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Creating synergy to give business the
Telkom SA Annual Report 2009
edgeCOMPANY REGISTRATION NUMBER1991/005476/06
HEAD OFFICETelkom Towers North
152 Proes Street
Pretoria 0002
POSTAL ADDRESSTelkom SA Limited
Private Bag X881
Pretoria 0001
TELKOM SHARE REGISTER HELPLINE0861 100 948
CUSTOMER CALL CENTRE10219
COMPANY SECRETARYMmathoto Lephadi
Tel: +27 12 311 7743
MEDIA RELATIONSAjith Bridgraj
Tel: +27 12 311 7720
UNITED STATES ADR DEPOSITARYThe Bank of New York
Shareholder Relations Department
PO Box 11258
New York
NY 10286-1258
Tel: +1 888 643 4269
e-mail: [email protected]
CORPORATE COMMUNICATIONSBrenda Kali
Tel: +27 12 311 4301
REGULATORY AND PUBLIC POLICYAdv. Ouma Rasethaba
Tel: +27 12 311 4785
AUDITORSErnst & Young Inc. Wanderers Office Park
52 Corlett Drive
Illovo 2196
Private Bag X14
Northlands 2116
Tel: +27 11 772 3000
Fax: +27 11 772 4000
TRANSFER AGENTSComputershare Investor Services 2004 (Pty) Ltd
70 Marshall Street
Johannesburg, 2001
PO Box 61051
Marshalltown 2107
BUSINESS CALL CENTRE10217
INVESTOR RELATIONSNicola White
Tel: +27 12 311 5720
SPONSORSUBS Securities South Africa (Pty) Limited
64 Wierda Road East Wierda valley Sandton 2196
AdministrationTelkom SA Limited
Annual Report 2009
Telkom SA
A
nnual Report 2009
www.telkom.co.za
We
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Contents1
2
3
4
5
6
Group overviewTelkom Group structure and revenue contribution 2Telkom shareholding 3Group strategy 4Financial review summary 6Operational review summary 7Equity markets 8The Telecommuniations Industry 9The independent benchmarking of Telkom’s pricing 13
Management reviewChairman’s review 16Chief Executive Officer’s review 20Chief Financial Officer’s review 24Board of directors 28Chief officers 30Management team 31
Sustainability reviewSustainability review 36Corporate governance 42Enterprise risk management 50Black economic empowerment 58Human capital management 62Safety, health and environment 72Corporate social investment 78GRI content index 82
Performance reviewFive year operational review 86Operational review 87Three year financial review 104Financial review 105
Annual financial statementsDirectors’ responsibility statement 137Certificate from Group Company Secretary 137Report of the independent auditors 138Directors’ report 140Consolidated income statement 142Consolidated balance sheet 143Consolidated statement of changes in equity 144Consolidated cash flow statement 145Notes to the consolidated annual financial statements 146Company income statement 250Company balance sheet 251Company statement of changes in equity 252Company cash flow statement 253Notes to the Company annual financial statements 254
Shareholder informationShareholder analysis 337Definitions 339Special note regarding forward-looking statements 343Administration ibc
Telkom SA Limited
Annual Report 2009
We have the
Telkom cover final 8/12/09 6:46 PM Page 2
Telkom Annual Report 2009 1
for more information please visit ourwebsite at www.telkom.co.za
and resources to create a powerful
communications platform
one of Africa’s largest integratedcommunication service providers.
to be Africa’s preferred ICT solutions provider.
We aim...
We are...
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:18 PM Page 1
Telkom Annual Report 20092
Telkom Group structure and revenue contribution as at March 31, 2009
Joint venture – Vodacom Group – 50%Vodacom Group (Pty) Ltd is a leading mobile communications company in South Africa, providing mobile communications services as ofMarch 31, 2009 to 39.6 million customers in South Africa, Tanzania, Lesotho, the Democratic Republic of the Congo and Mozambique.Vodacom has an estimated market share of 53% in South Africa.
Telkom concluded the sale and unbundling of its interest in Vodacom after year end.
Swiftnet – 100%Swiftnet (Pty) Ltd trades under the name FastNet Wireless Services. FastNet provides synchronous wireless access on Telkom’s X.25network, Saponet-P, to its customer base. Services include retail credit card and check point of sale terminal verification, telemetry, securityand fleet management.
Telkom’s Board of directors has decided to dispose of Swiftnet.
Telkom Media – 75%Telkom Media is the holder of a commercial satellite and cable subscription broadcasting licence, which allows it to operate both a satellitepay-TV service and an IPTV service in South Africa.
On May 4, 2009, Telkom sold its 75% interest in Telkom Media to Shenzhen Media South Africa (Pty) Ltd.
Telkom SAOur fixed-line segment is our largest business. Telkom South Africa provides fixed-line subscription and connection, traffic, interconnection,data and internet service
Trudon – 64.9%Trudon (Pty) Ltd, formerly known as TDS Directory Operations, provides Yellow and White page directory services, an electronic directoryservice, 10118 “The Talking Yellow Pages”, and an online web directory service.
Multi-Links – 100%Multi-Links Telecommunications Limited is one of Nigeria’s pioneer private telephone operators. As one of the leading providers oftelecommunications solutions in Nigeria, Multi-Links was one of the first to locally introduce the CDMA technology.
Telkom acquired the remaining 25% interest in Multi-Links on January 21, 2009, thereby increasing its ownership of Multi-Links to 100%.
Africa Online – 100%Africa Online is an internet service provider (ISP) in Africa. As one of the largest Pan-African ISP in sub-Saharan Africa, Africa Online offersa wide range of services to suit a variety of customer needs. With operations in Cote d’Ivoire, Ghana, Kenya, Namibia, Swaziland,Tanzania, Uganda, Zambia and Zimbabwe, Africa Online is positioned to provide individuals and organisations with scalable solutionsbased on each client’s specific needs.
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Telkom Annual Report 2009 3
Telkom shareholding as at March 31, 2009
GovernmentThe government of theRepublic of South Africa isthe largest shareholder inTelkom, holding 39.8% ofthe Company’s issued sharecapital. The government isthe Class A shareholder.
Black Ginger 33 (Pty) LtdBlack Ginger 33 (Pty) Ltd isa wholly owned (100%)subsidiary of the PublicInvestment Corporationholding 8.9% of theCompany’s issued sharecapital. Black Ginger 33 isthe Class B shareholder.
Public InvestmentCorporationThe Public InvestmentCorporation (PIC) is aninvestment managementcompany wholly owned bythe government. It investsfunds on behalf of publicsector entities. The PIC holds6.7% of the Company’sissued share capital.
ElephantConsortiumThe Elephant Consortium isa Black EconomicEmpowerment group, whichthrough Newshelf 772 (Pty)Ltd holds 7.2% of Telkom’sissued share capital.
Telkom TreasuryStockRossal No 65 (Pty) Ltd holds11,646,680 shares, 2.2%of the Company’s issuedshare capital which werepurchased for the TelkomConditional Share Plan.Acajou Investments (Pty) Ltdholds 8,143,556 shares,1.6% of the Company’sissued share capital.
Free floatThe free float of 33.6%makes up the remainder ofthe Company’s issued sharecapital. Included in the freefloat are 11,570,245shares held by 91,625retail shareholdersrepresenting 2.2% of theCompany’s issued sharecapital.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 20094
Group Strategy – The evolution of Telkom
Defend profitable revenue
• Maintain fixed-linenet revenue.
• Retain leadingfixed-line marketshare.
• Increase annuityrevenue as apercentage of totalfixed-line operatingrevenue.
• Improve competitiveness through tariffrebalancing.
• Build customer retention initiatives that enticecustomers to stay with Telkom.
• Build customer loyalty by providing superiorvalue propositions that position Telkom as theservice provider of choice.
• Convert revenue streams to annuity revenue.
Grow profitable revenue through broadband and converged services
• Increase broadbandpenetration.
• Deliver superior dataspeed and qualitythrough fixed-linenetwork.
• Increase convergedservices revenue.
• Partnerships with contentproviders.
• Improve market share ininformation technologyservices sector.
• Expand domestic datacentre operations.
• Improve innovationcapability.
• Grow organically andthrough acquisitions.
• Expand our broadband footprint.
• Increase bandwidth to offer higher bandwidthapplications.
• Provide converged information,communications and technology solutions tothe enterprise market and enable the digitalhome in the consumer market.
• Bundle content to provide added value insubscription and pay-as-you go models.
• Target the medium to large business segmentto meet their demand for end-to-end solutions.
• Satisfy customer demand for converged one-stop solutions for communications andinformation technology infrastructurerequirements.
• Develop improved value propositions throughcustomer understanding enabled by thecustomer centricity programme.
• Enhance availability to successfully partnerwith others where synergistic opportunitiesexist.
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Telkom Annual Report 2009 5
Grow profitable revenue through wireless voice and mobile data services
• Provide integratedbundled offerings.
• Combine with mobilityto enhance fixed-lineoffering.
Transform fixed-line business to incorporate keyvalue-added services, including mobileconverged voice services.
Build a cost-effective wireless voice and mobiledata network in selected areas to offer:
• Wireless access in campus environments,gated communities, security complexes andother developments.
• Mobile data services.
• Fixed and nomadic wireless voice services.
Grow profitable revenue internationally
• Increase revenueand long-termprofitability fromacquired Africansubsidiaries andinternationalservices.
Become a Pan-African integrated serviceprovider, offering:
• International communications and internetconnectivity.
• Hosting and managed data services.
• Wireless voice and mobile broadbandsolutions.
Leverage synergies across the Telkom Group togrow revenue from subsidiaries – organicallyand through acquisitions.
Introduce converged fixed and mobile servicein the Nigerian market through Multi-Links.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:18 PM Page 5
Telkom Annual Report 20096
Financial review summaryContinuing operations
Operating revenueRm
Annuity revenueRm
Operating profitRm
R35,940m(R33,611m)Strong growth in data
revenues, higher revenue
from interconnection and
calling plans, partially off-
set by lower traffic. Multi-
Links delivered strong
revenue growth as a result
of subscriber growth.
R7,387m(R6,917m)Telkom continues to be
successful in tying in large
corporate customers to
term and volume discount
plans.
R6,388m(R9,069m)Excluding the Multi-Links
impairment of R1.8 billion
the South African business
performed well in the current
high inflationary environment.
Data revenueRm
R9,310m(R8,308m)Higher demand for data
services, including ADSL, an
increase in internet access
and related services and
managed data network
services.
Solid revenue growth
The 3.3% growth in fixed-line revenue to R33.7 billion contributed to the Group’s overall6.9% revenue growth to R35.9 billion.
EPS & HEPS
The decrease in both headline and basic earnings pershare reflects increasing operating expenses, once-offimpairments of Multi-Links and Africa Online andincreased finance charges and fair value movements.
0
5
10
15
20
25
30
35
40
07 08 090
1
2
3
4
5
6
7
8
07 08 09
0
1
2
3
4
5
6
7
8
9
10
07 08 09
0
1
2
3
4
5
6
7
8
9
10
07 08 09
Headline earnings per sharecents
557.0 cents(1,028.9 cents)Decrease in headline
earnings reflects decrease
in operating profit and
increased finance charges. 0
200
400
600
800
1 000
1 200
1 400
07 08 09
Operating expenditureRm
R29,895m(R25,014m)Operating expenses
increased across all
segments and were affected
by a number of once-off
items.0
5 000
10 000
15 000
20 000
25 000
30 000
07 08 09
Telkom AR front.qxp 8/12/09 6:18 PM Page 6
Telkom Annual Report 2009 7
Operational review summary
0
20
40
60
80
100
120
140
160
180
200
07 08 090
2
4
6
8
10
12
14
16
07 08 090
100
200
300
400
500
600
07 08 09
93% ADSL coverage93% of our exchanges are ADSL
enabled. They consist of 4,000
digital subscriber line access
multiplexers, serving approximately
548,015 customers, which
represents a growth of 33.0%.
57% self-install ADSLpackagesOur self-install option is very
popular and had a positive
impact on ADSL installation
times.
