines decreased due to the consolidation of business activities and
cost-saving initiatives.
Fixed-line subscriptions revenue grew 2,5 percent to R8 005 million
(March 2014: R7 812 million) as a result of average line rental tariff
increases of around 6 percent.
Mobile voice and subscriber revenue increased 46,0 percent to R717 million
(March 2014: R491 million). This can be attributed to a 21,2 percent
increase in the number of active mobile subscribers and a 19,5 percent
increase in blended ARPU.
Interconnection revenue remained relatively flat. The decrease in
international interconnection revenue was due to lower international
outgoing traffic volumes.
Revenue from data connectivity services decreased 0,4 percent to R5 441
million (March 2014: R5 461 million), caused by a decline in Diginet
and IPLC revenue, due to increased competition and migration to Metro
Ethernet services. This was partially offset by an increase in ADSL
revenue and Metro Ethernet services. ADSL revenue increased as a result of
a 7,9 percent increase in ADSL subscribers to 1 005 286 (March 2014: 931 858).
With continued self-provisioning by other licensed operators, revenue from
leased line facilities remained under pressure and declined 22,0 percent
to R1 395 million (March 2014: R1 789 million).
Higher growth of 9,3 percent increase in Internet access and related services
revenue was supported by a 7,5 percent increase in Internet subscribers.
Managed data network services revenue increased 13,8 percent to R1 046 million
(March 2014: R919 million) due to an increase in the number of VPN Supreme and
satellite services customers.
In line with our strategy to focus on data, we offered attractive data
deals and promotional products which led to an increase in data
subscribers, and a 50,6 percent increase in mobile data revenue to R988
million (March 2014: R656 million).
We won some key strategic deals in the IT market, which boosted our IT
Business Services data revenue by 82,4 percent to R633 million (March
2014: R347 million).
The strategic decision that was made to discontinue sales of PC and
gaming equipment saw a 19,5 percent decline in customer premises equipment
sales to R247 million (March 2014: R307 million). Despite this, our
rentals increased 14,1 percent to R865 million (March 2014: R758 million)
due to increased uptake in next generation equipment rentals and higher tariffs.
Mobile handset and equipment sales revenue increased 42,0 percent, driven
by higher bulk sales to dealers and a sharp increase in smartphone and
tablet sales.
Group other income
In ZAR millions March 2015 March 2014 %
Telkom1 697 529 31,8
Swiftnet 2 2 –
Total 699 531 31,6
Reclassification of comparative information
1. Income relating to undersea cable activities that are not in the
ordinary course of business of R83 million has been reclassified from
operating revenue to other income.
Other income includes profit on the disposal of investments, property,
plant and equipment as well as interest received from debtors and sundry
income.
Other income increased 31,6 percent to R699 million (March 2014: R531
million) as a result of higher profit on sale of properties.
Group direct expenses
In ZAR millions March 2015 March 2014 %
Payments to other operators 2 930 3 944 25,7
Direct cost 615 560 (9,8)
Cost of sales 2 172 1 617 (34,3)
Total 5 717 6 121 6,6
Telkom direct expenses
In ZAR millions March 2015 March 2014 %
Payments to other operators 2 902 3 920 26,0
Mobile network operators 1 450 2 308 37,2
International network operators 887 946 6,2
Fixed-line network operators 254 338 24,9
Data commitments 311 328 5,2
Direct cost 615 560 (9,8)
Cost of sales 2 172 1 616 (34,4)
Total 5 689 6 096 6,7
Payments to mobile operators decreased 37,2 percent as a result of a
reduction in mobile termination rates. The 34,4 percent increase in cost
of sales is largely attributed to the increase in the cost of mobile
device sales.
Group operating expenses
In ZAR millions March 2015 March 2014 %
Employee expenses 8 763 9 091 3,6
Selling, general and administrative
expenses 4 712 4 699 (0,3)
Service fees 3 212 3 103 (3,5)
Operating leases 992 1 007 1,5
Operating expenses excluding
depreciation, amortisation,
impairments and write-offs 17 679 17 900 1,2
Depreciation, amortisation,
impairments and write-offs 5 478 5 891 7,0
Total 23 157 23 791 2,7
Group operating expenses including depreciation, amortisation, impairments
and write offs decreased by 2,7 percent to R23 157 million (March 2014:
R23 791 million) in the year ended 31 March 2015, primarily due to asset
impairments and accelerated depreciation on new connections installed to
customer premises included in the prior year as well as lower employee
expenses as a result of the curtailment of the post-retirement medical
aid liability in the prior year.
Telkom operating expenditure
In ZAR millions March 2015 March 2014 %
Employee expenses 8 703 9 037 3,7
Salaries and wages 7 172 7 103 (1,0)
Benefits 2 017 2 315 12,9
Workforce reduction expenses – 75 100,0
Employee related expenses capitalised (486) (456) (6,6)
Selling, general and administrative
expenses 4 702 4 695 (0,2)
Materials and maintenance1 2 908 2 886 (0,8)
Marketing 714 799 10,6
Bad debts 319 170 (87,7)
Other1 761 840 9,4
Service fees 3 209 3 096 (3,7)
Property management 1 934 1 741 (11,1)
Consultants, security and other 1 275 1 355 5,9
Operating leases 987 1 004 1,7
Buildings 455 455 –
Equipment 48 35 (37,1)
Vehicles 484 514 5,8
Depreciation, amortisation,
impairments and write-offs 5 459 5 872 7,0
Depreciation 4 481 4 588 2,3
Amortisation 757 652 (16,1)
Impairment and write-offs 221 632 65,0
Total 23 060 23 704 2,7
Reclassification of comparative information
1. Copper theft losses of R134 million has been reclassified from
materials and maintenance to the other category for more relevant
disclosure.
Employee expenses were 3,7 percent lower due to the curtailment of the
post-retirement medical aid liability for in-service members and
pensioners, a 4,5% reduction in full-time employee headcount and lower
part-time staff headcount. This was offset by a 6,2 percent average salary
increase for bargaining unit employees and a 6,0 percent average salary
increase for management employees.
Selling, general and administrative expenses remained relatively flat.
More focused marketing expenses resulted in a decrease of 10,6 percent to
R714 million (March 2014: R799 million). This was partially offset by
increased bad debts as we made provision based on the adverse economic
conditions affecting payment patterns. The other category decreased 9,4
percent to R761 million (March 2015: R840 million) as we settled certain
pending litigation, partially offset by higher inventory write-offs and
licence fees.
Space optimisation projects and higher electricity tariffs led to an
11,1 percent increase in property management expenses. Consultants,
security and other service fees decreased 5,9 percent, driven by lower
consulting costs incurred relating to the company’s transformation
programme.
The 5,8% decrease in vehicle leases was mainly attributed to fewer
kilometres travelled, a lower average cost of fuel and benefits from
contract renegotiations.
Depreciation decreased 2,3 percent to R4 481 million (March 2014:
R4 588 million) due to higher accelerated depreciation on new connections
installed to customer premises included in the prior year. Impairments and
write-offs declined 65,0 percent to R221 million (March 2014: R632
million). This decline is largely attributable to the impairment of
certain legacy and technologically aged items in the prior year.
