Wrap Text
Group Interim Results for the six months ended 30 September 2016
Telkom SA SOC Ltd
(Registration number 1991/005476/30)
JSE share code: TKG
ISIN: ZAE000044897
GROUP INTERIM RESULTS
for the six months ended 30 September 2016
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 symbol 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.
All commentary, messaging and indicators in this report exclude voluntary early retirement and
severance package costs of R1 523 million and the related tax impact of R446 million in the prior
corresponding period.
Auditors’ review report
Our auditors, Ernst & Young Inc. and Nkonki Inc., have reviewed the condensed consolidated
interim financial statements. The unmodified review report is available for inspection at the Group’s
registered office.
Board approval
The condensed consolidated interim financial statements were authorised for issue by the Board of
Directors of Telkom (Board) on 11 November 2016.
Preparation and supervisor of condensed consolidated interim financial statements
These condensed consolidated interim financial statements were prepared by Mrs Gladys Machinjike
(Executive Financial Accounting and Reporting) and supervised by Mr Robin Coode (Group Executive
Accounting).
All commentary, messaging and indicators in this report exclude voluntary early retirement and severance
package costs of R1 523 million and the related tax impact of R446 million in the prior corresponding
period.
Key indicators
September September
2016 2015
R million R million
Operating revenue 20 237 (up 20.6%) 16 782
EBITDA 5 272 (up 4.6%) 5 040
September September
2016 2015
Cents/share Cents/share
BEPS 348.7 (up 8.6%) 321.1
HEPS 336.0 (up 19.7%) 280.6
September September
2016 2015
Percentage Percentage
Return on invested capital 13.4% (down 0.2%) 13.6%
September September
2016 2015
R million R million
Free cash flow 241 (down 83.3%) 1 445
September September
2016 2015
R million R million
Telkom operating expenditure 10 515 (down 6.4%) 11 237
September September
2016 2015
R million R million
Mobile services and 1 594 (up 36.7%) 1 166
subscriptions revenue
September September
2016 2015
R million R million
Mobile EBITDA profit/loss 214 (up 678.4%) (37)
September September
2016 2015
Thousands Thousands
Revenue generating mobile 3 212 (up 42.3%) 2 257
subscribers
01 OVERVIEW
Johannesburg, South Africa - 15 November 2016, Telkom SA SOC Limited (JSE: TKG) today announced Group
interim results for the period ended 30 September 2016.
MESSAGE FROM GROUP CEO: Sipho Maseko
The group delivered a solid performance in a tough economy where businesses continue to operate under
pressure. The consolidation of Business Connexion (BCX), as well as the satisfactory performance of our
mobile business, drove revenue performance during the six months. The mobile business has contributed
positively to the group’s EBITDA in the reporting period. Our multi-year business transformation also
contributed positively. I am pleased that we remain on track with our market guidance, despite the
macro-economic challenges.
Customer experience remains a priority. We have undertaken a process redesign that will simplify and
improve the quality of interactions with our customers. As part of our systems redesign programme, we
have also progressed well with the fixed and mobile convergence platform for our consumer and enterprise
business. This convergence will allow our customers to have a single view of their account by the end of
the financial year.
As from November, we have integrated our Enterprise business with BCX. Isaac Mophatlane has been
appointed as the CEO of the merged entity, BCX. The combined entity will be our Enterprise go-to-market
entity and is the only truly converged business in the market which offers end-to-end solutions to
Enterprise customers. BCX remains a key growth platform for the group through which, among others, cloud
computing and the Internet of Things (IoT) is delivered.
Group chief executive officer
Sipho Maseko
KEY HIGHLIGHTS - Tough climate but solid results
- Operating revenue up 20.6 percent to R20.2 billion
- Net operating revenue up 3.3 percent to R13.8 billion
- EBITDA increased 4.6 percent to R5.3 billion with an EBITDA margin of 26.1 percent
- Headline earnings per share (HEPS) increased 19.7 percent to 336.0 cents
- Capex increased 55.8 percent to R3.6 billion with capex to revenue of 18.0 percent
- Group’s net cash and cash equivalents increased to R1.8 billion supporting the interim dividend of
131 cents per share
FINANCIAL CAPITAL
BCX boosting revenues
Operating revenue grew 20.6 percent to R20.2 billion with net operating revenue up 3.3 percent boosted
by the consolidation of BCX in the period, along with robust performance by the mobile business.
BCX was consolidated for the six months, reporting revenue of R3.6 billion compared to one month revenue
of R489 million in the prior corresponding period. Excluding BCX, operating revenue and net operating
revenue grew 2.0 percent and 0.9 percent respectively attributable to the mobile business.
Broadband strategy yielding sound results
Mobile broadband revenue grew 43.2 percent to R1.0 billion supported by 2.3 million mobile broadband
customers, an increase of 44.5 percent compared to the prior corresponding period. We now have
70.8 percent of our customer base using data at an average of 2.7 Gigabytes per customer per month.
During the period, we re-farmed our 1 800 MHz spectrum to extend our LTE offering to smartphones. Our
smartphone base has grown by 43.7 percent to 1.6 million. On the back of the upgrade of our network, in
July we launched a groundbreaking broadband-led product, called FreeMe. Early indications show
significant increase in gross connection monthly run rates and an uplift in ARPUs in the two month
period. We are also observing good growth in our nomadic LTE offering, particularly in multi-dwelling
areas. Here we have seen LTE customers more than doubling from the prior corresponding period, with an
average usage of 25 Gigabytes per customer.
Fixed data connectivity revenue increased slightly at 0.5 percent to R3.3 billion after a year of
decline. The turnaround in the fixed data connectivity is as a result of successful migration of
customers from legacy leased lines to Megalines and Metro-Ethernet.
Group EBITDA positively impacted by multi-year business transformation
Group EBITDA grew 4.6 percent to R5.3 billion with a margin of 26.1 percent, slightly ahead of our
margin guidance. This is mainly due to lower headcount which reduced by 14.3 percent to 12 184 and
company employee expenses reducing by 14.6 percent.
We achieved efficiencies from our service fees and operating lease expenses as a result of cost saving
initiatives implemented during the turnaround phase. These actions included effective property
management and the change in our vehicle fleet. These savings were partly offset by an increase in
selling, general and administration costs due to outsourcing and our focus on service improvement. The
mobile business contributed positively to the group EBITDA. This is the first reporting period it has
recorded positive EBITDA of R214 million.
HEPS and BEPS up on improved operating profits
Normalised HEPS grew 19.7 percent to 336.0 cents and normalised BEPS grew 8.6 percent to 348.7 cents
benefiting from 8.2 percent growth in profit after tax.
Capex deployed to modernise our network
Capex increased 55.8 percent to R3.6 billion with capex to revenue of 18.0 percent at the top end of our
guidance. The largest portion of our capex was deployed to revenue-generating areas which are our fibre
deployment zones and serving the acceleration of mobile growth. Fibre to the premises remains our key
priority as we increased the number of homes passed with fibre to 144 512 and ports activated via MSAN
access to 1 278 430.
Through the re-farming of 1 800 MHz spectrum, we have successfully expanded our LTE services to
smartphones. We invested in our LTE network expanding the number of integrated base stations by
10.9 percent to 1 532. This has enabled the ever increasing growth in data traffic. We continue to
invest in the upgrade of both our mobile and fixed line networks, in line with global trends to improve
our product offering and customer service.
Interim dividend declared due to strong cash generation
Group’s net cash and cash equivalents of R1.8 billion subsequent to a dividend payment of R1.4 billion,
capital investment of R3.5 billion and R522 million voluntary early retirement and severance packages
provides the group with sufficient liquidity amid economic and market uncertainties.
Our strong cash generating ability has enabled us to introduce an interim dividend of 131 cents per
share.
Strong balance sheet to fund growth
Our current net debt to EBITDA ratio remains low at 0.3 times, below our target of 1x providing us with
sufficient capacity to invest and grow the business.
PRODUCTIVE CAPITAL
Consumer business driven by the performance of mobile business
The mobile business recorded strong service revenue of 36.7 percent driven by strong customer growth of
42.3 percent to 3.2 million active customer base. However, the blended ARPU was relatively flat at R89.
We will continue to utilise our focused Customer Value Management (CVM) activities to grow ARPUs from
existing postpaid customers as well as cross selling additional products to current customers.
CVM customer retention activities on postpaid customers have led to postpaid churn stabilising, to
marginally over 10 percent. The splendid performance in Mobile was as a result of additional stores and
channels, competitive products and pricing such as Deal of the Month campaigns, along with the recent
launch of FreeMe. The mobile business contributed positively to group EBITDA in the period compared to a
negative EBITDA contribution in the prior corresponding period.
Our FreeMe product offers customers a data bundle with voice, WhatsApp calls, text for free and free
Wi-Fi. According to an analysis by Tariffic, the FreeMe packages are the top choice for high data and
voice users in South Africa.
FreeMe continues to be a very popular offering with customers and has performed even better than our
initial expectations. We saw increased gross connections from both existing customers and new to
franchise customers. The migration of customers from postpaid legacy plans to FreeMe will begin in
November 2016. With 1.6 million smartphones on our base, we will be able to leverage FreeMe. In the
period we sold approximately 170 000 prepaid FreeMe bundles, with over 70 percent of sales coming
through our channels.
In the fixed business, we have seen a significant demand for fibre including existing ADSL customers
migrating to fibre. However we encountered operational issues with fulfilment of orders including the
impact of the industrial action. We are currently reviewing our processes in order to improve
fulfilment.
The Small Business unit launched a voice and broadband failover service for small businesses, where the
call is automatically redirected to mobile or a secondary number, if the fixed line is not available.
