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Telkom Annual Report 1999/2000 1
2000 1999 Increase / (decrease)
Rm Rm %
Revenue 26,720 22,675 17.8
Profit before depreciation
and finance charges (EBITDA) 8,988 7,439 20.8
Attributable profit 1,850 2,346 (21.1)
Interest cover (times) 2.0 3.7 (46.0)
Debt-equity ratio (times) 1.3 1.0 30.0
Group Financial Highlights
20
1996 1997 1998 1999 2000
Shareholders’ interestInterest-bearing debt
10
12
8
0
Billion
s
3.655
13.548
15.398
11.533
5.280
10.212 10.525
6.347
13.541
19.946
18
16
14
6
4
2
10
8
1996 1997 1998 1999 2000
Capital expenditureLine roll-out
4
6
2
0
Billion
s –
Ca
pit
al Ex
pen
dit
ure
3.209 3.681
7.031
12.888
9.471
150
256
406
503
647
12
14
1000
800
400
600
200
0
1200
1400
Thou
san
ds
– Li
ne r
oll-o
ut
24 000
1996 1997 1998 1999 2000
Profit before depreciation and finance charges (EBITDA)Revenue
12 000
18 000
6 000
0
Billion
s
5.079
7.439
8.988
7.489
6.828
13.091
15.843
19.218
22.675
26.720
30 000 20 000
1996 1997 1998 1999 2000
Value createdValue re-invested
10 000
15 000
5 000
0
Billion
s
9.313
13.968
16.538
12.941
11.926
2.620
3.636
4.434
5.6366.262
Shareholders’ interest and interest-bearing debt Capital expenditure and line roll-out
Revenue and profit before depreciation Value addedand finance charges (EBITDA)
4-year annual 2000 1999 1998 1997 1996
compound
growth (%)
Income statement (Rm)
Revenue 19.63 26,720 22,675 19,218 15,843 13,091
Profit before depreciation and
finance charges (EBITDA) 15.34 8,988 7,439 7,489 6,828 5,079
Profit before taxation 7.75 2,455 3,231 3,519 2,884 1,821
Effective rate of taxation % (2.45) 24.1 26.0 31.3 38.1 26.5
Attributable profit 8.42 1,850 2,346 2,408 1,786 1,339
Balance sheet (Rm)
Fixed assets & investments 25.55 35,082 29,844 20,012 15,682 14,120
Current assets 20.85 9,650 7,272 5,250 6,440 4,524
Deferred taxation (28.36) 348 610 1,236 1,360 1,321
Assets to be funded 24.46 45,080 37,726 26,498 23,482 19,965
Shareholders’ interest 43.27 15,398 13,548 11,533 5,280 3,655
Interest bearing debt 18.22 19,946 13,541 6,347 10,525 10,212
Provisions (4.32) 2,302 2,705 2,899 2,897 2,747
Current liabilities 21.84 7,385 7,848 5,700 4,780 3,351
Outside shareholders interest 49 84 19 – –
Source of funding 24.46 45,080 37,726 26,498 23,482 19,965
Cash flow (Rm)
Cash flow from operating activities 4,390 6,123 3,976 5,324 2,857
Cash flow in investing activities (9,041) (12,658) (6,942) (3,549) (2,831)
Cash flow from/(in) financing activities 5,513 6,383 1,218 (341) (191)
Net increase/(decrease) in cash 862 (152) (1,748) 1,434 (165)
Ordinary share performance
Earnings per share – cents (0.84) 332.0 421.2 448.5 458.0 343.4
Dividend per share – cents (100.00) – 59.5 98.1 103.0 77.0
Dividend cover (100.00) – 7.1 4.6 4.4 4.5
Net asset value per share – cents 31.04 2,764.3 2,432.2 2,148.1 1,354.1 937.4
Telkom Annual Report 1999/200072
Five Year Financial Review of the Groupfor the years ended 31 March
Telkom Annual Report 1999/2000 73
4-year annual 2000 1999 1998 1997 1996
compound
growth %
Profitability ratios %
Profit before taxation as a
percentage of revenue (9.85) 9.2 14.2 18.3 18.2 13.9
Return on total assets (8.61) 13.8 15.0 23.0 23.2 19.8
Return on shareholders’ interest (24.32) 12.0 17.3 20.9 33.8 36.6
Solvency and liquidity
Debt-equity ratio (17.48) 1.3 1.0 0.6 2.0 2.8
Current ratio (0.81) 1.3 0.9 0.9 1.3 1.4
Acid test ratio 0.28 1.2 0.8 0.8 1.2 1.1
Average credit extended to
telephony customers (days) 4.50 46.5 43.0 41.6 39.9 39.0
Net operating cash flow margin (%) (9.92) 24.4 33.8 35.1 45.3 37.1
Interest cover (2.01) 2.0 3.7 3.3 2.7 2.2
Productivity of the Group
Average number of employees 0.16 57,877 60,613 57,813 57,496 57,501
Revenue per employee (R) 19.33 461,664 374,090 332,417 275,550 227,666
Operating profit per employee (R) 14.51 147,012 118,299 114,818 110,842 85,512
Value created per employee (R) 15.25 285,744 230,446 223,842 207,423 161,962
Productivity of the company
Main telephone service lines 8.24 5,492,838 5,075,417 4,645,065 4,258,639 4,002,180
Main service line per employee 12.42 112 83 82 75 70
Revenue per main service line (R) 8.43 4,378 4,079 3,878 3,574 3,167
Operating costs per main service line (R) 12.75 3,847 3,441 3,094 2,652 2,380
Profit before interest depreciation and
taxation per main service line 1.10 1,296 1,232 1,464 1,531 1,241
FIVE YEAR FINANCIAL REVIEW OF THE GROUP
Company registration
Telkom SA Limited
Registration number
91/05476/06
Web site
http://www.telkom.co.za
Company secretary’s address
and registered office
Telkom Towers North
152 Proes Street
PRETORIA
0002
South Africa
Postal address
Private Bag X881
PRETORIA
0001
South Africa
Contacts:
Telkom’s aim is to remain the leading integrated communications group in South Africa.
Telkom Annual Report 1999/2000 3
Industry Overview
The telecommunications sector is arguably the most dynamic
sector in the world today. This dynamic is being propelled by
a diverse series of drivers; increased competition through
global deregulation, globalisation and consolidation and new
products and services being created by the rapid pace of tech-
nological change.
Group Strategy
Against this background, Telkom is preparing for a new com-
petitive era in South African communications. Our aim is to
remain the leading integrated communications group in South
Africa. Our strategy involves the expansion and moderni-
sation of our fixed network, meeting our licence targets, and
improving efficiencies across the board, as well as focusing on
new technology deployment. There is not a leading world
communications technology, which is not today being
deployed in South Africa.
While continuing to streamline the business and improve effi-
ciencies, the Group is aggressively exploring new
revenue-growth opportunities. In particular, this includes the
areas of data, internet and mobile communications
and through our 50% strategic stake in leading mobile oper-
ator, Vodacom.
Public listing
As the first major state enterprise to be selected for a public
listing, Telkom is proud to spearhead South Africa’s drive to
unlock the value of key national assets. Indeed, the
Government’s decision to list a portion of its majority equity
stake in Telkom is a strong vote of confidence in the progress
we have made since the government sold a 30% equity stake
in Telkom to strategic partners in 1997.
The listing process will be led by the government and Telkom’s
Board. Management is playing a vital role in preparing the
Group for this process and for maximising investor interest.
Competition
Preparation for listing is also standing Telkom in good stead
for the expansion of competition in telecommunications after
the expiry of its limited exclusivity period.
Telkom looks forward to competing on a level playing field
and in a competitive environment in which all players have an
equitable share of socio-economic commitments, including
investing in infrastructure to further broaden public access to
communications.
Telkom’s current exclusivity has facilitated major achievements
modernising the network, increasing bandwidth availability
and improving the competitiveness of our pricing. This has
enabled us to meet some of the more sophisticated needs of
South African businesses as well as bringing millions more
South Africans into the connected world.
The contribution of our R47 billion five-year capital expendi-
ture programme to the South African economy should not be
underestimated. Every R1 invested in telecommunications
infrastructure in Africa is estimated to add R3 to GDP.
Financial performance highlights
Despite fluctuating exchange rates and a low economic
revival, the group delivered strong increases in revenue and
earnings before depreciation and finance charges (EBITDA) in
1999/2000. Group revenue grew 17.8% to R26.7 billion
whilst EBITDA increased 20.8% to R9 billion.
Important progress has been made in restructuring the business
with some related charges. The year saw some changes in
accounting policy to bring the company closer to International
Accounting Standards. Planned capital expenditure resulted in
higher depreciation and interest charges. Overall, these items
offset EBITDA growth resulting in net profit of R1.8 billion for the
period (1999: R2.3 billion). The company’s gearing ratio at
y e a r-end was 130%. The group embarked on a successful
inaugural Eurobond offering for 500 million Euros in March
2000.
Vodacom Group currently has some 3.1 million customers
and contributes R2.1 billion to group revenue, which was
39.5 % higher than in 1998/99. Vodacom’s operating profit
rose by 51.5%.
The Board of Directors have proposed a nil dividend.
Key strategic moves & corporate developments
A l r e a d y, we have made significant progress in raising
efficiencies, technological prowess and management
capability to the levels of our global peers. Where we
have not had expertise in certain areas, we have developed
Chairman’s Report
We have made significant progress in raising efficiencies,
technological prowess and management capability
a series of exclusive strategic partnerships with world leaders in
communications technology.
Network digitisation has exceeded 99%, compared to 74% just
three years ago; in addition, the core network is now managed
from a single, central point, and implementation of a new gen-
eration network is under way. Over the same time frame, we
have installed 1.6 million new lines under the terms of our
licence, increased the number of high-speed data services and
boosted international satellite capacity.
For Vodacom, an important milestone of 1999/2000 was the
creation of Vodacom Service Provider Company (Pty) Ltd,
enabling Vodacom to better its service to cellular customers.
Beyond South Africa’s borders, Vodacom is actively pursuing a
range of opportunities and it has secured a licence to operate
a GSM network in Tanzania. The company already operates a
GSM cellular network in Lesotho, in partnership with the
Lesotho Telecommunications Corporation.
Social commitments, shareholders,
management and employees
As a South African group, Telkom prioritises skills transfer,
black empowerment and employment equity in its social,
employment and procurement policies. Telkom continues to
make consistent and significant investments in developing the
technological capabilities of its employees and of other South
Africans.
We are indebted to our shareholders, the Government and
strategic equity partners Thintana Communications (the consor-
tium comprising SBC Communications and Telekom Malaysia
Berhad) on whose guidance we will continue to rely in the run-up
to listing. I also extend my appreciation to the Board, executive
management and Te l k o m’s employees, who have worked so
effectively together in sharpening the company’s focus on cost-
effectiveness, efficiency and productivity.
Dikgang Moseneke
Chairman
CHAIRMAN’S REPORT
Telkom Annual Report 1999/20004
The core
network is now
managed from
a single, central
point, and
implementation
of a new
generation
network is
under way
Telkom's ongoing restructuring programme is paying off richly with
striking improvements in productivityand efficiency during the past year.
Telkom Annual Report 1999/2000 9
As we enter the new millennium, Telkom continues its transfor-mation into a world-class communications company ready toface increased competition in its markets.
In 1999, we made significant progress in restructuring ourbusiness to focus on our core business of communications. Wecontinued to take advantage of the significant cost-savingopportunities available within the company. We raised effi-ciencies across the board to meet increased financial and net-work targets. The vast majority of our capital expenditure wentinto network expansion, growth businesses, including massiveinvestments in upgrading and expanding our data, Internetand broadband networks to meet new customer demand.
Going forward, we will continue restructuring the Group alongfunctional lines from the previous regional structure. We willalso remain focused on raising efficiencies and outsourcingnon-core operations as we prepare for increased competition.Our investment in network expansion and modernisation willcontinue, as well as investment in new technological develop-ment, in particular data and broadband communications.
We are at the forefront of the African drive to boost the wholecontinent’s connectivity through our involvement in projectssuch as SAT-3/WASC/SAFE optic fibre cable system.
A look at financial performanceThe overall impact of these strategies has been positive interms of financial performance. Group revenue grew by17.8% over the year under review to R26.7 billion. Vodacomcontributed to 7.9% of Group revenue. Revenue per line, at a Company level, continued to improve to R4,378 from R4,079 last year.
Group earnings before depreciation and finance chargesincreased 20.8% to R9 billion, partially driven by strong con-tributions from Vodacom and data services as well asimproved cost efficiencies.
The focus was on restructuring the group with a number ofonce-off charges impacting, including some increases in provisions relating to pensions and post retirement medical ben-efits owing to changes in accounting policies to bring Telkom’saccounts closer to International Accounting Standards.
The restructuring improved benchmark employee productivityratios. The critical lines-per-employee ratio rose to 112:1 atyear-end from a base of 83:1 in the previous year – animprovement of 35%. Furthermore, the restructuring process
CEO Review
1996 1997 1998 1999 2000
20
10
15
5
0
25
Reve
nu
e (
Rm
)
30
13,091
15,843
19,218
22,675
26,720
8
1996 1997 1998 1999 2000
4
6
2
0
10
EBIT
DA
(R
m)
5,079
6,8287,489
7,439
8,988
40
1996 1997 1998 1999 2000
20
30
10
0
50
Tota
l A
ssets
(R
m)
45,080
19,965
23,482
26,498
37,726
*Earnings before interest tax, depreciation and amortisation
Total Assets
*EBITDA
Revenue
Telkom Annual Report 1999/200010
realised a profit of R468 million and proceeds of R753 millionon the outsourcing of the vehicle fleet to a fleet managementorganisation.
The economic slowdown experienced in 1998/99, however,continued to adversely affect Company debtor repaymentsresulting in a year-on-year increase in bad debts from R392million to R813 million.
Group capital expenditure for the year was R9.5 billion, mainly funded through increased borrowings. Resultingfinance charges were higher for the Group at R2.4 billion(1999: R1.2 billion). Our first Eurobond issue for 500 millionEuros was well received in the markets in March/April 2000and our credit ratings with Moody’s and Standard and Poor’swere favourable.
Capital expenditure amounted to just over R29 billion in thepast three years, and a key focus area remains tight manage-ment of borrowings and reduced financing charges throughimproved debt instruments.
These higher interest charge and restructuring costs, some ofthem once-off, combined to reduce net profit attributable toshareholders to R1.8 billion from R2.3 billion last year.
A changing environmentAfrica is on the verge of a communications explosion, withtraffic on the continent forecast to grow by nearly 60 timesover the next five years. In South Africa alone, the growth indata traffic during the past year outpaced industry projectionsby more than 300%.
The process of issuing further licences for both fixed andmobile operators is well underway. The establishment of theIndependent Communications Authority of South Africa(ICASA) is expected to bring much-needed stability to the reg-ulatory environment and accommodate the growing conver-gence of technologies and services.
Among the issues that ICASA can be expected to address arefrequency management, the implementation of the new num-bering plan, regulations on Value Added Network Services
(VANS) and private telecommunication networks (PTNs), aswell as interconnection guidelines for the remainder of ourexclusivity period and the competitive environment to follow.
Network modernisation and expansion driveOverall, Telkom met 15 out of its 16 licence targets during1999/2000, our best performance in the three years since theissuing of our licence. We met our line roll-out targets set in thelicence, with a cumulative three-year tally totalling 1.6 millionlines. Of these, just over one million lines were installed inunderserviced areas, some 90,000 of the cumulative target.
Similarly, we are 328 villages ahead of the three-year target forproviding first-time services to villages, 17,860 ahead for new
CEO REVIEW
A key focus area remains tight management of borrowings and
reduced financing charges throughimproved debt instruments
12 000
9 000
6 000
3 000
TargetAchieved
10 820
13 697
0
15 000
New lines installed – priority customers
80 000
60 000
40 000
20 000
TargetAchieved
68 027
85 887
0
10 000
New public payphones installed
payphones and almost 1 million ahead of our three-year targetto replace non-digital lines.
An important part of our network modernisation programme isline digitisation, which is the platform on which we can buildvalue-added services like caller line identification, electronic callanswering and innovative billing systems like per-second billing.The ongoing efforts of our technicians across the country result-ed in almost 99% of our 5.5 million automatic working tele-phone lines were connected to digital exchanges by year-end.We were able to upgrade a further 350,440 lines during thepast year alone, bringing the three-year total to just over onemillion lines, against the cumulative licence target of 98,000.