Mobile operating expenditure
Details of Telkom Mobile operating expenditure are provided below.
In ZAR millions March 2015 March 2014 %
Payments to other operators 505 482 (4,8)
Direct cost 512 461 (11,1)
Cost of sales 1 436 1 056 (36,0)
Employee expenses 368 359 (2,5)
Selling, general and administrative
expenses 920 988 6,9
Service fees 100 144 30,6
Operating leases 260 220 (18,2)
Depreciation, amortisation, impairments
and write-offs 720 598 (20,4)
Total 4 821 4 308 (11,9)
Investment income
Investment income consists of interest received on short-term investments
and bank accounts. Investment income increased by 73,6 percent to R283
million (March 2014: R163 million) as a result of higher 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 the cell captive as well as
foreign exchange gains and losses on foreign currency denominated
transactions and balances.
Foreign exchange and fair value gains decreased 74,1 percent to R89
million (March 2014: R344 million). This decrease was caused by lower fair
value gains on derivatives due to the implementation of hedge accounting
effective 1 October 2013, which results in certain foreign exchange gains
and losses not being recognised in earnings in the current period. Lower
fair value gains realised on the underlying assets held by the cell
captive also contributed to the decrease. The interest expense decreased
11,9 percent to R560 million (March 2014: R636 million) as a result of
lower debt levels.
Taxation
The normalised consolidated tax expense excludes the R546 million (March
2014: R246 million) benefit from the payment to an insurer for our
post-retirement medical aid liability to in service members and pensioners
and the R165 million tax benefit on the voluntary severance and retrenchment
expenses. The normalised consolidated tax expense decreased by 10,0 percent
to R543 million (March 2014: R603 million) mainly as a result of favourable
prior year adjustments of R337 million (March 2014: R224 million unfavourable)
and the recognition of a deferred tax asset of R250 million (March 2014: Nil).
Consolidated statement of financial position
The group’s capital structure remains strong. Net debt, including
financial assets and liabilities, decreased 92,8 percent to R151 million
from R2 092 million as at 31 March 2014, resulting in a net debt to EBITDA
ratio of 0,02 times. On 31 March 2015, the group had cash balances,
including other financial assets and liabilities, of R4 677 million
(31 March 2014: R1 930 million). The higher cash balances emanate from a
measured approach to capital investment with a focus on returns as well as
cash received from a R1 billion loan secured to extend our debt maturity
profile.
Free cash flow
In ZAR millions March 2015 March 2014 %
Cash generated from operations before
dividends paid as reported 6 347 6 490 (2,2)
Add back: Payment to Competition
Commission 291 291 –
Add back: Payment to insurer for post-
retirement medical aid 1 950 878 122,1
Add back: Package cost 325 710 (54,2)
Less: Taxation refund received – (854) (100)
Cash generated from operations before
dividends paid 8 913 7 515 18,6
Cash paid for capital expenditure (5 015) (6 370) 21,3
Free cash flow 3 898 1 145 240,4
Free cash flow increased significantly to R3 898 million (March
2014: R1 145 million) as a result of the 15,1 percent increase in EBITDA
and a 21,3 percent decrease in cash paid for 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,
decreased 21,4 percent to R5 164 million (March 2014: R6 566 million)
and represents 16,3 percent of Group operating revenue (March 2014:
21,0 percent).
In ZAR millions March 2015 March 2014 %
Baseline 1 834 1 837 0,2
Network evolution 1 504 2 439 38,3
Mobile 481 1 368 64,8
Sustenance 224 198 (13,1)
Effectiveness and efficiency 543 162 (235,2)
Support 348 357 2,5
Other 17 27 37,0
Swiftnet 20 25 20,0
Capital expenditure included in PPE 4 971 6 413 22,5
Strategic inventory of a capital
nature 193 153 (26,1)
Total 5 164 6 566 21,4
Baseline capital expenditure of R1 834 million (March 2014: R1 837
million) consists largely of the deployment of technologies to
support the growing data services business, Internet capacity growth,
links to the mobile cellular operators and access line deployment in
selected high-growth commercial and business areas.
Network evolution expenditure of R1 504 million (March 2014: R2 439
million) is 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 lower expenditure
is largely due to a more rigorous focus on project selection, in
accordance with the group’s focus on efficient execution of its strategy.
Our roll out was also impacted by civil work required to install fibre to
the home and business.
Mobile capital expenditure decreased 64,8 percent to R481 million (March
2014: R1 368 million), due to the shift to a more concentrated rollout in
major metropolitan areas. The current focus on the radio access network
(RAN) is to complete existing projects and to provide capacity to relieve
congestion in identified growth areas.
The sustenance category expenditure of R224 million (March 2014: R198
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 is due to a focus on access network rehabilitation,
mainly to improve the customer experience for voice and ADSL services.
The increase in the effectiveness and efficiency category to R543 million
(March 2014: R162 million) resulted from a number of projects, including
the relocation of Telkom head office staff to Centurion, a contact centre
consolidation initiative and the replacement of electric lighting with
lower energy LED lights.
The support capital expenditure of R348 million (March 2014: R357 million)
is primarily related to the provision of new buildings and building
extensions in support of network growth, building compliance upgrades, the
replacement of obsolete personal computers and the purchase of test
equipment for technical staff.
Group Annual Financial Statements
For the year ended 31 March 2015
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 5 June
2015.
Preparer and supervisor of condensed consolidated provisional annual
financial statements
These condensed consolidated provisional annual financial statements were
prepared by Mrs Gladys Machinjike (Executive Financial Accounting and
Reporting) and supervised by Mr Robin Coode (Group Executive Accounting).