Leading in the fibre market
As part of our strategic intent to modernise our network, fibre continues to drive this transformation
by covering multiple fibre connection points to homes, businesses, cabinets and base stations. Despite
an intensely competitive market and operational challenges encountered as a result of the industrial
action in August, we have been able to improve our ability to roll out and connect our customers to
their choice of broadband access. While we drive the fibre rollout, we continue to see a market need for
utilising our existing network, enabling access to Internet at the required speeds. To this end, we have
seen an increase in ports activated via MSAN access by 24.1 percent to approximately 1.3 million homes
passed.
Fibre to the home increased to 144 512 homes and 850 gated communities. The current connectivity rate is
above 13 percent and growing steadily. We are confident that with our multiple deployment strategies and
initiatives already underway, this number will continue to increase over the next twelve months. With
our improved client services structure, we have increased the number of partnerships with resellers thus
giving further impetus to connectivity rates.
We have approximately 42 176 fibre connections to business premises. This allows us to provide multiple
services with high speed links to all major corporates in South Africa catering for their major site
requirements as well as lower speed fibre-based Metro-Ethernet links, for the branch connectivity.
We are currently providing fibre links to approximately 5 600 base stations. We believe that our pricing
and engagement strategy is making headway in reducing self-provisioning. The strategy is also
stimulating growth in our Megaline circuits and other products that service the requirements of our
clients at the base stations.
As part of the transformation journey, a significant reduction in headcount was achieved while retaining
the critical skills. The key skills retained will ensure we are able to realise our strategic
imperatives of modernising our network, while also improving our service delivery.
We were negatively impacted by the industrial action that took place in August, which not only impacted
our ability to maintain service levels, but also resulted in malicious damage to our infrastructure.
We continue to work on ensuring our clients and customers are provided the high quality service they
deserve and we have tirelessly worked to reduce the number of challenges we experience on our legacy
network.
BCX: Integration realising synergies
In the first half of the year, the Enterprise division of Telkom and BCX worked together to implement
the integration plan, under CEO Isaac Mophatlane’s leadership. Synergies were realised through cross
selling to each other’s customer base, thanks to a go-to-market strategy which was well received by
customers. In addition, the teams won business together as they leverage on their ability to offer end-
to-end solutions to Enterprise customers.
However, the challenging economic environment impacted these businesses which are exposed to public
sector and corporates that remain under economic pressure. In addition, BCX is exposed to foreign
currency volatility, particularly in Nigeria and Mozambique. We are currently building resilience in the
merged business, to respond to these challenges.
HUMAN CAPITAL
The Collaborative Partnership Agreement (CPA) signed with two of our three unions earlier this year
included a ground-breaking commitment to a new employee incentive scheme for bargaining unit employees
which focuses on the impact an individual can have on overall customer experience and profitability.
This scheme, known as Performance Pays, has now gone live, and offers all employees the opportunity to
earn up to 12 percent per month on top of their basic salary. The industrial action, driven by a single
union that did not sign the CPA, lasted for six weeks. All striking employees returned to work and are
benefiting from the implementation of the Performance Pays model.
During the course of 2016, Telkom has seen a stream of talented senior executives joining the business.
What is most exciting is the diversity, experience and breadth of the talent seeking to join Telkom. In
2016 alone, we have seen 20 senior executives joining the team. The majority of those are female and
over three quarters are black. Their backgrounds include banking, mining, telecommunications, technology
and management consultancy.
Telkom has been focusing on innovative and disruptive recruitment into the business at all levels:
- Our first Bright Young Minds programme, launched in 2015, attracted eight of the best and brightest
interns in the country.
- Our ongoing involvement with “WeThinkCode” is creating an exciting new pipeline of very young,
talented coders to join our business.
- We have developed a strong talent management approach and have recently launched the senior executive
“Step Up” development programme.
- Our Female Leadership Development programme is now in its third year.
- A new, digitally focused career and leadership development programme will be launched in 2017.
We believe the programme will be the first of its kind in the country and will reach out to support
all employees.
INTELLECTUAL CAPITAL - The platforms for growth
After three years of working on the new Operations Support System and Business Support System (OSS/BSS)
solution for Consumer and Enterprise, the integrated fixed and mobile platform has been completed and
the migration of Consumer customers from the legacy systems onto the new platform has commenced.
Consumer customer migration is expected to complete during the financial year.
Once migrated we will be able to sell fixed and mobile converged services to our Consumer customers
through our new IT platform. This will allow customers to access a single view of their account for
their fixed and mobile usage, in one statement.
In turn, our business units are able to utilise customer value management in a more comprehensive and
efficient way.
We are further redesigning processes that will simplify and improve the quality of interactions with our
customers. In the period, we have introduced process efficiencies in our stores, reducing time to
capture customer information, credit vetting and approvals amongst others. We have also introduced a
system called VDox which eliminates paper and contract documentation in our Telkom Stores.
Our applications process is now automated and paperless with an application secured using an electronic
signature on a screen.
We will now embark on implementing a separate OSS/BSS solution for Openserve to ensure equivalence of
service through retail/wholesale separation. Once all fixed and mobile converged platforms are in place
for all our business units, we will begin decommissioning our legacy systems.
In the period, we have introduced process efficiencies in our stores, reducing time to capture customer
information, credit vetting and approvals amongst others. We have also introduced a system called VDox
which takes away paper and contract documentation in our Telkom Stores. Our applications process is now
automated and paperless with an application secured using an electronic signature on a screen.
NATURAL CAPITAL
Telkom continues to invest in renewable and sustainable forms of natural resources management.
Of particular note in this period has been a 3MW solar farm going live at Telkom’s Head Office, the
largest privately owned installation of its kind in Africa. The solar farm is capable of producing the
entirety of Telkom’s Head Office power requirements for its staff during daylight hours.
The solar farm assist in carbon displacement to improve our sustainability ratios.
Telkom has invested in new machine to machine technology which enables active energy consumption
monitoring at our largest 50 sites, and facilitates the ability to manage our energy consumption at
these sites in real time.
It is planned to roll-out further sites later this year.
At several of our larger sites, water harvesting and recycling plans are well advanced and will enable
Telkom to fundamentally reduce water consumption in future years.
SOCIAL AND RELATIONSHIP CAPITAL - Growing skills, growing businesses
The Telkom Foundation’s key focus is on education and in particular:
- The teaching and learning of maths, science, technology and English through the use of technology
through the Connected Schools programme.
- Through partnerships with various academic institutions such as the North West and the Nelson Mandela
Metropolitan Universities, the Foundation provides supplementary teaching to just under
4 000 learners in five provinces. Over time, we have seen steady learner performance improvements in
the various supported schools.
During the 2016 winter holidays, the Foundation initiated a programme to expose young learners between
the ages of 12 and 16 to a coding skills programme. This coding training was targeted at 20 learners
from two Gauteng partner schools. A key outcome of this programme is seeing learners who have had no
prior exposure to computers, designing and developing a school website on their own.
The Foundation is working with the FutureMakers programme to increase its reach of young people exposed
to coding as a core skill in the ICT space. Together with FutureMakers, the Foundation partnered with a
non-profit organisation (“We ThinkCode”), which specialised in training young and unemployed South
Africans in the art and science of coding. Our objective is, with them, to help build a pipeline of
coders to be absorbed into the FutureMakers programme.
Participants have an opportunity to develop various applications which could be given commercial
exposure. This partnership will not only provide the pipeline but will create a platform for young
people to gain employability, or even access enterprise development opportunities.
The key focus of FutureMakers, our enterprise and supplier development programme, is to support small
black-owned enterprises. We particularly focus on the supply chain, channel development and in the
development of innovation solutions.
We have approved financing for eleven black-owned small businesses, which have been approved via the
FutureMakers investment fund. Our business incubation spaces support more than 1 000 entrepreneurs in
the technology and innovation sector. We are also building strategic relationships with key industry
players such as Microsoft and Cisco. Through these partnerships we aim to promote innovation, drive
broadband uptake and improve technology usage in small business.
A total of 17 Internet cafés have been set up through the FutureMakers programme and are driving prepaid
products in their communities across the country. The Internet cafés received capacity building support,
business tools, access to technology, connectivity and selected infrastructure. To grow Telkom’s ability
to expand market penetration, 13 black-owned companies have been inducted into Telkom channel
development as dealers, receiving financial and non-financial support. These companies sell Telkom
products to consumers and small businesses. Telkom has already seen revenue generation through the
dealers, which proves the programme’s commercial relevance, while delivering transformation.
We also launched the Independent Field Technicians (IFTs) project, which assists former Telkom employees
to run their own companies and form part of the Telkom supply chain. The IFT programme has expanded from
three black-owned companies to 20 companies employing 139 technicians, focusing on ADSL faults and new
installations. These companies are supported through provision of access to procurement contracts,
business development support, tools, working capital and access to leased vehicles.
OUTLOOK
Despite the increased competition in the market, we are in a good position to execute on our strategy.
However, the tough economic environment presents a challenge, as BCX, including the Enterprise business,
is particularly impacted by these adverse conditions.
Nevertheless, we are committed to our sustainable growth framework for the group. We will continue to
deploy capital to the growth areas of the business which will ultimately grow our revenue. Our capital
investment has given priority to Fibre to the premises and the mobile business as we see these areas as
growth platforms for our businesses.
We will continue to modernise our network with the intention to migrate customers from legacy to fibre.
This programme is expected to increase the utilisation of our network and, over time, improve returns.
Our mobile business has been able to establish itself as a meaningful player in the market. We intend to
grow our scale in the mobile market through focusing on the postpaid and data market where we are
already making inroads.