7.4% increase inwholesale internetleased linesThe growth in broadband
has stimulated the demand for
leased lines. Wholesale internet
leased lines increased 7.4% to
24,204 lines.
27.3% increasein calling plansubscribersThe Telkom Closer packages have
performed well, increasing by 27.6%
to 575,812 plans. Supreme call
packages, targeted at the business
segment, have increased by 14.4%
to 14,778 packages and PC
bundles have increased 48.3% to
11,336.
141 W-CDMA basestations selectivelydeployedTelkom has commenced the
deployment of a W-CDMA
wireless local loop network in
the 2100MHz band.
58% increase in DoBroadband packagesDo Broadband subscribers
increased 58.1% to 188,540.
Our current Broadband line
penetration rate is 15%.
ADSL subscribers (000) Supreme Call subscribers(000)
Do Broadband subscribers(000)
Quality, value for money products delivering stronggrowth
0
5
10
15
20
25
30
07 08 09
Managed data network sites(000)
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:18 PM Page 7
Telkom Annual Report 20098
Equity markets
Mar 08 Jun 08 Mar 09
80
90
100
110
120
130
140
150
160
0
2 500 000
5 000 000
7 500 000
10 000 000
12 500 000
15 000 000
17 500 000
20 000 000
Jan 09Aug 08 Nov 08 Mar 08 Jun 08 Mar 09
2025303540455055606570758085
0
50
100
150
200
250
Jan 09Aug 08 Nov 08
JSE share price vs volume traded NYSE share price vs volume traded
Shar
e pr
ice
(R)
Volu
me
Shar
e pr
ice
(USD
)
Volu
me
-15.5
-19.6
-31.2
-32.4
0
-10
-20
-30
-40
Telco index
Telkom
All share
Industrials
%
-25.2
-31.3
-32.9
-34.6
0
-10
-20
-40
-60
FTSE 250 Telcos
Telkom US$
Nasdaq
FTSE Global Telcos
-30
-50
-36.8
-38.0
-46.1
-39.7
S&P Telecoms
DJI
S&P 500
FTSE 350 Telcos (in USD)
%
JSE share price relative to SA indices NYSE share price relative to major international stockmarket indices
Market performance
JSE Limited NYSE
(ZAR per ordinary share) (USD per ADS)
year ended March 31 year ended March 31,
2008 2009 2008 2009
Closing price 131.20 105.49 65.43 44.93
Highest price 195.02 107.37 113.00 45.03
Market capitalisation (millions) 68,327 54,937 8,519 5,850
The financial year ended March 31, 2009 was characterised by extreme volatility in global stock markets and currencies as a result of
the sub-prime crisis. Despite these difficulties we managed to conclude:
• The sale of our 15% share in Vodacom to Vodafone Plc for the excellent price of R22.5 billion. In addition, the remaining 35% share in Vodacom was unbundleddirectly to shareholders. Details of the transaction can be found in the performancereview.
• As a result of this transaction Telkom was able to pay a special dividend of R19.00 pershare to its shareholders.
• In addition, Telkom declared an ordinary dividend of R1.15 and a special dividend ofR2.60 in respect of the 2009 financial year.
Telkom remains committed to returning cash to shareholders and growing shareholder value.
Share price (R) Volume Share price (US$) Volume
Telkom AR front.qxp 8/12/09 6:18 PM Page 8
Telkom Annual Report 2009 9
The telecommunications industry
Overview
Telkom is an integrated communications service provider offering
bundled voice, data, broadband and internet services with its
service offerings expanded to business and residential customers.
Competition in the South African fixed-line communications market
is intense and is increasing as a result of the Electronic
Communications Act and determinations issued by the Minister of
Communications.
The new licensing framework included in the Act has resulted in the
market becoming more horizontally layered with a large number
of separate licences being issued for electronic communications
network services, electronic communications services, broadcasting
services and radio frequency spectrum and, as a result, this will
substantially increase competition in Telkom’s fixed-line business.
In the areas where we currently face competition, and expect to
compete for public switched telecommunications services, Telkom
competes primarily on the basis of customer service, quality,
dependability and price. In addition, we intend to introduce new
products, services and tariff structures to enable us to maintain and
grow revenue.
Fixed-line voice competition
In September 2004, South Africa’s Minister of Communications
granted an additional licence to provide switched tele-
communications services to Neotel, a company that was 30%
owned by Transtel Telecoms, a division of Transnet Limited, and
Esitel, which is beneficially owned by the South African
government and other strategic equity investors, including a 26%
shareholding owned by TATA Africa Holdings (Pty) Ltd, a member
of the TATA Group, a large Indian conglomerate with information
and communications operations. On March 19, 2008, Neotel
announced that the Competition Tribunal of South Africa had
approved its acquisition of Transtel without any conditions.
Subsequently, TATA Africa Holdings (Pty) Ltd acquired the
government’s 30% equity, extending its equity in Neotel to 56%.
Neotel started providing services to large corporations and other
licensees at the start of the 2007 calendar year and on April 25,
2008, announced that the first of its consumer products were
Conclusion of Vodacom transaction gives Telkom
freedom to compete
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:18 PM Page 9
Telkom Annual Report 200910
The telecommunications industry (continued)
available to limited parts of Johannesburg
and Pretoria.
As a result of an amendment to the
Electronic Communications Act to enable
state investment and licensing in the sector,
the government created an infrastructure
company, Broadband Infraco (Pty) Ltd, in
2007, to provide inter-city bandwidth at
cost based prices to Neotel and, later, to
the rest of the industry, which added further
competition to Telkom’s communications
network. Broadband Infraco will also be
involved in some of the undersea cable
projects.
Licences
On October 29, 2008, the Minister of
Communications published for public
comment, a draft policy direction
which would direct ICASA to grant
Broadband Infraco individual Electronic
Communications Services (ECS) and
Electronic Communications Network
Services (ECNS) licences.
On March 13, 2009, ICASA published
an ‘invitation for a public entity to apply for
individual ECNS and individual ECS
licences for a public entity’, inviting
Broadband Infraco to submit applications
for these licences.
The process to issue additional licences to
small business operators for the purpose of
providing telecommunications services in
underserviced areas with a teledensity of less
than 5% started in 2005. To date, the
Minister of Communications has identified
27 underserviced areas and ICASA has
issued licences to seven successful bidders
with the Minister issuing invitations to apply
for licences in an additional 14 areas.
All existing USAL licences, including
Telkom’s, have been converted into ECS
and ECNS licences, and all future licences
for this category will be issued as ECS and
ECNS licences.
These licences provide the authorisation to
construct, maintain and operate an
electronic communications network and
provide ECNS and ECS. All the obligations
contained in Telkom’s public switched
telecommunications service licence,
including licence fees to be paid, minimum
services to be provided to customers and
other service obligations, will be contained
in regulations, some of which have been
promulgated and some of which are in the
process of being promulgated.
Telkom’s licence fee under the publicswitched telecommunications servicelicence amounted to 0.1% of its annualrevenue generated from the provision of thelicensed public switched telecommuni-cations services. This provision wasretained following the conversion to theECS and ECNS licences. However, interms of a regulation published on April 1,2009, Telkom’s annual licence fees forECS and ECNS were set at 1.5% of grossprofit from licensed activities, defined astotal revenue obtained from the provision oflicensed services, less total costs directlyincurred in the provision of such services.As a result, there may be a materialincrease in Telkom’s annual licence fee.
On March 25, 2009, the telecommuni-
cations industry put forward proposals to
ICASA regarding a Service Charter
All existing licences have been
converted
Telkom is in the process of challenging the proposednew licence fee regulation
Telkom AR front.qxp 8/12/09 6:18 PM Page 10
Telkom Annual Report 2009 11
regulation that stipulated standard levels of service. The standards
stipulated in the regulation are extremely demanding and, the
communications industry has made representation to ICASA. On
July 24, 2009, ICASA has repeated the previous Service Charter
regulation and published a new regulation that implements many
of the recommendations made by the industry.
Other licences
In August 1995, Telkom’s subsidiary, Swiftnet, was granted a tele-
communications licence and a radio frequency spectrum licence
for the provision of:
• The construction, maintenance and operation of a national
wireless data network and the provision of wireless data
telecommunications services; and
• Interconnection with Telkom’s network.
In terms of the licence agreement, Swiftnet was required to have
at least a 30% black economic empowerment (BEE) shareholding.
In spite of Telkom entering into an agreement in 2007 to sell 30%
of Swiftnet to the Radio Surveillance Consortium, a group of
empowerment investors, an agreement that received Competition
Commission approval, ICASA did not approve the transaction. As
a result, Swiftnet was in breach of its licence.
Swiftnet, assisted by Telkom, has subsequently had two meetings
with ICASA on this matter and ICASA has indicated that currently
there is no agreement within the industry as to acceptable BEE
shareholding percentages for all licensees. ICASA also indicated
that the shareholding issue for the Swiftnet licence would have to
be in line with the BEE values applicable to other similar licensees.
Swiftnet received a new licence from ICASA on January 16, 2009
which stipulated that the company still needed to secure a 30%
BEE shareholding. However, ICASA has said that in the 2010
financial year it will be reviewing the equity shareholdings of all
licensees, after which it is anticipated that all licensees will be
given sufficient time to meet their equity shareholding requirements.
Telkom’s Board of directors has decided to dispose of Swiftnet,
and Telkom is currently seeking potential purchasers that would
comply with Swiftnet’s BEE requirements.
Carrier pre-selection
The now repealed Telecommunications Act mandated that fixed-line
operators were required to implement carrier pre-selection to enable
customers to choose and vary their fixed-line telecommunications
carrier for long distance and international calls. These provisions
were retained in the Electronic Communications Act and on June
24, 2005, regulations were published for the implementation of
carrier pre-selection in two phases (the implementation of call-by-call
pre-selection and fully automatic pre-selection, to be implemented
and provided within two months and 10 months, respectively, of
them being requested by another operator). Telkom had already
conditioned its exchanges to handle call-by-call carrier pre-selection
The 2010 Telkom ‘hotseat’
This is the control room – the ‘hotseat’ – for our 2010 World
Cup soccer national transport network. From here, our highly
skilled team will direct all incoming and outgoing
transmissions for the duration of the tournament.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:18 PM Page 11
Telkom Annual Report 200912
The telecommunications industry (continued)
by December 31, 2003. Telkom has met
with Neotel to discuss its request for
implementing carrier pre-selection.
Until Neotel’s interconnection systems and
its inter-operator process and systems to
support carrier pre-selection become
available, Telkom cannot fully implement
carrier pre-selection. However, Telkom
does not believe it can meet the 10 months
deadline for automatic carrier pre-
selection.
Number portability
The Telecommunications Act mandated that
number portability, to enable customers to
retain their fixed-line and mobile telephone
numbers if they switch between fixed-line
operators or between mobile operators, be
introduced. These provisions were retained
in the Electronic Communications Act.
A framework number portability regulation
was published at the end of 2004 that
generically provides for the introduction of
fixed-to-fixed and mobile-to-mobile number
portability. Telkom is required to implement
number portability in blocks of 10,000
numbers within two months after Neotel
launches such retail services and individual
number portability within 12 months of
receiving a request from Neotel. Telkom
has received a request from Neotel to
implement both block and individual
number portability and Telkom and Neotel
implemented number portability in blocks
of 10,000 and 1,000 numbers in May
2009. After several delays mobile number
portability phase one was launched on
November 11, 2006. Phase 2, which
was implemented during April 2007,
includes multi-line porting, secure file
transfer protocol access to third parties and
operational software upgrades on the
central reference data base.
The set-up and per-operator costs are
typically the largest cost components of
implementing number portability. Similar to
carrier pre-selection, there is a risk of not fully
recovering system set-up costs. The
implementation of these requirements in a
timely manner, could result in Telkom’s
business being disrupted and cause its net
profit to decline and the implementation of
these requirements will likely further increase
competition and cause churn rates to
increase.
