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TELKOM SA SOC LIMITED - Group Interim Results for the six months ended 30 September 2014

Release Date: 17/11/2014 07:05
Code(s): TKG     PDF:  
 
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Group Interim Results for the six months ended 30 September 2014

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

Telkom SA SOC Limited
Group Interim Results for the six months ended 30 September 2014

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

AUDITORS’ REVIEW REPORT

Our auditors, Ernst & Young 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 13 November 2014.

PREPARATION AND SUPERVISOR OF ANNUAL 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).

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

All commentary, messaging and indicators in this report exclude retrenchment, voluntary early retirement and severance
package costs of R325 million the related tax impact of R91 million for the six months ended September 2014, as well
as the R2 173 million net curtailment gain on the post-retirement medical aid liability in the six months ended 30
September 2013.


GROUP SALIENT FEATURES

HEPS              Net revenue              Operating expenses                  EBITDA
261.7               R13.3                       R9.2                            R4.4
CENTS              BILLION                     BILLION                         BILLION
+14.9%              +1.6%                       -2.4%                          +12.1%

-   Free cash flow generated remains strong at R1.7 billion
-   Group net debt decreased 74.1% to R545 million from March 2014
-   ADSL subscribers increased 7.4% to 965 046
-   Calling plan subscribers increased 2.8% to 859 622
-   Managed data network sites increased 5.3% to 47 830
-   Active mobile subscribers increased 26.7% to 2 024 495 with a blended ARPU of R71.99
-   Mobile sites integrated increased 10.5% to 2 473
-   1 275 LTE sites integrated

OVERVIEW

Johannesburg, South Africa - 17 November 2014, Telkom SA SOC Ltd (JSE: TKG) today announced Group interim
results for the six months ended 30 September 2014.

MESSAGE FROM TELKOM GROUP CEO SIPHO MASEKO

The operating environment has been challenging over the past six months. The telecoms industry remains very
competitive and as a result, margins are under strain, particularly in the enterprise segment. Fixed-line revenues
also remain under severe pressure and leased line revenues continue to decline.

Our customers are also feeling the effect of the adverse economic environment and are adjusting usage and purchasing
patterns. Telkom’s good reputation and relationships have served us well in retaining key customers, however,
discounts are deeper owing to competitive pressure.

Our transformational strategies, which began in 2013, are still on track, and our results for the first six months of
the 2015 financial year confirm our continuous intent of stabilising the business for future growth.

Net operating revenue of R13.3 billion or 1.6% higher was stable despite the tough economic and operating environment,
competitive pressures and a customer base seeking better value for money. Over the period, Group fixed-line voice
revenue and data leased line revenue continued to decline, the latter as a result of self-provisioning by other
licensed operators, which was partly offset by higher mobile revenue.

Customer service is a strong priority across all areas of the Group. Our efforts and progress in this regard are
evidenced by the achievement of the best compliments to complaints ratio in the industry in the HelloPeter
telecommunications league table, as well as being recognised as the best fixed and mobile broadband providers at the
2014 MyBroadband forum. These awards are based on services offered and innovation in the broadband space.

Group operating expenses remain an area of focus as we address our entire operating cost base extracting efficiencies
as well as improving our ability to respond to an evolving industry. As part of our multi-year cost transformation
programme, the focus has been to reduce all costs including employee , marketing and security costs. We also decreased
our number of leased vehicles. Operating expenditure, excluding depreciation, decreased by 2.4% to R9.2 billion. This
was largely due to a R199 million reduction in employee expenses relating to lower service and interest cost as a
result of the lower post-retirement medical aid liability and a lower headcount.

Group EBITDA improved 12.1% to R4.4 billion, with a consolidated EBITDA margin (excluding one-off items) of 27.7%. The
mobile business produced a solid performance with EBITDA improving 50.7% from the prior period. We expect to realise
our operating margins as cost savings linked to our various initiatives begin to filter through.

Our capital structure remains strong as we continue to take a measured approach to our capital expenditure programme
with a focus on returns. In this regard, we continue our focus of extracting efficiencies from our assets and
liabilities . This has resulted in a significant increase in free cash flow to R1.7 billion. Over the next six months,
we will continue rigorously focussing on project selection, concentrated roll-outs and relevant technology deployment,
and expect an accelerated capital expenditure over this period.

We are aware of the significant challenges that lie ahead for the next six months, including the continuous decline in
voice revenue, self- provisioning by other licensed operators and the need to improve our service offering.

We remain determined to successfully execute our strategy by focusing on the following priorities and enablers in the
near-term:

- Deliver superior customer experience;
- Disciplined capital allocation with greater emphasis on productivity and returns;
- Complete corporate transactions - awaiting approval for MTN agreement and BCX;
- Improve efficiency - address all costs; and
- Find revenue growth - to secure future.

PROSPECTS

Given our performance in the past six months, we are still committed to our financial guidance but remain cautious of
the negative economic headwinds.

Subject to the financial performance of the Group, the operating environment, growth opportunities and debt and cash
levels, the Board intends to reinstate a dividend for the 2015 financial year.

We continue to work with the regulatory authorities in respect of the acquisition by Telkom of the entire issued share
capital of Business Connexion Group Limited. The salient dates relevant to the proposed transaction, as previously
announced, are no longer applicable as relevant regulatory approvals are still being obtained. We are pleased to
confirm that the Botswana Competition Authority recently concluded its investigation and approved the transaction
without conditions. Shareholders will be informed if and when all the relevant regulatory authorities approve the
proposed transaction, and revised salient dates will be announced accordingly.

We have also been in discussion with MTN South Africa regarding the extension of our existing roaming agreement to
include bilateral roaming and outsourcing of the operation of our radio access network. Our agreement with MTN, if
approved by the Competition Authorities, improve the capabilities of each operator to compete at the wholesale and
retail levels; and will allow for the footprint of both parties to increase. Both operators will have access to
significantly larger voice and data capacity, at lower cost than would otherwise have applied. The objective is to
improve our position in the mobile market and allow Telkom to compete with much larger and stronger competitors.
Although this is not a complete solution for our mobile business, it represents a step in the right direction.

As previously communicated, our aim is to successfully conclude the proposed MTN South Africa and Business Connexion
transactions within the current financial year.

FURTHER CAUTIONARY RELATING TO NEGOTIATIONS WITH MTN SOUTH AFRICA

Shareholders are referred to the various cautionary announcements published on the Stock Exchange News Service of the
JSE Limited, the last of which was released on 10 October 2014.

Shareholders are further advised that Telkom and MTN South Africa remain in discussions regarding the potential
extension of their existing roaming agreement to include bilateral roaming and outsourcing of the operation of
Telkom’s radio access network, which if successfully concluded may have a material effect on the price of
Telkom’s securities. The parties will update shareholders as soon as they receive the appropriate legal and
regulatory approvals.

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

FINANCIAL GUIDANCE
The guidance provided below excludes the impact of the successful conclusion of the MTN and Business Connexion
transactions discussed above.

                                      2015                                    2016
                                 Stabilise                               Stabilise
Net revenue                        to grow                                 to grow
EBITDA margin                    26% - 27%                               27% - 28%
Capex to revenue                 14% - 17%                               14% - 17%
Net debt to EBITDA                     <=1                                     <=1
*Our intention is to reinstate dividend for the 2015 financial year
*In terms of dividend considerations stated above.

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

REPORT STRUCTURE

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

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

The comparative information for September 2013 has been restated as a result of the reclassification of iWayAfrica as
a discontinued operation and to account for the change in accounting policy regarding the Cell Captive. Refer to note
2.3 in the condensed consolidated interim financial statements.

In addition, the following items in the comparative reporting period have been reclassified to provide more relevant
disclosure:

Income relating to undersea cables activities that are not in the ordinary course of business of R34 million has been
reclassified from operating revenue to other income.

Sundry income of R49 million has been reclassified from selling, general and administrative expenses to other income.

Motor insurance scheme expenses of R37 million, previously included in service fees, have been reclassified as
employee expenses.

RESULTS FROM OPERATIONS

The Group recorded a profit after tax of R1.2 billion (September 2013: R3.0 billion). This is significantly lower than
the previous year and was driven by a one-off R2 173 million net gain recognised on the curtailment of the
post-retirement medical aid liability included in the comparative reporting period as well as retrenchment, voluntary
early retirement and severance package costs of R325 million for 406 employees in the current reporting period.

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

The Group recorded a normalised profit after tax of R1 390 million (September 2013: R791 million) and EBITDA of R4 403
million (September 2013: R3 927 million), resulting in a 14.9% increase in headline earnings per share. The increase
was driven by the benefit from lower payments to mobile operators and lower employee expenses due to lower service and
interest cost as a result of the lower post-retirement medical aid liability, which was curtailed in the prior period
as well as lower full-time and part-time staff headcount.

We managed to reduce the EBITDA loss of our Mobile business by 50.7% by increasing service and subscriptions
revenue (excluding equipment sales) by 48.0%. We also recorded promising growth of 39.3% in mobile data revenue and
23.3% in IT Business services revenue. Data revenue now constitutes approximately 34.2% of Group revenue, which
increased 0.5% from the prior reporting period. However, we still face significant challenges in our fixed-line voice
revenue as fixed-to-mobile substitution continues. Fixed-line data revenue continues to be impacted by lower pricing
driven by competition.