We have put a great deal of work into making our networkmore resilient, and are recording 11% fewer faults than twoyears ago in spite of monsoon-like weather across large partsof the country in the first quarter of the new millennium. Eventhough the flooding pushed our residential fault rate slightly
above the licence target, we still managed to improve our residential fault rate by 13% since 1997/98.
The past year saw us achieving the two licence targets that wefailed to meet in 1998/99, namely those for repairing busi-ness and residential telephone faults within 48 hours. Whatthis means in real terms is that over the past two years, Telkomhas achieved a steady 14.4% improvement in repairing busi-ness faults and a 15.4% improvement for residential faults.
These improvements, however, are only a precursor to farmore substantial ones that we expect to realise in the nearfuture through projects like the opening of the new NationalNetwork Operations Centre (NNOC), the implementation ofour end-to-end customer delivery initiative known as iCare-Flowthru, and higher line-revenue generation through digital,network-based product development.
The NNOC is an ultra-modern facility which will provide anunprecedented level of seamless and robust service across thecountry. It has a 120-metre-wide video wall providing an up-to-the-second, real-time visual summary of the status ofTelkom’s entire network. This facility compares favourably withsimilar centres run by some of the world’s top telecommuni-cations companies. The complex’s emergency restoration andcontrol centre has already been successfully tested by the mil-lennium or Y2K preparations.
Key efficiency improvements The restructuring process has seen no part of the companyescape scrutiny. Every aspect of our business – from work-force profile to stock control, from pricing to credit manage-ment, from product range to network reach, management,
CEO REVIEW
Telkom Annual Report 1999/2000 11
1500000
1200000
9000000
6000000
3000000
TargetAchieved
1 316 466
1 451 582
0
Total new lines installed
1500000
1200000
9000000
6000000
3000000
TargetAchieved
915 863
1 017 799
0
New lines installed – underserviced areas
2 000
1 500
1 000
500
TargetAchieved
1 710
2 038
0
2 500
First time service to villages
reliability and diversity – has been streamlined and refocused.Our efficiency drive has seen the reorganisation of the com-pany from regional-based reporting to function-based report-ing. We are outsourcing our non-core businesses, managingstaff numbers down to more competitive levels, introducingmore efficient procurement and stock control measures.
During the year, we outsourced five non-core entities: Telkom’sfleet, physical security, electronic and light engineering work-shops and catering services. These divisions were bought byorganisations that specialise in these fields and have the exper-tise and economies of scale to run them efficiently and cost-effectively. In the process, approximately 2,000 employees havebeen transferred to the new business owners.
The outsourcing process provided us with a compelling oppor-tunity to boost the economic development of black small,medium and macro enterprises (SMMEs) and businesses com-mitted to black economic empowerment. All five of the non-
Telkom Annual Report 1999/200012
CEO REVIEW
1 000
800
600
400
200
Business Residential
TargetAchieved
470
332
490522
0
Fault reports per 1000 lines
100%
80%
60%
40%
20%
Business
TargetAchieved
96
99
0
Perc
en
tag
e
Services activated within 90 days
100%
80%
60%
40%
20%
Business Residential
TargetAchieved
8282.4
75 75
0
Perc
en
tag
e
Faults cleared within 48 hours
100%
80%
60%
40%
20%
Business Residential
TargetAchieved
81
95
73
83
0
Perc
en
tag
e
Services activated within 28 days
Operational Statistics 2000 1999
Main telephone services 5,492,838 5,075,417
Payphones 173,064 153,476
Manual exchanges 74 89
Total automatic
exchange units 3,697 3,512
Digital exchange units 3,666 3,388
Analogue exchange units 31 124
Percentage working lines
connected to digital
exchanges 99% 92.5%
Transmission circuits
(1 000km) 318,000 256,694
Optical fibre
(1 000km) 910 360
Telkom Annual Report 1999/2000 13
CEO REVIEW
core divisions outsourced were either bought by black-controlled companies or by organisations with meaningfulblack equity participation.
Although we reduced our staff complement by about 12,000positions by March 2000, more than 80% of the departureswere either voluntary or achieved through our ongoing out-sourcing programme, which has ensured sustainable employ-ment for most of the staff affected.
In all, just over 8,000 employees accepted voluntary pack-ages or voluntary early retirement in a process which weunderpinned with an extensive Social Plan, designed to helpstaff start their own small businesses, retire in financial securi-ty or prepare for alternative employment.
Retaining and hiring quality staff remains at the core of our business thinking. We are accelerating the process of ensuringthe right depth and breadth of management ability, as well astechnical, business and sales skills, to take the company forward.
This year Telkom cut costs and improved services from suppli-ers through the adoption of Cross Functional Sourcing Teams(CFSTs), multidisciplinary teams sourced from various special-ist units within the company to evaluate all tender bids –putting the people with the knowledge into the decision-mak-ing process.
The CFST is a model followed by most European and US-based companies, but Telkom has pioneered this more effi-cient and transparent tender process in South Africa.
Cost-reducing initiatives in our procurement division haveseen the number of our stores slashed from 600 a few yearsago to 35 today, with a resulting increase in control, distribu-tion and warehousing practices. Telkom is also developingonline procurement strategies with a number of suppliers,which will ultimately see sizeable savings in time and moneyand improved controls and supplier relationships.
Booming data trafficData and multimedia revenues grew by 39% to R3.5 billion in1999/2000, driven by increased customer demand, productenhancements, the development of additional sales channels,price reductions on data and internet-based products, and theongoing reduction of ISDN and Diginet backlogs.
Bandwidth availability, one of the drivers behind the currentconvergence of the telecommunications, information technol-ogy and broadcasting industries, remains a key focus for
Telkom. The total number of 2MB circuits grew by 53% in1999/2000, with even higher growth of 78% in ISDN primary rate services.
We piloted new technologies like Digital Subscriber Line (DSL)and Dense Wavelength Division Multiplexing (DWDM), whichwill increase the capacity of our fibre networks by 40 times inthe next two years. ISDN services have consistently shownexceptional growth since the commercial launch in April 1995,and are now growing at an average rate of 7% per month. Thekey factors behind our ISDN success were the cuts in monthlyrental rates in both 1999 and 2000, and the increase in avail-ability of basic rate ISDN in the network to 96%.
Two data-product milestones were the re-launch of ourFrameRelay product as FrameExpress in June 1999, which was accompanied by network view enhancements and a price reduction, and the launch in October 1999 ofCybertrade, our e-commerce solution.
Telkom also assisted in pioneering delivery of the first onlinelottery in Africa. We provided a 950-site VSAT (Very SmallAperture Terminal) satellite backbone from March 2000 forthe licensed national lottery network operator, Uthingo, includ-ing those in the remotest parts of the country.
At the cutting edge of technological developmentIn the new financial year, we will begin the migration towardsa Next Generation Network (NGN) that will support one con-nection capable of handling voice, data and video, makingthe virtual office a reality. Through this connection, customerswill have access to high bandwidth and optimum availability,while being able to manage their communication devices,whether fax, phone, modem or data lines, through just onephone number.
The NNOC will be an integral part of these changes. Plansare already in place to introduce new support systems that willallow synergies created by the NNOC to be fully exploited asthe network evolves.
DSL technology is expected to be deployed during the latterpart of the next financial year, as is our use of DWDM toenhance capacity. Apart from that, we have upgraded the
ATM technology has an important role to play
in the evolution of our network
Telkom Annual Report 1999/200014
transport network with the latest asynchronous digital hierar-chy (SDH) equipment over optic fibre self-healing rings, andstarted deploying ATM technology extensively across thecountry in 1999.
Our core ATM network now covers most of the major metro-politan areas. This technology has an important role to playin the evolution of our network, as it provides a sound plat-form from which to support Internet Protocol. A growingnumber of corporate customers are migrating towards ATMas part of an ongoing process that will accelerate as part ofour technological deployment, sales, marketing and cus-tomer service initiatives.
Focusing on business communication needsWe are forging strategic alliances that enhance our ability to provide solutions for business customers and enter newmarket arenas such as consulting, call centres, network customer premises equipment (CPE) and systems integration.The expertise of partners like Unisys, Arthur Andersen,Compaq, Siemens and PQ Africa gives us instant marketaccess and recognition.
In the large PBX market, our partnership with Siemensfuelled growth of 147% in our customer base. We haveentered a number of vertical markets, including govern-ment, industrial, mining, hospitality and medical, but themost remarkable achievement was the penetration of theeducation market. Here we provided solutions to tertiaryinstitutions such as the University of the Western Cape, theUniversity of Stellenbosch, the Department of Educationand the University of Zululand.
In the broader PBX market, which has been deregulated foralmost 20 years and is ferociously competitive, we are one ofa handful of suppliers that cater for every market segment,from small office/home office right through to large corporateenterprises. This year we entered the outright purchase PBXmarket after previously dealing on a rental basis only.Introducing other purchasing options will strengthen ouralready leading market position.Primenet, Telkom’s virtual private network product offering,exceeded expectations in 1999/2000 by contracting 17
national and corporate customers. Our intentions are to pro-vide international virtual private network solutions to cus-tomers during the next financial year.
Prioritising customer focus and competitive pricing The wide-ranging reorganisation of the company, with theemphasis on an interim structure based on functional ratherthan geographical requirements, is being undertaken with oneprimary goal in mind, customer service.
Accelerated training programmes which emphasise customercare, new products and the latest emerging technologies aresteadily changing our skills profile to assume that of a globalcommunications company.
The new NNOC has given us the capability to start offeringour corporate customers the guaranteed service levels theyrequire to compete globally through much-reducedresponse times, more up-time and improved overall networkreliability.
Our tariff rebalancing drive, which will bring prices of ser-vices more into line with international trends, is bearing fruit.International call costs have declined by 50% in real termsbetween 1997 and 2000 and are nearing global priceratios. Three years ago, a long-distance call was around 13times more expensive than a local call. Today, the gap hasbeen narrowed to 6.9 times, far closer to the internationalnorm of 4.5.
The most recent international price cuts, in March 2000, sawprices drop by up to 35% for calls to 24 countries, includingmajor trading partners such as the United Kingdom andAustralia.
Despite annual increases in the cost of local services, theseremain extremely competitive. An authoritative internationalcomparison of prices in 24 countries showed Telkom’s con-nection rates to be the cheapest of the countries surveyed.Rental rates were the 7th lowest, and a three-minute local callin peak time was the 7th cheapest.
Long term investment in international linksInternational voice traffic volumes make up approximately 11%of Telkom’s revenues. During the year transit traffic rose by 26%.The signing in June 1999 of an agreement on the SAT-3/WASC/SAFE cable project paved the way for an underseaoptical fibre system that will cater for the continent’s burgeoningtelecommunications needs for up to 25 years.
CEO REVIEW
We’re forging strategic alliances that enhance our ability to provide
solutions for business customers
Telkom Annual Report 1999/2000 15
CEO REVIEW
60 000
1995 1996 1997 1998 1999 2000
30 000
45 000
15 000
0
49128
70 000
61237
564805681155347
58793
Staff Complement
80%
1994 1999 2000
40%
60%
20%
0
100%
54
WhiteBlack (African, Coloured, Indian)
46
41
59
44
56
Workforce Composition
A US$630 million project for an 80 gigabit link (with capacityequal to 960,000 simultaneous telephone conversations), hasbrought together 40 nations and some of the world’s mostinfluential telecommunications players.
Expected to be fully operational early in December 2001, thissystem will stretch nearly 28,000 kilometres and will linkAfrica to Europe and Asia. The cost of transmissions is estimated at one-hundredth that of a comparable satellitetransmission.
One of the major benefits of the project is that it will be owned,controlled and maintained by the individual operators. Whereasan estimated 80% of Africa’s telecommunications revenue cur-rently flows out of the continent, revenue generated by the coun-try to country operators will remain in Africa – which is critical tothe economic development of the continent as a whole.
The past year also saw us adding direct international links toeight countries, including Cuba and Pakistan, bringing the totalnumber of direct dial-access destinations to 86. At the sametime, we secured VSAT landing agreements in 10 additionalAfrican countries, ensuring seamless data connectivity solutionsfor South African companies investing on the continent.
We continued to play a leading role in the design and develop-ment of a regional network for the Southern AfricanDevelopment Community (SADC). Fifteen regional priority pro-jects were identified and are being implemented through bilateral and multilateral cooperation between regional carriers.
Vodacom, a core contributorVodacom is South Africa’s leading cellular network and is
50% owned by Telkom. Vodacom contributed R2.1 billion toGroup revenue, which is 39.5% higher than the previous peri-od. Unknown before 1994, Vodacom has become a house-hold name and by May 2000 was one of the best-recognisedbrands in South Africa and has some 3.1 million customers.By comparison, Vodacom had some two million customers atthe end of May 1999.
Vodacom is pursuing opportunities on the African continentthat make economic sense and secured a licence to operatea GSM network in Tanzania during mid-1999. The companyalready operates a GSM cellular network in Lesotho in part-nership with the Lesotho Telecommunications Corporation.
During the year R2 billion was invested in increasing the net-work capacity, bringing to more than R8 billion the amountinvested on the network since inception. The year also sawthe creation of Vodacom Service Provider Company (Pty)Ltd, after the merger of Vodac, Teljoy Cellular Services andGSM Direct into a single entity to enable Vodacom to betterservice its customers.
Developing complementary growth businesses We’ve concentrated on improving operational efficienciesand customer service within our subsidiaries Intekom, Swiftnetand Telkom Directory Services.
• Intekom has succeeded in establishing itself as a major roleplayer in the Internet Service Provider market by supplyingmarket-related products and services at competitive pricesfrom dedicated offices throughout South Africa, and expectsto grow its subscriber base further this year by focusing onthe SMME market.
Telkom Annual Report 1999/200016
CEO REVIEW
• Swiftnet specialises in the provision of wireless data applications and solutions. Increased demand forSwiftnet’s services saw radio pad installations growing byover 38% last year, with total billable calls increasingmore than 50%.
• Telkom Directory Services (TDS) publishes 21 directories inSouth Africa with a combined circulation of over 7.5 milliondirectories. Additionally, it operates the “Talking YellowPages”, which enables users to obtain information telephonically. TDS will continue its focus on growing revenues, improving the use of technology and expandingthe usage of its products.
Meeting social challenges Having started our affirmative action programme more thansix years ago, Telkom is well placed to comply with all require-ments of the new Employment Equity Act.
During the year, we consulted employee groups in an attemptto reach agreement on issues relating to the Act, conductedwork force analyses and completed a review of our employ-ment policies and practices. We have already submitted areport to the Department of Labour.
By March 2000, there were more than 950 black managersin Telkom, representing 13% of staff on management lev-els. Some 73% percent of the South African component of top management are black (African, Coloured or Indian), and 27% are women. Emphasis is also being placed on improving the representation of women at all levels and
in all job categories. Women currently represent 25% ofTelkom’s work force.
Telkom has prioritised the development of its skills basethrough an unprecedented training and development drivewithin the company. Overall, the number of learner days hasalmost trebled over the past three years, rising from 267,000to over 757,000 facilitated learning days. When combinedwith the Centre for Learning’s online Virtual Multi-MediaCampus, learner days have increased to more than 1.2 million annually.
This is a direct result of the strategic equity partnership agree-ment signed in early 1997, which allowed us to raise our five-year training budget for the period to March 2002 by 150%, toR2.3 billion. Technology-related training accounts for roughlyhalf of all the training we’re doing. We have also invested heav-ily in an adult basic education and training programme, in whichmore than 12,000 staff have participated since mid-1997.
One of the cornerstones of our procurement policy is BlackEconomic Empowerment (BEE), which saw Telkom’s totalspending with black economic empowerment companiesclimbing to R3 billion in 1999/2000. This amount, reflecting ayear-on-year increase of almost 100%, represented 28% of thetotal volume of purchases, up from 19% in the previous year.Recognising that many black small, medium and macroenterprises (SMMEs) struggle to do business with major pur-chasers, we are overcoming this through strategic initiativesdesigned to make ourself more accessible to these suppliers,as well as to improve their capacity to do business.