Fees and tariffs
Telkom has made significant progress in
rebalancing its fixed-line tariffs with a view
to focusing more on the relationship
between the actual costs and tariffs of
subscriptions and connections and traffic in
order to more accurately reflect underlying
costs and to be more competitive.
Regulations made under the repealed
Telecommunications Act, but which are still
in effect, imposed a price cap (3.5%
below inflation, effectively implying a
continuous real decrease in prices) on a
basket of Telkom’s specified services. These
include installations; pre-paid and post-
paid line rentals; local, long distance and
international calls; fixed-to-mobile calls;
public payphone calls; ISDN services; its
Diginet product and its Megaline product.
A similar cap applies to a sub-basket of
those services provided to residential
customers, including leased lines up to and
including lines of 2 Mbps of capacity and
the rental and installation of business
exchange lines.
Approximately 57% of Telkom’s operating
revenue in the year ended March 31,
2008 was included in this basket,
compared to approximately 54% in the
year ended March 31, 2009.
Telkom has made significant progress in
its fixed-line tariffs...rebalancing
Telkom AR front.qxp 8/12/09 6:18 PM Page 12
Source: Tarifica 4th quarter 2008Local off peak (3 minute)
a
- Eur
os
0.00
0.05
0.10
0.15
0.20
Greece
Finland
Belgium
Sweden
Portugal
Norw
ay
France
Spain
Hungary
Italy
Iceland
Average
Latvia
Czech Republic
Germ
any
Estonia
Switzerland
Poland
Netherlands
Denm
ark
Austria
Romania
Slovenia
Lithuania
Bulgaria
UK (BT)
Croatia
Turkey
Luxembourg
Cyprus
Telkom
Ireland
Malta
Slovak Republic
Source: Tarifica 4th quarter 2008To adjacent country Peak (3 minutes)
a
- Eur
os
0.0
0.2
0.4
0.6
0.8
1.0
Lithuania
UK (BT)
Germ
any
Croatia
Portugal
Italy
Belgium
Greece
Ireland
Hungary
Estonia
Spain
Malta
Average
Finland
Slovak Republic
Latvia
Czech Republic
Poland
Austria
Bulgaria
Luxembourg
France
Denm
ark
Telkom
Slovenia
Romania
Iceland
Netherlands
Switzerland
Norw
ay
Sweden
Cyprus
Turkey
Source: Tarifica 4th quarter 2008Local peak (3 minute)
a
- Eur
os
0.00
0.05
0.10
0.15
0.20
0.25
Romania
Belgium
Austria
Czech Republic
Greece
Portugal
Switzerland
Poland
France
UK (BT)
Ireland
Norw
ay
Finland
Lithuania
Spain
Sweden
Netherlands
Average
Denm
ark
Latvia
Italy
Croatia
Turkey
Hungary
Estonia
Luxembourg
Bulgaria
Telkom
Iceland
Germ
any
Slovenia
Malta
Cyprus
Slovak Republic
Telkom Annual Report 2009 13
Independent benchmarking of Telkom’s pricing – Tarifica review, 4th quarter 2008Telkom continues to manage its pricing actively in order to continually offer enhanced value to our customers. We intend to educate all
our customers as to the global attractiveness of our pricing and the value offered by the fixed-line service. Telkom’s mobile offering will
follow the lead of the fixed-line in terms of competitive pricing. Below find a selection of Tarifica’s findings.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:18 PM Page 13
Telkom Annual Report 200914
Independent benchmarking of Telkom’s pricing – Tarifica review, 4th quarter 2008
Source: Tarifica 4th quarter 2008Residential: Installation
0.0
0.3
0.6
0.9
1.2
1.5
Croatia
Lithuania
UK (BT)
Portugal
Finland
Hungary
Greece
Italy
Latvia
Belgium
Estonia
Denm
ark
Malta
Average
Bulgaria
Spain
Ireland
Czech Republic
Slovak Republic
Poland
Austria
Luxembourg
Slovenia
France
Romania
Iceland
Netherlands
Sweden
Norw
ay
Switzerland
Telkom
Cyprus
Turkey
Germ
any
a
- Eur
os
Source: Tarifica 4th quarter 2008Business: Installation
a -
Euro
s
0
30
60
90
120
150
Austria
UK (BT)
Ireland
Denm
ark
Malta
Norw
ay
Cyprus
Latvia
S pain
Finland (Elisa)
Italy
Poland
Slovenia
Portugal
Croatia
Sweden
Hungary
Average
Lithuania
Belgium
Germ
any
Luxembourg
France
Estonia
Netherlands
Bulgaria
Slovak Republic
Greece
Telkom
Switzerland
Romania
Czech Republic
Iceland
Turkey
Source: Tarifica 4th quarter 200864 kbits / 50kms
a
- Eur
os
0
100
200
300
400
500
600
Switzerland
Czech republic
Portugal
Poland
France
Belgium
Netherlands
Austria
Italy
UK (BT)
Spain
Ireland
Germ
any
Romania
Average
Luxembourg
Sweden
Greece
Cyprus
Denm
ark
Turkey
Bulgaria
Hungary
Finland
Norw
ay
Malta
Telkom
Latvia
Iceland
Croatia
Telkom AR front.qxp 8/12/09 6:18 PM Page 14
management teamwith experience toguide the GroupManagement reviewChairman’s review 16Chief Executive Officer’s review 20Chief Financial Officer’s review 24Board of directors 28Chief officers 30Management team 31
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:18 PM Page 15
Telkom Annual Report 200916
The year under review was characterised
by the sale of Vodacom, a fast and
substantively changing competitive local
landscape, and our efforts to grow in other
parts of the African continent. To ensure
consistent growth in value for our
shareholders, among our strategic priorities,
my first year in Telkom was to bring stability
to the organisation; the second a
strengthening of the Board; and the third
must embed the ongoing transformation of
the new Telkom to defend, grow, and
deliver, competitively. While it has been a
demanding period for the Telkom Board,
we have been preparing for our most
challenging year, which lies ahead.
Restructuring Telkom SA Limited
This demands Telkom’s organisational
structures and operational systems become
more responsive, adaptive and much
quicker in delivering innovative and quality
services. More detail on the strategic
priorities and restructuring of the company is
provided by Reuben September in his
CEO review.
The change is fundamental to our strategy
to grow our market share in South Africa
and build a strong footprint across the
African continent. It is vital to Telkom’s
survival to continually retire obsolete legacy
systems and bureaucracies as we review
our performance and restructure to meet
our challenges.
Shirley Lue Arnold
Chairman
The socio-economic environment
This period is marked by the shrinking local
economy, growing activism of our
shareholders and stakeholders, the socio-
economic challenges and new political
leadership.
Bold and creative leadership is required to
create employment, and intervene in the
education, health, housing and security
sectors. These socio-economic factors will
strain corporations and increase the focus
on companies as good corporate citizens.
Pressure on the government to further reduce
communication costs and widen services to
boost the economy and public services will
increase. Reporting on sustainability and
environment impacts is also being more
strongly demanded. Telkom is addressing
these issues and our efforts are detailed
elsewhere in this report.
The South African Gross Domestic Product
(GDP) dropped 1.5% in the six months to
March 2009, with the mining, manufac-
turing and automotive industries being
particularly hard hit. In addition, in the first
quarter of 2009, formal employment fell by
90,000. The rand remained under
pressure with the resultant impact on the
economy and we believe that until world
markets revive, the overall macro-economic
scenario remains parlous.
We have
It is with great regret that wesaid a final farewell to theformer Minister ofCommunications Dr IvyMatsepe-Casaburri, whopassed away on April 6,2009. She was a great sourceof strength to us and we willmiss her wise counsel.
the Board, our structures and processesto ensure Telkom’s transformation
strengthened
Chairman’s review
Telkom AR front.qxp 8/12/09 6:19 PM Page 16
Telkom Annual Report 2009 17
The regulatory environment
The regulatory environment remains
challenging as the telecommunications
regulator, ICASA, continues to implement
the Electronic Communications Act. Until all
the new regulations are promulgated, an
element of uncertainty will bedevil all
operators. Telkom remains committed to
working with ICASA for the greater good
of the South African telecommunications
industry.
The technological environment
Our fully digital fixed-line network provides
service to every major urban area in South
Africa, giving Telkom a competitive edge
over other communications service
providers selling value-added voice and
data services. At the end of March 2009,
99.9% of our telephone access lines were
connected to digital exchanges.
Our national network operations centre
provides our corporate and global
customers with managed data networking
services and our investment in a third
upgrade of the South Atlantic Tele-
communications Cable – 3 West African
submarine cable/South Africa Far East –
has increased fibre optic transmission
capability between South Africa and
international destinations. Our supply
contract for the development of the EASSy
submarine cable system will link eight
countries from Sudan to South Africa.
The acquisition of satellite bandwidth from
Intelsat in the Atlantic and Indian Ocean
regions provides services on eight satellites
using three satellite operators – Intelsat,
SES-Newskies and Hellas Sat.
Progress continues with the roll-out of theNext Generation Network (NGN). TheNGN will give us significant advantagesover mobile operators through increasedability to carry traffic, provide superiorquality services and compete on price.
Changing market dynamicsTo counter the continued decrease in voicerevenues through the shift to mobileunits, we are aggressively expanding ourbroadband footprint to offer and hosthigher bandwidth applications such asvideo services. Our enhanced ADSLoffering enables our customers to access ahost of broadband value-added services.ADSL subscribers increased by a pleasing33% over the previous financial year.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:19 PM Page 17
Telkom Annual Report 200918
Chairman’s review (continued)
Our strategic direction, the implementation
of Telkom’s new structure and the increasing
challenges of the competitive and
regulatory environment are explained more
fully in the Chief Executive Officer’s review.
Management continues to identify
opportunities for growth, particularly in sub-
Saharan Africa.
The Vodacom transaction
The conclusion of the sale of 15% of our
shares in Vodacom to Vodafone and the
unbundling of the remaining 35% to
shareholders after year end allows us to
enter the South African mobile market and
provide fully converged services. Telkom is
now a smaller company which allows us to
put more focus on our key growth areas.
The Board
In the year under review, Mark Lamberti
resigned on June 3, 2008 and the PIC
representative, Athol Rhoda, resigned
on July 3, 2008. I would like to thank them
both for their commitment and support.
Brian Molefe replaced Athol Rhoda as the
PIC’s representative.
We were pleased to welcome Peter
Joubert, director of companies, on August
12, 2008, and David Barber, former
Chief Financial Officer of AngloCoal, on
September 1, 2008.
The change in our articles of associationallowed our new Chief Financial Officer,Peter Nelson, to join the Board onDecember 8, 2008.
Detailed curriculum vitae can be viewed onpages 28 and 29.
Empowerment
While we remain a champion of BroadBased Black Economic Empowerment(BBBEE) with excellent performances insome areas (10 out of 10 for managementcontrol and 19.1 out of 20 for preferentialprocurement), our overall BBBEE status isrelatively low – a level 6 contributor at thelast verification. A new BBBEE strategy willbe implemented to rectify this situation. Seepage 58.
Confederations Cup and the 2010
Soccer World Cup
A significant accolade for the year underreview was being appointed FIFA’s mainpartner for the development of fixed-linenetwork infrastructures for these majorsports events. Some R118 million wasinvested in the necessary equipment andcabling for the soccer stadia around South
Africa during the year under review. Anadditional R832 million is expected to bespent in the 2010 and 2011 financialyears. FIFA’s president, Sepp Blatter hasbeen most complimentary about Telkom’sservices (see box alongside). A major spin-off of the project is that all the equipmentused will benefit local and othercommunities.
Appreciation
A special note of appreciation must go the
Telkom Board members for their tireless
commitment to Telkom under demanding
conditions, our employees, and all our
customers.
Telkom has remained, through even more
difficult times in our history as one of South
Africa’s leading ICT companies, and the
Board and Executive will continue to
provide value to our shareholders and
service to the country as a strategic
national asset.