We managed to reduce operating costs by 2.4%. This reduction was largely driven by lower employee, marketing and
security costs and a decrease in the number of leased vehicles. Increased bad debts and property management costs
partly offset these savings.

The Group generated strong cash flows as we took a measured approach when considering capital investment as well as
focusing on managing our balance sheet more efficiently. This resulted in a healthy capital structure with net debt
decreasing by 74.1% to R 545 million at 30 September 2014.

OPERATIONAL DATA

                                                               September             September
                                                                    2014                  2013                      %
ADSL subscribers1                                                965 046               898 203                    7.4
Closer subscribers                                               859 622               836 312                    2.8
Internet all access subscribers2                                 558 902               512 293                    9.1
Fixed access lines (’000)3                                         3 531                 3 713                   (4.9)
  Post-paid                                                        2 346                 2 396                   (2.1)
  Post-paid - ISDN channels                                          719                   750                   (4.1)
  Pre-paid                                                           405                   478                  (15.3)
  Payphones                                                           61                    89                  (31.5)
Ports activated via MSAN access                                  696 392               183 880                  278.7
Fixed-line penetration rate (%)4                                     6.8                   7.2                   (0.4)
Revenue per fixed access line (ZAR)                                2 256                 2 279                   (1.0)
Total fixed-line traffic (millions of minutes)                     8 444                 8 991                   (6.1)
Managed data network sites                                        47 830                45 441                    5.3
Telkom Company employees5                                         18 796                19 316                   (2.7)
Trudon employees                                                     475                   487                   (2.5)
Swiftnet employees                                                       113                     111              1.8
Fixed access lines per employee5                                         188                     192             (2.1)
Active mobile subscribers6                                         2 024 495               1 598 173             26.7
  Pre-paid                                                         1 595 130               1 283 615             24.3
  Post-paid                                                          429 365                 314 558             36.5
Mobile base stations constructed                                       2 595                   2 578              0.7
Mobile sites integrated                                                2 473                   2 238             10.5
LTE sites integrated                                                   1 275                     871             46.4
ARPU (Rand)                                                            71.99                   58.81             22.4
  Pre-paid                                                             37.42                   28.75             30.2
  Post-paid                                                           206.26                  156.63             31.7
Churn % - pre-paid                                                      44.4                    52.0              7.6

1.   Excludes Telkom internal lines and includes business, consumer, corporate, government and wholesale customers.
2.   Includes Telkom Internet ADSL, ISDN and WiMAX subscribers.
3.   Excludes Telkom internal lines.
4.   Penetration rate is based on the 2011 Census population statistics.
5.   Based on number of Telkom Company employees, excluding subsidiaries.
6.   Based on a subscriber who has participated in a revenue-generating activity within the last 90 days.

FINANCIAL PERFORMANCE
GROUP OPERATING REVENUE

                                                       September               September
in ZAR millions                                             2014                    2013                   %
Voice and subscriptions                                    7 847                   8 185                (4,1)
  Fixed-line usage                                         3 584                   4 071               (12,0)
  Fixed-line subscriptions                                 3 915                   3 889                 0,7
  Mobile voice and subscriptions                             348                     225                54,7
Interconnection                                              728                     739                (1,5)
  Fixed-line domestic                                        225                     236                (4,7)
  Fixed-line international                                   443                     470                (5,7)
  Mobile interconnection                                      60                      33                81,8
Data                                                       5 448                   5 419                 0,5
  Data connectivity1                                       2 744                   2 757                (0,5)
  Leased line facilities                                     741                     941               (21,3)
  Internet access and related services                       884                     846                 4,5
  Managed data network services                              507                     444                14,2
  Multi-media services                                        23                      25                (8,0)
  Mobile data                                                422                     303                39,3
  IT Business Services revenue                               127                     103                23,3
Customer premises equipment sales and rentals              1 140                     864                31,9
  Sales                                                      112                     135               (17,0)
  Rentals                                                    423                     364                16,2
  Mobile handset and equipment sales                         605                     365                65,8
Other                                                     174                   172                   1,2
Trudon                                                    528                   562                  (6,1)
Swiftnet                                                   46                    48                  (4,2)
Total                                                  15 911                15 989                  (0,5)

Reclassification of comparative information
1. Income relating to the undersea cables activities that are not in the ordinary course of business of R34 million
has been reclassified from data connectivity revenue to other income.

Group operating revenue decreased 0.5% to R15 911 million (September 2013: R15 989 million), driven by the continuous
decline in fixed-line voice revenue and lower data leased line revenue resulting from self-provisioning by other
licensed operators, partly offset by higher mobile revenue.

Fixed-line voice usage revenue continued its downward trend, decreasing 12.0% to R3 584 million (September 2013: R4
071 million). This can be attributed to a 6.1% decline in voice minutes, resulting from fixed-to-mobile substitution
and a 4.9% decline in the number of lines. The decrease was predominantly in residential lines, but business lines
also decreased due to the consolidation of business activities and cost-saving initiatives.

Fixed-line subscriptions revenue grew 0.7% to R3 915 million (September 2013: R3 889 million) as a result of average
line rental tariff increases of around 6%.

Mobile voice and subscriber revenue increased 54.7% to R348 million (September 2013: R225 million). This can be
attributed to a 26.7% increase in the number of active mobile subscribers and a 22.4% increase in blended ARPU.

Fixed-line domestic interconnection revenue decreased 4.7% to R225 million (September 2013: R236 million), primarily
driven by lower mobile-to-fixed volumes.

The 5.7% decrease in fixed-line international interconnection revenue to R443 million (September 2013: R470 million)
was driven by lower switched hubbing revenue as traffic volumes to certain African countries reduced.

Revenue from data connectivity services decreased 0.5% to R2 744 million (September 2013: R2 757 million), caused by a
decline in Diginet and IPLC revenue, due to increased competition and migration to Metro Ethernet services. This was
partially offset by an increase in Metro Ethernet services and ADSL revenue. ADSL revenue increased as a result of a
7.4% increase in ADSL subscribers to 965 046 (September 2013: 898 203).
With continued self-provisioning by other licensed operators, revenue from leased line facilities remained under
pressure and declined 21.3% to R741 million (September 2013: R941 million).
Higher growth of 9.1% on Internet subscribers was supported by a 4.5% increase in Internet access and related services
revenue.

Managed data network services revenue increased 14.2% to R507 million (September 2013: R444 million) due to an
increase of 5.3% in the number of sites to 47 830 (September 2013: 45 441).

In line with our strategy to focus on data, we offered attractive data deals and promotional products which led to an
increase in data subscribers, and a 39.3% increase in mobile data revenue to R422 million (September 2013: R303
million).
We won some key strategic deals in the IT market, which boosted our IT Business services data revenue by 23.3% to R127
million (September 2013: R103 million).

The strategic decision that was made to discontinue sales of PC and gaming equipment saw a 17.0% decline in customer
premises equipment sales to R112 million (September 2013: R135 million). Despite this, our rentals increased 16.2% to
R423 million (September 2013: R364 million) due to increased uptake in next generation equipment rentals and higher
tariffs.

Mobile handset and equipment sales revenue increased 65.8%, driven by higher bulk sales to dealers and a sharp
increase in smartphone and tablet sales.

GROUP OTHER INCOME

                                                   September              September
in ZAR millions                                         2014                   2013                    %
Telkom1                                                  254                    214                 18.7
Trudon                                                    17                     14                 21.4
Swiftnet                                                   1                      1                    -
Total                                                    272                    229                 18.8

Reclassification of comparative information
1. Income relating to undersea cables activities that are not in the ordinary course of business of R34 million has
been reclassified from operating revenue to other income and sundry income of R49 million previously included in
selling, general and administrative expenses was reclassified as other income.

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

Other income increased 18.8% to R272 million (September 2013: R229 million) mainly as a result of higher profit on
sale of properties.

GROUP DIRECT EXPENSES

                                                   September              September
in ZAR millions                                         2014                   2013                     %
Payments to other operators                            1 446                  1 928                  25.0
Direct cost                                              261                    257                  (1.6)
Cost of sales                                            905                    717                 (26.2)
Total                                                  2 612                  2 902                  10.0

TELKOM DIRECT EXPENSES

                                                   September              September
in ZAR millions                                         2014                   2013                    %
Payments to other operators                              1 435               1 913                  25.0
  Mobile network operators                                 675               1 120                  39.7
  International network operators                          429                 456                   5.9
  Fixed-line network operators                             179                 181                   1.1
  Data commitments                                         152                 156                   2.6
Direct cost                                                261                 258                  (1.2)
Cost of sales                                              728                 541                 (34.6)
Total                                                    2 424               2 712                  10.6

Payments to mobile operators decreased 39.7% as a result of a reduction in mobile termination rates. The 34.6%
increase in cost of sales is largely attributed to the increase in the cost of mobile device sales.

GROUP OPERATING EXPENSES

                                                                 September           September
in ZAR millions                                                       2014                2013                      %
Employee expenses1                                                   4 727               4 987                    5.2
Selling, general and administrative expenses2                        2 341               2 391                    2.1
Service fees1                                                        1 596               1 513                   (5.5)
Operating leases                                                       504                 498                   (1.2)
Operating expenses excluding depreciation, amortisation,
impairments and write-offs                                          9 168               9 389                     2.4

Depreciation, amortisation, impairments and write-offs              2 489               3 091                    19.5
Total                                                              11 657              12 480                     6.6

Reclassification of comparative information
1. Motor insurance scheme expenses of R37 million, previously included in service fees have been reclassified as employee
expenses.
2. Sundry income of R49 million previously included in other expenses has been reclassified as other income.