Condensed consolidated provisional statement of profit or loss and other
comprehensive income
for the year ended 31 March 2015
Restated*
2015 2014
Notes Rm Rm
Continuing operations
Total revenue 4 32 400 31 905
Operating revenue 4 31 675 31 288
Payments to other operators 5.1 2 930 3 944
Cost of sales 5.2 2 787 2 177
Net operating revenue 25 958 25 167
Other income 699 531
Operating expenses 23 748 21 622
Employee expenses 5.3 9 354 6 922
Selling, general and administrative
expenses 5.4 4 712 4 699
Service fees 5.5 3 212 3 103
Operating leases 992 1 007
Depreciation, amortisation, impairment,
write-offs and losses 5.6 5 478 5 891
Operating profit 2 909 4 076
Investment income 4 283 163
Finance charges and fair value
movements 471 292
Finance charges 560 636
Foreign exchange and fair value
movements (89) (344)
Profit before taxation 2 721 3 947
Taxation (income)/expense 6 (168) 357
Profit from continuing operations 2 889 3 590
Profit from discontinued operations 7 367 353
Profit for the year 3 256 3 943
Other comprehensive income
Items that may be reclassified
subsequently to profit and loss
Exchange gains on translating foreign
operations – 4
Recycling of foreign currency
translation reserve – 122
Items that will not be reclassified to
profit and loss
Defined benefit plan actuarial
(losses)/gains (944) 2 277
Defined benefit plan asset ceiling
limitation 448 (1 106)
Income tax relating to components of
other comprehensive income 8 139 (157)
Other comprehensive (loss)/income for
the year, net of taxation (357) 1 140
Total comprehensive income for the year 2 899 5 083
Profit attributable to:
Owners of Telkom 3 151 3 822
Non-controlling interest 105 121
Profit for the year 3 256 3 943
Total comprehensive income attributable to:
Owners of Telkom 2 794 4 962
Non-controlling interest 105 121
Total comprehensive income for the year 2 899 5 083
Total operations*
Basic earnings per share (cents) 9 617,1 748,5
Diluted earnings per share (cents) 9 604,5 744,8
Continuing operations
Basic earnings per share (cents) 9 565,8 703,1
Diluted earnings per share (cents) 9 554,2 699,6
* Refer to note 2.3 and note 9
Condensed consolidated provisional statement of financial position
at 31 March 2015
2015 2014
Notes Rm Rm
Assets
Non-current assets 30 554 31 039
Property, plant and equipment 10 24 387 25 123
Intangible assets 10 2 793 2 833
Other investments 2 231 2 759
Employee benefits 11 452 35
Other financial assets 12 28 74
Finance lease receivables 413 202
Deferred taxation 250 13
Current assets 10 511 8 366
Inventories 10 552 646
Income tax receivable 1 8
Current portion of finance lease
receivables 200 118
Trade and other receivables 4 895 5 565
Current portion of other financial assets 12 1 247 187
Cash and cash equivalents 13 3 616 1 842
Assets of disposal group classified as
held for sale 7.2 917 –
Total assets 41 982 39 405
Equity and liabilities
Equity attributable to owners of the
parent 25 676 22 771
Share capital 5 208 5 208
Treasury shares 15 – (771)
Share-based compensation reserve 126 11
Non-distributable reserves 15 1 507 2 580
Retained earnings 18 835 15 743
Non-controlling interest 363 377
Total equity 26 039 23 148
Non-current liabilities 4 421 6 156
Interest-bearing debt 16 3 244 3 775
Employee related provisions 17 437 1 388
Non-employee related provisions 17 39 108
Deferred revenue 687 869
Deferred taxation 14 16
Current liabilities 11 403 10 101
Trade and other payables 18 5 571 5 119
Shareholders for dividend 19 21
Current portion of interest-bearing debt 16 1 612 321
Current portion of employee related
provisions 17 1 867 1 597
Current portion of non-employee related
provisions 17 302 731
Current portion of deferred revenue 1 502 1 431
Income tax payable 344 782
Current portion of other financial
liabilities 185 98
Credit facilities utilised 13 1 1
Liabilities of disposal group classified
as held for sale 7.2 119 –
Total liabilities 15 943 16 257
Total equity and liabilities 41 982 39 405
Condensed consolidated provisional statement of changes in equity
for the year ended 31 March 2015
2015 2014
Rm Rm
Balance at 1 April 23 148 18 177
Attributable to owners of Telkom 22 771 17 798
Non-controlling interests 377 379
Total comprehensive income for the year 2 899 5 083
Profit for the year 3 256 3 943
Other comprehensive income (357) 1 140
Exchange gains on translating foreign operations – 4
Recycling of foreign currency translation reserve – 122
Net defined benefit plan remeasurements (357) 1 014
Dividend declared* (119) (123)
Adjustment to shares held in Escrow (4) –
Increase in share-compensation reserve 115 11
Balance at 31 March 26 039 23 148
Attributable to owners of Telkom 25 676 22 771
Non-controlling interests 363 377
*Dividend declared to the non-controlling interests of the Trudon Group.
Condensed consolidated provisional statement of cash flows
for the year ended 31 March 2015
2015 2014
Notes Rm Rm
Cash flows from operating activities 6 226 6 366
Cash receipts from customers 31 852 32 455
Cash paid to suppliers and employees (25 210) (26 143)
Cash generated from operations 6 642 6 312
Interest received 470 358
Finance charges paid (491) (585)
Taxation refund – 854
Taxation paid (274) (449)
Cash generated from operations before
dividend paid 6 347 6 490
Dividend paid (121) (124)
Cash flows from investing activities (5 113) (4 333)
Proceeds on disposal of property, plant and
equipment and intangible assets 253 67
Proceeds on disposal of investment 750 –
Additions to assets for capital expansion 10 (5 015) (6 370)
(Increase)/decrease in repurchase
agreements (1 101) 1 970
Cash flows from financing activities 685 (2 583)
Loans raised 1 000 300
Loans repaid (310) (3 036)
Finance lease repaid (170) (156)
Settlement of derivatives 165 309
Net increase/(decrease) in cash and cash
equivalents 1 798 (550)
Net cash and cash equivalents at beginning
of year* 1 841 2 381
Trudon cash and cash equivalents classified
as held for sale (27) –
Effect of foreign exchange rate gains on
cash and cash equivalents 3 10
Net cash and cash equivalents at end of
year* 13 3 615 1 841
* Refer to note 7 for cash flow activities on discontinued operations of
the iWayAfrica Group over which control was relinquished on disposal in
the prior financial year and of the Trudon Group which has been
reclassified as a discontinued operation in the current financial year.
Notes to the condensed consolidated provisional annual financial
statements
for the year ended 31 March 2015
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.
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 2014.
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 2014,
except for the adoption of the amendments, new standards described below.
2.1. The following new standards, amendments to standards and
interpretations that have been adopted and do not have a material impact
on the Group.
Salient feature
Standard(s),Amendment(s) of the changes Effective date
IFRS 3 Business Amendment to scope 1 July 2014
Combinations exception of joint
ventures in paragraph
2(a).
IFRS 8 Operating Segments Amendment relating to 1 July 2014
aggregation of segments
and reconciliation of
the total reportable
segments’ assets to the
entity’s assets if
segment assets are
reported regularly.
IFRS 11 Joint Amendment to IFRS 11 1 January 2016
Arrangements requirements for
accounting for an
acquired interest
in a joint operation
that constitutes a
business and additional
disclosure requirements
in terms of IFRS 3
Business Combinations
and other IFRSs for
business combinations.
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.
IAS 16 Property, Amendment to the 1 July 2014
Plant and Equipment revaluation method:
proportionate
restatement of
accumulated
depreciation of an
item of property, plant
and equipment.
IAS 16 Property, Amendment to IAS 16 1 January 2016
Plant and Equipment and IAS 41 to define
and IAS 41 Agriculture bearer plants and
include within the scope
of IAS 16 Property, plant
and equipment those bearer
plants that are expected
to bear produce for more
than one period and have a
remote likelihood of
being sold as agricultural
produce. These were
previously in the scope
of IAS 41.
IAS 16 Property, Amendment providing 1 January 2016
Plant and Equipment clarification on
acceptable methods of
depreciation and
amortisation.