Shirley Lue Arnold
Chairman
We continue to
all avenues that will provideus with growth
explore
Telkom AR front.qxp 8/12/09 6:19 PM Page 18
Telkom Annual Report 2009 19
On target for 2010
‘For the first time ever, the FIFA World Cup will kick off on African soil. This is anexciting, historic moment for Africa, and YOU are the people making it happen. Forme, it will be the realisation of a dream. I have seen what football means to Africa.With so many talented and outstanding African players, coaches, clubs and nationalteams it is fitting that the 2010 FIFA World Cup should find a home on this continent.
I have felt South Africa’s enormous enthusiasm – from the blue-collar worker to the top executive. This country has a phenomenal spirit,and I am privileged to share in the hope and inspiration that the 2010 FIFA World Cup is bringing to your people. You have shownthe world that South Africa can achieve wonders, and there is no doubt in my mind that you will be ready.
Telkom is ideally placed to make this a FIFA World Cup to be remembered. You are making history. Not only is this the first time thetournament is being hosted in Africa, but it is also the first time the event will be broadcast in high definition. With the huge volumeof voice and data traffic that will be moving through the FIFA event network, your work is critical in facilitating the successful broadcastof the event.
Telkom is on target for meeting the FIFA Confederations Cup 2009 requirements. And the completion of thenetwork will allow Telkom to meet its requirements for 2010. This is how I know Telkom can deliver.
Your efforts not only guarantee the smooth running of the games, but also build an infrastructure that will benefityour country long after we are gone. This is the kind of legacy we hope the 2010 FIFA World Cup will leavein Africa, and you are delivering an enormous gift, not just to us, but also to your own people.
I have seen what this nation can do – the spirit of Ubuntu that pulls you together. With teamwork you canachieve anything and Telkom is no different. I have every confidence in you, the Telkom staff, to make this thegreatest FIFA World Cup we have ever seen’ – Sepp Blatter.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:19 PM Page 19
Telkom Annual Report 200920
Chief Executive Officer’s review
The ICT market is never static,
characterised as it is by fluidity, change
and on-going innovation and those factors
aptly summed up the year under review.
Following the sale of Vodacom at what I
believe was an exceptional price given the
market conditions, and returning substantial
capital to our shareholders, and the sale of
our 75% stake in Telkom Media to
Schenzen Media, we are now poised to
compete more aggressively in the
telecommunications market. Our defend
and grow strategies are on track and,
following our restructuring, we are better
placed to manage our resources more
effectively and efficiently.
Our South African operations remain our
core business and cash flow generator and
I am pleased to report that we achieved
good growth in our bundled calling plan
products – Telkom Closer and Supreme
Call – and significant growth in our
broadband products. We once again
achieved double digit growth from our
data revenue, up 12.1% to R9.3 billion for
the year.
In Africa, our footprint now covers almost
the entire continent, with the exception of
North Africa, which gives us the
opportunity to extend our services to a very
fast-growing market. We took our holding
in Multi-Links Nigeria up to 100% and,
post the year end, we acquired MWEB
Africa, including AFSAT, from Naspers.
However, on the debit side, our initiatives
in Africa to date have been most
challenging, with high start-up costs,
Reuben September
Chief Executive Officer
unknown and competitive markets, highly
volatile currency fluctuations, infrastructure
and technology challenges. But, expensive
as they were, we have learned our lessons
and we are ready to capitalise on the
opportunities going forward.
In South Africa, our on-going drive toenhance the Next Generation Network(NGN) continues to deliver significantbenefits and gives us a substantialcompetitive edge in providing ourcustomers with a full suite of converged ICTservices. In particular, given the fact thatwe can now enter the mobile market, theNGN’s leading edge technologies willenable us to carry increased traffic,provide superior service and compete onprice in a market where quality andefficiency is key.
Financial overview
Our operating revenue from continuingoperations grew by 6.9% to R35.9 billionin the year under review. Operating profitfrom continuing operations declined by29.6% to R6.4 billion and cash generatedfrom operations before dividends paid fellby 9.6% to R14.8 billion.
The Group EBITDA margin decreased from
39.3% to 32.5% in the year under review,
mainly because of an EBITDA loss of
R226 million recorded by Multi-Links and
higher fixed-line operating expenditure
which reduced the fixed-line EBITDA
margin to 25.8% as at March 31, 2009
compared to 36.3% as at March 31,
2008. The South African business, however,
performed relatively well, and excluding
the Multi-Links, Telkom Media and Africa
In South Africa, our on-goingdrive to enhance the NextGeneration Network (NGN)continues to deliver benefitsand gives us a competitiveedge in providing ourcustomers with a full suiteof converged Information,Communication andTechnology (ICT) services.
evolvewith the changing trends,
meet the demand
Telkom AR front.qxp 8/12/09 6:19 PM Page 20
Telkom Annual Report 2009 21
Online impairments, the fixed-line EBITDA
margin would have been 32.3%.
We experienced a 45.9% decrease in
headline earnings per share to 557 cents a
share and declared an ordinary dividend of
115 cents per share and a special dividend
of 260 cents per share, a decrease of
43.2% from the ordinary dividend of
660 cents per share declared in the 2008
financial year. The dividend was paid to
shareholders on July 20, 2009.
Total traffic revenue decreased by 3.9% to
R15.3 billion, with local traffic revenue
decreasing 10.8% to R3.6 billion and long
distance revenue decreasing by 9.6% to
R2.0 billion, primarily because of the
continuing fixed to mobile substitution.
The Telkom Closer packages performed
well, growing by 27.6% to 575,812 plans
and Supreme call packages, targeted at
the business segment, grew by 14.4% to
14,778 packages. Our PC bundles showed
a 48.3% growth to 11,336 packages and
we continued successfully to tie in large
corporate customers to term and volume
discount plans.
Annuity revenue streams, excluding line
installations, reconnection fees and customer
premises equipment sales, grew by 6.8%
to R7.4 billion and we will seek to continue
to convert revenue streams to annuity
revenues, largely through bundling call
minutes with access line rental in attractive
subscription-based value propositions. Our
current line penetration of bundled products
is 41.7%. By 2013/14, we are targeting
a penetration of 56%.
Broadband and converged services
performed very well with a 33% growth in
ADSL subscribers to 548,015. There was
a 58.1% increase in Do Broadband
subscribers to 188,540. Internet all-access
subscribers grew to 423,196, an increase
of 18.2%.
In line with our strategy of growing our data
business, data revenues (including broad-
band) increased a very pleasing 12.1% to
R9.3 billion. Data connectivity revenue
increased to R5.0 billion, up 10.9% and
internet access revenues increased by 29.6%
to R1.5 billion. Our managed network
services and VPN revenues were up by
22.3% to R891 million. We intend to continue
to exploit the competitive edge our high-quality
network gives us in the corporate data market.
Cost management is a key element in
creating shareholder value, particularly as
competition continues to erode our revenue
base. As a result of the vicious inflationary
environment; expenses incurred by the
Vodacom transaction; an R85 million
impairment of Africa Online; the R254 million
impairment of Telkom Media and the
R1.8 billion impairment of Multi-Links, our
fixed-line operating expenses rose by
19.6% to R29.8 billion.
Employee expenses rose to R8 billion, an
increase of 8.1%; selling, general and
administrative expenses were up 68.8% to
R6.6 billion; service fees rose 14.4% to
R2.8 billion and payments to other
operators increased 9.2% to R7.5 billion,
with operating leases decreasing by 1% to
R613 million. Depreciation, amortisation,
impairment and write-offs increased by
16.8% to R4.4 billion. Headline earnings
from continuing operations decreased
45.9% to 557 cents per share for the year
ended March 31, 2009. The reduced
earnings can be attributed to the significant
impairments contained in operating
expenses and negative foreign exchange
and fair value movements of R1.1 billion
resulting from the depreciation of the rand
and the naira against the US dollar.
Strategic overview
Our core strategy is to defend and grow
profitable revenue, while managing costs.
We will aim to differentiate ourselves from
competitors by moving from a provider of
basic voice and data connectivity to
become Africa’s preferred information,
communications and technology service
provider offering fully converged voice,
data, video and information technology
services.
Defend profitable revenue
Our key objectives are to improve our
competitiveness in areas where competition
is expected to intensify by use of tariff
rebalancing, building customer retention,
building customer loyalty and converting
revenue streams to annuity revenue.
Pricing is a key element and our tariff
rebalancing will focus mainly on the
relationship between the actual costs and
tariffs of line rentals and traffic so we can
compete in a liberalised communications
market. We aim to protect our margins and
increase the per second billing benefits as
part of our bundled packages.
• Differentiating retail list prices from
value-based offerings.
Our quest is to convert customers from
usage-based products to adopting
calling plans and bundles.
• Value-based calling packages and
bundles.
Our intention is to deliver value to our
customers and thus improve retention
and loyalty. We will bundle call minutes
with access line rental in an attractive
subscription-based value proposition to
deliver greater value to our customers.
• Converting revenue to annuity-based
revenue.
This will help us offset declining usage-
based revenue and boost annuity
revenue.
• Rebalancing prices of data services.
We will pass on the benefits of
increased network efficiencies to
customers so we can defend our market
share and revenue.
• Differentiated attributes of our offerings.
We will emphasise the offerings that
customers value so that we can
compete on more than just price.
Build customer retention
We will continue to launch initiatives to
attract customers to stay with us and focus on
customer centricity through implementing
value and needs-based customer
s,
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:19 PM Page 21
Telkom Annual Report 200922
Chief Executive Officer’s review (continued)
segmentation. Additionally, we will concen-
trate on fostering long-term relationships with
enterprise and wholesale customers through
volume and term agreements.
Build customer loyalty
We will continue to position Telkom as the
service provider of choice through superior
value propositions and constant product and
service innovations. We will also upgrade
our customer communication programme.
Grow profitable revenue through
broadband and converged services
Profitable revenue growth in our broadband
and converged services area will be driven
by continuing to increase converged services
revenue; pursuing partnerships with content
providers to enhance our products;
aggressively seeking to improve our market
share in the information technology services
sector and improving our innovation
capabilities.
We are in no doubt that the next
battleground of the convergence between
telecommunications and IT will be in the
data management environment. We have
one of the finest National Network
Operating Centres in the world and we
will use it to provide our customers with
cost-effective solutions that support their
total ICT needs. We expect to stimulate the
use of bandwidth over our network through
our data centre business.
Several products, including Metro LAN,
have been introduced to strengthen our
data communications service capabilities
and improve our integrated communications
service offerings in response to increased
demand for higher bandwidth in the
corporate and global segment.
Grow profitable revenue through
wireless voice and mobile data services
By providing customers with an integrated
bundled offering with superior speeds and
quality through our fixed-line network,
combined with mobility when required, we
can grow profitable revenue.
This we can do by transforming our fixed-
line business to incorporate services such
as mobile converged voice services and
by building a wireless voice and mobile
data network in areas that use less
vulnerable access technologies, which will
reduce the theft of copper cables and
improve service levels. We will also enter
into, among other things, a roaming
agreement in the areas where we choose
not to build our own network.
To implement this strategy we have
obtained access to the 1800MHz and
2100MHz spectrum bands to utilise 2G
and 3G technologies in pursuit of our voice
and mobile data services. By focusing on
higher value customer segments and
technologies that enable roaming across
networks that use different mobile
technologies, we can offer wireless access
to, amongst others, campuses, gated
communities and security complexes and
provide mobile data services and
fixed/nomadic voice services.
Our move to offering a fully fledged mobile
service depends on the outcome of a
market research programme and a roaming
agreement we are currently negotiating with
the South African mobile operators. At this
stage, we will not commit to any capital
expenditure before completion of the
comprehensive market study.
Grow profitable revenue internationally
Telkom aims to increase revenue and long-
term profitability from our African
subsidiaries we have acquired and from
the international services we provide. We
will become a Pan-African integrated
service provider that offers international
communications and internet connectivity,
hosting and managed data services and
wireless voice and mobile broadband
solutions. We have the opportunity to
leverage synergies from Telkom South
Africa into our Africa subsidiaries,
capitalise on strategic partnerships, for
example, with AT&T, and advance data
services into a growing market in Africa.