The integration of Enterprise business with BCX is another growth platform through which cloud
computing, data analytics and Internet of Things (IoT) among others, will be delivered. Telkom Group
Information Technology (TGIT) functions will be migrated from corporate group and be integrated into
BCX, Consumer and Openserve. Going forward, BCX will be responsible for maintaining and supporting our
IT production and development systems and will manage all data centre operations.
We will continue to drive efficiencies and exercise cost and capital discipline throughout the business.
We will also continue to focus on skills, expertise, simplification of processes and the ongoing upgrade
of our IT systems and network to ensure sustainability of our business and improved customer service.
DIVIDEND POLICY
The board has decided to amend the current dividend policy to a total dividend distribution of
60 percent of headline earnings for the year with an interim dividend of 40 percent of interim headline
earnings.
Declaration of ordinary dividend
In accordance with the newly adopted dividend policy of paying 40% of headline earnings for the six
months ended 30 September 2016, ordinary interim dividend number 19 of 131.23874 cents per share
(March 2016: 270 cents) in respect of the period ended 30 September 2016 has been declared payable on
Monday, 5 December 2016 to shareholders recorded in the register of the company at close of business on
Friday, 2 December 2016.
The dividend will be subject to a local dividend withholding tax rate of 15 percent which will result
in a net interim dividend of 111.55293 cents per ordinary share to those shareholders not exempt from
paying dividend withholding tax. The ordinary dividend will be paid out of cash balances.
The number of ordinary shares in issue at date of this declaration is 526 948 698. Telkom SA SOC
Limited’s tax reference number is 9/414/001/710.
Salient dates with regard to the ordinary interim dividend 2016
Declaration date Tuesday, 15 November 2016
Last date to trade cum dividend Tuesday, 29 November 2016
Shares trade ex dividend Wednesday, 30 November 2016
Record date Friday, 2 December 2016
Payment date Monday, 5 December 2016
Share certificates may not be dematerialised or re-materialised between Wednesday, 30 November 2016 and
Friday, 2 December 2016, both days inclusive.
On Monday, 5 December 2016, dividends due to holders of certificated securities on the South African
register will be transferred electronically to shareholders’ bank accounts.
Dividends in respect of dematerialised shareholders will be credited to shareholders’ accounts with
their relevant CSDP or broker.
RESULTS FROM CONTINUING OPERATIONS
The group recorded a reported profit after tax of R1 821 million (September 2015: R606 million). This is
200.5 percent higher than the prior corresponding period and was mainly as a result of voluntary early
retirement and severance package costs of R1 523 million and the related impact of R446 million in the
prior corresponding period.
The once-off items above are not part of the results from normal operations for the prior corresponding
period under review and have therefore been excluded from the discussion below.
On a normalised basis the Group profit after tax increased 8.2 percent compared to the R1 683 million
profit after tax recorded for the prior corresponding period. EBITDA increased 4.6 percent to
R5 272 million (September 2015: R5 040 million), resulting in a 19.7 percent increase in headline
earnings per share. The increase was driven by higher net operating revenue and flat operating expenses.
This was partly offset by lower gains from sale of assets.
FINANCIAL GUIDANCE
Actual
F2017 H1 F2017 F2018
Net revenue Modest growth +3.3% Modest growth
EBITDA margin 23% - 25% 26.1% 23% - 25%
Capex to revenue 15% - 18% 18% 14% - 17%
Net debt to EBITDA less than or equal to 1 0.3 less than or equal to 1
Mobile EBITDA breakeven Achieved R214 million n/a
The financial guidance above has not been reviewed or reported on by our auditors.
02 OPERATIONAL DATA
September September
2016 2015 %
Fixed broadband subscribers1 1 018 405 1 015 307 0.3
Mobile broadband subscribers 2 275 513 1 575 038 44.5
Closer subscribers 821 246 839 158 (2.1)
Internet all access subscribers2 561 581 568 553 (1.2)
Fixed access lines (‘000)3 3 090 3 323 (7.0)
Postpaid 2 174 2 273 (4.4)
Postpaid - ISDN channels 635 678 (6.3)
Prepaid 255 328 (22.3)
Payphones 26 44 (40.9)
Ports activated via MSAN access 1 278 430 1 030 441 24.1
Revenue per fixed access line (ZAR) 2 339 2 285 2.4
Total fixed-line traffic (millions of minutes) 6 797 7 666 (11.3)
Managed data network sites 46 978 47 502 (1.1)
Telkom Company employees5 12 184 14 212 (14.3)
Trudon employees 468 463 1.1
Swiftnet employees 135 112 20.5
BCX group employees 6 234 5 845 6.7
Active mobile subscribers6 3 212 499 2 257 404 42.3
Prepaid 2 236 996 1 576 471 41.9
Postpaid 975 503 680 933 43.3
Mobile sites integrated 2 777 2 549 8.9
LTE sites integrated 1 532 1 381 10.9
ARPU (Rand) 88.84 89.05 (0.2)
Prepaid 46.98 51.06 (8.0)
Postpaid 187.97 181.32 3.7
Churn % - prepaid 50.0 59.0 9.0
1. Includes 8 213 (September 2015: 8 341) internal lines, fibre subscribers and ADSL subscribers which
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 2015 Stats SA mid-term 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.
03 FINANCIAL PERFORMANCE
Group operating revenue
In ZAR millions September September
2016 2015 %
Voice and subscriptions 7 485 7 686 (2.6)
Fixed-line usage 2 802 3 079 (9.0)
Fixed-line subscriptions 4 163 4 207 (1.1)
Mobile voice and subscriptions 520 400 30.0
Interconnection 531 598 (11.2)
Fixed-line domestic 198 226 (12.4)
Fixed-line international 277 317 (12.6)
Mobile interconnection 56 55 1.8
Data 6 115 5 723 6.8
Data connectivity 3 327 3 309 0.5
Internet access and related services 994 980 1.4
Managed data network services 566 538 5.2
Multi-media services 27 24 12.5
Mobile data 1 018 711 43.2
IT Business Services revenue 183 161 13.7
Customer premises equipment sales and rentals 1 707 1 480 15.3
Sales 139 150 (7.3)
Rentals 493 433 13.9
Mobile handset and equipment sales 1 075 897 19.8
Other 245 260 (5.8)
Other subsidiaries
BCX 3 617 489 639.7
Trudon 478 498 (4.0)
Swiftnet 59 48 22.9
Total 20 237 16 782 20.6
Group operating revenue increased 20.6 percent to R20 237 million (September 2015: R16 782 million),
driven by the acquisition of BCX and higher mobile revenue. This was partly offset by the decline in
fixed-line voice revenue.
Fixed-line voice usage and subscription revenue decreased by 4.4 percent to R6 965 million
(September 2015: R7 286 million) driven by competition, mobile substitution, a 7.0 percent decline
in the number of lines and customers migrating to lower value bundled offerings.
Mobile voice and subscriber revenue increased 30.0 percent to R520 million (September 2015:
R400 million). This can be attributed to a 42.3 percent increase in the number of active mobile
subscribers and sustained blended ARPU of R88.84 (September 2015: R89.05).
Interconnection revenue decreased 11.2 percent to R531 million (September 2015: R598 million) due to
competitive pricing.
Revenue from data connectivity services increased slightly to R3 327 million (September 2015:
R3 309 million). The slight increase is due to the growth in Metro-Ethernet services as a result of
the migration of customers from legacy leased lines and an increase in broadband revenue driven by a
0.3 percent increase in fixed broadband subscribers to 1 018 405 (September 2015: 1 015 307). Since
March 2016, we have seen a migration from ADSL to LTE products. Mobile broadband subscribers increased
44.5 percent to 2 275 513 (September 2015: 1 575 038).
Growth of 1.4 percent in Internet access and related services revenue to R994 million (September 2015:
R980 million) due to an increase in e-Business revenue.
Managed data network services revenue increased 5.2 percent to R566 million (September 2015:
R538 million) due to higher VPN supreme and satellite revenue.
Mobile data revenue increased 43.2 percent to R1 018 million (September 2015: R711 million) driven by
our strategy to focus on data which led to a 134.7% increase in mobile data traffic.
Group customer premises equipment sales increased 15.3 percent to R1 707 million (September 2015:
R1 480 million) mainly due to increased mobile handset and equipment sales.
Group other income
In ZAR millions September September
2016 2015 %
Telkom 331 544 (39.2)
Business Connexion 57 5 1 040.0
Other
Trudon 12 15 (20.0)
Swiftnet 1 1 -
Total 401 565 (29.0)
Other income includes profit on the disposal of investments, property, plant and equipment, interest
received from debtors and sundry income.
Other income decreased 29.0 percent to R401 million (September 2015: R565 million) due to a decline in
properties sold in the current period, partly offset by R57 million profit from BCX for a 60% sale of
their share in Nanoteq effective 30 September 2016.
Group direct expenses
In ZAR millions September September
2016 2015 %
Payments to other operators 1 274 1 396 8.7
Direct cost 641 449 (42.8)
Cost of sales 4 473 1 533 (191.8)
Total 6 388 3 378 (89.1)
Group direct expenses per company
In ZAR millions September September
2016 2015 %
Telkom 2 920 2 776 (5.2)
Business Connexion 3 156 350 (801.7)
Other
Trudon 292 238 (22.7)
Swiftnet 20 14 (42.9)
Total 6 388 3 378 (89.1)
Group direct expenses increased 89.1 percent to R6.4 billion mainly as a result of the consolidation
of BCX.