IAS 19 Employee Amendment providing 1 July 2014
Benefits the clarification of
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 1 July 2014
Party Disclosures disclosure of 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 27 Separate Amendment to IAS 27 1 January 2016
Financial Statements to enable an entity to
account for investments
in subsidiaries, joint
ventures and associates
using the equity method
when preparing separate
financial statements.
Investment Entities Amendment exempting 1 January 2014
(Amendments to IFRS 10 ‘investment entities’
Consolidated Financial (as defined) from the
Statements, IFRS 12 consolidation of
Disclosure of Interests particular subsidiaries.
in Other Entities and Such investment entity
IAS 27 Separate Financial should measure the
Statements) investment in each
eligible subsidiary at
fair value through
profit or loss.
IAS 32 Financial Amendment to application 1 January 2014
Instruments: Presentation guidance on the offsetting
of financial assets and
financial liabilities and
the related net credit
exposure.
IAS 38 Intangible Amendment providing guide 1 July 2014
Assets on the revaluation method:
proportionate restatement
of accumulated amortisation
of an intangible asset.
IAS 38 Intangible Amendment providing 1 January 2016
Assets clarification of acceptable
methods of depreciation
and amortisation.
IAS 39 Financial Amendment for novation of 1 January 2014
instruments: Recognition derivatives and the
and Measurement continuation of hedge
accounting.
IAS 40 Investment Amendment providing the 1 July 2014
Property interrelationship between
IFRS 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.
2.2. 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. The impact of these new standards, amendments to standards and
interpretations are being assessed.
Pronouncement Title Effective date
IFRS 1 First-time Consequential amendment to 1 January 2016
Adoption of IFRS 7 Financial Instruments
International Disclosures: Servicing
Financial contracts disclosures and
Reporting offsetting of financial
Standards assets and liabilities
disclosures in condensed
interim financial statements.
IFRS 5 Non-current Amendment to the accounting 1 January 2016
Assets Held for treatment of changes to a
Sale and plan of sale or to a plan of
Discontinued distribution to owners where
Operations an entity reclassifies an asset
or disposal group from held for
sale to held for distribution
or vice versa.
IFRS 7 Financial Amendment 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 7 Financial Servicing contracts disclosures: 1 January 2016
Instruments Application guidance to clarify
Disclosures whether a servicing contract
gives rise to continuing
involvement in a transferred
asset for the purposes
determining the transfer
disclosure requirements.
IFRS 9 Financial Classification and measurement 1 January 2018*
Instruments of financial assets and
financial liabilities and
derecognition requirements.
IFRS 10 Amendment of the accounting 1 January 2016
Consolidated for a split of gains or losses
Financial on the loss of control between:
Statements (i) the recognition of gains
or losses in profit or loss
of a parent company and
(ii) the elimination against
the carrying amounts of
investments in the existing
associate/joint venture and
former subsidiary when control
over the subsidiary is lost.
IFRS 14 Regulatory The new standard describes 1 January 2016
Deferral Accounts the 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. This
standard is applicable to first
time adoptors of IFRS.
IFRS 15 Revenue This new standard provides 1 January 2017
from contracts principles that an entity will
with customers apply to determine the measurement
of revenue and timing of when it
is recognised. The underlying
principle is that an entity will
recognise revenue to depict the
transfer of goods or services to
customers at an amount that
the entity expects to be entitled
to in exchange for those goods
or services.
IAS 1 Presentation Amendment aiming to ensure that 1 January 2016
of Financial an entity does not reduce the
Statements understandability of its
financial statements by obscuring
material information with
immaterial information or by
aggregating material items
that have different natures
or functions.
IAS 19 Employee Discount rate: requirement to 1 January 2016
Benefits use the market yields on
government bonds denominated
in the currency of high quality
corporate bonds in cases where
there is no deep market for
such bonds for the purpose of
discounting post-employment
benefit obligations.
IAS 28 Investment See IFRS 10 Consolidated 1 January 2016
in Associates or Financial Statements
Joint Ventures
IAS 34 Interim Certain disclosures are to 1 January 2016
Financial be given either in the interim
Reporting financial statements or
incorporated by a cross-reference
from the interim financial
statements to some other statement.
These disclosures must also be
available to users on the same
terms and at the same time as the
interim financial statements
for the interim financial report
to be complete.
IAS 39 Financial Amendment to permit an entity to 1 January 2018*
Instruments: elect to continue to apply the
Recognition and hedge accounting requirements in
Measurement IAS 39 for a fair value hedge of
the interest rate exposure of a
portion of a portfolio of financial
assets or financial liabilities
when IFRS 9 is applied, and to
extend the fair value option to
certain contracts that meet the
‘own use’ scope exception.
IFRS 10, IFRS 12 Amendment granting exemption from 1 January 2016
and IAS 28, preparation of consolidated
Investment Financial Statements for an
Entities: Applying intermediate parent entity that is
the Consolidation subsidiary of an investment entity
Exception even if that parent entity measures
all of its subsidiaries at fair value.
Consequential amendments have also
been made to IAS 28 exemption from
applying the equity method for entities
that are subsidiaries and hold
interest in associate and joint venture.
*The standards apply when IFRS 9 is applied.
2.3 Adjustments to the consolidated statement of profit or loss and other
comprehensive income for the year ended 31 March 2014
As Undersea
previously cable Discontinued
reported revenue* operation** Restated
Rm Rm Rm Rm
Continuing operations
Total revenue 33 061 (1 156) 31 905
Operating revenue 32 483 (83) (1 112) 31 288
Payments to other
operators 3 944 – 3 944
Cost of sales 2 498 (321) 2 177
Net operating revenue 26 041 (83) (791) 25 167
Other income 479 83 (31) 531
Operating expenses 21 918 (296) 21 622
Employee expenses 7 137 (215) 6 922
Selling, general and
administrative expenses 4 682 17 4 699
Service fees 3 110 (7) 3 103
Operating leases 1 052 (45) 1 007
Depreciation, amortisation,
impairment, write-offs
and losses 5 937 (46) 5 891
Operating profit 4 602 – (526) 4 076
Investment income 176 (13) 163
Finance charges and
fair value movements 292 – 292
Finance charges 636 – 636
Foreign exchange gains and
fair value movements (344) – (344)
Profit before taxation 4 486 – (539) 3 947
Taxation 494 (137) 357
Profit from continuing
operations 3 992 – (402) 3 590
Profit from discontinuing
operations (49) – 402 353
Profit for the year 3 943 – – 3 943
* This is income relating to undersea cables activities that are not in
the ordinary course of business, therefore it was reclassified from
operating revenue to other income.
** The restatement is due to the classification of the Trudon Group as a
discontinued operation.
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, mobile voice and data services and customer
premises equipment sales.
Restated
2015 2014
Rm Rm
4. Total revenue 32 400 31 905
Operating revenue 31 675 31 288
Other income (excluding profit on disposal
of property, plant and equipment, intangible
assets and investments) 442 454
Investment income 283 163
Operating revenue increased due to higher mobile voice and data revenue,
higher IT business services revenue and higher equipment sales. This was
partly offset by the continuous decline in fixed-line voice revenue and
lower data leased line revenue resulting from self-provisioning by other
licensed operators.