Executing our strategy
We will execute our strategy through the
Telkom Renaissance initiative which has
been initiated with the objective of
transforming us into a leading Pan-African
communications company. Delivering on
this requires a compelling and focused
transformation programme. This programme
consists of various initiatives including
defending our market share, seeking new
revenue and businesses, implementing a
structure that enables clear profit and loss
accountability, as well as ensuring that our
business processes and work practices
deliver upon our strategic intent.
This is aimed at achieving certain key
financial targets, such as improving our
EBITDA by increasing the return on our
assets, making effective capital
expenditure investments, as well as
improving our cash flow. We intend to do
this by significantly improving revenue
through our strategic initiatives, capturing
operating expenditure efficiencies,
focusing on expenditure in areas where we
can increase our return on assets and
critically challenging capital expenditure
planned for the next few years.
We embarked on the initiative towards theend of the year under review and ourinspirational objective is creating a newTelkom. It is a bold, new journey for theGroup and its scope and importance issuch that it will roll out over two years. It isa phased and planned programme thatwill transform our Group’s culture and theway we do business. It will ensure full profitand loss accountability throughout theorganisation and will enable us to focus onefficient resource management and costcontainment. Our financial objective is a10% reduction in operating expenses bythe financial year ending 2011/2012.Currently we are conducting a Group-widesurvey to analyse our current culture andgive employees the opportunity to providetheir views on what our culture should looklike. I believe that this is essential if we areto have a firm foundation on which to buildthe remainder of the process.
Underpinning the programme is the four‘Rs” strategy:
Telkom AR front.qxp 8/12/09 6:19 PM Page 22
Telkom Annual Report 2009 23
• Remodelling – reaching for new revenuestreams in current and new markets.
• Reorganising – fashioning a structurethat enables clear profit and lossaccountability and focus in aperformance-oriented environment.
• Revitalisation – renewing the entireGroup and reinforcing a positive ‘makeit happen’ attitude among all ourpeople.
• Re-engineering – ensuring that ourbusiness processes, allocation ofresources and work practices deliver onour strategic intent.
We are re-building the organisation into aworld class team.
Multi-LinksAs mentioned earlier in my report, weacquired the remaining 25% of Multi-Linksin January 2009 for US$130 million. Thecompany did not perform well in the lastfinancial year with a net loss for the periodending March 31, 2009 of R1.76 billion.
We acknowledge that we under-estimatedthe competitiveness of the Nigerian marketand failed to execute on the building andmanagement of our distribution channels.Turning Multi-Links’ performance around isour number one priority, given the extent ofour investment and the enormousopportunity the Nigerian market provides.US$100 million has been budgeted for the2009/10 financial year for the completionof an additional 1,645 km build and584 km swop of optic fibre cable for theDWDM/SDH network. It is anticipated thatthe network will connect 80 DWDM/SDHsites, covering all major cities in Nigeria,providing us with additional bandwidthconnectivity for voice and data customers.In addition, 227 cell towers are to beerected and another 300 commissioned onthird party leased tower infrastructure duringthe year. Seven new customer servicecentres are planned to facilitate and supportthe network growth.
We expect Multi-Links to be EBITDA
positive in 2010/11 and to be cash flow
positive by 2011/12.
MWEB AfricaOur geographic expansion strategy isgeared to establishing us as a regionalvoice and data player via a range ofhosting services, managed solutions, andmobile voice and wireless broadbandservices. To this end, in addition to Multi-Links, we purchased MWEB Africa and75% of MWEB Namibia for approximatelyR498 million. As of March 31, 2009,MWEB Africa had a customer base of20,175 with operations in Nigeria, Kenya,Tanzania, Uganda, Namibia andZimbabwe and an agency arrangement inBotswana. This acquisition, together with ourinvestment in Africa Online, gives us theideal opportunity to service multi-nationaland corporate customers across Africa,particularly in the data products field, whichwe believe will deliver enormous futuregrowth. The memorandum of understandingsigned with AT&T will further enhance ourability to service multi-national and corporatecustomers throughout the continent.
Prospects Telkom’s strategy is designed to deliversustainable, profitable growth goingforward and is benchmarked againstglobal best practice. The creation ofshareholder value is the underlying driver ofevery decision made. Telkom’s Board ofdirectors and management team believesthat the share price has not been reflectingthe underlying value of the fixed-linebusiness and they are committed torectifying this.
Over the next few years, we will befocusing on transforming the business todeal with competition; concentrating ondelivering innovative products and servicesto our customers; expanding our networkand bedding down our growth drivers.
We expect that over the next three years,competition will continue to constrainrevenue growth and, in a transformingindustry like ours, targets are inherentlyrisky, particularly in the later years, andinvestors should not place undue relianceon such targets. Increased revenues fromour data, broadband and convergedbusiness and our recently acquiredsubsidiaries are projected to mitigate theimpact of increased competition.
The ordinary dividend of 115 cents pershare declared for the 2009 financial yearprovides the new targeted base establishedby the Board for the determination of futuredividends for Telkom as a stand-alone entity.The level of dividend payments goingforward will be based on a number offactors, including the consideration of thefinancial results, capital and operatingexpenditure requirements, the Group'sdebt level, interest coverage, internal cashflows, prospects and available growthopportunities.
AppreciationAs ever, on behalf of the ExecutiveCommittee, I extend my sincere gratitude tothe Telkom Board of directors for theguidance and insights its members haveprovided. I must also thank the executiveteam and all our employees for theirdedication and commitment in executingour defend and grow strategies. Thanksalso to our customers for their continuedand valued support.
ConclusionIn summing up the year I am reminded ofsomething one of our call centre operators inCape Town said about her job: ”You haveto take the good with the bad and, overall,the good outweighs the bad.” And that wasthe year under review. Tremendous pressureson all fronts; a lot of angst around theVodacom deal – externally and internally –the on-going fight against the cable thieves,etc. But then we had the restructuring of thebusiness, a force for good, and theopportunity, via our appointment by FIFA, todesign and provision the infrastructure for theConfederations Cup and 2010 SoccerWorld Cup stadia, to show the world justhow good we are. The fact that our diversecustomer base includes the majority of thecountry’s large corporates also contributed tothe ‘good’ part of the year.
Telkom is now poised to maximise value forall our shareholders.
Reuben SeptemberChief Executive Officer
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:19 PM Page 23
Telkom Annual Report 200924
Chief Financial Officer’s review
It is my pleasure to present Telkom’s
financial review for the year ended
March 31, 2009. It has been a challenging
year and despite difficult economic
conditions, Telkom managed to deliver
value to shareholders by declaring a
special dividend of R19 per share upon
conclusion of the Vodacom transaction
after year end and declaring an ordinary
dividend of R1.15 per share and special
dividend of R2.60 per share in June 2009.
Faced with competition eroding our
revenue base, cost management continues
to be a key element in creating shareholder
value. Combined with the inflationary
environment affecting our operating
expenses, a number of once-off items
impacted Group earnings including:
• R691 million cost relating to the
Vodacom BEE deal;
• R462 million impairment of Multi-Links;
• R409 million fair value loss on the
acquisition of the additional 25% in
Multi-Links;
• R204 million foreign exchange loss on
the acquisition of Gateway by
Vodacom;
• R177 million expenses relating to the
Vodacom transaction;
• R39 million impairment of Africa
Online; and
• R454 million deferred tax credit on the
Vodacom transaction.
In addition, Multi-Links reported a
R1.76 billion loss before eliminations
during the 2009 financial year. Turning
around Multi-Links’s performance is vital to
Telkom given the extent of the Group’s
investment and the enormous opportunity
the Nigerian market provides.
The roll-out of our mobile network is
expected to enable us to provide
connectivity in a more cost effective
manner in rural and high cable theft areas.
Next Generation Network and mobile
technology also allows us to replace
expensive to maintain legacy equipment.
We continue with the renegotiation of all
supplier contracts and constructive
engagement with labour unions. We are
reviewing our IT investment strategy in
order to ensure optimum levels of spend in
line with our strategy and network
investment. Inventories and capital work-in-
progress are receiving considerable
attention as we seek to lower just-in-time
levels of investment and to monetise any
excessive levels of assets.
Telkom is targeting an operating cost
reduction of 10% over the following three
financial years. The Telkom Board is
focusing on improving the cost efficiency
and free cash flow profile of the Company.
It has reduced the initial five year capital
expenditure budget by 40% to R34 billion
and is targeting lower levels of inventory.
The Telkom Group added Multi-Links as a
new segment to its financial reporting for
the 2009 financial year. As a result, the
Telkom Group’s four reporting segments for
the 2009 financial year are fixed-line,
Multi-Links, mobile and other. The other
segment includes Telkom’s Trudon, formerly
known as TDS Directory Operations, and
Africa Online, subsidiaries. The information
The roll-out of our mobile network isexpected to enable us to provideconnectivity
Peter Nelson
Chief Financial Officer
cost-effectively
Telkom AR front.qxp 8/12/09 6:19 PM Page 24
Telkom Annual Report 2009 25
in this annual report has been updated to
reflect the above changes to Telkom’s
reporting segments. Telkom currently
expects its Telkom SA, Telkom International
and Telkom Data Centre businesses will
constitute distinct reporting segments in the
2010 financial year due to the
implementation of its new organisational
structure, which became effective as of
April 1, 2009.
Telkom concluded the disposal and sale ofVodacom, its mobile segment that providedmobile services through its 50% joint ventureinterest in Vodacom, effective as of April20, 2009. In addition, Telkom’s Board ofdirectors has decided to dispose ofSwiftnet, a wholly owned subsidiary thatprovides wireless data services, anddetermined to abandon its Telkom Mediasubsidiary. The Telkom Group’sconsolidated financial statements andinformation included herein reflects therestatement to Telkom’s consolidatedfinancial statements in prior years as a resultof these events to disclose the effect ofdiscontinued operations and the disposal ofthe subsidiaries held for sale as follows:
• Income statement data for all theperiods have been restated to reflect our50% share of Vodacom’s results, our100% share of Swiftnet’s results and our75% share of Telkom Media’s results asdiscontinued operations in accordancewith IFRS5; and
• Balance sheet data for only the yearended March 31, 2009 reflects our50% share of Vodacom’s results and our100% share of Swiftnet’s results asdiscontinued operations in accordancewith IFRS5.
The discussion of the business below hasbeen revised from previous years to reflectthe changes to Telkom’s segments and itsdiscontinued operations.
Group operating revenue
Group operating revenue increased by
6.9% to R35,940 million (March 31,
2008: R33,611 million) in the year ended
March 31, 2009. Fixed-line operating
revenue, before inter-segmental eliminations,
increased by 3.3% to R33,659 million due
to growth in data revenues, higher revenue
from interconnection and subscription-
based calling plans, partially offset by
lower traffic revenue. Multi-Links’s operating
revenue increased 124.9% due to a
209.3% growth in its subscriber base.
Telkom’s defend and growth strategies are
on track. We have achieved good growth
in our bundled calling plan products,
Telkom Closer and Supreme Call, and
strong growth in our broadband products.
Data revenue continues to achieve double
digit growth, delivering a 12.1% revenue
growth to R9,310 million for the year
ended March 31, 2009.
Group operating expenses
Group operating expenses increased by
19.5% to R29,895 million (March 31,
2008: R25,014 million) in the year ended
March 31, 2009, due to a 19.6%
increase in operating expenses in the fixed-
line segment to R29,849 million (before
inter-segmental eliminations) and a
157.1% increase in operating expenses in
Multi-Links to R2,422 million (before inter-
segmental eliminations). Fixed-line operating
expenses increased due to increased selling,
general and administrative expenses,
payments to other network operators,
depreciation, amortisation, impairment and
write-offs, employee expenses and service
fees. The increase in Multi-Links’s operating
expenses was primarily due to increased
cost of sales and associated subsidies as a
result of increased sales volumes,
increased advertising and promotional
expenditure and an increase in expatriate
fees as a result of an increase in staff
seconded from Telkom during the year.