Telkom direct expenses
In ZAR millions September September
2016 2015 %
Payments to other operators 1 254 1 383 9.3
Mobile network operators 688 764 10.0
International network operators 291 319 8.8
Fixed-line network operators 110 138 20.3
Data commitments 165 162 (1.9)
Direct cost 641 449 (42.8)
Cost of sales 1 025 944 (8.6)
Total 2 920 2 776 (5.2)
Payments to mobile network operators decreased 10.0 percent to R688 million (30 September 2015:
R764 million) mainly driven by interconnect traffic lost due to competitive pricing.
Payments to international network operators decreased 8.8 percent to R291 million (30 September 2015:
R319 million) as a result of interconnect traffic lost due to competitive pricing.
Payments to fixed-line network operators decreased 20.3 percent to R110 million (30 September 2015:
R138 million) due to lower traffic volumes from VANS and other fixed-line operators.
Direct cost increased 42.8 percent as a result of an increase in the subscriber acquisition costs due
to the significant growth in our mobile subscribers.
Group operating expenses
In ZAR millions September September
2016 2015 %
Employee expenses 4 191 4 309 2.7
Selling, general and administrative expenses 2 879 2 530 (13.8)
Service fees 1 404 1 470 4.5
Operating leases 504 619 18.6
Operating expenses excluding depreciation,
amortisation, impairments and write-offs 8 978 8 928 (0.6)
Depreciation, amortisation, impairments and
write-offs 2 680 2 615 (2.5)
Total 11 658 11 543 (1.0)
Including the consolidation of BCX for six months in the current period and one month in the prior
corresponding period total group operating expenses increased by 1.0% to R11 658 million
(September 2015: R11 543 million).
Telkom’s operating expenses decreased 6.4 percent mainly as a result of employee cost optimisation and
cost initiatives implemented in the prior corresponding period.
Telkom operating expenditure
In ZAR millions September September
2016 2015 %
Employee expenses 3 554 4 162 14.6
Salaries and wages 2 696 3 308 18.5
Benefits 1 099 1 059 (3.8)
Employee-related expenses capitalised (241) (205) 17.6
Selling, general and administrative expenses 2 663 2 497 (6.6)
Materials and maintenance 1 653 1 599 (3.4)
Marketing 381 323 (18.0)
Bad debts 161 144 (11.8)
Other 468 431 (8.6)
Service fees 1 281 1 441 11.1
Property management 729 849 14.1
Consultants, security and other 552 592 6.8
Operating leases 419 578 27.5
Buildings 243 264 8.0
Equipment 19 27 29.6
Vehicles 157 287 45.3
Depreciation, amortisation, impairments and
write-offs 2 598 2 559 (1.5)
Depreciation 2 185 2 148 (1.7)
Amortisation 342 381 10.2
Impairment and write-offs 71 30 (136.7)
Total 10 515 11 237 6.4
Employee expenses were 14.6 percent lower due a lower headcount emanating from voluntary severance and
retirement packages and the outsourcing of the call centres in the prior corresponding period. The
headcount decreased 14.3 percent to 12 184 full-time employees. No increases were granted to bargaining
unit and management employees. A performance pay structure was implemented for the bargaining unit with
an incentive payment of 6% for the period ended 30 September 2016.
Selling, general and administrative expenses increased 6.6 percent to R2 663 million (September 2015:
R2 497 million) mainly due to increased outsourcing cost and our focus on service improvement.
Service fees decreased 11.1 percent to R1 281 million (September 2015: R1 441 million) largely due to
effective property management through successful contract negotiations. The 27.5 percent decrease in
vehicle leases was mainly attributed to the transition of our vehicle supply contract in the prior
corresponding period.
Depreciation increased 1.5 percent to R2 598 million (September 2015: R2 559 million) due to accelerated
depreciation as we intensify our roll-out of fibre and LTE and higher asset write-offs. The group
reassessed the useful lives on certain technologies. The reassessment of useful lives had the effect of
increasing the depreciation expense for the period ended 30 September 2016 by R165 million
(September 2015: R98 million).
BCX operating expenditure
Details of BCX operating expenditure are provided below.
In ZAR millions September September
2016 2015 %
Employee expenses 564 81 (596.3)
Selling, general and administrative expenses 170 1 -
Service fees 117 23 (408.7)
Operating leases 68 19 (257.9)
Total 919 124 (641.1)
Cost incurred by BCX relating to the revenue generated through Telkom amounts to R782 million.
Please note that the third party costs incurred to generate internal revenue are not eliminated on
consolidation.
Investment income
Investment income consists of interest received on short-term investments and bank accounts. Investment
income increased by 10.3 percent to R128 million (September 2015: R116 million) mainly as a result of
the inclusion of BCX for six months in the current period and one month in the prior corresponding
period.
Taxation
The normalised tax expense decreased slightly to R521 million (September 2015: R525 million) and
excludes the R446 million tax benefit on the voluntary early retirement and severance package costs in
the prior corresponding period.
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 movements decreased 16.1 percent to a loss of R78 million
(September 2015: R93 million loss). This decrease was mainly attributable to a fair value gain (prior
year was a loss) on revaluation of the underlying assets held by the cell captive as a result of
favourable market conditions, partly offset by the strengthening of the Rand against foreign currencies
and a foreign currency devaluation impact of R25 million recorded by BCX. The interest expense increased
24.5 percent to R300 million (September 2015: R241 million) mainly attributable to new term debt raised.
Consolidated statement of financial position
Our group’s capital structure remains strong. Net debt at R3 428 million is down 14.5 percent from
R4 011 million at 30 September 2015, representing a net debt to EBITDA ratio of 0.3 times. On
30 September 2016, the group had cash balances, including other financial assets and liabilities of
R1 530 million (30 September 2015: R623 million). We remain lowly geared with a comfortable debt
maturity profile.
Free cash flow
In ZAR millions September September
2016 2015 %
Cash generated from operations before
dividends paid as reported 3 266 2 029 61.0
Add back: Package cost paid 522 1 464 (64.3)
Adjusted cash generated from operations 3 788 3 493 8.4
Cash paid for capital expenditure (3 547) (2 048) (73.2)
Free cash flow 241 1 445 (83.3)
Free cash flow decreased 83.3% due to an increase in capital expenditure as we focus on our fibre and
LTE roll out.
Group capital expenditure
Our capital expenditure programme has been aligned to focus on the growth areas of our business which
include Fibre to the home and LTE as well as cost and operational efficiencies emanating from network
rehabilitation and our OSS/BSS programme.
Group capital expenditure, which includes spend on intangible assets, increased 55.8 percent to
R3 639 million (September 2015: R2 335 million) and represents 18.0 percent of Group operating revenue
(September 2015: 13.9 percent).
In ZAR millions September September
2016 2015 %
Fibre 929 343 170.8
Mobile 758 201 277.1
OSS/BSS programme 325 162 100.6
Network rehabilitation/sustainment 192 167 15.0
Service on demand 658 707 (6.9)
Core Network Growth 392 87 350.6
Other 158 415 (61.9)
Telkom 3 412 2 082 63.9
BCX 108 36 -
Other
Trudon 51 42 21.4
Swiftnet 11 8 37.5
Capital expenditure included in PPE 3 582 2 168 65.2
Capital inventory 57 167 (65.9)
Total 3 639 2 335 55.8
Fibre expenditure of R929 million (September 2015: R343 million) has been aligned to the company
strategy and there is an enhanced focus on FTTx deployment.
Mobile capital expenditure increased 277.1 percent to R758 million (September 2015: R201 million), due
to the focus on continued LTE deployment, for the provision of fixed wireless access via LTE and Mobile
LTE products and the continued roll-out of the 1 800 MHz re-farming project.
OSS/BSS programme expenditure increased 100.6 percent to R325 million (September 2015: R162 million)
and is focused on operational and business support systems to ensure fulfilment assurance and billing
requirements relating to our product portfolio. The NGN OSS/BSS programme will continue to focus on the
improvement of operational efficiencies and will support the launch of next generation products.
Network rehabilitation and sustainment category expenditure of R192 million (September 2015:
R167 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 to improve the customer experience for voice and data services.
Service on demand expenditure decreased 6.9 percent to R658 million (September 2015: R707 million).
The focus area of this expenditure spans across revenue protection and revenue growth.
The core network growth expenditure increased to R392 million from R87 million in September 2015 and is
related to the continued roll-out of the next generation network.
The 61.9 percent decrease in other capital expenditure of R158 million (September 2015: R415 million) is
mainly attributable to the Centurion campus optimisation expenses incurred in the prior period and the
focus of the key company initiatives.
Annexure A
Below are the results of BCX for the six months ended 30 September 2016 and one month ended
30 September 2015 that have been consolidated before inter-group eliminations:
September September
2016 2015
Operating revenue 4 419 491
Cost of sales* 3 246 350
Net operating revenue 1 173 141
Other income 57 5
Operating expenses 919 124
Depreciation, amortisation, impairment and
write-offs 54 17
Operating profit 257 5
Profit for the period 147 6
*Cost of sales
When inventories are sold, the carrying amount is recognised as part of cost of sales. Any write-down
of inventories to net realisable value and any loss of inventory or reversals of previous write-downs
or losses are recognised in cost of sales in the period the write-down, losses or reversal occurs.
Manpower costs, depreciation charges and any other expenses incurred in delivering a service are also
recognised as part of cost of sales.
BCX has seen a healthy growth in its solutions and service delivery and international business areas
partly offset by a decline in smart office connection revenue. BCX also increased its capacity for
innovative business solutions by purchasing the business of Relational Database Consulting Proprietary
Limited enabling it to expand its existing offerings while, at the same time, improving its Oracle
service offering.