Investment income increased as a result of higher cash balances held by
the Group.
Change in estimate
In the current financial year the Group reassessed it’s voice
customer relationship period (CRP) that is used for the deferral of
installation fee revenue. The CRP was changed from 9 years to 6.5 years.
This is more reflective of the modern day customer behaviour within the
industry. The change in estimate resulted in revenue increasing by R111
million in the current year.
Change in comparative
The comparative in other income has increased by R83 million due to a
reclassification from operating revenue relating to income from undersea
cables to more appropriately reflect its nature.
5. Operating expenses
Restated
2015 2014
Rm Rm
5.1 Payments to other operators 2 930 3 944
Payments to other network operators(interconnection
fees) has decreased due to the reduction in the
mobile termination rates.
5.2 Cost of sales 2 787 2 177
The increase in the cost of sales is largely
attributable to the increase in the mobile
device sales.
5.3 Employee expenses 9 354 6 922
The increase in employee expenses is mainly due
to a net curtailment gain of R2.2 billion that
related to the curtailment and settlement of the
post retirement medical aid benefit which occurred
in the prior financial year. The average salary
increase as well as the retrenchment packages,
voluntary early retirement packages and voluntary
severance packages gave rise to the increase in
employee expenses offset by a settlement gain
that related to the post retirement medical aid
benefit.
5.4 Selling, general and administrative expenses 4 712 4 699
Selling, general and administrative increased
marginally. More focused marketing activities
resulted in a decrease in selling, general
and administrative expenses in the current
financial year. The decrease was partially offset
by an increase in bad debt provision. The adverse
economic conditions gave rise to higher
impairments.
5.5 Service fees 3 212 3 103
The increase in service fees is driven by costs
relating to higher utilities and maintenance
costs on Telkom properties.
5.6 Depreciation, amortisation, impairment and
write-offs 5 478 5 891
Depreciation of property, plant and equipment 4 500 4 605
Amortisation of intangible assets 758 654
Impairment of property, plant and equipment and
intangible assets – 392
Write-offs of property, plant and equipment and
intangible assets 220 240
The decrease in depreciation is due to accelerated
depreciation on new connections installed to
customer premises in the prior financial year
that was not incurred to the same extent in the
current financial year together with the impairment
of certain legacy and technologically aged
items that did not occur in the current
financial year.
6. Taxation (income)/expense (168) 357
South African normal company taxation (56) 484
Deferred taxation (112) (127)
The reduction in the tax expense in the
current financial year was mainly as a result
of the reversal of tax provisions raised and
refunds in respect of prior years that
related to matters that were resolved with
SARS during the current financial year.
In the current financial year the Group raised
a deferred tax asset of R250 million of which a
net amount of R112 million was processed through
profit or loss.
7. Discontinued operations
7.1 Pan African business, iWayAfrica and Africa
Online Mauritius
On the 20th of 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 operated 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
Expenses* – (289)
Loss before taxation of the discontinued
operations – (49)
Taxation – –
Loss after taxation of the discontinued operations – (49)
* Revenue is comprised of operating revenue, other
income and investment income. Expenses is comprised
of 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 outflows* – (38)
* Cash flows included for 2014 are up to
20 December 2013. At 20 December 2013, on the
date of disposal, iWayAfrica had R48 million
cash on hand.
7.2 The Trudon Group
On 27th November 2014, the Telkom Board approved the
disposal of Telkom’s 64.9% shareholding in Trudon to
Trumancon. This is part of Telkom’s strategic
imperative to focus on its fixed line and internet
based business.
Trudon provides advertising and marketing options to
the small, medium and micro enterprises and corporate
market. They also deliver local commercial
search options.
The conclusion of the transaction is subject to the
fulfillment of certain material conditions precedent.
Analysis of the results of the discontinued
operations:
Revenue* 1 127 1 156
Expenses* (638) (617)
Profit before taxation of the discontinued
operations 489 539
Taxation (122) (137)
Profit after taxation of the discontinued operations** 367 402
* Revenue is comprised of operating revenue, other
income and investment income. Expenses is comprised
of operating expenses.
** As the carrying amount of Trudon is less than the
fair value less costs to sell, no re-measurement is
required.
The major classes of assets and liabilities of the
business classified as a disposal group:
Assets 917
Property, plant and equipment and
intangible assets 281
Inventories 86
Trade and other receivables 493
Cash and cash equivalents 27
Other current and non current assets 30
Liabilities 119
Trade and other payables 64
Other current and non current liabilities 55
The net cash flows attributable to the operating,
investing and financing activities of
discontinued operations:
Operating cash flows (9)
Investing cash flows (54)
Total cash inflows (63)
The capital gains tax consequences on the sale of
Trudon, if any, will be offset against the cumulative
capital losses in Telkom company.
8. Income taxation effects of other comprehensive
income
Exchange gains on translating foreign operations – 4
Recycling of foreign currency translation reserve – 122
Net foreign currency translation gains for foreign
operations – 126
Defined benefit plan actuarial (losses)/gains (944) 2 277
Tax effect of defined benefit plan actuarial
(losses)/gains 264 (306)
Net defined benefit plan actuarial
(losses)/gains (680) 1 971
Defined benefit plan asset ceiling limitation 448 (1 106)
Tax effect of defined benefit plan asset ceiling
limitation (125) 149
Net defined benefit plan asset ceiling limitation 323 (957)
Other comprehensive (loss)/income for the
year before taxation (496) 1 297
Tax effect of other comprehensive
(loss)/income for the year 139 (157)
Other comprehensive (loss)/income for the year,
net of taxation (357) 1 140
9. Earnings per share
Restated
2015 2014
Rm Rm
Total operations
Basic earnings per share (cents) 617,1 748,5
Diluted earnings per share (cents) 604,5 744,8
Headline earnings per share (cents)* 607,3 851,4
Diluted headline earnings per share
(cents)* 594,9 847,1
Continuing operations
Basic earnings per share (cents) 565,8 703,1
Diluted earnings per share (cents) 554,2 699,6
Headline earnings per share (cents)* 556,0 806,0
Diluted headline earnings per share
(cents)* 544,6 801,9
Discontinued operations
Basic earnings per share (cents) 51,3 45,4
Diluted earnings per share (cents) 50,3 45,2
Headline earnings per share (cents)* 51,3 45,4
Diluted headline earnings per share
(cents)* 50,3 45,2
Number Number
of shares of shares
Reconciliation of weighted average number
of ordinary shares:
Ordinary shares in issue 520 783 900 520 783 900
Weighted average number of shares held by
subsidiaries and in Escrow (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 10 654 715 2 587 629
Diluted weighted average number of shares
outstanding 521 248 531 513 181 445
* 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:*** Rm Rm
Profit for the year 3 256 3 943
Non-controlling interests (105) (121)
Profit attributable to Owners of Telkom 3 151 3 822
Profit on disposal of property, plant and
equipment and intangible assets (257) (77)
Loss on disposal of subsidiary – 23
Impairment loss on property, plant and
equipment and intangible assets** – 392
Write-offs of property, plant and
equipment and intangible assets 220 240
Taxation effects (13) (53)
Headline earnings 3 101 4 347
Continuing operations
Reconciliation between earnings and headline
earnings:***
Profit from continuing operations 2 889 3 590
Profit attributable to Owners of Telkom 2 889 3 590
Profit on disposal of property, plant and (257) (77)
equipment and intangible assets
Loss on disposal of subsidiary – 23
Impairment loss on property, plant and
equipment and intangible assets** – 392
Write-offs of property, plant and
equipment and intangible assets 220 240
Taxation effects (13) (53)
Headline earnings 2 839 4 115
Discontinued operations
Reconciliation between earnings and headline
earnings:***
Profit from discontinued operation 367 353
Non-controlling interests (105) (121)
Profit attributable to Owners of Telkom 262 232
Headline earnings 262 232
** The impairment resulted in deferred taxation
consequences that were not recognised in the
Statement of Financial Position in the prior
financial year.