Investment income
Investment income consists of interest
received on short-term investments and
bank accounts. Investment income
increased by 7.7% to R181 million
(March 31, 2008: R168 million), largely
as a result of increased short-term deposits
and interest rates.
Finance charges and fair value
movements
Finance charges include interest paid on
local and foreign borrowings, amortised
discounts on bonds and commercial paper
bills, fair value gains and losses on
financial instruments and foreign exchange
gains and losses on foreign currency
denominated transactions and balances.
Finance charges and fair value movements
increased by 82.7% to R2,843 million
(March 31, 2008: R1,556 million) in the
year ended March 31, 2009, primarily
due to a 12.2% increase in interest
expense to R1,732 million (March 31,
2008: R1,543 million) mainly as a result
of the 38.7% increase in the Group’s net
debt to R23,047 million (March 31,
2008: R16,617 million). In addition to the
increase in the interest expense, net fair
value and foreign exchange rate
movements resulted in a loss of
R1,111 million for the year ended
March 31, 2009 (March 31, 2008:
R13 million). The increase in the loss was
mainly attributable to foreign exchange
losses incurred by Multi-Links on foreign
denominated loans and creditors’ balances
as a result of the devaluation of the Naira
as well as the mark to market valuation of
the Multi-Links put option.
Taxation
Consolidated taxation expense from
continuing operations decreased by
37.3% to R1,660 million (March 31,
2008: R2,647 million) in the year ended
March 31, 2009. The consolidated
effective taxation rate for the year ended
March 31, 2009 was 44.6% (March 31,
2008: 34.5%). Telkom company’s effective
taxation rate was 8.9% (March 31, 2008:
24.6%). The lower effective taxation rate
for Telkom Company in the year ended
March 31, 2009 was mainly due to the
deferred taxation asset that was raised on
the capital gains tax base cost of the 15%
investment in Vodacom which is held for
sale that will be utilised in the future capital
gains tax liability of the sale transaction,
partially offset by the R1,843 million
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:19 PM Page 25
Group cash flow
Cash flows from operating activities
increased by 7.8% to R11,432 million
(March 31, 2008: R10,603 million),
primarily due to a lower dividend paid in
respect of the 2008 financial year and
lower taxation payments partially offset by
higher finance charges. Cash flows utilised
in investing activities increased by 20.6%
to R17,005 million (March 31, 2008:
R14,106 million), primarily due to higher
capital expenditure in the Multi-Links and
mobile segments and the acquisition of
Gateway by Vodacom. Cash flows from
financing activities includes loans raised of
R18,168 million, partially offset by loans
repaid of R10,212 million.
Group capital expenditure
Group capital expenditure, which includes
spend on intangible assets, increased by
11.2% to R13,234 million (March 31,
2008: R11,900 million) and represents
36.8% of Group revenue (March 31,
2008: 35.4%).
Fixed-line capital expenditure, which
includes spending on intangible assets,
decreased by 1.5% to R6,690 million
(March 31, 2008: R6,794 million) and
represents 19.9% of fixed-line revenue
(March 31, 2008: 20.9%). Baseline
capital expenditure of R3,343 million
(March 31, 2008: R4,039 million) was
largely for the deployment of technologies
to support the growing data services
business (including the ADSL footprint), links
to the mobile cellular operators and
expenditure for access line deployment in
selected high growth commercial and
residential areas. The continued focus on
rehabilitating the access network and
increasing the efficiencies and reducing
redundancies in the transport network as
well as the initiation of the fixed-wireless
roll-out contributed to the network evolution
and sustainment capital expenditure of
R1,488 million (March 31, 2008:
R1,369 million).
Telkom continues to focus on its operationssupport system investment with currentemphasis on workforce management,
provisioning and fulfilment, assurance andcustomer care, hardware technologyupgrades on the billing platform andperformance and service management andproperty optimisation. During the yearended March 31, 2009, R603 million(March 31, 2008: R841 million) was spenton the implementation of several systems.
Multi-Links’s capital expenditure, whichincludes spending on intangible assets,increased by 112.7% to R2,791 million(March 31, 2008: R1,312 million) andrepresents 146.9% of Multi-Links’s revenue(March 31, 2008: 155.3%) and was dueto the continued investment to improvegeographic coverage and increasecapacity for both the voice and datanetworks.
Mobile capital expenditure, which includesspending on intangible assets, increasedby 3.2% to R3,569 million (March 31,2008: R3,460 million) and represents12.9% of mobile revenue (March 31,2008: 14.4%) and was due to thecontinued investment to improve geographiccoverage and increase capacity for both thevoice and data networks.
Other capital expenditure consists ofadditions to property, plant and equipmentand intangible assets for our subsidiariesTrudon (Pty) Ltd, formerly known as TDSDirectory Operations, Swiftnet (Pty) Ltd,Africa Online Ltd and Telkom Media (Pty)Ltd. Other capital expenditure decreased toR184 million (March 31, 2008:R334 million) and represents 13.8% ofother revenue (March 31, 2008: 29.1%).
ProspectsTelkom’s strategy is designed to deliversustainable, profitable growth goingforward and is benchmarked againstglobal best practice. The creation ofsustainable shareholder value is theunderlying driver of every decision made.Telkom’s Board of directors andmanagement team believe in the costefficiencies and cash flows of the fixed-linebusiness and are committed to addressingthis while we invest for growth in newareas of business.
Telkom Annual Report 200926
Chief Financial Officer’s review (continued)
impairment of the Multi-Links investment, a
R254 million impairment of the Telkom
Media loan and R85 million impairment of
the Africa Online investment at company
level.
Profit for the year and earnings per
share
Profit attributable to the equity holders of
Telkom decreased by 47.7% to
R4,170 million (March 31, 2008:
R7,975 million) in the year ended
March 31, 2009. A major contributor to
the decrease was the net loss of
R1.76 billion reported by Multi-Links.
Group basic earnings per share from
continuing operations decreased 57.7% to
407.4 cents per share (March 31, 2008:
963.7 cents) and Group headline
earnings per share from continuing
operations decreased by 45.9% to
557.0 cents per share (March 31, 2008:
1,028.9 cents).
Group balance sheet
Net debt, after financial assets and
liabilities, including discontinued
operations, increased by 38.7% to
R23,047 million (March 31, 2008:
R16,617 million) resulting in a net debt to
EBITDA ratio of 1.2 times from 0.8 times at
March 31, 2008. On March 31, 2009,
the Group had cash balances of
R1,931 million (March 31, 2008:
R1,134 million). Net debt, after financial
assets and liabilities of continuing
operations, was R15,497 million with a
net debt to EBITDA ratio of 1.3 times.
Telkom Company issued new local bonds,
the TL12 and TL15 with a nominal value of
R1,060 million and R1,160 million,
respectively as well as syndicated loans
with a nominal value of R4,100 million
during the year ended March 31, 2009.
The Company issued commercial paper bills
with a nominal value of R11,025 million for
the year ended March 31, 2009 of which
commercial paper bills with a nominal value
of R9,849 million were repaid by
March 31, 2009.
Telkom AR front.qxp 8/12/09 6:19 PM Page 26
Telkom Annual Report 2009 27
Capital expenditure for the Group is
expected to range between 20% and 23%
of revenue over the next financial year.
In the long term the targeted net debt to
EBITDA ratio is expected to be below
1.4 times. However, in the shorter term,
debt levels will be considerably lower
given the retention in part of the proceeds
from the sale of 15% of Vodacom.
Targets in a transforming industry such as
ours are inherently risky, particularly in later
years and investors should not place undue
reliance on such targets. Our ability to meet
such targets is subject to a number of risks
and uncertainties and there could be no
assurance that we could meet such targets.
The level of dividend going forward will be
based on a number of factors including the
consideration of the financial results,
available growth opportunities, capital and
operational requirements, the Group’s debt
level, interest coverage, internal cash
flows, prospects and available growth
opportunities.
New York Stock Exchange Listing
Given the current global economic climate
and the business imperative for Telkom to
reduce its cost base, the Board has
decided to delist from the New York Stock
Exchange. Maintaining a listing in the
United States is expensive and takes
considerable management time. The
methodology employed and discipline
gained from compliance with the
Sarbanes-Oxley reporting requirements will
be retained, where appropriate, to ensure
strict corporate governance compliance
and transparent financial reporting.
Telkom is comfortable that the JSE provides
sufficient access to capital from both South
African and global investors. Telkom
intends to maintain a level 1 American
Depositary Receipt programme to facilitate
over-the-counter trading in the United States
of America.
ConclusionWith a year of unprecedented globalfinancial conditions behind us, I certainlylook forward to the challenges of the yearahead. The management team is committedto turning the performance of Multi-Linksaround, reducing operating and capitalexpenditures and continuing to deliver valueto our shareholders. I remain confident inour ability to meet these challenges.
Peter NelsonChief Financial Officer
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:19 PM Page 27
Telkom Annual Report 200928
Board of directors
SHIRLEY LUE ARNOLD
ChairmanShirley Lue Arnold was appointed Chairman and non-executive directoron November 1, 2006. Holder of a BA degree and a Certificate inEducation, Ms Arnold is a former non-executive director of Peermont GlobalLimited and Ernst & Young South Africa. Currently she is a member of theChairpersons Forum, Gordon Institute of Business, the Independent Directors’Initiative and the Institute of Directors in South Africa. She is a trustee of theThutuka Bursary Fund (SAICA) and the Maths Centre and is a patron of theStudent Sponsorship Programme.
REUBEN SEPTEMBER
Chief Executive OfficerWith 32 years’ experience in the IT and telecommunications industry, ReubenSeptember was appointed acting Chief Executive Officer in April 2007;appointed to the Board in May 2007 and appointed CEO of Telkom inNovember 2007. He has worked in various engineering and commercialpositions at Telkom since 1977, including Managing Executive of Technologyand Network Services; Chief Technical Officer and Chief Operating Officerand also served as a director of Vodacom. Mr September has a BSc inelectrical and electronic engineering from the University of Cape Town and is amember of the Professional Institute of Engineers of South Africa (ECSA).
PETER NELSON
Chief Financial OfficerPeter Nelson, BComm, BAcc (Honours), CA,was appointed to the Board on December 8,2008. Previously he was the Chief FinancialOfficer of Netcare. Mr Nelson has alsoserved at board level for a number of majorcorporations for the past 20 years, includingBMW, Mondi Paper and Pretoria PortlandCement.
SIBUSISO LUTHULI
IndependentMr Luthuli, managing director of IthalaLimited since 2004, was appointed tothe Telkom Board in July 2005. A qualified chartered accountant (CA),Mr Luthuli holds a BComm degree anda post graduate diploma inaccountancy. He is non-executiveChairman of Cipla Medro SA and amember of the KwaZulu-NatalProvincial Government auditcommittee.
KEITUMETSE MATTHEWS
Government representativeAppointed to the Board in June2006, Ms Matthews is abusinesswoman and former ChiefLegal Advisor for the South AfricanBroadcasting Corporation (SABC)and a former special advisor to theMinister of Communications. Shehas a BA (Hons) degree and is aBarrister-at-Law.
BRAHM DU PLESSIS
IndependentBrahm du Plessis was appointed to the Board inDecember 2004. A practising advocate at theJohannesburg Bar since 1987, Advocate Du Plessis,who holds BA and LLB degrees from the University ofStellenbosch and an LLM degree from the Universityof London, is a member of Advocates ForTransformation and has served as a member of theJohannesburg Bar Council.
Government, independent and PIC representatives
Telkom AR front.qxp 8/12/09 6:20 PM Page 28
Telkom Annual Report 2009 29
DR EKWOW SPIO-GARBRAH
Government representativeAppointed to the Board in September 2007.Dr Spio-Garbrah is the Chief ExecutiveOfficer of the London-based CommonwealthTelecom Organisation and Ghana’s formerMinister of Communication and Education.He holds a BA (Hons), English from theUniversity of Ghana, a Graduate Certificatein International Banking from the New YorkUniversity; a Graduate Diploma in Journalismand Communication and an MA inInternational Affairs from Ohio University andan LLD (Honorary Doctorate in Laws) fromMiddlebury University in the USA.