Stable international revenue growth has been recorded in Nigeria, Mozambique and Namibia. Growth in the
international business is driven by cloud-based service offerings combined with large scale public
sector opportunities. The business has however been negatively impacted by the foreign currency
devaluation in Nigeria and Mozambique.
Cost incurred by BCX relating to the revenue generated internally amounts to R782 million. Please note
that these numbers are not eliminated on consolidation. Excluding these costs BCX generated external
operating profit of R325 million.
04 CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Condensed consolidated interim statement of profit or loss and other comprehensive income
for the six months ended 30 September 2016
Reviewed Reviewed
Six months Six months
ended ended
30 September 30 September
2016 2015
Notes Rm Rm
Operating revenue 4 20 237 16 782
Payments to other operators 5.1 1 274 1 396
Cost of sales* 5.2 5 114 1 981
Net operating revenue 13 849 13 405
Other income 4 401 565
Operating expenses 8 978 10 453
Employee expenses 5.3 4 191 5 833
Selling, general and administrative expenses 5.4 2 879 2 530
Service fees* 5.5 1 404 1 471
Operating leases 5.6 504 619
Earnings before interest, tax, depreciation and
amortisation (EBITDA) 5 272 3 517
Depreciation of property, plant and equipment 5.7 2 234 2 172
Amortisation of intangible assets 5.7 376 412
Write-offs, impairment and losses of property,
plant and equipment and intangible assets 70 31
Operating profit 2 592 902
Investment income 4 128 116
Finance charges and fair value movements 378 334
Finance charges 300 241
Net loss on foreign exchange and fair value movements 78 93
Profit before taxation 2 342 684
Taxation expense 6 521 78
Profit for the period 1 821 606
Other comprehensive income
Items that will be reclassified subsequently to
profit or loss
Exchange losses on translating foreign operations (56) -
Items that will not be reclassified to profit or loss
Defined benefit plan actuarial losses (207) (262)
Defined benefit plan asset ceiling limitation 7 15
Income tax relating to components of other comprehensive loss - (35)
Other comprehensive loss for the period, net of taxation (256) (282)
Total comprehensive income for the period 1 565 324
Profit attributable to:
Owners of Telkom 1 794 564
Non-controlling interests 27 42
Profit for the period 1 821 606
Total comprehensive income attributable to:
Owners of Telkom 1 538 282
Non-controlling interests 27 42
Total comprehensive income for the period 1 565 324
Total operations
Basic earnings per share (cents) 7 348.7 110.4
Diluted earnings per share (cents) 7 342.2 108.4
*Refer to note 5.2 & 5.5
Condensed consolidated interim statement of financial position
at 30 September 2016
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Notes Rm Rm
Assets
Non-current assets 34 572 33 875
Property, plant and equipment 8 26 084 25 357
Intangible assets 8 4 620 4 584
Other investments 2 410 2 318
Employee benefits 9 745 846
Other financial assets 12 50 55
Finance lease receivables 218 281
Deferred taxation 10 445 434
Current assets 11 165 12 912
Inventories 11 1 274 971
Income tax receivable 193 57
Current portion of finance lease receivables 208 207
Trade and other receivables 7 355 7 375
Current portion of other financial assets 12 120 1 754
Cash and cash equivalents 14 2 015 2 548
Total assets 45 737 46 787
Equity and liabilities
Equity attributable to owners of the parent 26 157 26 134
Share capital 16 5 208 5 208
Share-based compensation reserve 328 241
Non-distributable reserves 17 1 346 1 507
Retained earnings 19 275 19 178
Non-controlling interests 458 473
Total equity 26 615 26 607
Non-current liabilities 6 765 7 104
Interest-bearing debt 18 4 192 4 566
Employee related provisions 19 1 780 1 665
Non-employee related provisions 19 71 66
Deferred revenue 575 656
Deferred taxation 10 147 151
Current liabilities 12 357 13 076
Trade and other payables 20 6 982 7 134
Shareholders for dividend 24 22
Current portion of interest-bearing debt 18 766 703
Current portion of employee-related provisions 19 1 239 2 231
Current portion of non-employee-related provisions 19 116 142
Current portion of deferred revenue 1 587 1 708
Income tax payable 988 675
Current portion of other financial liabilities 461 455
Credit facilities utilised 14 194 6
Total liabilities 19 122 20 180
Total equity and liabilities 45 737 46 787
Condensed consolidated interim statement of changes in equity
for the six months ended 30 September 2016
Reviewed Reviewed
Six months Six months
ended ended
30 September 30 September
2016 2015
Rm Rm
Balance at 1 April* 26 607 25 227
Attributable to owners of Telkom 26 134 24 864
Non-controlling interests 473 363
Total comprehensive income for the period 1 565 324
Profit for the period 1 821 606
Other comprehensive income (256) (282)
Exchange losses on translating foreign operations (56) -
Net defined benefit plan remeasurements (200) (282)
Dividend declared** (1 451) (1 336)
Acquisition of subsidiaries with non-controlling interest 1 126
Purchase of shares for the Telkom Share Plan (205) 7
Increase in share-compensation reserve 98 80
Balance at end of period 26 615 24 428
Attributable to owners of Telkom 26 157 23 942
Non-controlling interests 458 486
* Due to the reassessment of the 31 March 2015 Telkom Retirement Fund employee obligation, at
31 March 2016, the comparative amount increased by R466 million.
**Dividend declared includes dividend to the non-controlling interests of the Trudon Group and the BCX
Group.
Condensed consolidated interim statement of cash flows
for the six months ended 30 September 2016
Reviewed Reviewed
Six months Six months
ended ended
30 September 30 September
2016 2015
Notes Rm Rm
Cash flows from operating activities 1 819 700
Cash receipts from customers 20 042 17 010
Cash paid to suppliers and employees (16 465) (14 627)
Cash generated from operations 3 577 2 383
Interest received 253 245
Finance charges paid (191) (437)
Taxation paid (373) (162)
Cash generated from operations before dividend paid 3 266 2 029
Dividend paid (1 447) (1 329)
Cash flows from investing activities (1 805) (3 106)
Proceeds on disposal of property, plant and
equipment and intangible assets 107 96
Additions to assets for capital expansion* (3 547) (2 048)
Decrease in repurchase agreements 1 634 1 101
Acquisition of subsidiary, net of cash acquired 13 1 (2 255)
Cash flows from financing activities (732) (538)
Loans raised - 1 765
Loans repaid (377) (2 044)
Finance lease capital repaid (18) (414)
Purchase of shares for the Telkom Share Plan (205) -
Proceeds from net derivatives 99 189
Repayment from net derivatives (231) (34)
Net decrease in cash and cash equivalents (718) (2 944)
Net cash and cash equivalents at beginning of period 2 542 3 642
Effect of foreign exchange rate differences on
cash and cash equivalents (3) 2
Net cash and cash equivalents at end of period 1 821 700
*Includes R57 million (2015: R135 million) inventory purchases in the current financial period.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
for the six months ended 30 September 2016
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 Group is to supply
telecommunication, multimedia, technology, information and other related information technology services
to the Group customers, as well as mobile communication services, in Africa.
2. Basis of preparation and accounting policies
Basis of preparation
The condensed consolidated interim financial statements have been prepared in accordance with IAS 34
Interim Financial Reporting and in compliance with the Listings Requirements of the JSE Limited, the
South African Companies Act, 2008, as amended, the SAICA Financial Reporting Guide as issued by the
Accounting Practices Committee and the Financial Reporting Standards Council.
The condensed consolidated interim financial statements are presented in South African Rand, which is
the Group's presentation currency. All financial information presented in Rand has been rounded off to
the nearest million.
The condensed consolidated interim financial statements are prepared on the historical cost basis, with
the exception of certain financial instruments initially (and subsequently) measured at fair value. The
results of the interim period are not necessarily indicative of the results for the entire year and
these reviewed financial statements should be read in conjunction with the audited financial statements
for the year ended 31 March 2016.
The preparation of the condensed consolidated interim financial statements requires the use of estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Although these estimates are based on management's best knowledge
of current events and actions that the Group may undertake in the future, actual results may differ from
those estimates.
Significant accounting judgements, estimates and assumptions
In preparing these condensed consolidated interim 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 2016.
Significant accounting policies
The condensed consolidated interim financial statements have been prepared in accordance with the
accounting policies adopted in the Group's most recent annual financial statements for the year ended
31 March 2016.
The accounting policies have been applied consistently throughout the Group for the purposes of
preparation of these condensed consolidated interim financial statements.
The Group has not early adopted any other standard, interpretation or amendment that has been issued but
is not yet effective.
3. Segment information
The Telkom group previously presented two reportable segments, namely:
i) Telkom which provides fixed-line access, fixed-line usage, data communications services,
mobile voice services and handset sales; and
ii) BCX which provides business solutions based on information and communications technology
and runs ICT systems and manages products, services and solutions.
In the previous financial reporting period, the group reported its aspiration to implement a more
flexible and agile operating and reporting model to manage performance and allocate resources.
The executive committee, which has been deemed as the chief operating decision maker (CODM), in its
journey to fully operationalise this aspiration, has started to assess the performance of the business
units on a net operating revenue level and make decisions about the allocation of resources for fixed
business, mobile business and BCX at an EBITDA level. The financial information reviewed by the CODM
excludes inter segmental revenue and cost allocations as the transfer pricing principles continue to
evolve.