Group operating expenses decreased by 6.6% to R11 657 million (September 2013: R12 480 million) in the six months
ended 30 September 2014, primarily due to lower asset impairments and accelerated depreciation on new connections
installed to customer premises included in the prior period as well as lower employee expenses as a result of the
curtailment of the post-retirement medical aid liability in the prior period.

GROUP OPERATING EXPENDITURE CONTRIBUTION

                                                                 September           September
in ZAR millions                                                       2014                2013                      %
Telkom                                                              11 440              12 278                    6.8
Trudon                                                                 168                 155                   (8.4)
Swiftnet                                                                49                  47                   (4.3)
Total                                                               11 657              12 480                    6.6
TELKOM OPERATING EXPENDITURE

                                                               September             September
in ZAR millions                                                     2014                  2013                    %
Employee expenses1                                                 4 575                 4 849                  5.7
  Salaries and wages                                               3 674                 3 649                 (0.7)
  Benefits1                                                        1 117                 1 350                 17.3
  Workforce reduction expenses                                         -                    64                100.0
  Employee related expenses capitalised                             (216)                 (214)                (0.9)
Selling, general and administrative expenses2                      2 337                 2 390                  2.2
  Materials and maintenance                                        1 555                 1 554                 (0.1)
  Marketing                                                          322                   453                 28.9
  Bad debts                                                          103                    41               (151.2)
  Other2                                                             357                   342                 (4.4)
Service fees1                                                      1 591                 1 505                 (5.7)
  Property management                                                942                   836                (12.7)
  Consultants, security and other 3                                  649                   669                  3.0
Operating leases                                                     479                   475                 (0.8)
  Buildings                                                          229                   205                (11.7)
  Equipment                                                           19                    19                    -
  Vehicles                                                           231                   251                  8.0
Depreciation, amortisation, impairments and write-offs             2 458                 3 059                 19.7
  Depreciation                                                     2 092                 2 294                  8.8
  Amortisation                                                       323                   316                 (2.2)
  Impairment and write-offs                                           43                   449                 90.4
Total                                                             11 440                12 278                  6.8

Reclassification of comparative information
1. Motor insurance scheme expenses of R37 million, previously included in service fees have been reclassified as employee
expenses.
2. Sundry income of R49 million previously included in other expenses has been reclassified as other income.
3. R3 million relating to Cell Captive has been reclassified as foreign exchange and fair value movements as Cell Captive
is no longer consolidated.

Employee expenses were 5.7% lower due a R199 million reduction in service and interest cost as a result of the lower
post retirement medical aid liability, a 2.7% reduction in full-time employee headcount and lower part-time staff
headcount. This was negated by a 6.2% average salary increase for bargaining unit employees and a 6.0% average salary
increase for management employees.

Selling, general and administrative expenses decreased 2.2% to R2 337 million (September 2013: R2 390 million), as a
result of lower marketing expenses offset by increased bad debts as we made provision based on the adverse economic
conditions affecting payment patterns.

Space optimisation projects and higher electricity tariffs led to a 12.7% increase in property management expenses.
Consultants, security and other service fees decreased 3.0%, driven by lower consulting costs incurred relating to the
Company’s transformation programme and lower security cost as a result of cost-saving initiatives.

Building leases increased 11.7% as a result of an increase in the number of mobile sites acquired. The 8.0% decrease
in vehicle leases was mainly attributed to a 5.4% decrease in number of vehicles to 5 959 (September 2013: 6 298).

Depreciation decreased 8.8% to R2   092 million (September 2013: R2 294 million) due to accelerated depreciation on new
connections installed to customer   premises included in the prior period. Impairments and write-offs declined 90.4% to
R43 million (September 2013: R449   million). This decline is largely attributable to the impairment of certain legacy
and technologically aged items in   the prior period.

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

                                                                 September            September
in ZAR millions                                                       2014                 2013                     %
Payments to other operators                                            224                  230                   2.6
Direct cost                                                            211                  215                   1.9
Cost of sales                                                          542                  331                 (63.8)
Employee expenses                                                      192                  182                  (5.5)
Selling, general and administrative expenses                           471                  572                  17.7
Service fees                                                            55                   70                  21.4
Operating leases                                                       128                  107                 (19.6)
Depreciation, amortisation, impairments and write-offs                 308                  248                 (24.2)
Total                                                                2 131                1 955                  (9.0)

EBITDA

                                                                 September            September
in ZAR millions                                                       2014                 2013                     %
Telkom                                                               4 185                3 662                  14.3
EBITDA margin (%)                                                     27.3                 23.8                   3.5
Trudon                                                                 221                  266                 (16.9)
EBITDA margin (%)                                                     41.9                 47.3                  (5.4)
Swiftnet                                                                (3)                  (1)                200.0
EBITDA margin (%)                                                     (6.5)                (2.1)                 (4.4)
Total                                                                4 403                3 927                  12.1

INVESTMENT INCOME

Investment income consists of interest received on short-term investments and bank accounts. Investment income
increased by 13.4% to R127 million (September 2013: R112 million) as a result of higher cash balances held by the
Group.

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

Foreign exchange and fair value gains decreased 81.2% to R59 million (September 2013: R314 million). This decrease was
caused by lower fair value gains on derivatives due to the implementation of hedge accounting effective 1 October
2013, which results in certain foreign exchange gains and losses not being recognised in earnings in the current
period. Lower fair value gains realised on the underlying assets held by the Cell Captive also contributed to the
decrease. The interest expense increased 6.3% to R286 million (September 2013: R269 million) as a result of a 22.3%
increase in interest-bearing debt from 31 March 2014.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The Group’s capital structure remains strong. Net debt, including financial assets and liabilities, decreased
74.1% to R545 million from R2 108 million as at 31 March 2014, resulting in a net debt to EBITDA ratio of 0.1 times.
On 30 September 2014, the Group had cash balances, including other financial assets and liabilities, of R4 409 million
(31 March 2014: R1 930 million). The higher cash balances emanate from a measured approach to capital investment with
a focus on returns as well as cash received from a R1 billion loan secured to extend our debt maturity profile.

FREE CASH FLOW

                                                                     September             September
in ZAR millions                                                           2014                  2013            %
Cash generated from operations before dividends paid as reported         3 469                 3 166          9.6
Cash paid for capital expenditure                                       (1 770)               (3 133)        43.5
Free cash flow                                                           1 699                    33      5 048.5

Free cash flow increased significantly to R1 699 million (September 2013: R33 million) as a result of a 43.5% decrease
in cash paid for capital expenditure.

GROUP CAPITAL EXPENDITURE

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

Group capital expenditure, which includes spend on intangible assets, decreased 42.8% to R1 815 million (September
2013: R3 171 million) and represents 11.4% of Group operating revenue (September 2013: 19.8%).

                                                               September             September
in ZAR millions                                                     2014                  2013                    %
Baseline                                                             864                 1 083                 20.2
Network evolution                                                    576                 1 014                 43.2
Mobile                                                               164                   815                 79.9
Sustenance                                                            76                    60                (26.7)
Effectiveness and efficiency                                          48                    58                 17.2
Support                                                              39                    91                  57.1
Other                                                                 3                     2                 (50.0)
Trudon                                                               39                    35                 (11.4)
Swiftnet                                                              6                    13                  53.8
Total                                                             1 815                 3 171                  42.8

Baseline capital expenditure of R864 million (September 2013: R1 083 million) consists largely of the deployment of
technologies to support the growing data services business, links to the mobile cellular operators and access line
deployment in selected high-growth commercial and business areas. The reduction in expenditure for the period is due
to the provision of ADSL and Metro Ethernet services under the Next Generation Network programme included in the
network evolution category.

Network evolution expenditure of R576 million (September 2013: R1 014 million) is related to the continued roll-out of
the Next Generation Network programme which aims to modernise the legacy voice network, provide high-speed broadband
in selected areas and to address the associated operational and business support systems. The lower expenditure in
this six-month period is largely due to a more rigorous focus on project selection, in accordance with the
Company’s focus on efficient execution of its strategy. Our roll out was also impacted by the availability of
material as a result of the strikes in the manufacturing sector and the timely availability of way leaves.

Mobile capital expenditure decreased 79.9% to R164 million (September 2013: R815 million), due to the shift to a more
concentrated rollout in major metropolitan areas. The current focus on the radio access network (RAN) is to complete
existing projects and to provide capacity to relieve congestion in identified growth areas.

The sustenance category expenditure of R76 million (September 2013: R60 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 decrease in the effectiveness and efficiency category to R48 million (September 2013: R58 million) was as a result
of lower expenditure for the movement of staff from leased buildings to owned buildings.

The support capital expenditure of R39 million (September 2013: R91 million) is primarily related to the provision of
new buildings and building extensions in support of network growth, building compliance upgrades and the purchase of
test equipment for technical staff. This category decreased 57.1%, mainly due to a reduction in expenditure for the
rebranding of Telkom stores.


CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
for the six months ended 30 September 2014

                                                                      Reviewed             Restated*             Audited
                                                              Six months ended      Six months ended          Year ended
                                                             30 September 2014     30 September 2013       31 March 2014
                                                       Notes                Rm                    Rm                  Rm
Continuing operations
Total revenue                                             4            16 257                16 324              33 061
Operating revenue                                                      15 911                15 989              32 400
Payments to other operators                              5.1    1 446     1 928    3 944
Cost of sales                                            5.2    1 166       974    2 498
Net operating revenue                                          13 299    13 087   25 958
Other income                                                      272       229      562
Operating expenses                                             11 982    10 307   21 918
Employee expenses                                        5.3    5 052     2 814    7 137
Selling, general and administrative expenses             5.4    2 341     2 391    4 682
Service fees                                             5.5    1 596     1 513    3 110
Operating leases                                         5.6      504       498    1 052
Depreciation, amortisation, impairment, write-offs and
Losses                                                   5.7   2 489     3 091    5 937
Operating profit                                               1 589     3 009    4 602
Investment income                                                127       112      176
Finance charges and fair value movements                        (227)       45     (292)
Finance charges                                                 (286)     (269)    (636)
Foreign exchange and fair value movements                         59       314      344
Profit before taxation                                         1 489     3 166    4 486
Taxation expense                                          6      333       202      494
Profit from continuing operations                              1 156     2 964    3 992
Loss from discontinued operations                         7        -       (18)     (49)
Profit for the period                                          1 156     2 946    3 943
Other comprehensive income
Items that may be reclassified subsequently to
profit or loss
Exchange gains on translating foreign operations                    -         -        4
Recycling of foreign currency translation reserve                   -         5      122
Items that will not be reclassified to profit or
loss
Defined benefit plan actuarial (losses)/gains                  (1 306)   1 101     2 277
Defined benefit plan asset ceiling limitation
gains/(losses)                                                 1 026      (245)   (1 106)
Income tax relating to components of other
comprehensive income                                      8       78       (69)    (157)
Other comprehensive income for the period, net of
taxation                                                        (202)       792   1 140
Total comprehensive income for the period                        954      3 738   5 083
Profit attributable to:
  Owners of Telkom                                             1 110     2 891    3 822
  Non-controlling interests                                       46        55      121
Profit for the period                                          1 156     2 946    3 943
Total comprehensive income attributable to:
Owners of Telkom                                                 908     3 683    4 962
Non-controlling interests                                         46        55      121
Total comprehensive income for the period                        954     3 738    5 083
Total operations
Basic earnings per share (cents)                          9             217.4                566.2            748.5
Diluted earnings per share (cents)                        9             213.7                566.2            744.8
Continuing operations
  Basic earnings/(loss) per share (cents)                 9             217.4                569.7            758.1
  Diluted earnings/(loss) per share (cents)               9             213.7                569.7            754.3

*Refer to note 2.3.


CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
at 30 September 2014

                                                                      Reviewed             Reviewed          Audited
                                                              Six months ended     Six months ended       Year ended
                                                             30 September 2014    30 September 2013    31 March 2014
                                                       Notes                Rm                   Rm               Rm
ASSETS
Non-current assets                                                     30   466             30   519         31   039
Property, plant and equipment                            10            24   493             24   876         25   123
Intangible assets                                        10             2   779              2   665          2   833
Other investments                                                       2   891              2   612          2   759
Deferred expenses                                                            38                   39               35
Other financial assets                                   13                  56                   76               74
Finance lease receivables                                                   193                  210              202
Deferred taxation                                        11                  16                   41               13
Current assets                                                         11   011              9   094          8   366
Inventories                                              12                 738                  832              646
Income tax receivable                                                        27                   18                8
Current portion of finance lease receivables                                111                  125              118
Trade and other receivables                                             5   589              5   861          5   565
Other financial assets                                   13                 634              1   067              187
Cash and cash equivalents                                14             3   912              1   191          1   842
Total assets                                                           41   477             39   613         39   405
EQUITY AND LIABILITIES
Equity attributable to owners of the parent                            23 720               21 482           22 771
Share capital                                                           5 208                5 208            5 208
Treasury shares                                                          (771)                (771)            (771)
Share-based compensation reserve                                           53                    -               11
Non-distributable reserves                                              2 711                2 311            2 580
Retained earnings                                                      16 519               14 734           15 743
Non-controlling interests                                                 354                  398              377
Total equity                                                           24 074               21 880           23 148
Non-current liabilities                                                 6 062                7 403            6 156
Interest-bearing debt                                    16             3 398                3 841            3 775
Employee related provisions                              17             1 692                2 323            1 388
Non-employee related provisions                          17                53              320                  108
Deferred revenue                                                          899              903                  869
Deferred taxation                                        11                20               16                   16
Current liabilities                                                    11 341           10 330               10 101
Trade and other payables                                                5 114            5 677                5 119
Shareholders for dividend                                                  20               22                   21
Current portion of interest-bearing debt                  16            1 612              493                  321
Current portion of employee related
provisions                                               17             1 652            1 494                1 597
Current portion of non-employee related
provisions                                                17              434              683                  731
Current portion of deferred revenue                                     1 511            1 574                1 431
Income tax payable                                                        861              358                  782
Current portion of other financial
liabilities                                                               131               28                   98
Credit facilities utilised                               14                 6                1                    1
Total liabilities                                                      17 403           17 733               16 257
Total equity and liabilities                                           41 477           39 613               39 405


CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2014

                                                                      Reviewed          Audited             Reviewed
                                                              Six months ended       Year ended     Six months ended
                                                             30 September 2014    31 March 2014    30 September 2013
                                                                            Rm               Rm                   Rm
Balance at 1 April                                                      23 148           18 177               18 177
Attributable to owners of Telkom                                        22 771           17 798               17 798
Non-controlling interests                                                  377              379                  379
Total comprehensive income for the period                                  954            5 083                3 738
Profit for the period                                                    1 156            3 943                2 946
Other comprehensive income                                                (202)           1 140                  792
Exchange differences on translating foreign operations                       -                4                    5
Recycling of foreign currency translation reserve                            -              122                    -
Net defined benefit plan remeasurements                                   (941)           1 971                1 012
Net defined benefit plan asset ceiling limitation gains/(losses)           739             (957)                (225)
Dividend paid*                                                             (70)            (123)                 (35)
Increase in share-compensation reserve                                      42               11                    -
Balance at end of period                                                24 074           23 148               21 880
Attributable to owners of Telkom                                        23 720           22 771               21 482
Non-controlling interests                                                  354              377                  398

*Dividend paid to the non-controlling interests of the Trudon Group.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
for the six months ended 30 September 2014

                                                                        Reviewed             Reviewed            Audited
                                                                Six months ended     Six months ended         Year ended
                                                               30 September 2014    30 September 2013      31 March 2014
                                                         Notes                Rm                   Rm                 Rm
Cash flows from operating activities                                       3 398                3 131              6 366
Cash receipts from customers                                              16 017               15 999             32 455
Cash paid to suppliers and employees                                     (12 437)             (12 527)           (26 143)
Cash generated from operations                                             3 580                3 472              6 312
Interest received                                                            216                  186                358
Finance charges paid                                                        (160)                (230)              (585)
Taxation refund                                                                -                    -                854
Taxation paid                                                               (167)                (262)              (449)
Cash generated from operations before dividend paid                        3 469                3 166              6 490
Dividend paid                                                                (71)                 (35)              (124)
Cash flows from investing activities                                      (2 218)              (2 060)            (4 333)
Proceeds on disposal of property, plant and
equipment and intangible assets                                              52                    2                    67
Additions to property, plant and equipment and
intangible assets                                                        (1 770)              (3 133)            (6 370)
(Increase)/decrease in repurchase agreements                               (500)               1 071              1 970
Cash flows from financing activities                                        884               (2 259)            (2 583)
Loans raised                                                              1 000                  300                300
Loans repaid                                                               (123)              (2 712)            (3 036)
Finance lease capital repaid                                                (84)                 (77)              (156)
Settlement of derivatives                                                    91                  230                309
Net increase/(decrease) in cash and cash
equivalents                                                               2 064               (1 188)                  (550)
Net cash and cash equivalents at beginning of period                      1 841                2 384                  2 381
Effect of foreign exchange rate differences on cash
and cash equivalents                                                          1                   (6)                    10
Net cash and cash equivalents at end of period            14              3 906                1 190                  1 841

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


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
for the six months ended 30 September 2014

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

2. BASIS OF PREPARATION AND ACCOUNTING POLICIES

Basis of preparation
The condensed consolidated 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 and the South African Companies Act,
2008.

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

The condensed consolidated interim financial statements are prepared on the historical cost basis, with the exception
of certain financial instruments initially (and sometimes 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 2014.

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 2014.

Significant accounting policies
The condensed consolidated interim financial statements have been prepared in accordance with the accounting policies
adopted in the Group’s last annual financial statements for the year ended 31 March 2014.

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these
condensed consolidated interim financial statements.

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

Pronouncement                  Title                                                                     Effective date
IFRS 3 Business Combinations   Amendment to scope exception of joint ventures in paragraph 2(a).            1 July 2014
IFRS 8 Operating Segments     Amendment relating to aggregation of segments and reconciliation             1 July 2014
                              of the total reportable segments’ assets to the entity’s assets
                              if segment assets are reported regularly.

IFRS 11 Joint Arrangements    Amendment to IFRS 11 requirements for accounting for an acquired           1 January 2016
                              interest in a joint operation that constitutes a business and additional
                              disclosure requirements in terms of IFRS 3 Business Combinations and
                              other IFRSs for business combinations.

IAS 16 Property, Plant and    Revaluation method: proportionate restatement of accumulated                 1 July 2014
Equipment                     depreciation of an item of property, plant and equipment.