DR VICTOR LAWRENCE
Government representativeDr Lawrence was appointed to theBoard in September 2007, holds BSc,MSc and PhD degrees in Electricaland Computer Engineering from theUniversity of London, is the Charles WBachelor Chair Professor of Electricaland Computer Engineering andAssociate Dean for Special Programsat Stevens Institute of Technology.
DAVID BARBER
IndependentAppointed to the Board in September 2008,Mr Barber is the former global Chief Financial Officerof AngloCoal and former Chief Financial Officer forthe Anglo American Corporation of South Africa. Mr Barber is a chartered accountant (South Africa)and FCA (England and Wales) and serves as anindependent non-executive director and member ofthe audit committee for Murray & Roberts.
JACKIE HUNTLEY
Government representativeMs Huntley who was appointed to the Board in September 2007, is anattorney and senior partner at Mkhabela Huntley Adekeye Inc, one of themajor black law firms in South Africa. She has extensive experience incommercial and corporate law, including telecommunications law. She holdsBProc and LLB degrees from the University of the Witwatersrand along with aManagement Advanced Programme certificate.
BRIAN MOLEFEPublic Investment Corporation representativeAppointed to the Board in July 2008, Mr Molefe is the ChiefExecutive Officer of the PIC. A former deputy DirectorGeneral at the National Treasury and Chief Director:strategic planning in the office of the Premier of Limpopo, Mr Molefe holds a Masters of Business Leadership andBCom degrees from the University of South Africa. He alsohas a post-graduate Diploma in Economics from LondonUniversity, School of Oriental and African Studies.
PETER JOUBERT
IndependentMr Joubert was appointed to the Board in August2008. Previously he was the Chief ExecutiveOfficer and chairman of Afrox. He has served asthe chairman of numerous companies. He is thecurrent Chairman of BDFM Publishers andSandvik and is a director of SAA and Transnetand external advisor to General Motors SA. Heholds a BA degree from Rhodes University, aDPWM from Rhodes and has completedHarvard Business School’s AdvancedManagement Programme.
More than100 yearsof combinedtelecommunicationsexperience
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:20 PM Page 29
Telkom Annual Report 200930
Chief officers
THAMI MSIMANGO
Chief of Global Operations and SubsidiariesMr Msimango was appointed Managing Director of TelkomInternational on April 15, 2009. Previously he served as Chief ofGlobal Operations and Subsidiaries since November 1, 2007 andChief Technical Officer from September 2005. He joined Telkom in1984 and held a number of senior positions, including ManagingExecutive of Technology and Network Services and ExecutiveTechnology, Direction and Integration.
NAAS FOURIE
Chief of StrategyMr Fourie was appointed Chief of Strategy in April 2008 havingacted in the position from November 2007. He joined Telkom in1994. He is a former Managing Executive of Commercial Servicesand Executive of Marketing Services. He holds a BA, BDivinity andBAcc Science (Honours) degrees and has completed the advancedexecutive programme of the Kellogg School of Business.
CHARLOTTE MOKOENA
Chief of Human ResourcesMs Mokoena, former Group Executive of Human Resources fromDecember 2002 to October 2007, was appointed Chief of HumanResources in November 2007. She holds a BA (Hons) degree inhuman resources development from the University of Johannesburg;a BSoc Sciences from the University of the North West and a post-graduate diploma in training and performance management fromLeicester University in the UK.
OUMA RASETHABA
Chief of Corporate GovernanceAppointed Chief Corporate Governance Officer in November2007, Advocate Rasethaba joined Telkom in 2006 as GroupExecutive of Regulatory and Public Policy. She is a former specialdirector of Public Prosecutions at the National Prosecuting Authority.She holds a BProc degree from the University of the North, an LLB(Hons) and Higher Diploma in Company Law from the University ofthe Witwatersrand and an LLM from the University of Pretoria.
Telkom AR front.qxp 8/12/09 6:20 PM Page 30
Telkom Annual Report 2009 31
Management team
Age at Telkom PositionName 30 June Portfolio Responsibilities appointment appointment
Marius Mostert 54 Network Infrastructure Responsible for network technology, 1973 2007Provisioning strategy, planning, technical product
development and all associated network infrastructure deployment.
Casper Kondo 48 Network Responsible for customer service 1993 2007Chihaka Field Operations fulfilment and assurance network
restoration.
Pierre Marais 50 Network Core Responsible for the technical and 1976 2007Operations operational management associated
with Telkom’s core network.
Zethembe Khoza 51 Contact Centre Responsible for managing all contact 1980 2007Operations points in which customers contact
Telkom, such as call centres, TelkomDirect shops, commercial services and credit management.
Godfrey Ntoele 48 National Sales and Responsible for the national sales and 1997 2007Marketing Operations marketing operations for Telkom’s retail
consumers and business enterprises and direct sales to business customers and government entities.
Bashier Sallie 41 Information Responsible for enterprise wide IT 1986 2007Operations activities including infrastructure,
architecture, applications, support and internet service providers.
Theo Hess 51 Capability Responsible for ensuring that Telkom has 1996 2007Management the right groups of processes, relationships,
assets and resources that enable it to deliver on its strategic objectives.
Amith Maharaj 34 Fixed Mobile Responsible for the development and 2008 2008Convergence Services implementation of the mobile and
fixed-mobile converged business and technical strategy.
Thami Magazi 51 Multi-National Responsible for national and 2001 2007Customers international sales revenue for multi-
national customers and also service and project management to support both national and multi-national sales teams. The portfolio directs Telkom’s service delivery obligations for 2010 FIFA Soccer World Cup.
Alphonzo Samuels 43 Wholesale and Responsible for national and international 1984 2007Marketing Operations wholesale revenue and customer
relationship management.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:20 PM Page 31
Telkom Annual Report 200932
Management team (continued)
Age at Telkom Position
Name 30 June Portfolio Responsibilities appointment appointment
Brenda Kali 55 Corporate Guided by the company’s business 2008 2008
Communications plan, vision and brand strategy,
the role of Corporate Communication
is to influence stakeholder behaviour
through effective, timely and measureable
communication making use of world-class
reputation management solutions.
Mike Mlengana 49 Corporate Development Responsible for implementing Telkom’s 1995 2005
international expansion strategy through
business development and merger and
acquisition activities across Africa and
other emerging markets.
Nicola White 37 Investor Relations Responsible for liaising with the investor 2006 2006
community which includes retail
shareholders, analysts and institutional
investors.
Nicolene Rossouw 40 Performance Centre Responsible for the Performance 1997 2007
(Acting) Centre in support of the company’s
customer centricity strategy, marketing
intelligence and to management the
business improvement function.
David Lupafya 36 Strategy (Acting) Responsible for Telkom Group strategy 2008 2008
Deon Fredericks 48 Accounting Services Responsible for financial accounting, 1993 2008
reporting and analysis, financial services,
external and regulatory reporting, capital
work in progress and asset management
Robin Coode 43 Corporate Finance, Overall responsible for taxation, treasury 1992 2008
Specialised Services and corporate investment with specific
focus areas that include share buy-back
evaluations, trustee responsibilities on
retirement funds and a merger and
acquisition role through strategy.
Stafford Augustine 40 Procurement Services Responsible for overall management 2007 2007
of procurement services encompassing
strategic sourcing management of
outsourced entities, corporate support
and BEE.
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Telkom Annual Report 2009 33
Age at Telkom Position
Name 30 June Portfolio Responsibilities appointment appointment
Mohammed Dukandar 37 Internal Audit Accountable for developing and 2009 2009
implementing internal audit strategies for
Telkom Group and its subsidiaries and
to ensure proper management of the
internal audit function. Ensure that
significant risks are understood and
managed by management and ensure
that significant risks are independently
and objectively reviewed periodically.
Anton Klopper 47 Legal Services Responsible for managing the provision 1991 2005
of legal advice and assistance to
various business units within Telkom.
Andrew Barendse 42 Regulatory Affairs Responsible for regulatory affairs which 2006 2007
include regulatory strategy and analysis,
regulatory compliance, regulatory pricing
and costing and protecting Telkom’s
regulatory rights.
Charmaine Houvet 36 Governance Responsible for improved governance 1991 2008
in the organisation through the design
and implementation of the Enterprise
Programme office and key company
governance process and policies.
Prelene Schmidt 38 CEO Telkom Responsible for all facets of the 1996 2008
Foundation (Acting) Telkom Foundation.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 200934
Telkom AR front.qxp 8/12/09 6:20 PM Page 34
a partnershipwith communities,creating synergiesthat benefitSustainability reviewSustainability review 36Corporate governance 42Enterprise risk management 50Black economic empowerment 58Human capital management 62Safety, health and environment 72Corporate social investment 78GRI content index 82
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:20 PM Page 35
Telkom Annual Report 200936
Sustainability review
As one of South Africa’s largestcorporations, Telkom’s public visibility isenormous. Our activities impact on the livesof every South African in one way oranother and so our sustainability must bebeyond reproach.
As the draft King Report III notes: “Althougha company is an economic institution, itremains a corporate citizen and thereforehas to balance economic, social andenvironmental value. The triple bottom lineapproach enhances the potential of acompany to create economic value…”
Telkom has long subscribed to thisphilosophy and sustainability is a key driverof our business strategy. It is a businessopportunity for us, an opportunity wepursue with relentless vigour in all ouroperations.
Last year we reported that we continue tofocus on the transformation of our businessand, to this end, in the latter part of theyear under review we embarked on afocused internal transformation programme,Telkom Renaissance, a programme gearedto ensuring that we become Africa’sleading ICT service provider. It is, at least,a two year initiative during which time the
Company will completely renew itself interms of markets, processes, skills,capabilities and a new behaviour. Our goalis to create a high performance companythat is capable of executing our ‘defend andgrow’ strategy; a company that ischaracterised by profitability, sustainabilityand an ability to realise its vision; acompany that is customer-focused withleading edge value solutions, and where thecreation of value through excellence is thenorm and not the exception.
To date, we have distinguished ourselves
as an entity that subscribes to the values of
good corporate governance but, we can
do better. We can, like the Renaissance
Period of the 14th to 16th centuries that our
initiative is named after, expand our vision
beyond the conventional and traditional,
and sustainability is a key focus area in this
regard.
Stakeholder engagement
The modern corporation must meet the
expectations of a diverse range of
stakeholders and, as such, the
management of stakeholder relationships is
not a nice to have but a critical must.
Throughout the year we refined our
stakeholder management policy to ensure
systematic engagements with:
• Employees
• Customers
• Investors
• Government
• Regulators
• Media
• Suppliers
• Unions
• Civil society
As a result, we achieved:
Employees: A significant improvement in
levels of employee engagement over the
last three years via briefing sessions,
training initiatives and electronic and print
communication. In the year under review
there was an on-going refinement in
promoting a culture of engagement and
internal communication channels. Greater
prominence was given to face-to-face
communication, especially between top
leaders and the next management level, as
well as electronic communication from the
CEO across the company.
The modern corporation must meet the
of a diverse range of stakeholdersexpectations
As one of South Africa’s largest corporations,Telkom’s public visibility is enormous
Telkom AR front.qxp 8/12/09 6:20 PM Page 36
Telkom Annual Report 2009 37
Customers: Through our Customer
Centricity project we have seen
improvements in customer call centre
operations; our ability to keep our promises
and the reaction time in identifying and
dealing with complaints.
Investors: An improvement in sharing with
them our strategic plans, operational
performance and financial results through
one-on-one briefings; daily consultations;
roadshows and the Investor Relations
website.
Government: A substantial improvement in
our relations with national government as a
result of extensive consultations in which
emerging issues were pre-empted and
promptly dealt with. In addition, our
support for the government’s Programme of
Action, especially in the areas of economic
growth, infrastructure development and the
provision of telecommunications for public
schools, was well received. Our success in
engaging with government is evident in the
irrevocable support provided by
government which resulted in the successful
conclusion of the Vodacom transaction.