1994* 1995* 1996* 1998 1999 2000
57
43
53
47
46
54
45
55
38
62
4852
WhiteBlack (African, Coloured, Indian)
* Calendar Year
80%
40%
60%
20%
0
100%
Promotion
80%
1994* 1995* 1996* 1998 1999 2000
40%
60%
20%
0
100%
35
65
32
68
42
58
29
71
26
74
25
75
WhiteBlack (African, Coloured, Indian)
* Calendar Year
Recruitment
Telkom Annual Report 1999/2000 17
CEO REVIEW
In 1999/2000 we spent more with black SMMEs than withlarge black suppliers for the first time, although both enjoyedsubstantially increased business with Telkom from the previousyear. Of the R3 billion spent on economic empowerment,R456 million went to purchases from black SMMEs (supplierswith annual revenue of under R25 million), R435 million tolarge black suppliers, and just over R2 billion to suppliers withsignificant black economic empowerment programmes.
Vodacom is also able to contribute heavily to a large num-ber of deserving communities and organisations. Highlightsof Vodacom’s main corporate social responsibility initiativesduring the 1999 financial year included the building of anR8 million school and clinic in the Amapisi administrativearea of the rural Eastern Cape and the R15 million renova-tion of the Alexandra Police Station and WynbergMagistrates Courts.
Telkom Foundation’s social contributionWe’re continuing to make a significant contribution to improv-ing the quality of life in South Africa’s disadvantaged commu-nities through the Telkom Foundation. The Foundation hascommitted R100 million over five years to boost the quality oftechnology-related education, and to support social develop-ment through child care and job creation. One of the Foundation’s ongoing projects has been the estab-lishment of Internet laboratories at 10 tertiary institutionsacross South Africa in conjunction with the Department ofCommunications.
No less important was the Foundation’s involvement in the
National Plan of Action (NPA) for Children, a project launchedby the President’s Office to promote, develop and protect chil-dren’s rights. Using the notion that “every child is my child”, theNPA is a critical step towards building a culture in our societyin which children and their fundamental rights are cherished.
The Telkom Foundation also supported Internet connectivity toover 1,000 schools. This project is the largest of its kind inSouth Africa and is expected to benefit close to one millionchildren in all nine provinces.
Our commitment to fighting HIV/AIDSHIV/AIDS is a business threat that every company operating inSouthern Africa has to deal with. We initiated our responseprogramme three years ago in an attempt to manage theimplications that HIV/AIDS holds for our operations, costs andproductivity levels.
With the full support of our trade unions, we have alreadyidentified every element that could potentially be affected bythe epidemic - including overtime, recruitment, training andpension benefits. We are currently evaluating their potentialimpact and are exploring response options to contain these.
In the next phase of our response programme, we aim tofocus on medical, psychological, financial and legal coun-selling for employees living with AIDS.
AppreciationIn moving towards our listing and open competition, the quality of leadership within our Company will play an increasingly important role. On a strategic level, our Board ofDirectors has set a clear framework for continued revenuegrowth, operating cost control, efficient capital expendituremanagement and careful debt-equity management.
Every company can only be as good as its people, and I there-fore extend my appreciation to Telkom’s dedicated work force,who have met constant change, exacting targets and large-scale restructuring with equanimity. With their continued sup-port, along with that of the Board and management, I amconfident that we are well placed to achieve the ongoingimprovements expected in the coming financial year.
2000
1996/97 1997/98 1998/99 1999/2000
1000
1500
500
0
2500 Actual Black SpendTarget for Black SpendSignificant Suppliers Spend
Rm
Of the R3 billion spent on economicempowerment, R456 million went to
purchases from black SMMEs
Black Economic Empowerment spend
Financial Review
Changes in accounting practices
This year the Group embarked on the alignment of its finan-
cial reporting to International Accounting Standards.
Accounting changes relate to the treatment of post-retirement
medical benefits to staff, recognition of retirement and pension
fund liabilities, accounting for goodwill, and the effect of
changes in foreign exchange rates.
This resulted in prior year adjustments to equity of R1.5 billion,
an increase in provisions of R2.1 billion, and goodwill being
amortised over a five-year period, previously written off in the
year of acquisition.
Turnover
The year under review saw strong growth of 17.8% in Group
revenue, to R26.7 billion. At a Company level, revenue
growth was 16.1% to R24 billion. Vodacom, Telkom’s joint
venture, which is consolidated on a proportionate basis, con-
tributed R2.1 billion to group turnover, which was a 39.5%
improvement on last year.
Net operating expenses
Group net operating expenses grew by 17.5%, compared to
23.2% the previous year. Company net operating expenses
saw a 18.3% year-on-year increase and included costs relat-
ing to management of staff numbers and outsourcing initia-
tives, which amounted to R353 million and which form part of
an ongoing restructuring process. The restructuring process
led to a 19.8% decrease in headcount, from 61,237 to
49,128.
During the year R168 million of investments were written off.
However, the successful outsourcing of the vehicle fleet to
a fleet management organisation, realised a profit of
R468 million and proceeds of R753 million.
The year to 31 March 2000 saw some significant increases in
bad debts due to the slow economy. There was a year-o n -
year increase in bad debts from R392 million to R813 million
( 1 0 8 % ) .
Operating profit
Group operating profit improved by 18.7% to R8.5 billion. Of
this 19.6% relates to Vodacom, a 51.5% improvement on
Vodacom’s contribution last year. Group operating profits
were enhanced by the sale of "Yebonet", a business division of
Vodacom.
Income from investments
The year under review saw growth in income from investments
of 78.8% and 62.8% for the Group and Company
respectively.
EBITDA
The Group achieved growth in earnings before interest, tax,
depreciation and amortisation (EBITDA) of 20.8% to
R9 billion. Group EBITDA margins improved slightly to 33.6%
from 32.8% last year.
Finance and other charges
The major network expansion drive resulted in an increase of
47.3% in Group interest bearing debt with a corresponding
increase of 46.6% at a company level. This resulted in finance
charges almost doubling to R2.4 billion year-on-year for the
Group and to R2.3 billion for the Company.
The increase in depreciable assets resulted in a 38.6%
increase in depreciation charges for the Group.
Profit before tax for the Group was 24% lower at R2.5 billion
from R3.2 billion in 1999.
Taxation
Taxation charges decreased by R237 million to R592 million
for the Group. The effective taxation rate decreased by 2% to
24%.
Net profit
Group net profit for the period was R1.8 billion, 22% down on
the previous period’s net profit of R2.4 billion. The higher
depreciation and finance charges saw a decrease of 46% in
the Company’s net profit. Earning per share was 332.0 cents
(1999:421.2 cents) based on 557 million ordinary shares in
issue.
Cashflow
Higher debtor’s balances and increased finance charges
resulted in decrease in Group cash flow from operating
activities of 29.5%.
Shareholders’ equity and total assets
Growth in shareholders equity was 13.7% for the period to
R15.4 billion. The Group has total assets of R45.1 billion.
Capital expenditure
Group capital expenditure for the year of 31 March 2000
Telkom Annual Report 1999/200018
Telkom Annual Report 1999/2000 19
FINANCIAL REVIEW
totalled R9.5 billion. Capital expenditure at a Company level
was R8.4 billion. Capital investment for the Company has
totalled R26 billion over the past three years. It is anticipated
that the Company will have invested a total of
R47 billion during the five-year exclusivity period.
Funding and liquidity
I n t e r e s t-bearing borrowings have increased by 47.3% to
R19.9 billion.
An increase in pre fund investments resulted in net debt
increasing by 39.3% to R18.4 billion for the Group at
31 March 2000.
Telkom funded its capital requirements in both the local and
international debt markets. At 31 March 2000, 21.7% of debt
outstanding by the Company was foreign. Company debt
repayments over the next year total R4.9 billion.
Telkom has finalised an inaugural Eurobond offering, which
was placed at a favourable rate in a period during which the
markets were unsettled. The Telkom Eurobond is listed on the
London Stock Exchange and has performed well since its
pricing in March and issuance in early April 2000.
During the year, Telkom was rated by two international credit
agencies, and received a favourable investment rating of Baa3
from Moody’s and BBB from Standard & Po o r’s. These were
improvements on previous ratings and will assist with broadening
of the company’s investor base.
Telkom hedges its exposures to foreign financial markets based
on a conservative policy, which ensures that Telkom does not
have excessive exposure to volatile market movements.
Telkom hedges its
exposures to
foreign financial
markets based on
a conservative
policy, which
ensures that
Telkom does not
have excessive
exposure to
volatile market
movements
Sizwe Nxasana
Chief Executive Officer
Telkom Annual Report 1999/2000 33
Basis of accounting
The financial statements are prepared on the historical cost
basis in conformity with South African Generally Accepted
Accounting Practice. The Group has embarked on a process of
aligning its accounting policies with international standards.
International accounting standards, with respect to pension and
retirements funds, business combinations and post- r e t i r e m e n t
medical aid have been adopted before their effective dates in
terms of Generally Accepted Accounting Practice in South
Africa. The following are the principal accounting policies used
by the Group which, with the exception of those indicated in
note 1, are consistent with those applied in the previous year.
Basis of consolidation
The consolidated financial statements include those of the
holding company, its subsidiaries and joint venture compa-
nies. The results of all subsidiaries are included from the dates
effective control is acquired up to the date effective control
ceases. Intragroup transactions are eliminated in full on con-
s o l i d a t i o n .
Joint ventures
A joint venture is an entity jointly controlled by the Group and
one or more other venturers in terms of a contractual
arrangement. Joint ventures are accounted for by means of the
proportionate consolidation method, whereby the attributable
share of assets and liabilities, revenue, expenses and cash flow
of the joint venture are incorporated on a line by line basis,
with similar items in the consolidated financial statements.
A proportionate share of intercompany items is eliminated.
Goodwill
The difference between the fair value of the consideration paid
and the fair value of the underlying net assets of subsidiaries
and joint ventures at the date of acquisition is shown as good-
will on consolidation. Goodwill is amortised over its useful life
dependent on the particular circumstances applicable to the
acquisition. The maximum amortisation period does not exceed
5 years. In the event of a diminution in the value of a subsidiary
or joint venture, the unamortised balance is written off to the
income statement.
Investments
Investments, including investments in subsidiaries are stated
at cost less amounts written off. Investments are written down
to give recognition to a diminution in value.
Fixed assets and depreciation
Tangible fixed assets, except for freehold land, are stated at
historical cost less accumulated depreciation. The cost of
self-constructed fixed assets includes all direct expenditure,
but excludes abnormal wastage and internal profits.
Borrowing costs incurred in the construction and develop-
ment of the telecommunication network and other qualifying
fixed assets are capitalised. Borrowing costs include mainly
interest, forward cover premiums and other hedging costs.
Actual borrowing costs incurred on asset specific borrowings
are capitalised. The capitalisation rate used for purposes of
calculating interest incurred on general borrowings to be
capitalised is arrived at by dividing borrowing costs by the
applicable weighted average borrowings outstanding during
the period other than specific borrowings.
Year 2000 expenditure incurred in the restoration and
maintenance of existing hardware and software is expensed
as the work is carried out. Replacements of and enhance-
ments to existing hardware, software and other major
assets are capitalised only if the originally assessed useful
life of the said assets is extended and the costs can be
m e a s u r e d .
Freehold land is stated at historical cost and is not
depreciated. All other fixed assets are depreciated from
the date of commissioning on a straight line basis over
their expected useful lives.
Intangible fixed assets, as detailed below, are stated at
historical cost less depreciation or amounts amortised.
The expected useful lives assigned to groups of fixed assets are:
Years
Buildings 40
Telecommunication network equipment
Cables 10 to 20
Switching equipment 5 to 15
Transmission equipment 15
Other telecommunication equipment 2 to 15
Telecommunication support equipment 5 to 10
Other equipment 5 to 10
Data-processing equipment 4 to 5
Vehicles 5
Furniture and office equipment 5 to 10
The expected useful lives
assigned to intangible assets are:
Licences 10 to 15
Goodwill 3 to 5
Trademarks and Subscriber base 6
Accounting Policies
Telkom Annual Report 1999/200034
Capital inventory
Engineering stores items are used in the construction and
maintenance of the network. When issued, the carrying
value of items used in the construction of the network
is included in the cost of the network or charged to the
income statement as appropriate. Engineering stores items
are stated at cost, less a provision for obsolescence.
Fixed asset investments
Indefeasible rights of use bought in cable systems are classi-
fied as fixed asset investments. Fixed asset investments are
stated at cost less accumulated amortisation. Amortisation is
calculated on a straight-line basis over the expected useful
lives of the cables. The maximum expected useful life-span
of cables is 25 years.
Participating interests
Participating interests are stated at cost and are written down
only if there is a permanent diminution in value. Income
from participating interests is brought to account when the
right to receive payment is established.
Inventories
Inventories are stated at the lower of cost, determined on a
weighted average basis, and estimated net realisable value.
In the case of self-manufactured products, cost includes all
direct expenditure, but excludes abnormal wastage and
internal profits.
Local Telkom stock
Telkom loan stock is stated at nominal value less unamor-
tised discounts. Discounts arising on the issue of Telkom
loan stock are amortised over the period of the debt, using
the yield-to-maturity-basis.
Financial instruments
Measurement
Financial instruments are initially measured at cost, which
includes transaction costs. Subsequent to initial recognition,
these instruments are measured as set out below.
Trade and other receivables
Trade and other receivables originated by the Group are
stated at cost less provision for doubtful debts.
Cash and cash equivalents
Cash and cash equivalents are measured at fair value.
Financial liabilities
Financial liabilities are recognised at amortised cost.
Derivative instruments
Premiums paid or received on hedging instruments are
amortised over the period of the instrument contracts and
included in finance charges or operating cost, depending on
the nature thereof. Interest differentials, under swap contracts
used to manage interest rate risk are recognised as
adjustments to finance charges.
Foreign currencies
Transactions denominated in foreign currencies are translated
at the rate of exchange ruling at the transaction date.
Monetary items denominated in foreign currencies are
translated at the rate of exchange ruling at the balance sheet
date. The Group fully hedges all foreign currency exposures.
The cost of forward exchange contracts are accrued over the
period of the contract and are included in finance charges or
operating costs, depending on the nature thereof. Re a l i s e d
and unrealised profits and losses on foreign exchange are
included as operating costs or finance charges, depending
on the nature thereof.
Interest-bearing investments
Investments are held either for the investment of surplus
funds, or for hedging purposes of capital market funding
activities. Investments held for investment of surplus funds
are stated at cost and are adjusted for amortised discount
on a yield-to-maturity basis, where applicable.
Investments held for hedging purposes are stated at cost and
are adjusted for amortised discount on the same basis as the
hedged liability. Profits and losses relating to these invest-
ments are accounted for in income when price changes
which affect the hedged liability occur.
Deferred taxation
Deferred taxation is accounted for using the balance sheet
liability method at current rates in respect of temporary dif-
ferences. Deferred tax assets are raised only to the extent
that it is probable that future taxable profit will be available
against which the unused tax losses can be utilised.
Revenue
Revenue which excludes value added tax, comprises the
value of services provided and interest from debtors.
Revenue is stated at the fair value of consideration received
or receivable and is recognised only when it is probable that
economic benefits associated with a transaction will flow to
ACCOUNTING POLICIES
The Group
provides defined
benefit and
defined
contribution
plans for the
benefit of
employees
Telkom Annual Report 1999/2000 35
ACCOUNTING POLICIES
the Group and the enforceable right to receive payment is
established. Interest earned on arrear account balances is
accrued on a time proportion basis.
Retirement benefits
The Group provides defined benefit and defined contribution
plans for the benefit of employees. Current contributions
reducing the deficit of these funds operated for employees are
charged against the provision as actuarially determined and as
set out in note 1.2. The funds are actuarially valued at inter-
vals of three years. Benefit costs are determined and expensed
using the projected benefit valuation method that recognises
the expected costs of providing benefits over the period during
which the Group benefits from the employee’s services.
Post-retirement medical benefits
Medical aid costs are recognised as an expense in the peri-
od during which the employees render services to the Group.
The present value of future medical aid costs for all current
and retired employees is actuarially determined annually on
the basis of current actuarial practice, and any shortfalls or
surpluses are immediately recognised in the income state-
ment. Subsequent to discussions with organised labour, the
Group has reviewed the benefit structures in its medical
schemes which has resulted in the termination of future post-
retirement medical benefits in respect of employees joining
after 1 July 2000. The effects of this agreement have not
been taken into account in determining the provision at 31
March 2000.
Exceptional items
Exceptional items are items which fall within the ordinary
activities of the Group and are disclosed separately by virtue
of their size and incidence if the financial statements are to
present a true and fair view.
Comparatives
Comparative figures have been adjusted to conform with the
following changes in the current year.