IAS 16 Property, Plant and    Amendment to IAS 16 and IAS 41 to define bearer plants and include         1 January 2016
Equipment                     within the scope of IAS 16 Property, plant and equipment those bearer
                              plants that are expected to bear produce for more than one period
                              and have a remote likelihood of being sold as agricultural produce.
                              These were previously in the scope of IAS 41.

IAS 16 Property, Plant and    Amendments regarding the clarification of acceptable methods               1 January 2016
Equipment                     of depreciation and amortisation.

IAS 27 Separate Financial     Amendment to IAS 27 to enable an entity to account                         1 January 2016
Statements                    for investments in subsidiaries, joint ventures and associates
                              using the equity method when preparing separate financial statements.

IAS 32 Financial              Amendments to application guidance on the offsetting of financial          1 January 2014
Instruments: Presentation     assets and financial liabilities and the related net credit exposure.

IAS 38 Intangible Assets      Revaluation method: proportionate restatement of accumulated                 1 July 2014
                              amortisation of an intangible asset.

IAS 38 Intangible Assets      Amendments regarding the clarification of acceptable methods of            1 January 2016
                              depreciation and amortisation.

IAS 39 Financial              Amendments for novation of derivatives and the continuation of             1 January 2014
instruments: Recognition      hedge accounting.
and Measurement

IAS 40 Investment Property    Interrelationship between IFRS 3 and IAS 40 when classifying                  1 July 2014
                              property as investment property or owner-occupied property.

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


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

Pronouncement                 Title                                                                      Effective date
IFRS 1 First-time Adoption    Consequential amendment to IFRS 7 Financial Instruments                    1 January 2016
of International Financial    Disclosures: Servicing contracts disclosures and offsetting of
Reporting Standards           financial assets and liabilities disclosures in condensed interim
                              financial statements.

IFRS 5 Non-current Assets     Amendment to the accounting treatment of changes to a plan                 1 January 2016
Held for Sale and             of sale or to a plan of distribution to owners where an
Discontinued Operations       entity reclassifies an asset or disposal group from held for
                              sale to held for distribution or vice versa.

IFRS 7 Financial              Amendments requiring disclosures about the initial application            1 January 2018*
Instruments Disclosures       of IFRS 9.

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

IFRS 7 Financial              Servicing contracts disclosures: Application guidance to clarify           1 January 2016
Instruments Disclosures       whether a servicing contract gives rise to continuing involvement in
                              a transferred asset for the purposes determining the transfer
                              disclosure requirements. Offsetting of financial assets and
                              liabilities disclosures’ applicability to condensed interim
                              financial statements clarifies the applicability of offsetting
                              amendments to IFRS 7 disclosures in condensed interim financial
                              statements.

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

IFRS 10 Consolidated          Sale or Contribution of Assets between an Investor and its                  1 January 2016
Financial Statements          Associate or Joint Venture: the amendment of the accounting
                              for a split of gains or losses on the loss of control between:
                              (i) the recognition of gains or losses in profit or loss of a
                                   parent company; and
                              (ii) the elimination against the carrying amounts of investments
                                   in the existing associate/joint venture and former
                                   subsidiary when a subsidiary is sold or its assets are
                                   contributed (loss of control) to an entity’s associate or
                                   joint venture.
IFRS 13 Fair               Amendment of scope exclusion in IFRS 13.52 to include all                 1 July 2014
Value Measurement          contracts accounted for within the scope of IAS 39 and IFRS 9,
                           regardless of whether they meet the definition of financial
                           asset or financial liability as defined in IAS 32.

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

IFRS 15 Revenue from       Replaces IAS 18 Revenue, IAS 11 Construction Contracts and              1 January 2017
contracts with customers   related interpretations on revenue recognition (i.e. IFRIC 13, 15,
                           18 and SIC 31). Requirements for recognising revenue on all
                           contracts with customers except those within the scope of standards
                           on leases, insurance contracts and financial instruments. The
                           impact is still being assessed.

IAS 19 Employee Benefits   Defined Benefit Plans: Employee Contributions. The amendment               1 July 2014
                           clarifies the requirements that relate to how contributions from
                           employees or third parties that are linked to service should be
                           attributed to periods of service.

IAS 19 Employee Benefits   Discount rate: requirement to use the market yields on government       1 January 2016
                           bonds denominated in the currency of high quality corporate bonds in
                           cases where there is no deep market for such bonds for the purpose
                           of discounting post-employment benefit obligations.

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

IAS 28 Investment in       See IFRS 10 Consolidated Financial Statements                           1 January 2016
Associates or Joint
Ventures

IAS 34 Interim Financial   Requirement for IAS 34.16A Other Disclosures to be given either in      1 January 2016
Reporting                  the interim financial statements or incorporated by a cross-reference
                           from the interim financial statements to some other statement and to
                           be available to users on the same terms and at the same time as the
                           interim financial statements for the interim financial report to be
                           complete.

IAS 39 Financial           Amendments to permit an entity to elect to continue to apply the        1 January 2018*
Instruments: Recognition   hedge accounting requirements in IAS 39 for a fair value hedge of
and Measurement            the interest rate exposure of a portion of a portfolio of financial
                              assets or financial liabilities when IFRS 9 is applied, and to
                              extend the fair value option to certain contracts that meet the
                              ‘own use’ scope exception.

*The standards apply when IFRS 9 is applied.

2.3 Adjustments to the condensed consolidated interim statement of profit or loss and other comprehensive income
for the six months ended 30 September 2013

                                                 Reclassification
                                                    of iWayAfrica
                                                       Group as a             IFRS 10:
                               As previously         discontinued    De-consolidation                   Other
                                    reported           operation*    of CellCaptive**    reclassifications***      Restated
                                          Rm                   Rm                  Rm                      Rm            Rm
Continuing operations
Total revenue                        16  482                (176)                (31)                      49       16 324
Operating revenue                    16  192                (169)                  -                      (34)      15 989
Payments to other operators           2  026                 (98)                  -                        -        1 928
Cost of sales                         1  001                 (27)                  -                        -          974
Net operating revenue                13  165                 (44)                  -                      (34)      13 087
Other income                             173                  (7)                (20)                      83          229
Operating expenses                    10 323                 (62)                 (3)                      49       10 307
Employee expenses                      2 814                 (37)                  -                       37        2 814
Selling, general and
administrative expenses               2 357                  (15)                  -                      49         2 391
Service fees                          1 557                   (4)                 (3)                    (37)        1 513
Operating leases                        504                   (6)                  -                       -           498
Depreciation, amortisation,
impairment, write-offs and losses     3 091                    -                   -                        -         3 091
Operating profit                      3 015                   11                 (17)                       -         3 009
Investment income                       123                    -                 (11)                       -           112
Finance charges and fair
value movements                          10                    7                  28                        -            45
Interest                               (269)                   -                   -                        -          (269)
Foreign exchange gains and
fair value movements                    279                    7                  28                        -           314
Profit before taxation                3 148                   18                   -                        -         3 166
Taxation                                202                    -                   -                        -           202
Profit from continuing
operations                            2 946                   18                    -                       -         2 964
Loss from discontinuing
operations                                -                   (18)                  -                       -           (18)
Profit for the period                 2 946                     -                   -                       -         2 946
*The restatements is due to the sale of the iWayAfrica group.
**The restatement is due to the change in accounting policy related to the Cell Captive consolidation.
***Reclassification of operating revenue, other income, employee expenses, selling general and administrative expenses
and service fees. Refer to notes 4, 5.3, 5.4 and 5.5 for more detail. At 31 March 2014 R83 million was reclassified
from operating revenue to other income.

3. SEGMENT INFORMATION

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

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

4. TOTAL REVENUE

                                                                      Reviewed              Restated             Audited
                                                              Six months ended      Six months ended          Year ended
                                                             30 September 2014     30 September 2013       31 March 2014
                                                                            Rm                    Rm                  Rm
Total revenue                                                           16 257                16 324              33 061
Operating revenue                                                       15 911                15 989              32 400
Other income (excluding profit on disposal of property,
plant and equipment, intangible assets, investments and
profit on disposal of subsidiary)                                         219                   223                 485
Investment income                                                         127                   112                 176
Operating revenue decreased due to the continuous
decline in fixed-line voice revenue and lower data
leased line revenue resulting from self-provisioning
by other licensed operators, partially offset by
higher mobile revenue.

Investment income increased as a result of
higher cash balances held by the Group.

Change in comparatives
Other income increased by R49 million as a result of
a reclassification from selling and administrative
expenses to sundry income.

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

Other income increased by R34 million at 30 September
2013 (31 March 2014: R83 million). This is income relating
to undersea cables activities that are not in the ordinary
course of business, therefore it was reclassified from
operating revenue to other income.

5. EXPENSES

                                                                         Reviewed            Restated         Audited
                                                                 Six months ended    Six months ended      Year ended
                                                                30 September 2014   30 September 2013   31 March 2014
                                                                               Rm                  Rm              Rm
5.1 Payments to other operators                                             1 446               1 928           3 944
The decrease in payments to other network operators
(interconnection fees) is due to the reduction in the
mobile termination rates.

5.2 Cost of sales                                                          1 166                 974           2 498
The increase in the cost of sales is largely attributed
to the increased cost of mobile device sales.