September 2016
Openserve Consumer Enterprise BCX Other Eliminations Consolidated
Rm Rm Rm Rm Rm Rm Rm
Revenue from external customers 2 470 7 234 6 383 3 617 533 - 20 237
Payment to other operators (1 274)
Cost of sales (5 114)
Segment net operating revenue 2 044 5 389 5 636 1 173 225 (618) 13 849
Fixed Business 2 044 4 558 5 529 - (39) 123 12 215
Mobile Business - 831 107 - - 12 950
BCX services - - - 1 173 - (714) 459
Other - - - - 264 (39) 225
Reconciliation of operating profit,
profit before tax
Fixed Mobile
Business Business BCX Other* Eliminations Consolidated
Segment net operating revenue 12 092 938 1 173 264 (618) 13 849
Other income 188 2 57 175 (21) 401
Operating expenses (5 207) (736) (919) (2 755) 639 (8 978)
Earnings before interest, tax,
depreciation and amortisation (EBITDA) 7 073 204 311 (2 316) - 5 272
Depreciation, amortisation, impairment,
write-offs and losses (2 680)
Operating profit 2 592
Investment income 128
Finance charges and fair value movement (378)
Profit before taxation 2 342
*The EBITDA loss is mainly due to Corporate Centre operating expenditure
Other segment Information
Capital expenditure on property,
plant and equipment and intangible assets 2 654 758 108 62 - 3 582
September 2015
Openserve Consumer Enterprise BCX Other Eliminations Consolidated
Rm Rm Rm Rm Rm Rm Rm
Revenue from external customers 2 600 5 817 7 330 489 546 - 16 782
Payment to other operators (1 396)
Cost of sales (1 981)
Segment net operating revenue 2 148 4 323 6 573 141 287 (67) 13 405
Fixed Business 2 148 3 704 6 496 - (39) (34) 12 275
Mobile Business - 619 77 - - - 696
BCX services - - - 141 - (1) 140
Other - - - - 326 (32) 294
Reconciliation of operating profit,
profit before tax
Fixed Mobile
Business Business BCX Other* Eliminations Consolidated
Segment net operating revenue 12 309 696 141 326 (67) 13 405
Other income 250 4 5 337 (31) 565
Operating expenses (5 352) (754) (124) (2 798) 98 (8 930)
Earnings before interest tax
depreciation and amortisation (EBITDA)
for reportable segments excluding
voluntary packages 7 207 (54) 22 (2 135) - 5 040
Voluntary packages (1 523)
Depreciation, amortisation, impairment,
write-offs and losses (2 615)
Operating profit 902
Investment income 116
Finance charges and fair value movement (334)
Profit before taxation 684
*The EBITDA loss is mainly due to Corporate Centre operating expenditure
Other segment Information
Capital expenditure on property,
plant and equipment and intangible assets 1 881 201 36 50 - 2 168
4. Total revenue
Reviewed Reviewed
Six months Six months
ended ended
30 September 30 September
2016 2015
Rm Rm
Total revenue
Operating revenue 20 237 16 782
Other income* (excluding profit on disposal of
property, plant and equipment, intangible assets and
disposal of business) 257 283
Investment income 128 116
Operating revenue increased due to the higher mobile voice and subscriber revenue, higher equipment
sales and the consolidation of BCX for the full reporting period, partially offset by the continuous
decline in fixed-line voice revenue.
Other income remained fairly constant. Included in other income is interest received from debtors of
R125 million (30 September 2015: R114 million).
*The profit on disposal of the excluded items is R144 million (30 September 2015: R282 million).
5. Operating expenses
Reviewed Reviewed
Six months Six months
ended ended
30 September 30 September
2016 2015
Rm Rm
5.1 Payments to other operators 1 274 1 396
The decrease is as a result of lower traffic
carried for other operators.
5.2 Cost of sales 5 114 1 981
The increase in the cost of sales is largely
attributable to the inclusion of BCX for the
full reporting period and the increase in the
subscriber acquisition costs.
Change in 30 September 2015 comparatives
In order to achieve a more relevant presentation
a decision was made to reclassify items from
service fees to cost of sales amounting to R52 million.
Refer to note 5.5.
5.3 Employee expenses 4 191 5 833
The decrease in employee expenses is mainly due to
the voluntary severance (VSP) and voluntary early
retirement (VERP) that occurred only in the prior
financial period and there were no salary increases
in the current financial period. This was offset by
a performance pay structure that was implemented for
the bargaining unit with an average incentive payment
of 6% in the current financial period.
5.4 Selling, general and administrative expenses 2 879 2 530
The increase in selling, general and administrative
expenses is mainly due to the inclusion of BCX for the
full reporting period and outsourcing costs incurred
by the Group.
Included in selling, general and administrative expenses
is a write-down of inventories to the value of R21 million
(30 September 2015: R51 million).
5.5 Service fees 1 404 1 471
The decrease is largely due to effective property
management and offset by the inclusion of BCX for the
full reporting period.
Change in 30 September 2015 comparatives
In order to achieve a more relevant presentation a
decision was made to reclassify items from service
fees to cost of sales amounting to R52 million.
Refer to note 5.2.
5.6 Operating leases 504 619
The decrease is mainly attributed to the transition
of the vehicle supply contract.
5.7 Depreciation, amortisation, impairment,
write-offs and losses 2 680 2 615
Depreciation of property, plant and equipment 2 234 2 172
Amortisation of intangible assets 376 412
Write-offs of property, plant and equipment
and intangible assets 70 31
Depreciation increased slightly due to accelerated
depreciation as Telkom intensified its roll-out of
fibre and LTE and higher asset write offs. The group
reassessed the useful lives on certain technologies.
The reassessment of useful lives had the effect of
increasing the depreciation expense for the period
ended 30 September 2016 by R165 million (2015: R98 million).
The total depreciation for future periods of these assets
will be lower due to the reassessment.
6. Taxation
Reviewed Reviewed
Six months Six months
ended ended
30 September 30 September
2016 2015
Rm Rm
Taxation 521 78
South African normal company taxation 538 114
Deferred taxation (refer to note 10) (20) (38)
Foreign Tax 3 2
The increase in the normal tax is mainly due to the higher profit before tax in the current period and
the occurrence of certain once off tax deductions arising from transformation expenditure incurred in
the previous financial period.
7. Earnings per share
Reviewed Reviewed
Six months Six months
ended ended
30 September 30 September
2016 2015
Rm Rm
Total operations
Basic earnings per share (cents) 348.7 110.4
Diluted earnings per share (cents) 342.2 108.4
Headline earnings per share (cents) 336.0 69.9
Diluted headline earnings per share (cents) 329.8 68.6
Reconciliation of weighted average number of ordinary shares:
Weighted ordinary shares in issue 526 948 700 526 948 700
Weighted average number of shares held by subsidiaries
and in escrow (12 398 650) (15 933 358)
Weighted average number of shares outstanding 514 550 050 511 015 342
Reconciliation of diluted weighted average
number of ordinary shares
Weighted average number of shares outstanding 514 550 050 511 015 342
Expected future vesting of shares 9 725 687 9 145 787
Diluted weighted average number of shares outstanding 524 275 737 520 161 129
Total operations Rm Rm
Reconciliation between earnings and headline earnings:
Profit for the year 1 821 606
Non-controlling interests (27) (42)
Profit attributable to equity holders of Telkom 1 794 564
Adjustments:
Profit on disposal of property, plant and equipment and
intangible assets (87) (282)
Profit on disposal of business (57) -
Write-offs of property, plant and equipment and
intangible assets 70 31
Taxation effects 9 44
Headline earnings 1 729 357
Dividend per share (cents) 270.00 245.00
The calculation of dividend per share is based on dividends of R1 422 million (30 September 2015:
R1 291 million) declared on 4 July 2016 and 526 948 700 (30 September 2015: 526 948 700) number of
ordinary shares outstanding on the date of dividend declaration.
8. Capital additions and disposals
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Property, plant and equipment
Additions 3 157 5 263
Disposals (21) (231)
Intangible assets
Additions 425 726
Disposals - -
The additions in this six-month period is largely due to the deployment of fibre and other 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.
An estimated amount of R66 million (31 March 2016: R101 million) included in inventories will be used
for Telkom's network expansion of which R57 million (31 March 2016: R83 million) was purchased in the
current financial period.
Finance charges of R79 million (31 March 2016: R103 million) were capitalised to property, plant and
equipment and intangible assets in the current financial year.
9. Employee benefits
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
745 846
Telkom Pension net Fund asset (TPF) 121 114
Post retirement medical aid net plan asset (PRMA) 624 732
The assets recognised are determined in accordance with IAS 19. The TPF had fund assets of R294 million
(31 March 2016: R321 million) and benefit obligation of R99 million (31 March 2016: R130 million).
The asset restriction is R74 million (31 March 2016: R77 million). In the current period there was a
restriction on the interest return of R4 million.
The PRMA had plan assets of R2 906 million (31 March 2016: R3 002 million) and benefit obligation
of R2 282 million (31 March 2016: R2 270 million).
10. Deferred taxation
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Deferred taxation balance is made up as follows: 298 283
Deferred taxation assets 445 434
Deferred taxation liabilities (147) (151)
Deferred tax assets and liabilities remained fairly constant.
The Group did not recognise deferred tax assets of R679 million (31 March 2016: R1 100 million) in
respect of temporary differences amounting to R2 425 million (31 March 2016: R4 000 million) that can
be carried forward against future taxable income.
11. Inventories
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Inventories 1 274 971
Gross inventories 1 372 1 062
Write-down of inventories to net realisable value (98) (91)
The increase in inventory is mainly due to a higher work-in-progress value and CPE instruments at
30 September 2016.
12. Other financial assets
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Non current other financial assets consist of: 50 55
- Asset finance receivables 24 20
- Shanike Investments 3 3
- NGA Loans 23 32
Current portion of other financial assets consist of: 120 1 754
- Repurchase agreements - 1 634
- Derivative instruments 73 101
Forward exchange contracts 7 20
Firm commitments 66 43
Cross currency swaps - 38
- Asset finance receivables 47 19
Repurchase agreements
The repurchase agreements were utilised for the current year dividend payout in July 2016 and the
share buyback that occurred in April and May 2016.