*** The amounts have been restated due to the
reclassification of the Trudon Group as a
discontinued operation.
10. Capital additions and disposals
Property, plant and equipment
Additions 4 038 5 695
Disposals (16) (17)
Intangible assets
Additions 933 763
Disposals – –
The capital expenditure is due to the deployment of the Next Generation
Network, mobile cellular services and baseline technologies. The lower
expenditure is largely due to a more rigorous focus on project selection
in accordance with the Group’s focus on efficient execution of
its strategy.
Mobile capital expenditure decreased due to the shift to a more
concentrated rollout in major metropolitan areas. The current focus for
the radio access network (RAN) is to complete current projects and to
provide capacity to relieve congestion in identified growth areas.
An estimated amount of R193 million (2014:R153 million) included in
inventories will be used for Telkom’s network expansion in the 2016
financial year of which R137 million was purchased in the current
financial year.
Finance charges of R93 million (2014: R93 million) were capitalised to
property, plant and equipment and intangible assets in the current
financial year.
Intangible assets additions mainly relate to software.
2015 2014
Rm Rm
11. Employee benefits 452 35
Telkom Pension Fund asset 28 35
Post retirement medical aid net plan asset 424 –
The increase is due to the recognition of
the net post retirement medical aid plan asset
arising from the annuity policy.
12. Other financial assets
Non-current other financial assets consist
of: 28 74
– Derivative instruments 28 74
Cross currency swaps 28 74
Current other financial assets consist of: 1 247 187
– Repurchase agreements 1 101 –
– Derivative instruments 146 187
Forward exchange contracts 70 139
Firm commitments 5 4
Cross currency swaps 71 44
The increase is due to the repurchase agreement
held at reporting date.
13. Net cash and cash equivalents 3 615 1 841
Cash shown as current assets 3 616 1 842
Cash and bank balances 135 193
Short-term deposits 3 481 1 649
Credit facilities utilised (1) (1)
The increase in cash and cash equivalents is mainly due to the inflow
of a loan of R1 billion (refer to note 16). The balance includes
R2 663 million ring-fenced for the acquisition of Business Connexion
(BCX) subject to regulatory approval.
14. 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 2015. The Group
uses derivatives as hedging instruments.
14.1 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 department 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 2014 financial year end, there was no material
change in the contractual undiscounted cash out flows for financial
liabilities.
14.2 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 R5 312 million (2014: R4 752 million) and
a carrying amount of R4 856 million (2014: R4 096 million) (refer to note
16).
Valuation techniques and assumptions applied for the purposes of measuring
fair value
Type of financial Fair value at
instrument 31 March 2015 Valuation Significant
Rm technique inputs
Receivables, 6 631 Undiscounted Probability of
bank balances, future default
repurchase estimated cash
agreements, flows due to
other liquid short term
funds, payables maturities of
and accruals, these instruments
credit facilities
utilised and
shareholders for
dividends
Derivatives (11) Discounted Yield curves
cash flows Market interest
rate Market
foreign currency
rate
Borrowings 5 312 Discounted cash Market interest
flows and quoted rate 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. The fair value of the financial assets and financial liabilities
are sensitive to exchange rate and interest rate movements.
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.
14.3 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:
Hierarchy 2015 2014
levels Rm Rm
Assets measured at fair value
Investment in Cell Captive
Preference Shares Level 1 2 227 2 755
Forward exchange contracts Level 2 70 139
Firm commitments Level 2 5 4
Cross currency swaps Level 2 99 118
Liabilities measured at fair value
Interest rate swaps Level 2 (1) –
Firm commitments Level 2 (170) (37)
Forward exchange contracts Level 2 (14) (61)
Liabilities measured at amortised cost
Interest-bearing debt consisting of: (5 312) (4 752)
Quoted debt securities Level 1 (3 355) (3 445)
Unquoted debt securities Level 2 (1 957) (1 307)
15. Non-distributable reserves 1 507 2 580
Cell Captive reserve 2 282 2 580
Shares held by subsidiaries and in Escrow (775) –
The Group has a Cell Captive preference share investment to fund Telkom’s
post-retirement medical aid liability.
The fair value gains from the Cell Captive are recognised in profit or
loss and then transferred to non-distributable reserves.
The reserve also represents Telkom shares held by subsidiaries and in
Escrow, to be utilised in terms of the Telkom Employee Share Plan.
Telkom previously disclosed the reserve as treasury shares.
16. Interest-bearing debt
2015 2014
Rm Rm
Non-current interest-bearing debt 3 244 3 775
Local debt 2 605 2 815
Foreign debt 101 307
Finance leases 538 653
Current portion of interest-bearing debt 1 612 321
Local debt 1 260 –
Foreign debt 239 236
Finance leases 113 85
The Group obtained long-term funding of
R1 billion during the current financial
year to diversify its debt maturity profile
and to finance its activities.
The repayment of the current portion of
interest-bearing debt of R1 612 million
(nominal as at 31 March 2015) is expected to
be repaid from cash balances, available
operational cash flow and/or the issue of
new debt instruments.
Management believes that sufficient
funding facilities will be available
at the dates of repayment.
17. Provisions
Non-current portion of provisions 476 1 496
Employee related 437 1 388
Non-employee related 39 108
Current portion of provisions 2 169 2 328
Employee related 1 867 1 597
Non-employee related 302 731
The decrease in non-current employee related
provisions is mainly due to the effect of the
settlement recognised on a portion of the
post-retirement medical aid benefit. The
settlement is as a result of an offer to
pensioners who retired after 1994 but before
30 April 2013 to transfer the post retirement
medical aid liability obligation to an insurer.
The increase in the current portion of employee
related provisions is mainly due to the voluntary
severance, voluntary early retirement and
retrenchment process.
The decrease in non-employee related provisions
is due to the reclassification at 30 September
2014 of an amount of R304 million to trade and
other receivables to more accurately reflect
the substance of a transaction with a third
party. The partial settlement of the fine
imposed by the Competition Commission has also
contributed to the decrease in the non-employee
related provision.