5.3 Employee expenses
The change in employee expenses is mainly due to a net
curtailment and settlement gain of R2.2 billion that occurred              5 052               2 814           7 137
in the comparative period. Included in the current financial
period is an additional expense of R325 million due to the
voluntary severance (VSP), voluntary early retirement (VERP)
and retrenchment process as well as an average salary increase
of 6%. The reduction in headcount is predominantly driven by
natural attrition as well as the VSP and VERP process.

Change in comparative
Employee expenses increased by R37 million due to the
reclassification of employee vehicle insurance expense from
service fees. These are short-term employee benefits derived
from employment with Telkom and have therefore been
reclassified accordingly to provide more relevant disclosure.

5.4 Selling, general and administrative expenses                           2 341               2 391           4 682
The decrease in selling and administrative expenses is as a
result of lower marketing expenditure offset by an
increase in the provision of impairment of trade receivables.
Included in selling, general and administrative expenses is
write-down of inventories to the value of R20 million
(30 September 2013: R11 million; 31 March 2014: R53 million).

Change in comparative
Sundry income of R49 million was reclassified to other income
to provide more relevant disclosure. Refer to note 4.

5.5 Service fees                                                          1 596               1 513               3 110
Space optimisation projects and higher electricity tariffs
led to an increase in property management expenses.
Consultants, security and other services fees decreased,
driven by lower consulting costs incurred relating to the
Company’s transformation programme and lower security cost
as a result of cost saving initiatives.

Change in comparative
Service fees decreased by R37 million due to the
reclassification of employee vehicle insurance expenses to
employee expenses. These are short-term employee benefits
derived from employment with Telkom and have therefore been
appropriately reclassified. Refer to note 5.3.

5.6 Operating leases                                                        504                 498               1 052
Operating leases increased as a result of an increase in the
number of mobile sites acquired offset by a decrease in
vehicle rentals.

5.7 Depreciation, amortisation, impairment, write- offs
and losses                                                                2 489               3 091               5 937
Depreciation of property, plant and equipment                             2 108               2 309               4 616
Amortisation of intangible assets                                           339                 333                 689
Impairment of property, plant and equipment and
intangible assets                                                            19                 392                 392
Write-offs of property, plant and equipment and
intangible assets                                                            23                  57                 240

The decrease in depreciation is due to accelerated depreciation on new connections installed to customer premises
coupled with the impairment of certain legacy and technologically aged items in the prior period that was not incurred
to the same extent in the current financial period.

6. TAXATION

                                                                        Reviewed           Reviewed             Audited
                                                                Six months ended   Six months ended          Year ended
                                                         30 September 2014   30 September 2013   31 March 2014
                                                                        Rm                  Rm              Rm

TAXATION                                                              333                 202             494
South African normal company taxation                                 255                 273             625
Deferred taxation (refer to note 11)                                   78                 (71)           (131)
The decrease in normal tax is mainly due to the
over provision of tax in the prior period.
The increase in the deferred tax expense is due
to the limitation and reduction of the deferred
tax asset in Telkom Company as the deferred tax
liability recognised through other comprehensive
income has decreased.

7. DISCONTINUED OPERATION

                                                                  Reviewed            Reviewed         Audited
                                                          Six months ended    Six months ended      Year ended
                                                         30 September 2014   30 September 2013   31 March 2014
                                                                        Rm                  Rm              Rm
Pan African business, iWayAfrica and Africa Online
Mauritius
On the 20th of December 2013, Telkom sold the Pan
African business, iWayAfrica and Africa Online
Mauritius, through a private sale to Gondwana
International Networks.
iWayAfrica was formed as the result of the
amalgamation of MWEB Africa and Africa Online in
2007 when MWEB Africa was purchased by Telkom. The
iWayAfrica business operates in eight countries on the
continent offering terrestrial wireless and VSAT
services to business and residential markets, as well
as via its channel partners in many other countries
on the continent.
Telkom’s investment in iWayAfrica was already fully
impaired as at 31 March 2012. Gondwana took over the
assets and liabilities (including amounts owed by
Telkom) for a nominal consideration.
Analysis of the results of the discontinued operation:
Revenue*                                                                -                 176             240
Expenses**                                                              -                (194)           (289)
Loss before taxation of the discontinued operations                     -                 (18)            (49)
Taxation                                                                -                   -               -
Loss after taxation of the discontinued operations                      -                 (18)            (49)
The net cash flows attributable to the operating,
investing and financing activities of discontinued
operations:
Operating cash flows                                                         -                     1                    (38)
Investing cash flows                                                         -                    (2)                     -
Financing cash flows                                                         -                   (39)                     -
Total cash inflow***                                                         -                   (40)                   (38)

*Revenue comprises operating revenue, other income and investment income.
**Expenses comprise payments to other operators, cost of sales, operating expenses and finance charges and fair value
movements.
***Cash flows included for 2014 are up to 20 December 2013. At 20 December 2013, on the date of disposal, iWayAfrica
had R48 million cash on hand.

8. TAXATION EFFECTS OF OTHER COMPREHENSIVE INCOME

                                                                      Reviewed              Reviewed             Audited
                                                              Six months ended      Six months ended          Year ended
                                                             30 September 2014     30 September 2013       31 March 2014
                                                                            Rm                    Rm                  Rm
Tax effects relating to each component of other
comprehensive income
Exchange differences on translating foreign operations                                             5                      4
Recycling of foreign currency translation reserve                            -                     -                    122
Net foreign currency translation differences for
foreign operations                                                          -                     5                 126
Defined benefit plan actuarial (losses)/gains                          (1 306)                1 101               2 277
Tax effect of defined benefit plan actuarial
gains/ (losses)                                                           365                   (89)               (306)
Net defined benefit plan actuarial gains                                 (941)                1 012               1 971
Defined benefit plan asset ceiling limitation
gains/ (losses)                                                         1 026                  (245)             (1 106)
Tax effect of defined benefit plan asset ceiling
limitation (losses)/gains                                                (287)                   20                  149
Net defined benefit plan asset ceiling limitation                         739                  (225)                (957)
Other comprehensive income for the year before taxation                  (280)                  861                1 297
Tax effect of other comprehensive income for the year                      78                   (69)                (157)
Other comprehensive income for the year, net of taxation                 (202)                  792                1 140

9. EARNINGS PER SHARE

                                                                      Reviewed              Restated             Audited
                                                              Six months ended      Six months ended          Year ended
                                                             30 September 2014     30 September 2013       31 March 2014
                                                                            Rm                    Rm                  Rm
Total operations
Basic earnings per share (cents)                                  217.4          566.2          748.5
Diluted earnings per share (cents)                                213.7          566.2          744.8
Headline earnings per share (cents)                               215.8          649.8          851.4
Diluted headline earnings per share (cents)                       212.1          649.8          847.1
Continuing operations
Basic earnings per share (cents)                                  217.4          569.7          758.1
Diluted earnings per share (cents)                                213.7          569.7          754.3
Headline earnings per share (cents)                               215.8          653.3          861.0
Diluted headline earnings per share (cents)                       212.1          653.3          856.6
Discontinued operations
Basic loss per share (cents)                                           -           (3.5)          (9.6)
Diluted loss per share (cents)                                         -           (3.5)          (9.5)
Headline loss per share (cents)                                        -           (3.5)          (9.6)
Diluted headline loss per share (cents)                                -           (3.5)          (9.5)
Reconciliation of weighted average number of
ordinary shares:
Ordinary shares in issue                                     520 783 900    520 783 900    520 783 900
Weighted average number of treasury shares                   (10 190 084)   (10 190 084)   (10 190 084)
Weighted average number of shares outstanding                510 593 816    510 593 816    510 593 816
Reconciliation of weighted average number of
ordinary shares:
Weighted average number of shares outstanding                510 593 816    510 593 816    510 593 816
Expected future vesting of shares                              8 783 562              -      2 587 629
Diluted weighted average number of shares outstanding        519 377 378    510 593 816    513 181 445
Total operations
Reconciliation between earnings and headline earnings:
Profit for the year                                               1 156          2 946          3 943
Non-controlling interests                                           (46)           (55)          (121)
Profit attributable to equity holders of Telkom                   1 110          2 891          3 822
Adjustments:
Profit on disposal of property, plant and equipment and
intangible assets                                                   (53)            (7)           (77)
Loss on disposal of subsidiary                                        -              -             23
Impairment loss on property, plant and equipment and
intangible assets                                                     19            392            392
Write-offs of property, plant and equipment and intangible
assets                                                                23             57            240
Taxation effects                                                       3            (15)           (53)
Headline earnings                                                  1 102          3 318          4 347
Continuing operations
Reconciliation between earnings and headline earnings:
Profit from continuing operations                                  1 156          2 964          3 992
Non-controlling interest                                             (46)           (55)          (121)
Earnings from continuing operations attributable to equity
holders of Telkom                                                       1 110                2 909            3 871
Adjustments:
Profit on disposal of property, plant and equipment and
intangible assets                                                         (53)                  (7)             (77)
Loss on disposal of subsidiary                                              -                    -               23
Impairment loss on property, plant and equipment and
intangible assets                                                           19                  392              392
Write-offs of property, plant and equipment and intangible
assets                                                                     23                    57              240
Taxation effects                                                            3                   (15)             (53)
Headline earnings                                                       1 102                 3 336            4 396
Discontinued operations
Reconciliation between earnings and headline earnings:
Loss from discontinued operation                                             -                  (18)             (49)
Loss attributable to Owners of Telkom                                        -                  (18)             (49)
Headline earnings                                                            -                  (18)             (49)

10. CAPITAL ADDITIONS AND DISPOSALS

                                                                      Reviewed             Reviewed          Audited
                                                              Six months ended     Six months ended       Year ended
                                                             30 September 2014    30 September 2013    31 March 2014
                                                                            Rm                   Rm               Rm
Property, plant and equipment                                            1 507                2 967            5 678
Additions                                                                1 517                2 972            5 695
Disposals                                                                  (10)                  (5)             (17)
Intangible assets                                                          298                  201              763
Additions                                                                  298                  201              763
Disposals                                                                    -                    -               -
The capital expenditure for the six months relates
to the deployment of the Next Generation Network,
mobile cellular services and baseline technologies.
The lower expenditure in this six-month period is
largely due to a more rigorous focus on project
selection, in accordance with the Company’s focus on
efficient execution of its strategy.