IAS 22 – Business combinations (effective date: 1 July 1999)
IAS 19 – Employee benefits (effective date: 1 January 1999)
For practical reasons, comparative figures have not been
adjusted for the following change in accounting policy.
IAS 21 – The effects of Changes in Foreign Exchange rates
(effective date: 1 January 1995)
Telkom Annual Report 1999/2000 27
We have audited the annual financial statements and Group
annual financial statements of Telkom SA Limited set out on
pages 29 to 66 for the year ended 31 March 2000. These
annual financial statements are the responsibility of the
C o m p a n y’s Directors. Our responsibility is to express an
opinion on these annual financial statements based on our audit.
Scope
We conducted our audit in accordance with statements of
South African Auditing Standards issued by the South African
Institiute of Chartered Accountants. Those standards require
that we plan and perform the audit to obtain reasonable
assurance that the annual financial statements are free of
material misstatement. An audit includes:
• examining, on a test basis, evidence supporting the
amounts and disclosures in the annual financial
statements;
• assessing the accounting principles used and significant
estimates made by management; and
• evaluating the overall annual financial statements
presentation.
Our audit included an assessment of the compliance of the
requirements of the Reporting by Public Entities Act (Act 93 of
1992). We believe that our audit provides a reasonable basis
for our opinion.
Audit opinion
In our opinion, the annual financial statements fairly present,
in all material respects, the financial position of the Company
and the Group as at 31 March 2000 and of the results of their
operations and cash flows for the year then ended in accor-
dance with South African Generally Accepted Accounting
Practice issued by the Accounting Practices Board of the South
African Institute of Chartered Accountants and in the manner
required by the Companies Act of South Africa. The informa-
tion contained in this report conforms to the requirements of
the Reporting by Public Entities Act, in all material respects.
Auditors’ Report
Ernst & Young
Registered Accountants and Auditors
Chartered Accountants SA
Pretoria
28 June 2000
KMMT Incorporated
Registered Accountants and Auditors
Chartered Accountants SA
Telkom Annual Report 1999/2000 41
Notes to the Financial Statements
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
1 Changes in accounting policy
1.1 Post-Retirement Medical Benefits
During the year the Group changed its accounting
policy with respect to the treatment of post-
retirement medical benefits to staff. The Group now
provides fully for the actuarially determined present
value of future medical aid obligations for all current
and retired staff, whereas previously post-retirement
benefit obligations were only provided for in respect
of staff who retired before 1 October 1991.
Comparative information has been restated.
The effect of the change in accounting policy
is as follows:-
Decrease in net profit
Gross (137,000) (106,400) (137,000) (106,400)
Taxation 41,100 31,920 41,100 31,920
Net (95,900) (74,480) (95,900) (74,480)
Restatement of opening retained earnings
in respect of change in accounting policy
Decrease in retained earnings
Gross (879,499) (773,099) (879,499) (773,099)
Taxation 263,850 231,930 263,850 231,930
Net (615,649) (541,169) (615,649) (541,169)
1 . 2 Recognition of Retirement and Pension Fund liability
During the year the Group changed its accounting
policy with respect to the treatment of the deficit in
the Telkom Retirement and Pension Funds. Due to
the fact that the funds' financial obligations have
been guaranteed by Telkom, the actuarially valued
deficit is now fully provided for on the financial
statements even though the retirement fund is a
defined contribution plan.
Comparative information has been restated.
for the years ended 31 March
Telkom Annual Report 1999/200042
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
The effect of the change in accounting policy
is as follows:-
Increase in net profit
Gross 110,734 71,565 110,734 71,565
Taxation (33,220) (21,470) (33,220) (21,470)
Net 77,514 50,095 77,514 50,095
Restatement of opening retained earnings in
respect of change in accounting policy
Decrease in retained earnings
Gross (1,207,734) (1,279,299) (1,207,734) (1,279,299)
Taxation 362,320 383,790 362,320 383,790
Net (845,414) (895,509) (845,414) (895,509)
1.3 Business Combinations
IAS 22 (Revised 1998) requires that any goodwill
arising on the acquisition of subsidiaries and
trademarks be capitalised and amortised over its
expected remaining useful life.
Previously the Joint Venture's goodwill was written
off in the year of acquisition as an abnormal item.
Comparative information has been restated.
The effect of the change in accounting policy is
as follows:-
Increase in net profit
Gross 283,400 37,427 – –
Taxation – – – –
Outside shareholders – – – –
Net 283,400 37,427 – –
Restatement of opening retained earnings in
respect of change in accounting policy
Increase in retained earnings
Gross 53,727 16,300 – –
Taxation – – – –
Outside shareholders – – – –
Net 53,727 16,300 – –
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
1.4 Foreign currencies
During the year the Group adopted IAS 21
(revised 1993), The Effects of Changes in
Foreign Exchange Rates. In terms of the
amended accounting policy, all foreign currency
denominated transactions in Group companies
are accounted for at the exchange rates prevailing
at the date of the transactions. The translation of all
monetary assets and liabilities denominated in foreign
currencies are accounted for at exchange rates
ruling at the balance sheet date.
Comparative information has not been restated as it is
not practical.
The effect of the change in accounting policy is as follows:-
Increase/(decrease) in net profit
Gross – – – –
Taxation – – – –
Net – – – –
The Group hedges all foreign currency exposures
and therefore net profit is not expected to be
materially affected by the translation of monetary
items at balance sheet date, as all potential
unrealised losses are covered.
2 Revenue 26,719,736 22,674,702 24,047,911 20,704,218
Telecommunication and value added
services rendered 26,277,804 21,421,559 23,686,085 20,419,774
Interest on debtors and employee accounts 220,516 209,978 219,772 209,978
Other sales and services 221,416 1,043,165 142,054 74,466
Telkom Annual Report 1999/2000 43
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
3 Net operating expenses 18,211,122 15,504,255 17,540,048 14,825,672
Materials and consumables used 2,816,908 2,466,689 2,233,706 1,967,550
Employee costs 7,549,974 6,529,402 7,080,564 6,233,531
Salaries and employee costs 6,935,004 5,902,944 6,478,438 5,613,277
Pension and Retirement Fund contributions 614,970 626,458 598,645 618,253
Normal contributions 486,193 447,426 469,868 439,221
Deficit 128,777 179,032 128,777 179,032
Directors' emoluments 3,481 2,001
Services as directors 1,978 472
For management services 1,503 1,529
Access and other interconnect costs 2,490,759 2,020,457 5,041,432 3,755,556
Other operating expenses 6,228,204 5,000,459 3,988,358 3,388,460
Operating leases 577,675 472,975 379,145 330,470
Buildings 280,455 227,093 237,114 190,422
Data processing equipment 15,568 21,022 15,568 21,022
Other equipment 242,066 179,902 87,894 75,035
Vehicles 39,586 44,958 38,569 43,991
Consultancy services 52,423 55,908 31,699 45,904
Auditors' remuneration 9,405 8,409 6,965 7,015
Audit fees 7,719 6,983 6,000 5,962
Other 1,686 1,426 965 1,053
Losses on disposal of tangible fixed assets 23,128 14,067 18,187 12,564
Goodwill written off 24,128 4,947 – –
Other costs 4,035,012 3,409,105 2,133,256 2,025,844
Management fee 260,352 249,223 260,352 249,223
Bad debts 833,500 419,489 813,533 391,921
Investments written off 167,697 – 167,697 –
Hedging costs-other exposures 244,884 366,336 177,524 325,519
Telkom Annual Report 1999/200044
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
Other operating income (874,723) (512,752) (804,012) (519,425)
Profit on disposal of tangible fixed assets (504,921) (68,801) (504,685) (68,729)
Foreign exchange differences (49,736) – (50,000) –
Profit on disposal of subsidiary – (65,272) – (72,392)
Other income (320,066) (378,679) (249,327) (378,304)
4 Income from investments 479,254 267,966 612,363 376,030
Income from participating interests
Compensation for use of capital 25,741 29,197 25,741 29,197
Rental income 56,936 42,013 56,936 42,013
Dividends received – – 59,352 –
Interest received on investments 369,612 176,299 369,281 176,299
Income from joint ventures
Interest received 26,965 20,457 101,053 128,521
5 Depreciation and amortisation 4,153,060 2,995,188 3,590,637 2,638,576
Depreciation tangible fixed assets 4,143,303 2,989,116 3,588,064 2,636,003
Buildings 159,847 32,089 154,925 28,926
Telecommunication network equipment 2,786,534 2,109,951 2,389,309 1,856,147
Telecommunication support equipment 309,122 204,783 277,824 186,822
Other equipment 53,118 37,891 30,489 21,084
Data processing equipment 678,101 456,186 583,073 398,298
Vehicles 129,839 127,824 128,598 127,055
Furniture and office equipment 26,742 20,392 23,846 17,671
Depreciation intangible fixed assets – licences 3,387 3,499 – –
Amortisation costs – indefeasible right of 2,573 2,573 2,573 2,573
use of cable systems
Amortisation of trademark 3,157 – – –
Amortisation of subscriber base 640 – – –
6 Finance charges 2,379,713 1,212,425 2,262,191 1,128,420
Interest paid and loan discount amortised 2,072,238 981,115 1,954,716 897,139
Telkom Annual Report 1999/2000 45
NOTES TO THE FINANCIAL STATEMENTS
Telkom Annual Report 1999/200046
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
Locally registered stock 995,456 606,628 995,456 606,628
Foreign loans 204,474 204,104 169,581 165,744
Local loans 1,204,023 571,383 1,121,394 525,767
2,403,953 1,382,115 2,286,431 1,298,139
Less: Capitalised (331,715) (401,000) (331,715) (401,000)
Hedging costs 307,475 231,310 307,475 231,281
Interest bearing debt 307,475 231,310 307,475 231,281
7 Taxation 592,262 829,559 256,994 604,090
SA normal company taxation 319,539 165,092 – (3,807)
Current 318,956 169,928 – –
Underprovision / (overprovision) for prior year 583 (4,836) – (3,807)
Deferred taxation 258,743 626,657 253,825 570,087
Current 264,732 656,191 251,360 576,152
(Overprovision) / underprovision for previous year (5,596) (10,502) 2,465 2,547
Change in tax rate (393) 92,097 – 102,517
Prior year unprovided debit balance utilised – (100,679) – (100,679)
Prior year adjustment – (10,450) – (10,450)
Secondary tax on companies 13,068 37,810 3,169 37,810
Foreign tax 912 – – –
Reconciliation of taxation rate % % % %
Effective rate 24.1 26.0 20.2 24.0
South African normal rate of taxation 30.0 35.0 30.0 35.0
Adjusted for: (5.9) (9.0) (9.8) (11.0)
Exempt income (38.5) (23.1) (38.5) (23.1)
Deferred tax not utilised (0.2) (4.0) – (4.0)
Permanent differences 32.1 18.9 (28.3) 14.8
Tax losses not utilised 0.4 4.0 – –
Secondary tax on companies 0.5 1.5 0.2 1.5
Prior year adjustment – (4.2) – (4.2)
Change in tax rate – 0.5 – 4.1
(Overprovision) / underprovision for prior years (0.2) (2.6) (0.2) (0.1)
Telkom Annual Report 1999/2000 47
Group Company
`
2000 1999 2000 1999
R'000 R'000 R'000 R'000
8 Earnings per share
The calculation of earnings per share is based on
earnings of R1,849,530,000
(1999: R2,345,959,000) and ordinary shares in
issue of 557,031,819 (1999: 557,031,819)
The calculation of headline earnings per share is
based on headline earnings of R1,707,763,000
(1999 : R2,267,313,000) and 557,031,819
(1999 : 557,031,819) ordinary shares in issue
during the year.
Reconciliation between earnings and headline earnings
Earnings as reported 1,849,530 2,345,959
Adjustments:
Profit on sale of fixed assets (481,793) (54,734)
Goodwill amortisation 24,128 4,947
Prior year adjustments 26,266 34,835
Capital loss/(profit) 153,028 (65,272)
Tax and outside shareholder effects 136,604 1,578
Headline earnings 1,707,763 2,267,313
Headline earnings per share – cents 306,6 407,0
9 Segment reporting
Telkom operates as a unitary business providing an
integrated range of telecommunications products
and services. In the provision of these products and
services there is no distinguishable component in the
Group that is subject to risks and returns that are
different from those of other business segments and
for management reporting purposes, results are not
analysed according to reportable segments. For these
reasons a segment report has not been provided.
NOTES TO THE FINANCIAL STATEMENTS
Telkom Annual Report 1999/200048
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
10 Tangible fixed assets
Cost
Land and buildings 2,904,283 2,055,621 2,711,084 1,856,624
Telecommunication network equipment 38,861,680 30,881,804 35,412,859 28,208,089
Telecommunication support equipment 2,342,430 1,706,885 2,154,670 1,580,769
Other equipment 413,590 319,759 253,593 209,706
Data processing equipment 5,097,507 3,352,830 4,644,250 3,067,964
Vehicles 36,368 923,531 29,699 919,215
Furniture and office equipment 285,574 229,188 257,258 208,520
Capital work in progress 3,229,495 4,932,529 3,226,238 4,925,209
Capital inventory 134,781 590,910 126,384 590,910
53,305,708 44,993,057 48,816,035 41,567,006
Accumulated depreciation
Buildings 455,800 296,084 447,489 292,696
Telecommunication network equipment 14,920,552 12,280,054 13,906,534 11,644,168
Telecommunication support equipment 1,034,753 726,119 967,249 689,906
Other equipment 181,497 133,059 134,085 103,612
Data processing equipment 2,185,881 1,502,225 1,963,873 1,381,367
Vehicles 19,601 497,418 17,348 496,375
Furniture and office equipment 83,669 54,196 71,757 47,754
18,881,753 15,489,155 17,508,335 14,655,878
Telkom Annual Report 1999/2000 49
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
Book value
Land and buildings 2,448,483 1,759,537 2,263,595 1,563,928
Telecommunication network equipment 23,941,128 18,601,750 21,506,325 16,563,921
Telecommunication support equipment 1,307,677 980,766 1,187,421 890,863
Other equipment 232,093 186,700 119,508 106,094
Data processing equipment 2,911,626 1,850,605 2,680,377 1,686,597
Vehicles 16,767 426,113 12,351 422,840
Furniture and office equipment 201,905 174,992 185,501 160,766
Capital work in progress 3,229,495 4,932,529 3,226,238 4,925,209
Capital inventory 134,781 590,910 126,384 590,910
34,423,955 29,503,902 31,307,700 26,911,128
Full details of fixed properties are available for
inspection at the registered address of the
Company.
Fixed asset movements
Capital expenditure (note 33) 9,471,502 12,887,663 8,372,469 11,389,438
Proportionate share of Joint Venture assets 15,083 6,094 – –
Disposals (346,963) (123,449) (311,567) (121,563)
Depreciation for the year (note 5) (4,143,303) (2,989,116) (3,588,064) (2,636,003)
Transfer to inventories (50,526) – (50,526) –
Other (25,740) – (25,740) –
4,920,053 9,781,192 4,396,572 8,631,872
Disposals comprised
Telecommunication network equipment 55,186 23,749 19,846 21,867
Other equipment 2 2,737 2 2,737
Customer equipment sold – 89,192 – 89,192
Data processing equipment 739 123 700 119
Vehicles 290,852 7,296 290,835 7,296
Furniture and office equipment 184 352 184 352
346,963 123,449 311,567 121,563
NOTES TO THE FINANCIAL STATEMENTS
Telkom Annual Report 1999/200050
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
11 Intangible fixed assets
Licences 33,444 35,747
Cost 53,880 53,206
Accumulated depreciation (20,436) (17,459)
Goodwill 311,805 53,727
Prior year adjustment – 53,727
Cost 363,759 –
Accumulated depreciation (51,954) –
Subscriber base 3,123 –
Cost 3,763 –
Accumulated depreciation (640) –
Other 22,269 –
Trademarks – Cellphones direct 19,074 –
Trademarks – Vodacare 3,195 –
370,641 89,474
12 Participating interests 114,349 102,594 114,349 102,594
Intelsat
1.161013% (1999:1.161013% ) share in
International Telecommunications Satellite
Organisation, headquartered in Washington
DC, USA, at cost. 103,957 92,202 103,957 92,202
Directors' valuation – R 118.6 million
(1999: R112.5 million).
Inmarsat
0.30186% (1999: 0.30186%) share in
International Mobile Satellite Services
Organisation, headquartered in London,
United Kingdom, at cost. 9,293 9,293 9,293 9,293
Directors' valuation – R 13.1 million
(1999: R14.8 million).