13. Acquisition and disposal of subsidiaries
13.1 Acquisition of subsidiaries September
2016
Rm
September 2016
Relational Database Consulting (Pty) Ltd (RDC)
On 1 April 2016, Business Connexion Group Limited acquired
the entire share capital of RDC.
The total purchase consideration amounted to R30 million,
funded by a cash payment of R16 million and a deferred purchase
consideration of R14 million, payable on achieving financial targets.
RDC is a market leader in Database and Operating System
administration with a strong focus on Oracle.
The acquisition will enable the group to expand its existing
offerings while, at the same time, providing scale in
IT services, which will help reinforce the Group’s core
connectivity business and enhance convergence strategy.
Their expanded range of services includes Oracle
E-Business Suit, Oracle Fusion Middleware, Oracle
Solaris Support and Oracle Sales.
The acquisition has been accounted for using the acquisition
method. The date of acquisition is 1 April 2016 and the
interim financial statements include the RDC results
for the 6 months ended 30 September 2016.
The fair value of the identifiable assets and liabilities
at acquisition date were determined as follows:
Assets
Trade and other receivables 5
Cash and cash equivalents 17
Total assets 22
Liabilities
Non current debt (3)
Trade and other payables (13)
Total liabilities (16)
Total identifiable net assets at fair value 6
Goodwill arising at acquisition 24
Cash paid 16
Deferred purchase consideration 14
Purchase consideration transferred 30
Net cash inflow acquired with the subsidiary 1
At the date of the acquisition, the fair value of the trade receivables of R5 million approximated
its carrying value.
From the date of acquisition, RDC has contributed R51 million of revenue and R9 million net profit
before tax from the continuing operations of the Group.
The goodwill recognised is primarily attributed to the expected synergies and other benefits from
combining the assets and activities of RDC with those of the Group. The goodwill is not deductible for
income tax purposes.
Transaction costs of R1 million, which includes issue costs, have been expensed since the inception of
the acquisition. These expenses were recognised in service fees.
As at 30 September 2016, the RDC and BCX initial business combination was complete.
March 2016
Business Connexion Group Limited (BCX)
On 25 August 2015, Telkom acquired the entire issued ordinary share capital and the entire issued
“A” ordinary shares of Business Connexion Group (BCX). The total purchase consideration of R2.7 billion
was funded through Telkom’s own cash resources.
BCX provides innovative business solutions based on information and communication technology and runs
ICT systems and manages products, services and solutions for a wide range of customers.
Anco IT (Pty) Ltd (Anco)
On 1 November 2015 BCX acquired the entire issued ordinary share capital of Anco. The total purchase
consideration of R41 million was in the form of cash, earn-out payments, a loan to BCX and deferred
consideration.
Anco provides innovative business solutions based on information and communication technology and runs
ICT systems and manages products, services and solutions for a wide range of customers.
UCS Solutions (Pty) Ltd (UCS) minority interest
On 31 December 2015 the Telkom Group, through BCX acquired the remaining 15% of the UCS Solution
Proprietary Limited (and its holding in Integr8 IT Proprietary Limited), based on the vested put option
agreement with shareholders. UCS and Integr8 are now a wholly owned subsidiary of BCX group. This
transaction was accounted for as an equity transaction.
Common Control transactions
On 1 November 2015 Cybernest (DCO), previously the IT business division of Telkom was sold to BCX to
realise synergies. The transaction was financed through a loan from Telkom to BCX and accounted for as
common control transaction. BCX recognised the acquired DCO assets at their carrying amount on the date
of sale and the difference between the proceeds and the carrying amount of the DCO business was
recognised as common control equity reserves. In Telkom company the difference between the carrying
amount of the DCO business and proceeds was recognised in profit or loss.
Goodwill reconciliation September March
2016 2016
Rm Rm
Opening balance 1 214 63
Acquisition of BCX* - 1 119
Acquisition of Anco - 32
Acquisition of RDC 24 -
1 238 1 214
*R719 million is allocated to the Telkom CGU and R400 million is allocated to the BCX CGU.
13.2 Disposal of subsidiaries
The Group concluded a transaction to sell its Nanoteq business shareholding, effective
30 September 2016, for a total consideration of R57 million.
30 September
2016
Rm
The net cash flows attributable to the operating,
investing and financing activities of discontinued operations:
Net assets disposed 1
Non-controlling interest (1)
Consideration 57
Profit on disposal 57
14. Net cash and cash equivalents
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Cash disclosed as current assets 2 015 2 548
Cash and bank balances 690 418
Short-term deposits 1 325 2 130
Credit facilities utilised (194) (6)
Net cash and cash equivalents 1 821 2 542
The decrease in cash and cash equivalents is mainly due to the increase in capital expansion in the
current period.
15. 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 its Risk Committee.
15.1 Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they
fall due. The Group is exposed to liquidity risk as a result of uncertain cash flows as well as capital
commitments of the Group.
Liquidity risk is managed by the Group's Treasury team in accordance with policies and guidelines
formulated by the Group's executive committee. In terms of its borrowing requirements the Group ensures
that sufficient facilities exist to meet its immediate obligations.
Compared to the 2016 financial year end, there was no material change in the contractual undiscounted
cash out flows for financial liabilities.
15.2 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 276 million
(31 March 2016: R5 569 million) and a carrying amount of R4 958 million
(31 March 2016: R5 269 million) (refer to note 18).
Valuation techniques and assumptions applied for the purposes of measuring fair value
Fair value at
30 September
2016
Type of financial instrument Rm Valuation technique Significant inputs
Investments and receivables, 3 956 Undiscounted future estimated Probability of default
bank balances, repurchase cash flows due to short-term
agreements and other liquid funds, maturities of these instruments
payables and accruals,
credit facilities utilised and
shareholders for dividends
excluding prepayments
Derivatives (388) Discounted cash flows Yield curves, market
interest rate and market
foreign currency rate
Borrowings (5 276) Discounted cash flows Market interest rate and
market foreign currency
rate
The estimated net fair values as at the reporting date, have been determined using available market
information and appropriate valuation methodologies as outlined below. This value is not necessarily
indicative of the amounts that the Group could realise in the normal course of business.
Derivatives are recognised at fair value. The fair values of derivatives are determined using quoted
prices or, where such prices are not available, a discounted cash flow analysis is used. These amounts
reflect the approximate values of the net derivative position at the reporting date. The fair values of
listed investments are based on quoted market prices.
The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are
not available, the expected future payments discounted at market interest rates. As a result they differ
from carrying values. The fair value of receivables, bank balances, repurchase agreements and other
liquid funds, payables and accruals, approximate their carrying amount due to the short-term maturities
of these instruments.
15.3 Fair value hierarchy
The table below analyses financial instruments carried at fair value, 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 fair value of the Group's assets and liabilities:
Six months Year
ended ended
September March
Hierarchy 2016 2016
levels Rm Rm
Assets measured at fair value
Investment in cell captive preference shares Level 2 2 326 2 235
Investment by FutureMakers Level 3 13 13
Forward exchange contracts Level 2 7 20
Asset finance receivable Level 2 71 39
Loans Level 2 26 35
Firm commitments Level 2 66 43
Cross currency swaps Level 2 - 38
Liabilities measured at fair value
Interest rate swaps Level 2 (17) (7)
Firm commitments Level 2 (189) (293)
Forward exchange contracts Level 2 (255) (155)
Liabilities measured at amortised cost
Interest-bearing debt consisting of: (5 276) (5 569)
Quoted debt securities Level 1 (2 248) (2 162)
Unquoted debt securities Level 2 (3 028) (3 407)
16. Share capital
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Authorised and issued share capital is made up as follows:
Authorised
1 000 000 000 ordinary shares of R10 each 10 000 10 000
Issued and fully paid
520 783 900 (31 March 2016: 520 783 900) ordinary shares
of R10 each 5 208 5 208
6 164 800 (31 March 2016: 6 164 800) ordinary shares issued
at no consideration - -
The following table illustrates the movement within the
number of shares issued:
Number Number
of shares of shares
Shares in issue at beginning of year 526 948 700 520 783 900
Issue on 2 June 2015 - 2 185 452
Issue on 30 June 2015 - 3 979 348
Shares in issue at end of period 526 948 700 526 948 700
The unissued shares are under the control of the directors until the next Annual General Meeting.
The directors have been given the authority by the shareholders to buy back Telkom's own shares up to
a limit of 10% of the current issued share capital.
17. Non-distributable reserves
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Non-distributable reserves 1 346 1 507
Cell captive reserve 2 381 2 291
Foreign currency translation reserve (65) (9)
Shares held by subsidiaries and in escrow (969) (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. In the current financial period R90 million (2016: R9 million) was
transferred.
The reserve also represents Telkom shares held by subsidiaries and in escrow, to be utilised in terms
of the Telkom Employee Share Plan.
In the current financial period, Telkom purchased R205 million worth of shares from the market for the
purposes of the Telkom Employee Share Plan.
18. Interest-bearing debt
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Non-current interest-bearing debt 4 192 4 566
Local debt 3 978 4 340
Foreign debt 138 154
Finance leases 76 72
Current portion of interest-bearing debt 766 703
Local debt 692 654
Foreign debt 37 18
Finance leases 37 31
The current portion of interest-bearing debt of R766 million (nominal as at 30 September 2016) is
expected to be repaid from available operational cash flow and/or the issue of new debt instruments.