18. Trade and other payables 5 571 5 119
Trade payables 2 795 2 632
Finance cost accrued 108 74
Accruals and other payables 2 668 2 413
The increase is mainly due to orders placed
for Telkom campaigns that occurred in the
current financial year. Included in the
current year balance is the prior financial
year refund from SARS of R854 million.
Refer to note 20.
19. Commitments
Capital commitments authorised 5 500 5 055
Commitments against authorised capital
expenditure 1 057 1 132
Authorised capital expenditure not
yet contracted 4 443 3 923
Capital commitments are largely attributable to purchases of property,
plant and equipment and software.
Management expects these commitments to be financed from internally
generated cash and other borrowings.
20. Contingencies
Contingent liabilities
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. On 16 February
2015, after the matter having been heard by the CCC, Telkom received the
CCC’s final ruling dated 27 November 2014. The CCC ruled that the
complaint had been withdrawn and that as a result thereof, it is not able
to make any recommendations to the ICASA council. Telkom thus regards the
matter as finalised on that basis.
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. The CCC
heard the matter and has ruled that Telkom is not in breach of the
Regulations and recommend that ICASA review the regulations. Telkom has
initiated administrative review proceedings seeking to set-aside the
applicability of the Regulations since the CCC ruling is not binding on
ICASA. The review has not been finalised as yet.
High court
Telkom/ICASA, Neotel and CCC
Neotel requested Telkom to provide access to Telkom’s local loop in
November 2010. Telkom declined the request and Neotel submitted a formal
complaint to the CCC which made an 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 a
review application in the High Court to review and set aside the CCC order.
The parties have since agreed to a court order 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.
Radio Surveillance Security Services (Pty) Ltd (RSSS)
RSSS sued Telkom for R215 million (including VAT). Telkom is defending the
claim and has filed a plea and counterclaim for R22 million. An
application will be made for a special court to be allocated due to the
duration of the proposed trial. The parties are exploring a possible
settlement.
Phutuma Networks (Pty) Ltd (Phutuma)
In August 2009, Phutuma issued a summons against Telkom, arising from a
tender published by Telkom in November 2007, claiming damages in the
amount of R5,5 billion. The High Court granted absolution from the instance,
in Telkom’s favour. The Supreme Court of Appeal (SCA) had initially dismissed
Phutuma’s application for leave to appeal in October 2014. In November 2014,
the SCA rescinded its previous order and in February 2015, the SCA granted
Phutuma leave to appeal.
African Pre-paid Services Nigeria Limited (APSN) v Multi-Links
(MLT): Arbitration matter
In December 2014, APSN withdrew its claim, in arbitration proceedings,
against MLT (a previous subsidiary of Telkom, in Nigeria), and MLT also
withdrew its counterclaim against APSN, as part of a settlement agreement
concluded between Telkom and MLT on the one hand and Blue Label and others
on the other hand, in respect of an action instituted by both Telkom and
MLT against Blue Label, African Pre-paid Services, APSN and 3 others. The
settlement was on a walk away basis.
Other
HIP Oils Topco Ltd (HIP Oils)
With the sale of Telkom’s shares in MLT to HIP Oils, Telkom
provided a taxation indemnity and a creditors indemnity to HIP Oils and
MLT where such liability was incurred prior to 3 October 2011 and to the
extent that such liability exceeded the amounts set out in the creditors
list to the Sale and Purchase Agreement. Telkom also undertook to
indemnify HIP Oils of any contingent liabilities and obligations owed or
owing to creditors of MLT where such liability or obligation was incurred
and not disclosed to HIP Oils prior to October 2011. In December 2014,
Telkom and HIP Oils concluded a settlement agreement in terms of which
both parties waived and abandoned all their claims against each other and
released and indemnified each other from all past and future liabilities.
Section 197: Labour Relations Act
Telkom has also been engaging with organised labour in relation to the
outsourcing of various business operations in an effort to unlock
operating and cost efficiencies in line with the company’s multi-year
turnaround strategy. This necessitated invoking a process in terms of
Section 197 of the Labour Relations Act, in a bid to outsource certain
services as going concerns. Section 197 (7) states that Telkom and the new
employers are jointly and severally liable to any employee who becomes
entitled to receive a payment a result of the employee’s dismissal for a
reason relating to the new employer’s operational requirements or
liquidation or sequestration. Telkom will be held liable for a period of
12 months after the date of transfer, which may result in an onerous
obligation.
Onerous lease obligation
In its bid to create a single Corporate Office at its owned Centurion
Campus, Telkom is in the process of terminating the head office lease of
buildings in the CBD with the Telkom Retirement Fund. The optimal exit
strategy is being considered and may result in an onerous cost if the
settlement value is more than the present value of the lease obligation.
Tax matters
Following Telkom’s objection, the assessment received from SARS in respect
of the 2010 year of assessment has been resolved as at 31 March 2015.
Contingent assets
Tax matters
As noted in the 2014 consolidated annual financial statements the tax
treatment of the loss that arose in 2012 and 2014 financial years on the
sale of foreign subsidiaries are based on a specific set of circumstances
and a complex legislative environment. A tax refund received during the
prior financial year, relating to the 2012 sale, is contingent and will
only be recognised once the matter has been resolved with SARS.
Refer to note 18.
21. Related parties
2015 2014
Rm Rm
Details of material transactions and
balances with related parties were as
follows:
With shareholders: Government of
South Africa*
Related party balances
Finance lease receivable 366 51
Trade receivables 462 456
Provision for doubtful debt (16) –
Related party transactions
Revenue (3 747) (3 334)
Individually significant revenue** (1 771) (1 322)
City of Cape Town (41) (45)
Department of Correctional Services (82) (90)
Department of Health: Gauteng (389) (51)
Department of Justice (109) (114)
South African National Defence Force (69) (72)
South African Police Services (628) (597)
South African Revenue Services (34) (38)
S.I.T.A. (Pty) Ltd (205) (206)
South African Post Office (55) (52)
Ekurhuleni Metropolitan Council*** (52) –
KZN Ethekwini Municipality*** (46) –
Department of Internal Affairs (61) (57)
Collectively significant revenue** (1 976) (2 012)
*Comparatives were restated. This was to
incorporate the finance lease transaction.
**The nature of the individually and
collectively significant revenue
consists mostly of data revenue.
***Individually significant from the
current year.
At 31 March 2015, the Government of South
Africa held 39,8% (2014: 39,8%) of Telkom’s
shares and the Public Investment Corporation
held 12% (2014:13,5%) of Telkom’s shares.
With entities under common control: Major
public entities
Related party balances
Trade receivables 74 35
Trade payables (1) (1)
Related party transactions
Revenue (238) (253)
Expenses 238 250
Individually significant expenses 226 236
South African Post Office 77 89
Eskom 144 136
South African Broadcasting Corporation 5 11
Collectively significant expenses 12 14
Rent received (53) (49)
Individually significant rent received: South
African Post Office (46) (43)
Collectively significant rent received (7) (6)
Rent paid 29 29
Individually significant rent paid: South
African Post Office 19 19
Collectively significant rent paid 10 10
Key management personnel compensation:
(Including directors and prescribed
officers’ emoluments)
Related party transactions
Short-term employee benefits 141 190
Post-employment benefits 10 10
Termination benefits 5 2
Equity compensation benefits – 6
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.