Rascom
3.527% (1999: 3.527%) share in
Regional Africa Satellite Communications
Organisation, headquartered in Abidjan,
Ivory Coast, at cost. 1,099 1,099 1,099 1,099
Directors' valuation – R 1.5 million (1999: R1.5 million)
Telkom Annual Report 1999/2000 51
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
13 Fixed asset investments
Indefeasible right of use less amounts amortised 42,062 44,637 42,062 44,637
Submarine cable systems 38,113 40,325 38,113 40,325
Terrestrial cable systems 3,949 4,312 3,949 4,312
14 Investments 130,535 103,424 630,274 787,062
Joint ventures 2,000 4,194 563,828 539,194
Vodacom Group (Pty) Ltd
50% shareholding at cost – –
Loan 535,000 535,000
Globalstar Southern Africa (Pty) Ltd
42,5% Shareholding at cost 28,828 –
Loan – 4,194 – 4,194
Vodacom World Online
40% Shareholding at cost – –
Loan 2,000 –
Subsidiaries
Q -Trunk (Pty) Ltd (32,988) 65,405
100% shareholding at cost 10,001 10,001
Loan – 82,338
Provision for losses (42,989) (26,934)
Swiftnet (Pty) Ltd 79,038 65,305
60% shareholding at cost 3,000 3,000
Cumulative redeemable preference shares 45,000 45,000
Loan 46,198 35,498
Provision for losses (15,160) (18,193)
Telesafe (Pty) Ltd – 1,138
100% shareholding at cost – –
Loan – 1,138
NOTES TO THE FINANCIAL STATEMENTS
Telkom Annual Report 1999/200052
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
Mnati Foods (Pty) Ltd – 5,102
100% shareholding at cost – –
Loan – 5,102
Intekom (Pty) Ltd (12,939) 5,220
100% shareholding at cost 10,001 10,001
Loan 78,641 58,413
Provision for losses (101,581) (63,194)
Telkom Directory Services (Pty) Ltd 6,468 6,468
54,9% (1999: 54.9%) shareholding at cost 6,468 6,468
Teljoy Television 60,829 –
Film Fun Holdings-Television 35,000 –
The above subsidiaries have not been consolidated
in the joint venture's financial statements as they are
being held with a view to disposal in the near future.
Unlisted shares
I-CO Global Communications (Holdings) Limited
0.867% (1999: 0.867%) shareholding in I-CO
Global Communications (Holdings) Limited,
headquartered in London, UK, at cost. Unlisted
shares at directors' valuation – R NIL
(1999: R105.7 million)
Cost 72,363 72,363 72,363 72,363
Less: Provision for losses (72,363) – (72,363) –
Carrying value – 72,363 – 72,363
I -CO Global has incurred significant losses since
inception resulting in the filing of a voluntary petition
to reorganise under Chapter 11 of the bankruptcy
code in the USA. The company emerged from the
Chapter 11 order on 17 May 2000 and is now able
to conclude that current investors will also receive an
allotment of shares, which could result in a dilution
of the percentage share that Telkom SA Ltd holds.
Due to the uncertainties outlined above, the dimin-
ution in the cost of the investment has been provided
for in full.
Telkom Annual Report 1999/2000 53
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
14 Investments (continued)
Unlisted shares
New Skies Satellite Investment
1.1577% (1999: 1.045%) shareholding in New
Skies Satellite Investment, headquartered in The
Hague, Netherlands, at cost.
Unlisted shares at directors valuation –
R54.8 million (1999: R 45.6 million)
Cost 26,867 26,867 26,867 26,867
Other investments 5,839 – – –
15 Inventories 1,071,502 1,064,940 959,890 991,105
Installation and maintenance material 841,931 924,476 841,931 924,476
Consumables 6,961 22,378 4,847 5,222
Merchandise 157,281 108,897 47,861 52,338
Work in progress 65,329 9,189 65,251 9,069
16 Trade and other receivables 6,190,914 4,925,977 5,371,240 4,208,345
Trade receivables 5,609,615 4,424,455 4,910,643 3,825,281
Prepayments and other receivables 489,726 501,522 361,087 383,064
VAT receivable 1,881 – 9,818 –
Derivative instruments 89,692 – 89,692 –
17 Cash and cash equivalents at year-end 1,227,664 365,827 1,434,379 364,314
Cash on hand 3,671 225,872 3,661 9,457
Bank balances 145,037 88,897 324,317 88,897
Short term investments 1,078,956 51,058 1,106,401 265,960
18 Other financial assets
Interest-bearing investments 361,836 3,911 361,836 3,911
Repurchase agreements 275,969 3,911 275,969 3,911
Locally registered stock 85,867 – 85,867 –
Telkom Annual Report 1999/200054
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
19 Share capital
The company's authorised and issued share capital
and share premium are made up as follows :
Authorised
1,000,000,000 (1999: 1,000,000,000)
ordinary shares of R10 each 10,000,000 10,000,000 10,000,000 10,000,000
Issued 8,293,475 8,293,475 8,293,475 8,293,475
557,031,819 (1999: 557,031,819) ordinary 5,570,318 5,570,318 5,570,318 5,570,318
shares of R10 each.
Share premium 2,723,157 2,723,157 2,723,157 2,723,157
Arising from shares issued 2,803,905 2,803,905 2,803,905 2,803,905
Less: Share issue expenses 80,748 80,748 80,748 80,748
20 Reserves 7,104,060 5,254,220 5,515,110 4,504,706
20.1 Non – distributable reserve 310 – – –
Balance at beginning of year – 19,048 – 19,048
Transferred to distributable reserves – (19,048) – (19,048)
Depreciation on TBVC
telecommunication assets realised – (19,048) – (19,048)
Foreign currency translation reserve 310 – – –
20.2 Distributable reserves 7,103,750 5,254,220 5,515,110 4,504,706
Retained profit 7,103,750 5,254,220 5,515,110 4,504,706
Beginning of year 5,254,220 3,220,890 4,504,706 2,933,845
As previously stated 6,661,556 6,118,587 5,965,769 5,847,842
Prior year adjustment (1,407,336) (2,897,697) (1,461,063) (2,913,997)
- Depreciation & scrapping – (2,272,797) – (2,272,797)
- Post-retirement medical benefits (879,499) (773,099) (879,499) (773,099)
- Recognition of retirement & pension fund deficit (1,207,734) (1,279,299) (1,207,734) (1,279,299)
- Goodwill – Joint Venture 53,727 16,300 – –
- Tax effect of prior year adjustments 626,170 1,411,198 626,170 1,411,198
For the year 1,849,530 2,033,330 1,010,404 1,570,861
The distributable reserves comprise: 7,103,750 5,254,220
Company (before provision for losses in 5,913,626 4,692,202
subsidiary companies)
Joint venture 1,349,854 670,339
Subsidiaries (159,730) (108,321)
Telkom Annual Report 1999/2000 55
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
21 Interest-bearing debt
Telkom's financing is managed on a portfolio basis consisting of
i n t e r e s t-bearing debt and interest-bearing investments. As Te l k o m
is a net borrower, the investments represent temporary surplus
cash which will be utilised for capital and operational expenditure
and the repayment of loans. These investments are included in
cash and cash equivalents and other financial assets.
Interest-bearing debt 19,945,916 13,540,673 19,113,309 13,036,071
Interest-bearing debt as set out in Annexure A 19,945,916 13,540,673 19,113,309 13,036,071
Gross interest-bearing debt 23,316,848 15,109,437 22,484,241 14,604,835
Discount on stock issued (3,370,932) (1,568,764) (3,370,932) (1,568,764)
Interest-bearing debt consists of:
Long-term debt 14,625,083 8,268,330 14,214,670 7,763,146
Locally registered Telkom stock 7,957,758 5,057,020 7,957,758 4,907,518
Nominal value 11,328,690 6,624,603 11,328,690 6,475,101
Discount (3,370,932) (1,567,583) (3,370,932) (1,567,583)
Foreign debt 3,847,540 2,740,396 3,835,689 2,740,396
Debt 3,588,911 2,609,157 3,588,911 2,609,157
Accrued forward-cover costs 258,629 131,239 246,778 131,239
Other debt 2,819,785 470,914 2,421,223 115,232
Short-term debt 5,320,833 5,272,343 4,898,639 5,272,925
Locally registered Telkom stock – 30,726 – 30,726
Nominal value – 31,907 – 31,907
Discount – (1,181) – (1,181)
Foreign debt 304,840 572,575 304,840 572,575
Debt 266,641 407,388 266,641 407,388
Accrued forward-cover costs 38,199 165,187 38,199 165,187
Commercial paper bills and other debt 5,015,993 4,669,042 4,593,799 4,669,624
The capital balances of all foreign currency loans at year-end were covered by forward exchange or option contracts.
Short-term debt is of a revolving nature and is therefore not disclosed as current liabilities.
Telkom Annual Report 1999/200056
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
21 Interest-bearing debt (continued)
Guaranteed debt 3,937,283 3,910,746 3,937,283 3,910,505
by South African Government 3,867,826 3,800,872 3,867,826 3,800,864
by South African banks 69,457 109,874 69,457 109,641
The Company may issue or re-issue locally registered
stock in terms of the Post Office Amendment Act 85
of 1991. These borrowing powers are set out in the
C o m p a n y ' s articles of association.
22 Provisions 2,302,362 2,705,059 2,300,962 2,702,688
Leave pay to in-service employees 480,137 523,768 477,660 521,397
Balance at beginning of year 523,768 630,705 521,397 628,797
Charged to income 158,488 122,871 158,382 122,408
Managing staff numbers (58,306) – (58,306) –
Leave encashment (143,813) (229,808) (143,813) (229,808)
Po s t-retirement medical benefits for employees 1,504,000 1,547,000 1,504,000 1,547,000
Balance at beginning of year 667,501 607,901 667,501 607,901
Prior year adjustment due to
change in accounting policy 879,499 773,099 879,499 773,099
Funded contribution (180,000) – (180,000) –
Contributions (106,700) (96,400) (106,700) (96,400)
Actuarial calculation adjustment 243,700 262,400 243,700 262,400
Retirement and Pension fund deficit 1,097,000 1,207,734 1,097,000 1,207,734
Balance at beginning of year – – – –
Prior year adjustment due to
change in accounting policy 1,207,734 1,279,299 1,207,734 1,279,299
Contributions (239,511) (250,597) (239,511) (250,597)
Actuarial calculation adjustment 128,777 179,032 128,777 179,032
Short-term portion (778,775) (573,443) (777,698) (573,443)
Leave pay (456,775) (419,709) (455,698) (419,709)
Medical benefits (218,000) (43,000) (218,000) (43,000)
Retirement and Pension fund (104,000) (110,734) (104,000) (110,734)
Telkom Annual Report 1999/2000 57
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
23 Deferred taxation (348,038) (609,536) (509,425) (763,250)
Balance at beginning of year (609,536) (620,477) (763,250) (717,618)
Movements 261,498 10,941 253,825 (45,632)
Temporary differences – fixed assets, provisions
and other items 267,487 656,195 251,360 576,153
(Overprovision)/underprovision prior year (5,596) (10,502) 2,465 2,547
Prior year unprovided debit balance – (100,679) – (100,679)
Rate adjustment (393) 92,097 – 102,517
Prior Year adjustment – (626,170) – (626,170)
The balance comprises: (348,038) (609,536) (509,425) (763,250)
Capital allowances 105,977 (171,607) (720,143) (956,462)
Provisions (12,018) 31,894 453,778 476,338
Allowances and repayments (441,997) (469,823) (243,060) (283,126)
24 Trade and other payables 6,606,408 6,942,755 5,846,252 5,812,128
Trade payables 2,843,493 2,564,061 2,873,904 2,178,867
Capital expenditure 1,137,767 1,233,606 909,184 680,432
VAT payable – 9,652 – 4,746
Finance cost accrued 274,142 143,392 262,992 138,684
Income charged in advance 686,802 533,341 495,738 431,164
Anticipatory hedges 936,063 1,099,527 936,063 1,099,527
Deposits 50,399 110,704 46,854 109,864
Sundry payables 677,742 1,248,472 321,517 1,168,844
25 Capital commitments
Authorised 10,351,283 10,570,437 10,000,000 10,013,500
Contracted for 2,270,943 1,295,987 1,941,301 750,989
Not yet contracted for 8,080,340 9,274,450 8,058,699 9,262,511
The capital expenditure of the Group will be
financed out of funds generated by own
operations and from external sources.
Telkom Annual Report 1999/200058
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
26 Contingent liabilities 297,764 279,292 297,764 279,292
Third parties 35,471 4,103 35,471 4,103
Guarantee of employee housing loans 262,293 275,189 262,293 275,189
27 Financial instruments and financial risk management
Exposure to continuously changing market conditions has highlighted the importance of financial risk management as an
element of control for the Group. Treasury policies, risk limits and control procedures are continuously monitored by the
Board of Directors, the objective being to minimise exposure to interest rate, exchange rate, liquidity and credit
risk. To limit the impact of exchange and interest rate exposures, the Group uses derivative financial instruments.
Interest rate risk management
Interest rate risk arises from the repricing of the Group's floating rate debt, incremental funding, new
borrowings and the refinancing of existing borrowings. The Group's policy is to manage interest cost through the utilisa-
tion of a mix of fixed and variable rate debt. In order to manage this mix in a cost efficient manner, the group makes use
of interest rate derivatives as approved in terms of Group policy. Fixed rate debt represents approximately 76% of the
total consolidated debt, after taking the instruments listed below into consideration. All financial instruments that re-price
within one year are deemed to be floating rate debt.
The table below summarises the hedges outstanding as at 31 March 2000.
Average Currency Notional Amount Weighted average Average Cappedmaturity coupon rate (%) interest rate (%)
Interest rate Swaps
Pay fixed Under 2 yrs CHF 17 million 2.23
Under 2 yrs USD 70 million 6.30
2-5 years ZAR 1,350 million 12.32
Over 5 years ZAR 1,000 million 14.67
Received fixed Under 2 yrs FRF 50 million 4.15
Under 2 yrs GBP 0.8 million 7.25
Over 5 years ZAR 25 million 14.60
Caps
Caps Under 2 yrs USD 100 million 6.18
Refer to Annexure A on interest bearing debt for the interest repricing profile of the company and group debt at 31 March 2000.
Telkom Annual Report 1999/2000 59
Credit risk management
The group is not exposed to major concentrations of credit risk. To reduce the risk of counterparty failure, limits are set
based on the individual ratings of counterparties by well known rating agencies. The credit limits are reviewed on a
yearly basis or when information becomes available in the market. The Group limits its exposure to any counterparty and
these exposures are monitored daily.
Trade debtors comprise a large and widespread customer base, covering residential, business and corporate customer
profiles. Credit checks are performed on all customers on application for new services and on an ongoing basis where
appropriate.
Liquidity risk management
The Group is exposed to liquidity risk as a result of uncertain debtor related cashflows as well as capital commitments
of the Group. Liquidity risk is managed by the Treasury division in accordance with policies and guidelines formulated
by the Operating Committee. In terms of its borrowing requirements, the Group ensures that sufficient facilities exist to meet
its immediate obligations. In terms of its long term liquidity risk, the Operating Committee maintains a reasonable balance
between the period over which assets generate funds and the period over which the respective assets are funded.
Foreign currency exchange rate risk
The Group manages its foreign exchange rate risk by hedging all identifiable exposures via various financial instruments
suitable to the company's risk exposure.
a) Forward exchange contracts
Forward exchange contracts that relate to specific balance sheet items
NOTES TO THE FINANCIAL STATEMENTS
Foreign
Currency notional
amount as at
31 March 2000
Currency 000 Average rate R'000
Forward exchange contracts
Purchases United States Dollar 599,854 6.57 3,940,203
Pound Sterling 11,189 10.83 121,136
Euro 2,311 6.12 14,142
Deutsche Mark 28,482 0.30 94,714
Swiss Franc 15,464 0.21 73,070
French Franc 209,724 0.87 241,185
Australian Dollar 793 0.27 2,982
Spanish Peseta 44,424 24.71 1,798
Sales United States Dollar 26,317 6.39 168,076
Pound Sterling 579 10.24 5,928
Deutsche Mark 1,285 0.28 4,641
Swiss Franc 343 0.22 1,558
French Franc 883 0.97 906
Telkom Annual Report 1999/200060
NOTES TO THE FINANCIAL STATEMENTS
The following contracts do not relate to specific items in the Balance Sheet, but were entered into to cover foreign commitments
not yet due. The contracts will be utilised for the purposes of operations and capital imports.