Management believes that sufficient funding facilities will be available at the date of repayment.
19. Provisions
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Non-current portion of provisions 1 851 1 731
Employee related 1 780 1 665
Non-employee related 71 66
Current portion of provisions 1 355 2 373
Employee related 1 239 2 231
Non-employee related 116 142
The increase in the non-current employee related provision is due to the increase in Telkom's obligation
to the pre-September 2009 members of the Telkom Retirement Fund. The obligation increased mainly due to
the periodic cost being larger than the contributions made by the Group.
The current portion of employee related provisions in the current period is less than the
31 March 2016 balance due to the provision for bonus being only for six months. The VSP/VERP packages
that were provided at 31 March 2016 have been paid out in the current financial period for employees
that left the employment of Telkom before or on 30 September 2016.
20. Trade and other payables
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Trade and other payables 6 982 7 134
Trade payables 2 998 3 872
Accruals and other payables 3 855 3 208
Finance cost accrued 129 54
The net decrease in trade payables, accruals and other payables is due to repayment of non-recurring
trade payables.
Accruals and other payables mainly represent amounts payable for goods received, net of Value Added Tax
obligations and licence fees.
Included in the current and prior year balance is the refund from SARS of R854 million.
Refer to note 22.
21. Commitments
Reviewed Audited
Six months Year
ended ended
30 September 31 March
2016 2016
Rm Rm
Capital commitments authorised 5 284 6 574
Commitments against authorised capital expenditure 4 295 3 388
Authorised capital expenditure not yet contracted 989 3 186
Capital expenditure is committed for property, plant and equipment and software (included in intangible
assets).
Management expects these commitments to be financed from internally generated cash and other borrowings.
22. Contingencies
CONTINGENT LIABILITIES
Matters before ICASA
End-user and service charter regulations
Based on ICASA's Complaints and Compliance Committee (CCC) ruling in the prior period, Telkom had
initiated administrative review proceedings seeking to set-aside the applicability of the Regulations at
issue. The review application is in process and no hearing date has been allocated as yet. In the
interim, however, ICASA promulgated the Amended End-User and Subscriber Charter Regulations on
1 April 2016, in terms of which the fault clearance measurement for fixed services was amended to 90%
fault clearance within 5 days, instead of 3 days. Telkom is assessing the impact of the amended
Regulations on Telkom going forward.
HIGH COURT
Neotel/Telkom: CCC
At 31 March 2016, it was disclosed that the date for the hearing of the review application was to be set
down. No date has been set down as yet for the hearing. Management believes that this matter no longer
meets the definition of a contingent liability and will therefore no longer be disclosed as such.
Radio surveillance security services (Pty) Ltd (RSSS)
In December 2011, RSSS served a summon on Telkom for the sum of R216 million.
Telkom is defending the matter and has filed a plea and counterclaim for R22 million.
No contract was concluded with RSSS, no purchase orders were issued and no quotations were accepted by
Telkom. The trial which commenced in May 2016, is re-enrolled for hearing in April 2017.
Phutuma networks (Pty) Ltd (Phutuma)
In August 2009 Phutuma served a summon on Telkom, claiming for damages 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. On 4 November 2014, the SCA
rescinded its order granted in October 2014. In early 2015, the SCA referred the appeal back to the full
bench of the North Gauteng High Court. The appeal was heard in September 2016 and judgement was
reserved.
OTHER
Section 197: labour relations act
As noted in the 2015 consolidated annual financial statements, Telkom invoked 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.
CONTINGENT ASSETS
Tax matters
As noted in the 2016 consolidated annual financial statements, the tax treatment of the loss that arose
in prior years on the sale of foreign subsidiaries is based on a specific set of circumstances and a
complex legislative environment. On 4 August 2016 SARS issued a tax assessment relating to the 2012
period. After consultation with external specialist tax and legal advisors the Group disagrees with
SARS' audit findings, however the tax refund received relating to the 2012 sale, remains contingent and
will only be recognised once the matter has been resolved with SARS. The matter is continually being
assessed to ensure that developments are appropriately reflected in the financial statements. Refer to
note 20.
23. Related parties
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
Rm Rm Rm
Details of material transactions and
balances with related parties not
disclosed separately in the condensed
consolidated interim annual financial
statements were as follows:
With shareholders:
Government of South Africa
Related party balances
Finance lease receivable 250 320 272
Trade receivables 561 459 562
Allowance for doubtful debt (68) (20) (67)
Related party transactions
Revenue (1 974) (1 797) (3 700)
Individually significant revenue* (677) (622) (1 278)
Department of Correctional Services (42) (38) (78)
Eastern Cape Department of Health (26) (25) (49)
Province of KZN Health Service (40) (27) (64)
Department of Justice (56) (50) (104)
South African National Defence Force (35) (33) (66)
South African Police Services (301) (284) (577)
S.I.T.A. (Pty) Ltd (112) (98) (201)
Ekurhuleni Metropolitan Council (22) (26) (57)
Mpumalanga Department of Health** (15) (15) (29)
Department of Interior Affairs (28) (26) (53)
Collectively significant revenue* (1 297) (1 175) (2 422)
*The nature of the individually and collectively significant revenue consists mostly of data revenue.
The individually significant revenue has changed in the current reporting period due to the make up
of the entities disclosed.
**Individually significant for the current reporting period.
At 30 September 2016, the Government of South Africa held 39.3% (30 September 2015: 39.3%; 31 March
2016: 39.3%) of Telkom's shares, and has the ability to exercise significant influence by virtue of
their voting rights at the Annual General Meeting, and the Public Investment Corporation held 11.6%
(30 September 2015: 11.9%; 31 March 2016: 11.4%) of Telkom's shares.
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
Rm Rm Rm
With entities under common control:
Major public entities
Related party balances
Trade receivables 54 83 130
Trade payables (7) (1) (5)
Related party transactions
Revenue (110) (121) (394)
Expenses 120 120 226
Individually significant expenses 112 115 207
South African Post Office 25 36 52
Eskom 87 79 155
Collectively significant expenses 8 5 19
Rent received (16) (35) (28)
Individually significant rent received:
South African Post Office (12) (31) (25)
Collectively significant rent received (4) (4) (3)
Rent paid 12 30 10
Individually significant rent paid:
South African Post Office 9 26 5
Collectively significant rent paid 3 4 5
Key management personnel compensation:
(Including directors and
prescribed officers' emoluments)
Related party transactions
Short-term employee benefits 91 89 308
Post-employment benefits 6 7 17
Termination benefits 2 3 14
Equity compensation benefits 29 1 14
Terms and conditions of transactions
with related parties
Outstanding balances at the end of
financial periods are unsecured, interest
free and settlement occurs in cash. There
have been no guarantees provided or received
for related party receivables or payables.
24. Significant events and transactions
Results of the Telkom annual general meeting regarding directors re-appointments
On 24 August 2016, all board members were re-elected as per the annual general meeting ordinary
resolutions.
Dividends
The Telkom board declared an ordinary dividend of 270 cents per share on 6 June 2016 payable on
4 July 2016 to shareholders registered on 1 July 2016.
Employee Share Plan
During April 2016, Telkom purchased 3 710 126 shares from the market through Rossal for the purposes of
the employee share plan.
Telkom Enterprise and Business Connexion(BCX) Integration
On 6 June 2016, Telkom announced its intention to integrate Telkom Enterprise into BCX.
BCX will operate as the Business to Business arm of the larger Telkom Group. As from November 2016, the
Telkom Enterprise business has been integrated with BCX. This will enable the Telkom Group to offer
Enterprise solutions beyond connectivity and to strengthen Telkom’s leadership in the Enterprise market.
Allocation of shares in terms of the Telkom Employee Share Plan
On 6 June 2016, the board approved the fourth 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 vesting period.
Vesting and sale of shares
In terms of the Telkom Share Plan 161 627 and 64 685 shares vested to Sipho Maseko and Deon Fredericks
respectively. On 4 July 2016, Sipho Maseko disposed of 145 907 shares. On the 5 July 2016, Sipho Maseko
and Deon Fredericks disposed of 15 720 and 25 581 shares respectively.
25. Events after the reporting date
Appointment of non-executive director
Telkom announced on 20 October 2016 that Dr Hamadoun Touré has been appointed to the board of directors
as a non-executive director with effect from 19 October 2016.
Resignation of non-executive director
Telkom announced on 03 November 2016 that Ms Nunu Ntshingila had informed the board of her resignation
as director effective from 3 November 2016.
Interim dividends
The Telkom board declared an interim dividend of 131.23874 cents per share on 11 November 2016 payable
on 5 December 2016 to shareholders registered on 2 December 2016.
Other matters
The directors are not aware of any other matter or circumstance since the financial period ended
30 September 2016 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.
The information contained in this document is also available on Telkom’s investor relations website
www.telkom.co.za/ir
Telkom SA SOC Ltd
(Registration number 1991/005476/30)
JSE share code: TKG
ISIN: ZAE000044897
Group secretary
Ephy Motlhamme
Transfer secretaries
Computershare Investor Services Proprietary Limited
PO Box 61051 Marshalltown, 2107
Sponsor
The Standard Bank of South Africa Limited
Standard Bank Centre
30 Baker Street, Rosebank, 2196
Directors
JA Mabuza (Chairman),
SN Maseko (Group chief executive officer),
DJ Fredericks (Chief financial officer),
S Botha, G Dempster, T Dingaan,
N Kapila1, I Kgaboesele, K Kweyama,
K Mzondeki, H Touré2, F Petersen-Lurie,
R Tomlinson, LL Von Zeuner
1 India 2 Mali
15 November 2016
Date: 15/11/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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