22. 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 L Maasdorp who withdrew his
nomination to be re-elected as director with effect from 27 August 2014.
Retirement of Director
Telkom announced on 8 August 2014 that Mr Jacques Schindehütte retired
from the Board with full benefits and the disciplinary proceedings have
been discontinued. Telkom settled the retirement benefit with Mr
Schindehütte during November 2014.
Appointment of Executive Director and Chief Financial Officer
Telkom announced on 15 September 2014 that Mr Deon Fredericks had been
appointed as an Executive Director and Chief Financial Officer of Telkom
SA SOC Ltd effective from 12 September 2014.
Appointment of Non-Executive Directors
Telkom announced on 1 December 2014 that Ms Thembisa Dingaan, Mr Graham
Dempster, Mr Rex Tomlinson and Ms Nunu Ntshingila have been appointed as
Non-Executive Directors with effect from 3 December 2014.
Resignation of Director
Telkom announced on 3 December 2014 that Dr Clive Fynn had resigned as a
non-executive director with immediate effect.
Post Retirement Medical Aid
During November 2014 Telkom provided the Post 1994 pensioners the option
to transfer their post retirement medical aid benefit to an insurer. All
except three pensioners exercised their option to transfer their benefit
to the insurer. A settlement gain was recognised in the current financial
year.
MTN and Telkom Radio Access Network (RAN) assets Transaction
On 7 March 2014, Telkom signed a heads of agreement in terms of
which MTN South Africa would take over the 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 each other’s network.
The proposed transaction is subject to conclusion by the parties of
various binding commercial agreements to give effect to the transaction,
and various other approvals, including approvals by regulatory authorities
as may be required for the implementation of the proposed transaction.
Acquisition of Business Connexion (BCX)
On 22 May 2014, Telkom announced its firm intention to make an offer to
acquire the entire issued share capital of BCX in a bid to
improve performance and restore profitability.
Shareholders of BCX approved the acquisition by Telkom at an Ordinary
Scheme Meeting held on 11 August 2014. On 13 May 2015 the Competition
Commission of South Africa approved the acquisition subject to certain
conditions. Both parties are awaiting approval from the Competition
Tribunal and discussions are being held with the Independent
Communications Authority of South Africa.
Restructuring of the organisation-management and specialist layers
In April 2014, as part of the larger Telkom turnaround strategy the
company initiated discussions with organised labour, with a focus on an
organisational restructuring process that would result in headcount
reduction.
The staff affected by this organisational restructuring, was limited to
the management and specialist layers. Telkom consulted with organised
labour on an ongoing basis since 4 May 2014, regarding possible dismissals
in terms of Section 189 of the Labour Relations Act, on all elements of
the restructuring process. At the end of September 2014, the Section 189
process was concluded in relation to the affected staff.
The intention of the Telkom turnaround strategy is to secure the future
commercial sustainability of the business. The sustainable
success of the company is largely dependent on both the attraction and
retention of qualified, competent and experienced professional staff. The
organisational restructuring is not driven so much by headcount reduction
targets as it is by business imperatives that will shape the long-term
commercial sustainability of the company.
Outsourcing of various business elements
Telkom has also been engaging with organised labour in relation to the
outsourcing of various business operations in an effort to unlock
operating and cost efficiencies in line with the company’s
multi-year turnaround strategy. This necessitated invoking a process in
terms of Section 197 of the Labour Relations Act, in a bid to outsource
certain services as going concerns. Telkom’s call centre operations,
internal printing division as well as the network and operations and
retail supply chain sections, were transferred and outsourced on 30 April
2015.
Telkom also offered Voluntary Severance (VSPs) and Voluntary Early
Retirement Packages (VERPs) to employees affected by the Section 197
process and who opted for severance or early retirement packages. These
employees exited Telkom’s services on 30 April 2015.
Closure of unviable stores
In a continuous bid to unlock cost efficiencies Telkom conducted a
detailed analysis of the viability of the 95 Telkom Direct Stores. Certain
stores were unprofitable and deemed unviable, making closure inevitable.
Section 189 notices were issued to organised labour in relation to the
affected staff in this environment. After exploring every option to place
affected employees in other areas of business, unsuccessful employees were
retrenched.
Telkom driving ICT innovation and growth
On 7 May 2015 Telkom launched the Future Makers programme in terms of
which it will invest over R100 million for enterprise and
supplier development. Future Makers focuses on driving innovation in the
ICT sector by growing access to technology and by offering long- term
business support, mentorship and funding to small, medium and
micro-enterprises.
Head Office move to Centurion Business Park
There are currently two Telkom Campuses in Tshwane i.e. the Corporate
Offices within the Pretoria CBD area, which Telkom is leasing from the
Telkom Retirement Fund (TRF) and secondly, the Centurion Campus. The
financial and business objectives are to create a single Telkom Corporate
Office at Telkom’s owned Centurion Campus by virtue of expanding and
revamping the facility. The current Telkom offices in the CBD are
outdated and do not represent a look and feel that portraits a modern
company and a conducive working environment. In addition, the space
allocated to staff is considered to be non-economical as space can be
better utilised by having a more open plan concept.
Telkom intends to vacate the CBD premises and settle the outstanding lease
and other obligations with the TRF. The benefits to Telkom includes;
savings pertaining to rental, utility and maintenance expenditure at the
Pretoria CBD Campus, establishment of a modern Campus at Centurion with
associated facilities, a conducive working environment with a better look
and feel, better utilization of accommodation and future expansion
opportunities.
The exit strategy pertaining to the corporate offices within the Pretoria
CBD, which is subject to a lease that expires in 2019, is being assessed.
23. Subsequent events
Dividends
The Telkom Board declared an ordinary dividend of 215 cents per share
and a special dividend of 30 cents per share on 5 June 2015 payable on
20 July 2015 to shareholders registered on 17 July 2015.
Transfer of ordinary shares
On 2 June 2015, Telkom transferred 1 584 641 ordinary shares from Acajou
Investment Proprietary Limited to Escrow. These shares were allocated to
employees as part of the Telkom Employee Share Plan.
Issuing of ordinary shares
On 4 June 2015, Telkom issued 2 185 452 ordinary shares for no
consideration. The shares will be allotted and issued in terms of the
Telkom Employee Share Plan.
Allocation of shares in terms of the Telkom Employee Share Plan
On 5 June 2015, the Board approved the third and final allocation of
shares to employees in terms of its employee share plan. The number
of shares to vest will depend on the extent to which the performance
conditions are met at the end of the applicable performance period.
Other matters
The directors are not aware of any other matter or circumstance since the
financial year ended 31 March 2015 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.
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),
DJ Fredericks (Chief Financial Officer), I Kgaboesela
K Mzondeki, T Dingaan, G Dempster, S Botha, R Tomlinson,
N Ntshingila, K Kweyama, F Petersen, N Kapila* India, LL Von Zeuner
Date: 08/06/2015 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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