In addition, mobile capital expenditure decreased
due to the shift to a more concentrated rollout.
The current focus for the radio access network (RAN)
is to complete current projects and to provide
capacity to relieve congestion in identified growth
areas.
11. DEFERRED TAXATION

                                                                       Reviewed             Reviewed          Audited
                                                               Six months ended     Six months ended       Year ended
                                                              30 September 2014    30 September 2013    31 March 2014
                                                                             Rm                   Rm               Rm
Deferred taxation balance is made up as follows:                             (4)                  25               (3)
Deferred taxation assets                                                     16                   41               13
Deferred taxation liabilities                                               (20)                 (16)             (16)
Deferred tax assets are recognised for deductible
temporary differences to the extent that the related
tax benefit through future taxable profits is probable.
The Group did not recognise deferred tax assets of
R1 912 million (30 September 2013: R2 242 million,
31 March 2014: R1 880 million) in respect of temporary
differences amounting to R6 829 million (30 September 2013:
R8 007 million, 31 March 2014: R6 714 million) that
can be carried forward against future taxable income.

12. INVENTORIES

                                                                       Reviewed             Reviewed          Audited
                                                               Six months ended     Six months ended       Year ended
                                                              30 September 2014    30 September 2013    31 March 2014
                                                                             Rm                   Rm               Rm
INVENTORIES                                                                 738                  832              646
Gross inventories                                                           821                  953              757
Write-down of inventories to net realisable value                           (83)                (121)            (111)
The increase in inventory since 31 March 2014 is
mainly due to an increase in the mobile devices stock.
The decrease in write-down of inventories is mainly due
to lower obsolescence and lower slow moving stock.

13. OTHER FINANCIAL ASSETS

                                                                       Reviewed             Reviewed          Audited
                                                               Six months ended     Six months ended       Year ended
                                                              30 September 2014    30 September 2013    31 March 2014
                                                                             Rm                   Rm               Rm
Non current other financial assets consist of:                               56                   76               74
Total other financial assets consist of:                                    690                1 143              261
Held-to-maturity
- Repurchase agreements                                                    500                  910                 -
At fair value through profit or loss
- Derivative instruments                                                  190                   233                    261
  Forward exchange contracts                                               77                   112                    139
  Firm commitments                                                          1                     -                      4
  Cross currency swaps                                                    112                   121                    118
Less: Current portion of other financial
assets                                                                     634                 1 067                   187
Held-to-maturity
- Repurchase agreements                                                   500                   910                      -
At fair value through profit or loss
- Derivative instruments                                                  134                   157                    187
  Forward exchange contracts                                               77                   112                    139
  Firm commitments                                                          1                     -                      4
  Cross currency swaps                                                     56                    45                     44

Repurchase agreements
The Group manages a portfolio of repurchase
agreements, with a view of generating additional
investment income on the favourable interest
rates and security provided on these instruments.
The repurchase agreements are short-term,
usually seven days and are held to maturity.

14. NET CASH AND CASH EQUIVALENTS

                                                                      Reviewed              Reviewed             Audited
                                                              Six months ended      Six months ended          Year ended
                                                             30 September 2014     30 September 2013       31 March 2014
                                                                            Rm                    Rm                  Rm
Cash disclosed as current assets                                         3 912                 1 191               1 842
Cash and bank balances                                                     161                   268                 193
Short-term deposits                                                      3 751                   923               1 649
Credit facilities utilised                                                  (6)                   (1)                 (1)
Net cash and cash equivalents                                            3 906                 1 190               1 841

The increase in cash and cash equivalents is mainly due to the inflow of a loan of R1 billion (refer to note 16) together
with lower expenditure on property, plant and equipment. The balance includes R2 663 million ring-fenced for the
acquisition of Business Connexion once all the conditions are met.

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.

The condensed consolidated interim financial statements do not include all financial risk management information and
disclosures required in the annual financial statements, and should be read in conjunction with the Group’s
annual financial statements as at 31 March 2014.

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 2014 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 476 million (30 September 2013: R5 148 million, 31 March 2014: R4 752
million) and a carrying amount of R5 010 million (30 September 2013: R4 334 million, 31 March 2014: R4 096 million)
(refer to note 16).

                                               Fair value at   Valuation                         Significant
Type of financial instrument               30 September 2014   technique                         inputs
Receivables, bank balances, repurchase        R7 722 million   Undiscounted future estimated     Probability of default
agreements, and other liquid funds,                            cash flows due to short-term
payables and accruals, credit facilities                       maturities of these instruments
utilised and shareholders for dividends
Derivatives                                      R59 million   Discounted cash flows             Yield curves, market
                                                                                                 interest rate and
                                                                                                 market foreign
                                                                                                 currency rate
Borrowings                                   R5 476 million    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 ended       Six months ended         Year ended
                                                                September 2014         September 2013         March 2014
                                    Hierarchy levels                        Rm                     Rm                 Rm

Assets measured at fair value
  Investment in Cell Captive Preference
  Shares                                      Level    1                  2 887                  2 607                2 755
  Forward exchange contracts                  Level    2                     77                    112                  139
  Firm commitments                            Level    2                      1                      -                    4
  Cross currency swaps                        Level    2                    112                    121                  118
Liabilities measured at fair value
  Interest rate swaps                         Level 2                        (1)                    (5)                    -
  Firm commitments                            Level 2                      (122)                     -                   (37)
  Forward exchange contracts                  Level 2                        (8)                   (23)                  (61)
Liabilities measured at amortised cost
Interest-bearing debt consisting of:                                      5 476                 (5 148)               (4 752)
  Quoted debt securities                      Level 1                     3 307                 (3 752)               (3 445)
  Unquoted debt securities                    Level 2                     2 169                 (1 396)               (1 307)

The fair value of the financial assets and financial liabilities are sensitive to exchange rates and interest rates
movements as well as volatile markets. The Rand depreciated against major currencies during the period resulting in
unrealised fair value gains.

16. INTEREST-BEARING DEBT

                                                                      Reviewed                Reviewed           Audited
                                                              Six months ended        Six months ended        Year ended
                                                             30 September 2014       30 September 2013     31 March 2014
                                                                            Rm                      Rm                Rm
Non-current interest-bearing debt                                        3 398                   3 841             3 775
Local debt                                                               2 601                   2 770             2 815
Foreign debt                                                       199                 396             307
Finance leases                                                     598                 675             653
Current portion of interest-bearing debt                         1 612                 493             321
Local debt                                                       1 260                 200               -
Foreign debt                                                       253                 224             236
Finance leases                                                      99                  69              85

Repayments/refinancing
The Group obtained long-term funding
of R1 billion to diversify its debt
maturity profile and to finance its
activities during the reporting period.

The repayment of the current portion of
interest-bearing debt of R1 513 million
(nominal as at 30 September 2014) 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/refinancing.

17. PROVISIONS

                                                               Reviewed            Reviewed         Audited
                                                       Six months ended    Six months ended      Year ended
                                                      30 September 2014   30 September 2013   31 March 2014
                                                                     Rm                  Rm              Rm
Non-current portion of provisions                                 1 745               2 643           1 496
Employee related                                                  1 692               2 323           1 388
Non-employee related                                                 53                 320             108
Current portion of provisions                                     2 086               2 177           2 328
Employee related                                                  1 652               1 494           1 597
Non-employee related                                                434                 683             731

The increase in non-current employee related
provisions since 31 March 2014 is mainly due to
the increase in the post-retirement medical aid
provisions as a result of medical inflation. The
decrease in non-current non-employee related
provisions is as a result of certain provisions
becoming payable in the next 12 months and
therefore being moved to short term.
The increase in the current portion of employee
related provisions is due to the voluntary severance,
voluntary early retirement and retrenchment process.
The decrease in the current portion of non-employee
related provisions is the reclassification at
30 September 2014 of an amount of R304 million to
trade and other receivables to more accurately
reflect the substance of a transaction with a
third party.

18. COMMITMENTS

                                                                      Reviewed              Reviewed             Audited
                                                              Six months ended      Six months ended          Year ended
                                                             30 September 2014     30 September 2013       31 March 2014
                                                                            Rm                    Rm                  Rm
Capital commitments authorised                                           3 290                 3 470               5 055
Commitments against authorised capital expenditure                       1 335                 2 008               1 132
Authorised capital expenditure not yet contracted                        1 955                 1 462               3 923
Capital commitments comprise of commitments 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.