Foreign
Currency notional
amount as at
31 March 2000
Currency ‘000 Average rate R'000
Forward exchange contracts
Purchases United States Dollar 1,198,674 6.74 8,085,029
Pound Sterling 9,443 10.62 100,325
Euro 53,751 6.87 369,313
Deutsche Mark 141,634 0.27 524,130
Swiss Franc 484 0.26 1,896
French Franc 458,471 0.99 462,038
Australian Dollar 6,526 0.23 28,920
Netherlands Guilder 100 0.30 331
Japanese Yen 141,358 15.19 9,308
Italian Lira 16,417,671 293.30 55,976
Swedish Krone 58,780 1.33 44,303
Spanish Peseta 850,199 25.22 33,707
Canadian Dollar 284 0.23 1,231
Danish Krone 50 1.19 42
Austrian Shilling 87 2.09 41
Sales United States Dollar 327,773 7.17 2,351,414
Pound Sterling 141 11.57 1,629
Euro 19,750 6.40 126,453
Deutsche Mark 16,670 0.29 57,532
Swiss Franc 80 0.25 323
French Franc 66,014 0.95 69,565
Australian Dollar 3,504 0.21 16,303
Netherlands Guilder 97 0.34 290
Swedish Krone 1,000 1.28 779
Japanese Yen 13,921 16.13 863
Italian Lira 2,431,655 300.49 8,092
Spanish Peseta 443,320 26.15 16,954
27 Financial instruments and financial risk management
b) Swaps Average maturity Currency Notional amount
Basis swap 2-5 years USD/ZAR 220 million
Fair values of financial instruments
The estimated net fair values as at 31 March 2000, have been determined using available market information and appro-
priate 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.
NOTES TO THE FINANCIAL STATEMENTS
Telkom Annual Report 1999/2000 61
Group Company
31 March 31 March 31 March 31 March
2000 2000 2000 2000
Carrying Fair Carrying Fair
Amount Value Amount Value
R'000 R'000 R'000 R'000
Assets
Cash and cash equivalents 1,227,664 1,227,664 1,434,379 1,434,379
Trade and other receivables 6,190,914 6,190,914 5,371,240 5,371,240
Liabilities
Interest bearing debt 19,945,916 20,617,870 19,113,309 19,785,263
Trade and other payables 6,606,407 6,606,407 5,846,252 5,846,252
Derivatives
Interest rate derivatives 9,927 9,927
Foreign exchange derivatives 12,069,879 11,426,279
The fair values of debtors, bank balances and other liquid funds, creditors and accruals, approximate their carrying amount
due to the short term maturities of these instruments.
The fair values of borrowings are based on quoted prices or, where such prices are not available, the expected future
payments discounted at market interest rates.
The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cashflow
analysis is used.
These amounts reflect the approximate values of the net derivatives position at the balance sheet date.
Telkom Annual Report 1999/200062
NOTES TO THE FINANCIAL STATEMENTS
28 Retirement benefit information
Pensions
Telkom SA Limited provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom
Retirement Fund. The Pension Fund is a defined benefit fund which was created in terms of the Post Office Amendment
Act 85 of 1991. The Retirement Fund is a defined contribution fund which is subject to the Pension Fund Act 24 of 1956.
Due to the fact that a material percentage of the employees exercised their option to join the Retirement Fund, this fund
was obligated to meet the portion of the actuarial deficit of the Telkom Pension Fund. Both funds are valued actuarially
at intervals of not more than three years using the projected benefit method. The most recent actuarial valuation on the
Pension fund was performed on 31 March 1997. In arriving at their conclusion for the Pension Fund, the actuaries
assumed a return on investments of 15% per annum, salary increases of 12.5% per annum and pension increases of 9.5%
per annum. At 31 March 1997 the promised benefits of the Pension Fund were valued at R393.5 million while the Pension
Fund's assets were R299 million. The most recent actuarial valuation of the Retirement Fund was performed as at
31 March 1998.
The assessment of the funds is as follows:-
The Company guarantees the financial obligations of the Pension and Retirement Funds. The actuarially valued deficit of the Pe n s i o n
Fund at 30 September 1991, plus interest, as determined by the State Actuary has been guaranteed by the SA Government.
Medical benefits
In terms of existing practice the Group annually makes certain post-retirement contributions to a medical aid fund in respect
of retired employees, from the date of their retirement. The amounts due in respect of post-retirement medical benefits to
current and retired employees of Telkom have been actuarially determined and provided for as set out in note 22. Subsequent
to discussions with organised labour, the group has reviewed their benefit structures in its medical schemes which has resulted
in the termination of future post-retirement medical benefits in respect of employees joining after 1 July 2000.
31 March 31 March 31 March
2000 1999 1998
Telkom Pension Fund
Funding (%)
Actuarial valuation
Actuarial calculation 82% 77% 80%
Deficit (Rm)
Actuarial valuation
Actuarial calculation 65 75 85
Telkom Retirement Fund
Deficit (Rm)
Actuarial valuation 1,194
Actuarial calculation 1,032 1,123
Telkom Annual Report 1999/2000 63
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
29 Reconciliation of net profit before taxation 6,140,692 7,655,063 4,840,732 5,965,327
to cash generated from operations
Operating profit before income from
investments, net finance charges,
depreciation, amortisation and taxation 8,508,614 7,170,447 6,507,863 5,878,546
Adjustment for items not involving the
movement of funds: (617,531) (56,952) (438,043) (23,068)
Goodwill written off 24,128 4,947 – –
(Decrease)/increase in provisions (155,274) (58,107) (157,655) 58,107
Profit on disposal of tangible fixed assets (481,793) (54,734) (486,498) (56,165)
Profit on disposal of subsidiary – (65,272) – (72,392)
Profit on disposal of business division (64,670) – – –
Increase in provision for write off of
investments 154,701 – 154,701 –
(Decrease)/increase in provision for losses (94,623) – 51,409 47,382
(Decrease)/increase in working capital (1,750,391) 541,568 (1,229,088) 109,849
Inventories 125,573 (148,119) 146,635 (117,313)
Accounts receivable (1,514,370) (1,512,430) (1,409,847) (1,104,071)
Accounts payable (361,594) 2,202,117 34,124 1,331,233
30 Finance charges paid 1,613,061 251,486 1,501,981 171,020
Financing charges per income statement 2,379,713 1,212,425 2,262,191 1,128,420
Non-cash items (766,652) (960,939) (760,210) (957,400)
Net interest payable (174,424) (125,505) (167,982) (121,967)
Cost of forward exchange contracts amortised 11,450 (261,528) 11,450 (261,527)
Net discount amortised (659,049) (573,906) (659,049) (573,906)
Other non cashflow items 55,371 – 55,371 –
31 Taxation paid 236,006 1,001,765 40,977 910,183
Asset at beginning of year (911,328) (112,501) (1,077,843) (201,663)
Liability of joint venture acquired 15,202 36 – –
Current taxation 320,451 165,092 – (3,807)
Secondary tax on companies 13,068 37,810 3,169 37,810
Asset at end of year 798,613 911,328 1,115,651 1,077,843
32 Dividend paid 380,386 546,590 331,678 546,590
Liability at beginning of year 331,678 546,590 331,678 546,590
Dividend per income statement 48,708 331,678 – 331,678
Liability at end of year – (331,678) – (331,678)
Telkom Annual Report 1999/200064
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
33 Additions to tangible fixed assets 9,471,502 12,887,663 8,372,469 11,389,438
Land and buildings 858,869 1,187,782 855,679 989,825
Telecommunication network equipment 6,059,142 9,493,438 5,262,884 8,484,204
Telecommunication support equipment 636,167 572,714 574,518 486,811
Other equipment 109,689 89,315 43,902 86,326
Data processing equipment 1,736,071 1,241,717 1,577,597 1,112,158
Vehicles 11,285 164,210 8,945 161,098
Furniture and office equipment 55,839 138,105 48,944 69,016
Equipment rented by customers 4,440 382 – –
34 Net increase in
interest-bearing debt 5,678,593 6,261,434 5,485,010 6,196,190
Loans raised 6,410,326 7,074,867 6,141,177 6,892,802
Loans repaid (731,733) (813,433) (656,167) (696,612)
35 Disposal of business division
During the year, the joint venture – Vodacom,
disposed of its Internet division, Yebonet.
The fair value of the assets and liabilities disposed
of were as follows:
Inventories 447
Debtors 16,867
Property, plant and equipment 3,347
Creditors (23,276)
Cash and cash equivalents 12,001
Net asset value 9,386
Capital Gain (123,324)
Received 132,710
Cash and cash equivalents (12,001)
Cash flow items included in Capital Gain (20,816)
Net cash flow on disposal of division 99,893
36 Investment in Joint Venture
During the year the Joint Venture – Vodacom,
acquired 50% of Vodacom World Online (Pty) Ltd.
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
The fair value of the assets acquired and liabilities
assumed, were as follows:
Inventories 223
Debtors 8,433
Property, plant and equipment 1,565
Creditors (11,530)
Cash and cash equivalents 6,001
Net asset value 4,692
Goodwill 61,662
Paid (66,354)
Cash and cash equivalents 6,001
Net cash flow on acquisition of 50% of Joint Ve n t u r e (60,353)
Investment in Joint Venture
During the year, 10% of the newly acquired
share in Vodacom World Online by Vodacom was
subsequently sold.
The fair value of the assets and liabilities disposed
of were as follows:
Inventories –
Debtors 1,854
Property plant and equipment 998
Intangibles 8,903
Creditors (4,117)
Shareholder loans (13,771)
Cash and cash equivalents (355)
Net asset value (6,488)
Shareholder loans 13,771
7,283
Capital gain 18,241
Received 25,524
Cash disposed 355
Net cash flow on disposal of 10% of Joint Venture 25,879
Telkom Annual Report 1999/2000 65
NOTES TO THE FINANCIAL STATEMENTS
Telkom Annual Report 1999/200066
NOTES TO THE FINANCIAL STATEMENTS
Group Company
2000 1999 2000 1999
R'000 R'000 R'000 R'000
Investment in Joint Venture, Globalstar Southern
Africa (Pty) Ltd.
During the year, Telkom SA Ltd made
a further investment in Globalstar Southern Africa
(Pty) Ltd, which is a jointly-controlled entity, of which
Telkom has a 42,5% shareholding.
Balance at beginning of year 4,194 – 4,194 –
Investment in current year 24,634 4,194 24,634 4,194
Shareholding in Globalstar 28,828 4,194 28,828 4,194
37 Exceptional Items
Net surplus/(deficit) on sale/(write off) of:
Fastfleet division 467,960 – 467,960 –
Yebonet division 64,670 – – –
ICO-Global (72,363) – (72,363) –
Q-Trunk loan account (95,334) – (95,334) –
Taxation effect (140,388) – (140,388) –
Net effect on earnings 224,545 – 159,875 –
Exceptional items are included in net operating expenses and are more fully described in the Financial Review.
Summary
Acquisition of 50% of Vodacom World Online (60,353)
Sale of 10% of Vodacom World Online 25,879
Investment in Globalstar Southern Africa (Pty) Ltd (24,634) (24,634)
Investments in joint ventures (59,108) (24,634)
Telkom Annual Report 1999/2000 25
Value Added Statement
The statement shows the value the Group has been able to create through the rendering
of telecommunication and information services and how it was distributed and reinvested.
2000 1999
% Rm % Rm
Revenue 26,720 22,675
Operating expenses, excluding
employee costs and depreciation 10,661 8,975
Value added from trading operations 16,059 13,700
Investment income 479 268
Value added 100 16,538 100 13,968
Value distributed 62 10,276 59 8,332
Employees 46 7,550 46 6,529
Salaries, wages, medical and other benefits 42 6,935 42 5,903
Pension and retirement fund contributions 4 615 4 626
Providers of finance
Financing charges 14 2,380 9 1,213
Outside shareholders 0 13 0 55
Government 2 333 4 535
Taxation 2 333 1 203
Dividend 0 0 3 332
Value reinvested 38 6,262 41 5,636
Depreciation 25 4,153 22 2,995
Deferred taxation 2 259 4 627
Transfer from non-distributable reserve 0 0 0 (19)
Retained profit 11 1,850 15 2,033
100 16,538 100 13,968
Government 2% Providers of Finance 14%
Value reinvested 38% Employees 46%
Government 4% Providers of Finance 9%
Value reinvested 41% Employees 46%
31 March 2000 31 March 1999
for the years ended 31 March
Telkom Annual Report 1999/2000 37
Financial Statements
INCOME STATEMENTS
for the years ended 31 March
2000 1999 2000 1999
Note Rm Rm Rm Rm
Revenue 2 26,720 22,675 24,048 20,704
Net operating expenses 3 18,211 15,504 17,540 14,826
Operating profit 8,509 7,171 6,508 5,878
Income from investments 4 479 268 612 376
Profit before depreciation
and finance charges 8,988 7,439 7,120 6,254
Depreciation and amortisation 5 4,153 2,995 3,591 2,639
Profit before finance charges 4,835 4,444 3,529 3,615
Finance charges 6 2,380 1,213 2,262 1,128
Profit before taxation 2,455 3,231 1,267 2,487
Taxation 7 592 830 257 604
Profit after tax 1,863 2,401 1,010 1,883
Attributable to outside shareholders 13 55 – –
Net profit attributable
to ordinary shareholders 1,850 2,346 1,010 1,883
Earnings per share – cents 8 332.0 421.2
Headline earnings
per share – cents 8 306.6 407.0
Dividend per share – 59.5
Group Company
Telkom Annual Report 1999/2000 38
FINANCIAL STATEMENTS
BALANCE SHEETS
at 31 March
Group Company
2000 1999 2000 1999
Note Rm Rm Rm Rm
Assets
Non-current assets 35,430 30,454 32,604 28,609
Tangible fixed assets 10 34,424 29,504 31,308 26,911
Intangible fixed assets 11 371 89 – –
Participating interests 12 114 103 114 103
Fixed asset investments 13 42 45 42 45
Investments 14 131 103 630 787
Deferred taxation 23 348 610 510 763
Current assets 9,650 7,272 9,243 6,645
Inventories 15 1,071 1,065 960 991
Trade and other receivables 16 6,191 4,926 5,371 4,208
Taxation 798 911 1,116 1,078
Cash and cash equivalents 17 1,228 366 1,434 364
Other financial assets 18 362 4 362 4
Total assets 45,080 37,726 41,847 35,254
Equity and liabilities
Capital and reserves 15,398 13,548 13,809 12,798
Share capital 19 8,294 8,294 8,294 8,294
Non-distributable reserves 20 – – – –
Retained profits 20 7,104 5,254 5,515 4,504
Outside shareholders' interest in subsidiaries 49 84 – –
Non-current liabilities 22,248 16,246 21,414 15,739
Interest-bearing debt 21 19,946 13,541 19,113 13,036
Provisions 22 2,302 2,705 2,301 2,703
Current liabilities 7,385 7,848 6,624 6,717
Trade and other payables 24 6,606 6,943 5,846 5,812
Shareholders for dividend – 332 – 332
Provisions 22 779 573 778 573
Total equity and liabilities 45,080 37,726 41,847 35,254
STATEMENTS OF CHANGES IN EQUITY
for the years ended 31 March
Group Company
2000 1999 2000 1999
Rm Rm Rm Rm
Opening Equity as previously reported 14,955 14,431 14,260 14,160
Share Capital 5,570 5,570 5,570 5,570
Share Premium 2,723 2,723 2,723 2,723
Retained profit 6,662 6,119 5,967 5,848
Non-distributable reserve – 19 – 19
Movement for the year 443 (883) (451) (1,362)
Net profit for the period 1,850 2,346 1,010 1,884
Effect of change in accounting
policy after taxation (1,407) (1,420) (1,461) (1,437)
Correction of fundamental
error after taxation – (1,477) – (1,477)
Dividends paid – (332) – (332)
Transfer to retained profit – (19) – (19)
Transfer from non-distributable reserve – 19 – 19
Closing equity 15,398 13,548 13,809 12,798
Telkom Annual Report 1999/200039
FINANCIAL STATEMENTS
Telkom Annual Report 1999/200040
FINANCIAL STATEMENTS
CASH FLOW STATEMENTS
for the years ended 31 March
Group Company
2000 1999 2000 1999
Note Rm Rm Rm Rm
Cash flow from operating activities 4,390 6,123 3,578 4,714
Cash received from customers 28,106 21,393 22,732 19,942
Cash paid to suppliers and employees (21,966) (13,738) (17,892) (13,977)
Cash generated from operations 29 6,140 7,655 4,840 5,965
Income from investments 4 479 268 612 376
Finance charges paid 30 (1,613) (251) (1,502) (171)
Taxation paid 31 (236) (1,002) (41) (910)
Operating cash flow before dividend 4,770 6,670 3,909 5,260
Dividend paid 32 (380) (547) (331) (546)
Cash flow in investing activities (9,041) (12,658) (7,635) (11,189)
Proceeds on disposal of
tangible fixed assets 829 178 798 178
Proceeds on disposal of subsidiary – 73 – 73
Additions to tangible fixed assets 33 (9,471) (12,888) (8,372) (11,390)
Decrease in other investments (63) (2) – (4)
Increase in participating interests (12) (12) (12) (12)
Investment in joint ventures 36 (59) 13 (24) 40
Investment in and loans to subsidiaries (359) (18) (25) (74)
Disposal of division 35 100 – – –
Goodwill purchased (6) (2) – –
Cash flow from financing activities 5,513 6,383 5,127 6,318
Net increase in
interest-bearing debt 34 5,679 6,261 5,485 6,196
(Increase)/decrease in
interest-bearing investments (166) 122 (358) 122
Net increase/(decrease) in cash
and cash equivalents 862 (152) 1,070 (157)
Cash and cash equivalents at
beginning of year 366 518 364 521
Cash and cash equivalents
at end of year 17 1,228 366 1,434 364
Telkom Annual Report 1999/20006
Board of Directors
This page, from left:
Dikgang Moseneke SC Chairman of Telkom; Metropolitan Life Ltd; Acting Chairman and CEO: New Africa Investments
Ltd; Director of New Africa Media; Chancellor of Technikon Pretoria; Deputy Chairman of Nelson
Mandela Children’s Fund; and Trustee: Project Literacy.
Sizwe Nxasana Chief Executive Officer of Telkom; Board member: Vodacom; Chairman of the Audit Committee
of the SA Revenue Services; and Chairman of Zenex Foundation.
Tom Barry Chief Operating Officer of Telkom; President SBC International, SA Operations (USA); Board
Member: Vodacom; and Manager: Thintana Communications LLC.
Eric Molobi Executive Chairman of Kagiso Trust Investments; Director of Rembrandt Group; Imperial
Holdings; Future Growth; Lotteries and Gambling Board; Financial and Fiscal Commission; First
National Bank Southern Life; Independent Development Trust; Mvula Trust and New Housing
Company; and Advisor to the Board of Joint Education Trust. Chairman of Kagiso Publishers;
Kagiso Khulani Supervision Foods Services; National Housing Forum; and Investment
Development Unit.
Fatima Jakoet Corporate Finance Consultant: Eskom; Director of Metropolitan Life Ltd; Alisa Car Rental (Pty)
Ltd; Philela Holdings (Pty) Ltd; and Swantec.
Dató Ir Md Radzi Mansor Technical Advisor to the Malaysian Ministry of Energy, Telecommunications & Post.
Director: Operations Telekom Malaysia; Marketing, Customer Service
and Regulatory Management. Chairman of Telekom Malaysia.
Telkom Annual Report 1999/2000 7
BOARD OF DIRECTORS
This page, from left:
Charles Valkin Attorney and Senior Partner of Bowman, Gilfillan Inc Sandton, London and Channel Islands.
Shanmugam Manickam Group Executive: Strategic Planning, Mergers and Acquisitions/Subsidiaries; and Manager:
Thintana Communications LLC.
Colin Smith Executive President of South African Communications Union; labour representative on Telkom Board;
Board of Trustees of Telkom Retirement Fund; Representative of the Alliance of Telkom Unions;
Director of ATU Investments (Pty) Ltd. Chairman of the Joint Investment Committee of Te l k o m
Retirement and Pension Fu n d .
Wendy Luhabe Chairperson of Vodacom; Co-founder of Women Investment Portfolio Holdings; Executive
Chairperson of Alliance Capital Management SA; Managing Partner and Founder of Bridging the
Gap and Director of Tiger Oats, IDC and Cycad.
Ahmed Bawa Deputy Vice Chancellor of the University of Natal; Director of Atomic Energy Corporation
and Sanlam; Vice President: Academy of Science of South Africa; member of various national
committees on science and technology.
Ed Mueller President of SBC International Operations and Director of Aurec Ltd., Belgacom
and Bell Canada.
Top Management
Above, from left:
Sizwe Nxasana
Chief Executive Officer
Robert H Schlutow
Managing Executive: Procurement Services. Responsible for the
sourcing, purchasing, logistics, inventory management and
warehousing of all goods and services used by Telkom.
Nombulelo Moholi
Managing Executive: International and Special Market Services.
Responsible for Telkom’s carrier business, submarine cable ventures,
maritime business, international sales, domestic interconnect
negotiations and agreements as well as domestic customer relations
and special markets.
Anthony Lewis
Chief Financial Officer. Responsible for the overall financial
management of the Company.
Below, from left:
Francois Lutsch
Group Executive: Legal Services. Provides Telkom and its subsidiaries
with a comprehensive legal service.
Alfred W Todd Jr
Managing Executive: Marketing. Responsible for the marketing
function at Telkom, including market and product development,
advertising, research and management of Telkom’s revenue stream.
Amanda Singleton
Group Executive: Corporate Communication. Responsible for the
Company’s reputation, both internally and externally, mainly through
media and stakeholder relations and employee communication. She
is also responsible for the Telkom Foundation.
Joseph M Rajaratnam
Group Executive: Centre for Learning. Responsible for training
and human resource development programmes of all employees
in the Company.
Bheki Langa
Deputy Chief Operating Officer. Responsible for overall efficiency
and customer service of all customer-facing organisations.
Above, from left:
Victor Moche
Group Executive: Government and Regulatory Re l a t i o n s .
Represents the interests of Telkom, its shareholders and
customers in dealings with Local, Provincial and Pa r l i a m e n t a r y
bodies. He also manages the relationship between Telkom and
telecommunications regulatory and policy-making bodies.
Shanmugam Manickam
Group Executive: Strategic Planning, Mergers and
Acquisitions/Subsidiaries. Responsible for defining the Company’s
strategic direction in terms of global trends.
Randall Seidl
Managing Executive: Sales. Responsible for the delivery of quality
service and solutions to our Corporate Customers.
Tom Barry
Chief Operating Officer.
Victor Booysen
Group Executive: Human Resource Services. Sets the strategic
direction in labour relations, organisational design and development,
remuneration, transformation, recruitment and employee well-being.
Inset:
Ken Raley
Managing Executive: Network Operations and Chief
Technical Officer. Responsible for the operations and maintenance
of Telkom’s core network. Also functions as Telkom’s Chief
Technical Officer.
Below, from left:
Mike Rattan
Managing Executive: Access Network Operations. Responsible for
activation (installation) and assurance (repair) of voice telecommunication
services as well as maintenance of the access network.
Johan Maré
Managing Executive: Customer Services. Responsible for customer
care, including call centres, customer service branches, directory
enquiries, credit management and community relations.
Reuben September
Managing Executive: Technology and Network Services.
Responsible for the technology planning and building of the
national telecommunications network.
Jyoti Desai
Managing Executive: Information Technology Services. Manages the
information technology function, including the development and
support of software systems for customer care, service activation,
service assurance, billing and office automation.
Telkom Annual Report 1999/2000 23
The Board is committed to conducting the affairs of the
Company with integrity and in accordance with the highest
standards of corporate practice. Monitoring the Group’s
compliance with this approach forms part of the mandate of
the Audit Committee.
Governance structures
The Board of Directors
The Board of Directors comprises executive and non-executive
directors. The non-executive Directors have a wide range of
different skills and significant commercial and other interests
that enable them to bring independent judgement to the
Board’s deliberations and decisions.
The roles of Chairman and Chief Executive Officer do not
rest in the same person. The Chairman is a non-e x e c u t i v e
D i r e c t o r.
In terms of the Shareholders’ Agreement, the Equity Partners
have five representatives, three of whom are non-executive.
The major stakeholder has ten representatives, two positions
of which are reserved for organised labour.
Company Secretary and professional advice
All Directors have access to the services of the Company
Secretary, who is responsible for ensuring that Board proce-
dures are followed. All Directors are entitled to seek inde-
pendent professional advice about the affairs of the Group at
the Company’s expense.
Operating Committee
In terms of the Shareholders’ Agreement between the Major
Shareholder and the Equity Partners, the Board of Directors
has irrevocably delegated to an Operating Committee, exclu-
sive powers and authority primarily for the following;
• the implementation of an approved business plan and
annual budget, as well as a training programme;
• the implementation of Telkom’s obligations under its
licenses; and
• the review, preparation and recommendation to the Board
for its approval of new amended business plans, annual
budgets and training programmes.
The Operating Committee consists of the Chief Executive
Officer, the Chief Operating Officer, the Chief Strategic
O f f i c e r, the Chief Technical Officer and Deputy Chief
Operating Officer who is also a Government Appointee, as
ex-officio voting members. Ex-officio non-voting members
include the Chief Financial Officer, the Deputy Chief Financial
Officer, the Deputy Chief Strategic Officer and the Head of
Training. Decisions at meetings of the Operating Committee
are taken by a majority vote of the voting members. In the
event of an equality of votes, a nominee of the Equity Partners
has a casting vote.
Human Resources Review
and Remuneration Committee
The Human Resources Review and Remuneration Committee
comprises a majority of non-executive Directors. The Committee
is chaired by the Chairman of the Board. The Committee’s
specific terms of reference include direct authority for, or
consideration of and recommendation to the Board on matters
relating to, inter alia, general staff policy, remuneration,
bonuses, Directors’ remuneration and fees, service contracts and
Group pension and retirement fund benefits.
Audit Committee
The Audit Committee comprises two non-executive Directors
and, in terms of the Shareholders’ Agreement, the Chief
Financial Officer and the Head of the Internal Audit division
are members of the Committee. The Committee is chaired by
a non-executive Director.
The Audit Committee functions under the powers and
authority delegated to it by the Board to:
• review and recommend internal audits;
• review the draft interim and annual financial statements;
• review and recommend changes to the statutory audit;
• monitor internal control systems; and
• monitor compliance with the Code of Corporate
Governance and the Group’s Code of Ethics.
The names of the members of the Board of Directors, Audit,
Operating and Human Resources Review and Remuneration
Committees at the date of this Annual report are given on
pages 31 and 32.
Code of Ethics
A Code of Ethics which complies to the highest standards of
i n t e g r i t y, behaviour and ethics in dealing with all its stakehold-
ers, including the Group’s Directors, managers, employees,
customers, suppliers, investors, shareholders, and society at
large, has been implemented. Directors and staff are expected
to observe their ethical obligations in such a way as to carry on
business only through fair commercial competitive practices.
Corporate Governance
The Group
employs a variety
of participative
structures which
embrace goals
relating to values,
p r o d u c t i v i t y,
training
and retraining
Telkom Annual Report 1999/200024
Worker participation
The Group employs a variety of participative structures on
issues which affect employees directly and materially, and
which are designed to achieve good employer/employee
relations through the effective sharing of relevant information
and consultation, the speedy identification of potential
conflict areas and the effective and prompt resolution of
issues. These structures embrace goals relating to values,
p r o d u c t i v i t y, training and retraining.
Employment equity
The Group has developed an employment equity policy which
has been approved by the Board of Directors and has been
distributed to employees.
The essence of the policy document is for implementation of a
fair and reasonable employment equity programme based on
moral decency, sound business practice and principles of
economic common sense.
The broad objectives are to:
• Create an environment in which the best person can be
employed for the job regardless of gender, creed, colour
or race through achieving the state of balance in which
the question of race will no longer be an issue.
• Create within the Group a balanced profile of employees
that reflects the composition of the broad South African
society.
• Correct racial and social imbalances of the past.
• Provide for the Group’s present and future requirements
for skilled staff.
CORPORATE GOVERNANCE
Telkom Annual Report 1999/200026
The Directors are required by the Companies Act to prepare
annual financial statements which fairly present the state of
affairs of the Company and of the Group as at the end of the
financial year and of the results and cash flows for the year,
in conformity with South African Generally Accepted
Accounting Pr a c t i c e .
The external auditors are responsible for independently
reviewing and reporting on the annual financial statements.
The annual financial statements as set out in this annual
report have been prepared by management in accordance
with Generally Accepted Accounting Practice and are based
on appropriate accounting policies which, except for the
changes in accounting policies as set out in note 1, have been
consistently applied and which are supported by reasonable
and prudent judgement and estimates.
Management is responsible for implementing and maintain-
ing systems of internal control aimed at reducing the risk of
error or loss in a cost-effective way. Internal audit monitors the
most significant risks in the broadest sense, through evaluat-
ing the adequacy of the systems of internal control.
Findings and recommendations are reported to management
and the Audit Committee. Internal Audit also ensures that the
necessary corrective action is taken.
The directors believe that a continuous process of enhancing
the systems of internal control will ensure:
• The reliability and integrity of financial and operating
information.
• That systems are established to ensure compliance with
policies, plans, procedures, laws and regulations.
• The safe-guarding of the Group’s assets;
• Economic, effective and efficient utilisation of resources; and
• The accomplishment of established objectives and goals
for operations and programmes.
The Directors are of the opinion that the annual financial
statements fairly present the financial position of the Company
and of the Group as at 31 March 2000, and the results of
their operations and cash flow information for the year then
ended. The Directors are satisfied that the Company has ade-
quate resources to continue in operational existence for the
foreseeable future. Accordingly, Telkom SA Limited continues
to adopt the going concern basis in preparing the annual
financial statements.
The annual financial statements of the Company and of the
Group which appear on pages 29 to 66 were approved by
the Board of Directors on 28 June 2000 and are signed on
their behalf by:
Annual Financial Statements
Telkom SA Limited (Company registration no. 91/05476/06)
Contents Page
Report of the independent auditors 27
Directors’ report 28
Accounting Policies 33
Income Statements 37
Statements of changes in equity 38
Balance Sheets 39
Cash flow Statements 40
Notes to the Financial Statements 41
Annexure A 68
Annexure B 71
Directors’ responsibilities relating to the annual financial statements
Dikgang Moseneke
Chairman
Sizwe Nxasana
Chief Executive Officer
for the year ended 31 March 2000
Telkom Annual Report 1999/2000 29
The report is compiled in terms of the Companies Act (Act 61
of 1973), as amended. The requirements of the Reporting by
Public Entities Act (Act 93 of 1992), which apply by virtue of
the State’s shareholding, are covered in the Chief Executive
Officer’s overview on page 8.
Nature of Business
The Group is a leading provider of communications and infor-
mation services and products. Cellular services are provided
by a joint venture company: with radio trunking, fixed and
portable radio data access systems, internet services and direc-
tory services being operated by subsidiary companies.
The strategy outlined in Telkom’s business plan focuses on the
following seven objectives:
• Roll out 600,000 additional lines
• Modernise and upgrade the network
• Achieve greater customer satisfaction
• Embark on strategic employee initiatives
• Position Telkom for competition
• Improve the Company’s strategic enablers
• Improve productivity, efficiency and cost-effectiveness
Most importantly, the Company pursued the above key objec-
tives while ensuring financial health. In this regard the profit
after tax at R1,010 million is R256 million or 34% higher than
budget. This was primarily achieved by significant operating
efficiency improvements, which led to the operating expenditure
at R17.5 billion being R856 million or 4.6% below budget.
Roll out 600,000 additional lines
Telkom aimed at increasing the growth in main service lines
compared to 1998/99 by 30%. The goal of 600,000 was
exceeded by more than 50,000 lines. This achievement is
admirable considering that the bulk of these were achieved
under very difficult conditions in underserviced areas as well
as amid natural disasters such as floods and widespread fires
that the country experienced. More notable, however, is that
the three year cumulative growth target of 1,420,000 main
services has been exceeded by 10%.
Modernise and upgrade the network
The modernisation programme which is essential for improve-
ments in service quality as well as for value added services, is
ahead of targets such as that of the replacement of non-
digital connections. In this regard, the annual target of 65,000
was exceeded by approximately 285,000 digital lines.