19. CONTINGENCIES

Contingent liabilities
Matters before ICASA
Phutuma Networks (Pty) Ltd (Phutuma)
Phutuma filed a complaint against Telkom at ICASA’s Complaints and Compliance Committee (the CCC) in February
2010. At a hearing in May 2014, it was Telkom’s understanding that Phutuma withdrew its complaint against
Telkom, and that the CCC intimated that it would recommend to ICASA that certain regulatory issues be addressed by
ICASA. In June 2014, Telkom received a document titled Interim Ruling from the CCC. A further hearing was held at the
CCC in September 2014. Both parties have made submissions and the CCC will now make its ruling.

End-User and Service Charter Regulations
Allegations have been made at the CCC regarding Telkom’s alleged non-compliance with the requirements of the
End-User and Service Charter Regulations relating to the clearance of reported faults. The CCC heard the matter and
has ruled that Telkom is not in breach of the Regulations and recommend that ICASA review the regulations. Telkom has
initiated administrative review proceedings seeking to set-aside the applicability of the Regulations since the CCC
ruling is not binding on ICASA and the risk remains for similar referrals. The review application is in process.

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

High court
Radio Surveillance Security Services (Pty) Ltd (RSSS)
RSSS sued Telkom for R215 661 866 (incl VAT). Telkom is defending the claim and has filed a plea and counterclaim for
R22 million. Preparation for trial is under way.

Phutuma Networks (Pty) Ltd (Phutuma)
In August 2009, Phutuma issued a summons against Telkom, arising from a tender published by Telkom in November 2007,
claiming damages in the amount of R5,5 billion. The High Court granted absolution from the instance in Telkom’s
favour. The Supreme Court of Appeal (SCA) had initially dismissed Phutuma’s application for leave to appeal in
October 2014. On 4 November 2014, the SCA rescinded its order granted in October 2014. The application for leave to
appeal will again be considered by the SCA.

African Pre-paid Services Nigeria Limited (APSN) v Multi-Links: Arbitration matter
Multi-Links Telecommunications (MLT), a previously wholly owned subsidiary of Telkom in Nigeria, concluded a Super
Dealer Agreement (SDA) with African Pre-paid Services (APS). APS ceded and assigned all of its rights and obligations
in terms of the SDA to African Pre-paid Services Nigeria (APSN). APSN cancelled the SDA on the basis of an alleged
repudiation by MLT of the agreement. APSN launched arbitration proceedings in South Africa against MLT claiming
damages in the sum of USD481,199,101. MLT defended the matter and filed a counterclaim in the amount of USD123
million. Telkom sold its shareholding in MLT to HIP Oils Topco Limited (HIP Oils). In terms of an indemnity contained
in the Sale and Purchase agreement between Telkom and HIP Oils, Telkom is liable for all amounts in excess of USD10
million in respect of the claim between APSN and MLT. MLT has obtained a High Court order to stay the arbitration
hearing pending the outcome of the damages action instituted by Telkom and MLT against Blue Label Telecoms, APSN and
others.

Other
HIP Oils Topco Ltd (HIP Oils)
With the sale of Telkom’s shares in MLT to HIP Oils, Telkom provided a taxation indemnity and a creditors
indemnity to HIP Oils and MLT where such liability was incurred prior to 3 October 2011 and to the extent that such
liability exceeded the amounts set out in the creditors list to the Sale and Purchase Agreement. Telkom has undertaken
to indemnify any actual or contingent liabilities, obligations or other indebtedness of any nature owed or owing to
trade, financial and other creditors of MLT where such liability, obligation or other indebtedness was incurred and
not disclosed to HIP Oils prior to the completion date.

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

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

20. RELATED PARTIES

                                                                       Reviewed             Reviewed             Audited
                                                               Six months ended     Six months ended          Year ended
                                                              30 September 2014    30 September 2013       31 March 2014
                                                                             Rm                   Rm                  Rm
Details of material transactions and balances with related
parties not disclosed separately in the consolidated annual
financial statements were as follows:
With shareholders:
Government of South Africa
Related party balances
Trade receivables                                                          468                  538                  456
Related party transactions
Revenue                                                                 (1 651)              (1 562)             (3 307)
Individually significant revenue*                                         (598)                (653)             (1 322)
  City of Cape Town                                                        (19)                 (37)                (45)
  Department of Correctional Services                                      (36)                 (47)                (90)
  Department of Health: Gauteng                                            (24)                 (25)                (51)
  Department of Justice                                                    (47)                 (54)               (114)
  South African National Defence Force                                     (30)                 (26)                (72)
  South African Police Services                                           (274)                (296)               (597)
  South African Revenue Services                                           (15)                 (24)                (38)
  S.I.T.A. (Proprietary) Limited                                          (102)                (102)               (206)
  South African Post Office                                                (24)                 (22)                (52)
  Department of Interior Affairs                                           (27)                 (20)                (57)
Collectively significant revenue                                        (1 053)                (909)             (1 985)

At 30 September 2014, the Government of South Africa held
39.8% (March 2014: 39.8%) 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 12.8% ( March 2014: 13.5%)
of Telkom’s shares.
With entities under common control:
Major public entities
Related party balances
Trade receivables                                                           62                    36                   35
Trade payables                                                              (1)                   (2)                  (1)
Related party transactions
Revenue                                                                   (124)                 (136)                 (253)
Expenses                                                                   123                   113                   250
Individually significant expenses                                          117                   106                   236
  South African Post Office                                                 41                    47                    89
  Eskom                                                                     70                    59                   136
  South African Broadcasting Corporation                                     6                     -                    11
Collectively significant expenses                                            7                     7                    14
Rent received                                                              (26)                  (23)                  (49)
  Individually significant rent received: South African
  Post Office                                                              (23)                  (21)                 (43)
  Collectively significant rent received                                    (3)                   (2)                  (6)
*The nature of the individually and collectively significant revenue consists mostly of data revenue.

Rent paid                                                                  14                    14                    29
Individually significant rent paid: South African Post Office              10                     9                    19
Collectively significant rent paid                                          4                     5                    10
Key management personnel compensation:
(Including directors and prescribed officers’ emoluments)
Related party transactions
Short-term employee benefits                                               76                    70                   190
Post-employment benefits                                                    6                     5                    10
Termination benefits                                                        3                     2                     2
Equity compensation benefits                                               13                     -                     6
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.

21. SIGNIFICANT EVENTS

Results of the Telkom Annual General Meeting regarding Directors re-appointments
All Board members were re-elected as per the Annual general meeting ordinary resolutions with the exception of Mr L
Maasdorp who withdrew his nomination to be re-elected as director with effect from 27 August 2014.

Retirement of Director
Telkom announced on 8 August 2014 that Mr Jacques Schindehütte retired from the Board with full benefits and the
disciplinary proceedings have been discontinued.
Appointment of Executive Director and Chief Financial Officer
Telkom announced on 15 September 2014 that Mr Deon Fredericks had been appointed as an Executive Director and Chief
Financial Officer of Telkom SA SOC Ltd effective from 12 September 2014.

MTN and Telkom Radio Access Network (RAN) assets Transaction
Telkom had announced that it signed a heads of agreement with MTN South Africa to take over financial and operational
responsibility for the roll-out and operation of Telkom’s RAN. The parties will conclude reciprocal roaming
agreements to enable customers of either party to roam on each other’s network.

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

Acquisition of Business Connexion (BCX)
Telkom had announced its firm intention to make an offer regarding the possible acquisition of BCX. The Company has
embarked on a strategy to improve performance and restore profitability.

Shareholders of BCX approved the acquisition by Telkom at an Ordinary Scheme Meeting held on 11 August 2014. Both
parties are awaiting approval from various Competition Authorities and the Regulator.

Restructuring of the organisation
In April 2014, as part of the larger Telkom turnaround strategy, the company began specific discussions with
representatives from organised labour. These discussions focused on the initiation of an organisational restructuring
process that would result in some headcount reduction.

The staff that have been affected by this organisational restructuring, has been limited to the management and
specialist layers. Telkom engaged with labour unions on an ongoing basis from 4 May 2014 on all elements of the
process. At the end of September, the Section 189 process was concluded, for the affected staff. Telkom has always
sought to pursue any reasonable measure to retain qualified and experienced staff. To this end, Telkom has also
informed all affected staff that they are eligible to apply for any roles that may become available through normal
staff movement processes, such as resignations or transfers, during their notice month of October. This offer is not
part of the Section 189 process but is a separate action by the company as a final attempt to place affected
candidates.

The intention of the Telkom turnaround strategy is to secure the future commercial sustainability of the business. The
sustainable success of this company is largely dependent on both the attraction and retention of qualified, competent
and experienced professionals. The organisational restructuring has not been driven by headcount reduction targets,
but rather by business imperatives that will shape the long-term commercial sustainability of the company.

22. SUBSEQUENT EVENTS

Post-retirement medical aid for pensioners
Telkom made an offer to the pensioners to transfer the post-retirement medical aid liability obligation to pensioners
who retired after 1994 and before 30 April 2013 to an insurer. The net curtailment and settlement will be quantified
once the deal has been finalised.

Other matters
The directors are not aware of any other matter or circumstance since the financial period ended 30 September 2014 and
the date of this report, or otherwise dealt with in the financial statements, which significantly affects the
financial position of the Group and the results of its operations.

Group Secretary
Xoliswa Mpongoshe

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

Sponsor
The Standard Bank of South Africa Limited Standard Bank Centre
30 Baker Street, Rosebank, 2196

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


17 November 2014

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