The programme included further roll out of Asynchronous
Transfer Mode (ATM) network that delivers broadband and
bandwidth-on-demand virtually country-wide to corporate
customers. In addition, the network’s reliance was enhanced
by the expansion of synchronous digital hierarchy (SDH) man-
aged self-healing optic fibre rings.
Achieve greater customer satisfaction
The strategies to improve customer satisfaction were based on
improving the quality of service and enhancing the ability to
meet or exceed customer needs. Service improvements
focused on service provisioning, fault rate and repair perfor-
mances. Despite adverse weather conditions, Telkom still
managed to deliver its best performance in terms of licence
targets, achieving 15 of its 16 licence targets. These were
achieved by new operational support systems such as the state
of the art National Network Operations Centre (NNOC) and
developing employee skills through the company’s nationally
acclaimed training programmes and facilities.
In terms of meeting or exceeding customer needs, Telkom’s
core marketing strategies together with the expansion of world
class data and multimedia networks bore fruitful achieve-
ments. Marketing strategies encompassed strategic alliances
to offer holistic business solutions. Product offerings included
the expansion of ISDN, the re-launch of FrameRelay and new
products such as security (video surveillance), call manage-
ment (Cell Relay Services), and IdentiCall.
Embark on strategic employee initiatives
Greater employee efficiencies are required to position
Telkom for competition. In this regard, a full range of train-
ing programmes are being offered to provide a more bal-
anced skills mix. In addition, a consultative process led to
the staff complement being reduced by 20% to 49,128. This
included approximately 2,000 employees affected by out-
sourcing initiatives.
As a responsible corporate citizen in terms of equity in the
workplace, Telkom made measurable progress when com-
pared to its 1998/1999 black staff representation. In addi-
tion, affirmative action development programmes achieved
significant successes in the following ongoing initiatives:
Directors’ Report
In terms of meeting or exceeding customer needs, Telkom’s core marketing
strategies together with the expansion of world class data and multimedia networks bore fruitful achievements
Telkom Annual Report 1999/200030
• Individual development plans for very high profile
e m p l o y e e s
• Deputies programme aimed at replacing Strategic Equity
Partner (SEP) managing and group executives
• Successor programme aimed at senior management and
executive positions
• Exchange programme to specific positions in SBC and
Telekom Malaysia
• Supervisory development programmes
• Adult Basic Education and Training (ABET) and bursary
programmes.
Position Telkom for competition
To provide business solutions, the formation of strategic alliances
is ongoing. Typical successes in this regard are our PBX and
Primenet offerings. More success stories will evolve as the com-
pany implements its competitive strategies developed for Internet,
interconnection, and the convergence of telecommunications.
By partnering with other operators in completing the SAT- 3 /
WASC/SAFE cable, connecting the east and west hemi-
spheres has improved connectivity and Te l k o m’s position in
global traffic trade. Furthermore, Te l k o m’s key role in the
African Renaissance has been augmented by its roll out of
international links and by its growing role as a hub on the
continent.
Comparing prices both on the local and international scenes,
has shown that Telkom’s rates are amongst the cheapest in the
world and the Company continues to move towards cost-
based rates for local exchange services, while reducing inter-
national and long distance charges.
Improve the Company’s strategic enablers
Telkom’s role in supporting Black Economic Empowerment is
based primarily on two strategies. Firstly, on black supplier
spend, where Telkom has doubled its performance over
1998/1999 and, secondly, to assist the development of black
small and medium enterprises (SMMEs) as an integral com-
ponent of the Company’s outsourcing programme.
Telkom has successfully outsourced two of its non-core enti-
ties, namely fleet management and electronics repair.
Internally, the ongoing process and systems improvements for
core business have produced world class sourcing processes,
state-of-the-art network and capacity management tools, an
increase in the availability and reliability of information sys-
tems and infrastructure.
Improve productivity, efficiency and cost-effectiveness
To enhance its competitiveness as well as increase sharehold-
er value, Telkom has initiated numerous efficiency improve-
ment programmes supported by the implementation of world
class measurement and reporting techniques to track, report
and sustain these improvements. Although many of these
efforts are of a longer term nature, key indicators such as rev-
enue per employee and lines per employee are already expe-
riencing double digit improvements.
Paramount to the above efficiency improvement programmes
is the fortification of the skills base. The R2.3 billion to be
spent on training and development by March 2002 illustrates
the priority and effort in this regard.
Ultimately, the aim of these programmes is to have Telkom’s
employees think and act like owners of the company and
thereby create value for the benefit of its customers, share-
holders and themselves.
Share capital
The Company’s share capital is:
Authorised R’000
1,000,000,000 ordinary shares of R10 each 10,000,000
Issued
557,031,819 ordinary shares of R10 each 5,570,318
Of the total shares in issue, 70% are held by the Government
of the Republic of South Africa and the balance of 30% by a
consortium consisting of SBC Communications Inc. and
Telekom Malaysia Berhad, operating through a USA limited
liability company, Thintana Communications LLC, registered
in the State of Delaware, United States of America.
Subsidiaries and joint ventures
The Company has the following interests:
• 50% interest in Vodacom Group (Pty) Ltd, which operates
one of two South African licensed cellular telephone net-
works and also acts as a service provider.
• 100% interest in Q-Trunk (Pty) Ltd, which provides radio-
trunking services.
Comparing prices both on the local and international scenes has shown
that Telkom’s rates are amongst the cheapest in the world
Telkom Annual Report 1999/2000 31
DIRECTORS’ REPORT
• 54.9% interest in Telkom Directory Services (Pty) Ltd, which
is responsible for the production of Telkom directories,
including the printing, compilation and distribution of text
directories and the collection of advertising charges.
• 100% interest in Intekom (Pty) Ltd, which acts as an
Internet Service Provider.
• 60% interest in Swiftnet (Pty) Ltd, which provides wireless
data applications and solutions.
• 100% interest in Mnati Foods (Pty) Ltd, which manages
the restaurants and catering facilities of the Company.
• 42.5% interest in Globalstar Southern Africa (Pty) Ltd which
operates a worldwide low earth orbit satellite- b a s e d d i g i t a l
telecommunication system as a mobile satellite service.
• 100% interest in Telesafe (Pty) Ltd which provides security
and related services to the Company.
Issued ordinary and preference share capital Shares at cost Indebtedness
and percentage held
2000 1999 2000 1999 2000 1999
R % % R R R R
Vodacom Group
(Pty) Ltd 100 50 50 50 50 535,000 535,000
Q-Trunk (Pty) Ltd 10,001,000 100 100 10,001,000 10,001,000 – 82,338
Swiftnet (Pty) Ltd 50,000,000 60 60 48,000,000 48,000,000 46,198 35,498
Intekom (Pty) Ltd *10,001,000 100 100 10,001,000 10,001,000 78,641 58,413
Telkom Directory
Services (Pty) Ltd 100,000 54.9 54.9 54,900 54,900 – –
Telesafe (Pty) Ltd 100 100 100 100 100 – 1,138
Mnati Foods
(Pty) Ltd 100 100 100 100 100 – 5,102
Globalstar South-
ern Africa (Pty) Ltd **67,830,050 42.5 – 28,827,771 – – –
* Including R9,900,000 in respect of share premium account – Intekom
** Including R67,829,950 in respect of share premium account – Globalstar Southern Africa
The Company’s interest in the aggregated profits earned
by the joint venture and subsidiary companies amounted to
R831 million after taxation and aggregate losses incurred
by subsidiary companies amounted to R61 million after
t a x a t i o n .
Borrowing powers
The Company’s borrowing powers are set out in its Articles of
Association.
DIRECTORATE
The following changes occurred in the Company’s Directorate
during the year under review:
Resignations:
12 July 1999 Dató Ali bin Hassan and
Mr E K Mosunkutu resign
as Directors of the
Company.
27 August 1999 Mr I D Sussman resigns as Director of
the Company.
15 November 1999 Mr JC Eason resigns as Director
of the Company.
Appointments
23 October 1999 Dató Ir. Md Radzi Mansor is appointed
as Director of the Company.
15 November 1999 Mr EA Mueller is appointed as Director
of the Company.
The following people acted as Directors of the Company
during the year under review:
Adv ED Moseneke (Chairman)
Mr SE Nxasana
Ms F Jakoet
Mr TM Barry
Telkom Annual Report 1999/200032
DIRECTORS’ REPORT
Ms WYN Luhabe
Prof AC Bawa
Dató Ir Md Radzi Mansor
Mr EA Mueller
Mr E Molobi
Mr S Manickam
Mr CL Valkin
Mr CBC Smith
OPERATING COMMITTEE
Mr SE Nxasana (Chairman)
Mr TM Barry
Mr S Manickam
Mr KA Raley
Mr BA Langa
AUDIT COMMITTEE
Ms F Jakoet (Chairperson)
Mr EA Mueller
Mr HL Engelbrecht
HUMAN RESOURCES REVIEW AND
REMUNERATION COMMITTEE
Adv. ED Moseneke (Chairman)
Mr SE Nxasana
Ms WYN Luhabe
Mr TM Barry
Mr E Molobi
Prof AC Bawa
Dató Ir Md Radzi Mansor
Company Secretary
Mr V V Mashale is the Secretary of the Company. His busi-
ness and postal addresses appear on page 73
of this report.
Events subsequent to balance sheet date
The shareholders of Globalstar Southern Africa (Pty) Ltd have
subsequent to year end agreed to sell their shareholding in
that company to Vodacom Group (Pty) Ltd. Telesafe and
Mnati were also sold subsequent to year end. Except for the
above-mentioned transactions the directors are not aware of
any matters or circumstances since the end of the financial
year, not otherwise dealt with, in the group annual financial
statements, that will have a significant effect on the
operations of the group, the results of the operations or the
financial position of the group.
Company Secretary’s Certificate
Declaration by the Company Secretary in terms of Section
268G(D) of the Companies Act.
The Company has lodged with the Registrar all such returns as
are required of a public company in terms of the Companies
Act, and all such returns are true, correct and up to date.
V V Mashale
Company Secretary
28 June 2000
ANNEXURE A
Interest-bearing debt at 31 March 2000 1999
Nominal value Book value Nominal value Book value
R'000 R'000 R'000 R'000
Interest-bearing debt 19,945,916 13,540,674
Local loans – Group 15,793,534 9,997,990
Company 14,972,779 9,726,550
Joint venture companies 820,755 271,440
Foreign loans – Group 4,152,382 3,542,684
Company 4,140,531 3,312,972
Joint venture company 11,851 229,712
Local loans – Company 14,972,779 9,726,550
Local Telkom stock 11,328,689 7,957,758 6,507,008 4,938,245
TK01, 2008, 10% 4,698,689 3,453,246 4,475,099 3,206,332
TL08, 2004,13% 3,500,000 3,121,868 2,000,000 1,701,185
PP01, 2002,12.5% 200,000 191,713 – –
PP02, 2010, Zero coupon 430,000 100,056 – –
TL20, 2020, 6% 2,500,000 1,090,875 – –
Zero coupon, 1999 – – 31,909 30,728
Telkom switching certificates
2008, 10.20% to 15.94% – 120,137 – 115,232
Repurchase agreements – 192,488 – 4,775
revolving
Commercial paper
2000 – 2005, 9.59% to 14.06% 7,868,444 6,702,396 – 4,668,298
Local loans – Joint venture company – 820,755 – 271,440
Finance leases – 207,857 – 196,440
These amounts are repayable between periods of five
and 14 years. Interest rates vary from 13% to 16%.
Long-term loans – 612,898 – 75,000
Telkom Annual Report 1999/200068
Annexures
2000 2000
Currency Nominal value Book value Nominal value Book value
R'000 R'000 R'000 R'000
Foreign loans – Company 4,140,531 3,312,972
Direct loans 4,140,531 3,312,972
United States Dollar, 2000 – 2003 USD 597,742 3,922,901 408,868 2,848,560
6.64% – 8.00%
Deutsche Mark, 2000 – 2002 DEM 15,365 35,730 32,146 85,037
5.07% – 5.98%
Pound Sterling, 2000 – 2001 GBP 9,792 58,433 20,431 143,942
7.70% – 9.65%
Swiss Franc, 2000 – 2001 CHF 14,696 33,472 24,494 65,814
3.81% – 3.97%
French Franc, 2000 – 2013 FRF 108,351 89,995 178,298 169,619
0.10% – 9.65%
Telkom Annual Report 1999/2000 69
Foreign Foreign
Currency Book value Currency Book value
(thousands) R'000 (thousands) R'000
Foreign loans – Joint venture company 11,851 229,711
Syndicated loan USD – – 50,000 221,750
The loan of US$100 million is unsecured and bears interest
at a variable interest rate determined half yearly of LIBOR
plus a margin of 0.55%. Exposure to foreign exchange and
interest rate fluctuations are fully covered, yielding an
effective fixed interest rate of 16.42% NACH from 26 March
1997. The loan was repaid on 17 March 2000.
Unsecured loan 11,851 2,338 7,961
The loan bears a variable interest rate of 6.9% to 7.4%
and is repayable in fixed payments commencing on 1 June 1999.
Pound Sterling,1998-2012
ANNEXURES
70 Telkom Annual Report 1999/2000
2000 1999
Foreign Foreign
Currency Currency Book value Currency Book value
(thousands) R'000 (thousands) R'000
Financial instruments
Locally registered stock
Stock is issued with the condition that Telkom will act as buyer of
last resort at prevailing market rates. Switching facilities between
Telkom long and short-term debt to the book value of R694 million
(1999: R694 million) were in issue at the financial year-end.
Management is not considering the issue of any new facilities of
this nature.
Switching facilities included in current debt
Maturing 2008: 694,271 694,150
TK01 574,134 578,918
Certificates 120,137 115,232
Company 2000 1999
Year repayable Foreign Local Total Total
R'000 R'000 R'000 R'000
1999/2000 – – – 5,274,107
2000/2001 335,687 4,593,798 4,929,485 278,749
2001/2002 2,194,147 1,454,863 3,649,010 2,172,836
2002/2003 1,517,996 241,976 1,759,972 182,238
2003/2004 70,361 36,091 106,452 105,276
2004/2005 1,784 4,268,156 4,269,940 2,014,391
2005/2006 1,784 – 1,784 (5,030)
2006/2007 1,783 – 1,783 –
Thereafter 16,989 7,748,826 7,765,815 4,582,268
4,140,531 18,343,710 22,484,241 14,604,835
Group
Year repayable
1999/2000 – – – 5,504,985
2000/2001 347,538 5,004,140 5,351,678 353,974
2001/2002 2,194,147 1,452,813 3,646,960 2,172,845
2002/2003 1,517,996 456,661 1,974,657 183,528
2003/2004 70,361 41,190 111,551 299,609
2004/2005 1,784 4,268,156 4,269,940 2,017,258
2005/2006 1,784 – 1,784 (5,030)
2006/2007 1,783 – 1,783 –
Thereafter 16,989 7,941,508 7,958,497 4,582,268
4,152,382 19,164,467 23,316,848 15,109,436
ANNEXURES
Telkom Annual Report 1999/2000 71
ANNEXURES
ANNEXURE B
Investment in Joint Venture – Vodacom
The Group's proportionate share of assets and liabilities is as follows:
R'000 R'000
Total assets 3,787,987 3,347,424
Fixed assets 3,399,723 2,538,070
Current assets 388,264 809,354
Total liabilities (3,252,987) (2,812,424)
Retained profit (1,350,164) (670,339)
Net interest-bearing debt (831,868) (503,276)
Deferred taxation (92,784) (100,637)
Current liabilities (978,171) (1,538,172)
Share of equity 535,000 535,000
Loans to joint venture 535,000 535,000
The Group's proportionate share of revenue and expenses is as follows:
Revenue 4,833,193 3,411,385
Net operating expenses (3,668,759) (2,590,975)
Profit before net financing charges 1,164,434 820,410
Net financing charges (216,244) (254,046)
Net income before taxation 948,190 566,364
Taxation (268,908) (171,079)
Share of profit after taxation 679,282 395,285
The Group's proportionate share of cash flow:
Cash flow from operating activities 828,472 1,285,306
Cash flow in investing activities (1,331,982) (1,468,077)
Cash flow from financing activities 328,261 114,955
Net decrease in cash and cash equivalents (175,249) (67,816)
Cash and cash equivalents at beginning of year (82,260) (14,444)
Cash and cash equivalents at end of year (257,509) (82,260)
Information regarding Joint Ventures is set out for only those of which the financial position or results are material for
a proper appreciation of the affairs of the Group. The Joint Venture information disclosed above, does not include
eliminated intragroup transactions.