Regulators: Regular submissions on new
regulations and responses to enquiries to,
in particular, the Independent Com-
munications Authority of South Africa
(ICASA) and total compliance, where
technically possible, with all the regulatory
requirements in our operational areas.
Media: Media management was
conducted in a structured manner guided
by three focus areas: reactive engagement,
proactive engagement and relationship
building.
Suppliers: The top company award in the2008 Empowerdex Preferential Procure-ment on overall spend survey.
Unions: We continued to engage with theunions through the Restructuring Forum, apurely consultative body where we shareinformation with union leaders; theCompany Forum, the only decision-makingstructure on issues that require negotiations;the National Employment Equity and SkillsDevelopment Forum and Task Teams whichconsist of both management and unionrepresentatives and which deal withspecific issues.
Civil society: Traditionally, telecommuni-
cations companies and utilities are at the
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:20 PM Page 37
Telkom Annual Report 200938
Sustainability review (continued)
bottom of global reputation studies as they
face an uphill battle to communicate with
the public. As a result of this, we embarked
on a reputation study in May 2008 to
measure and analyse attitudes and
perceptions about us amongst various
stakeholder groups. In the year under
review approximately 3,700 interviews
were conducted. It was gratifying to note
that our reputation improved significantly,
albeit from a low base. There was
increased recognition in our key areas
of products/service; leadership and
governance and a significant improvement
in the perceptions of our corporate social
investment programme.
Going forwardIn the 2009/10 financial year we willfocus on developing unambiguousstakeholder value statements that detail ourpromises to our stakeholders and, equallyimportantly, internal scorecards for us tocheck how we live up to those promises.
Group communication and brandGroup communication and brand wasinfused with a renewed sense of purposefollowing the appointment of one of SouthAfrica’s leading communications experts,Brenda Kali, as Group Executiveresponsible for this function.
Guided by the decision to integrate andalign communication processes andpractices with Telkom’s brand position andvalues system to ensure greater credibilityamongst our stakeholders, we focused ontwo specifics – the management ofstakeholder relationships and reputation,and brand and image management.
Group communicationand brand was
with a renewedsense of purpose
infused
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Telkom Annual Report 2009 39
• Interfacing with the media
While the media is an influential stakeholder in its own right, it is
also a vehicle through which we can communicate to our
broader stakeholder base. To this end, a dedicated media unit
was established to ensure we sent out a consistent message to
enhance our reputation and create greater brand awareness.
On the reactive front, the vast scope of our activities ensured a
very high level of media interest in the year under review. Media
enquiries ranged from our growth and expansion plans to cable
theft, the provision of broadband, regulatory issues, the evolution
of the network, our financial results, service delivery, customer
complaints and corporate governance.
As a result of our commitment to providing accurate and strategic
information to the media, our reputation took a turn for the better.
During the year under review, the value of proactive media
engagement was underscored in three areas – the 2010 Soccer
World Cup; the sale of our shares in Vodacom and the strategic
agreement with AT&T.
2010 World Cup
As FIFA’s main partner in the development of fixed-line network
infrastructure, we are responsible for providing infrastructure and
communication services. Our capabilities in this regard were
highlighted through media site visits and face-to-face interviews
with the key people in our 2010 project office.
The Vodacom transaction
Throughout the transaction process from November 2008 to
June 2009, journalists were given as much access as they
requested to our key top management team.
The AT&T agreement
At the announcement of the strategic memorandum of
understanding, journalists had the opportunity to spend time with
the role players from both companies.
We pride ourselves not only on building strong relationships
between the media and our management team, but also on
enhancing the media’s knowledge of the IT industry as a whole.
In the year under review we hosted a number of well attended
functions, including inviting key media to the Southern African
Telecommunication and Applications conference.
• Connecting with our employees
In addition to refining our internal communication channels, we
provided effective and timeous communication to all employees
on the progress of our transformation programme, Telkom Renais-
sance. The programme’s specific communication was given a
highlighted visual appearance to distinguish it from other
electronic communications and to emphasise the status of each
message. Weekly messages containing detailed information on
the project’s progress were issued and a tailor-made web site
d
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:20 PM Page 39
To ensure greater credibility amongst ourstakeholders we focused on two specifics– the management of stakeholderrelationships and reputation, and brandand image management.
Telkom Annual Report 200940
Sustainability review continued
was set up to enable employees to ask
questions, make suggestions and receive
feedback.
As the torch bearer of the programme, the
CEO was highly active in all internal
communications via our Skytrain interactive
satellite-based network; our digital media
services and ‘from the desk of the CEO’
e-mails.
On a more generic level, a number of
initiatives were launched during the
reporting period, for example a cross-
functional editorial committee for our
Online print channel; the opening of a
weekly E-news channel and an e-mail
based desktop broadcast system.
We also put together a number of face-to-
face sessions at top and senior
management level where the Group’s
strategy and business approach was
debated.
To reinforce the visibility of our involvement with the
two giant footballs are being erected on twoprominent Johannesburg and Pretoria landmarks
World Cup
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Telkom Annual Report 2009 41
Partnering with Human Resources
Group communication and brand played a pivotal role in
communicating Human Resource initiatives to employees. These
ranged from changes in employee benefits to the Renaissance
programme. Where necessary, the communications function was
supplemented by event management.
Brand and image management
In our view, the brand concept is much more than just logos and
products. It also promises an experience and a relationship. As a
result, in the year under review, the full spectrum of brand activities
was incorporated into the communication function.
Our brand has matured since Telkom was formed in 1991 and,
as a result, a process was initiated during the year to rebuild it and
create a fresh, innovative look and feel to give us a more modern,
vibrant and customer-focused brand.
To support this, a new Vision, Mission and Value (VMV) statement,
together with a VMV-wired concept, was developed to ensure that
our employees wholeheartedly embrace and accept the brand
and, in the process, deliver the brand promise to our customers.
2010 Soccer World Cup sponsorship
To reinforce the visibility of our involvement with the World Cup,
two giant footballs are being erected on two prominent
Johannesburg and Pretoria landmarks – the Hillbrow and
Lukasrand towers. As a further reminder of our commitment and
expertise, a number of TV commercials were produced and
broadcast.
Artist’s impression of the Lukasrand tower
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 41
Telkom Annual Report 200942
Corporate governance
Compliance
The Telkom Board subscribes to and is fully
committed to sound business principles and
practices of integrity and accountability,
and values of good corporate governance
as espoused in the Code of Corporate
Practices and Conduct of King II (the
Code). In so doing, the directors recognise
the need to conduct the enterprise in
accordance with best corporate practices.
The Board is of the view that Telkom
complies in all material respects to the
principles of the Code. While it
acknowledges the importance of good
governance, the Board is aware that
Telkom does not strictly comply with certain
principles set out in the Code. These areas
of non-compliance stem mainly from certain
provisions in Telkom’s articles of
association. Most of the areas of non-
compliance will be resolved by no later
than March 2011, when the provisions of
Telkom’s articles of association resulting in
non-compliance with the Code fall away or
earlier if the shareholding of a significant
shareholder falls below certain stipulated
levels.
Chairman and Board of directorsThe Board takes overall responsibility forthe company and its role is to exerciseleadership and sound judgement indirecting it to achieve continued prosperityand to act in the best interests ofstakeholders.
Telkom has a unitary Board comprising 12directors. In accordance with Telkom’sarticles of association, five non-executivesincluding the Chairman have been
appointed by the government of SouthAfrica (the Class A shareholder) and onenon-executive appointed by Black Ginger33 (the Class B shareholder).
There are four other non-executive directors
who are appointed at the company’s
annual general meeting and are
considered to be independent, as set out in
King II and the JSE Listings Requirements.
The executive directors on the Board are
the Chief Executive Officer and the Chief
Financial Officer. In line with best practice,
the roles of the Chairman and Chief
Executive Officer have been separated.
The Board is led by Ms ST Arnold, the
Chairman, while operational management
of the Group is the responsibility of
Mr RJ September, Chief Executive Officer.
In terms of the articles of association, the
non-executive directors appointed by the
Class A shareholder have a fixed term of
three years and may be re-elected to the
Board by those shareholders. The
Chairman has a term of one year and is re-
elected as Chairman for the ensuing year
by the Class A shareholder. The four
independent non-executive directors are
subject to retirement by rotation and re-
election by shareholders at least every
three years in accordance with the articles
of association and JSE Listings
Requirements.
The holders of the Class A and B ordinary
shares are the government of South Africa
and Black Ginger respectively. The only
significant shareholder is the Class A
shareholder who currently holds 39.8% of
the issued ordinary shares in the company.
The significant shareholder has certain
Board-reserved matters which are detailed
in the company’s articles of association.
Pursuant to the articles of association, whilst
the government is a significant shareholder,
neither Telkom nor any of its subsidiaries
may take action with respect to certain
reserved matters unless authorised by the
Board. In addition, the authorising
resolution of the Board must have received
the affirmative vote of at least one of the
directors appointed by the government.
The Board takes overall responsibility for the Group and its role is to exercise leadershipand judgement in directing it to achieve continued prosperity and to act in the bestinterests of stakeholders.
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Telkom Annual Report 2009 43
The members’ resignations and appointments
to the Telkom Board of directors during the
year under review are as follows:
Resignations
MJ Lamberti 3 June 2008
AG Rhoda 3 July 2008
Appointments
B Molefe 3 July 2008
PG Joubert 12 August 2008
DD Barber 1 September 2008
PG Nelson 8 December 2008
Company Secretary
All directors have access to the advice and
services of the Group Company Secretary,
who is responsible for ensuring the proper
administration of the board and corporate
governance procedures. The Group
Company Secretary provides guidance to
the directors on their responsibilities within
the prevailing regulatory and statutory
environment and the manner in which such
responsibilities should be discharged.
Details of the secretary’s business address
and the company’s registered office are set
out on inside back cover.
Delegation of authority
The ultimate responsibility for the Group’s
operations rests with the Board. The Board
retains effective control through a well-
developed governance structure of Board
committees which specialise in certain
areas of the business. Certain authorities
have been delegated to the Chief
Executive Officer to manage the day-to-day
business affairs of the company. The Group
executives assist the Chief Executive Officer
in discharging his duties and the duties of
the Board when it is not in session.
However, in terms of statute and the
company’s constitution, together with the
revised delegation of authority, certain
matters are still reserved for Board and/or
shareholder approval.
Committees
The Board is assisted in discharging its
duties through its committees. During the
year under review, the Board merged the
Investment and Strategy Committees.
Board meetings
Board meetings are held at least once a quarter. In addition to these meetings, whenever
circumstances dictate the necessity, special Board meetings are convened. During the year
under review, four scheduled Board meetings were held and 11 additional special Board
meetings were convened. Details of attendance by each director including attendance at
committee meetings of the Board are set out in the table below. Certain members of senior
management attend Board meetings when invited to make presentations on particular
company issues of interest to the Board. A majority of directors, one of whom must be a
representative of the Class A shareholder, is required for a quorum for Board meetings.
The following table presents the attendance of meetings held during the 2009 financial
year by directors:
Scheduled SpecialNumber of Number of meetings1 Attendance meetings1 Attendance
Non-executiveST Arnold (Chairman) 4 4 11 11DD Barber 3 3 4 4B du Plessis 4 4 11 11RJ Huntley 4 4 11 10PG Joubert 3 2 5 4MJ Lamberti 0 0 4 3VB Lawrence 4 4 11 11PCS Luthuli 4 4 11 9KST Matthews 4 3 11 10B Molefe 4 1 6 3AG Rhoda 0 0 5 4E Spio-Garbrah 4 4 11 10
ExecutiveRJ September 4 4 11 11PG Nelson 1 1 1 1
1 The table represents the possible meetings based on the appointment and resignation dates of
members.
Executive committeeThis committee consists of the two executivedirectors that serve on the Board ofdirectors and chief executives of the TelkomGroup. The Chief Executive Officer is theChairman of this committee and has thepower of authority to, among other things:
• Implement approved business plans,annual budgets and all other mattersand issues relating to the achievementof Telkom’s obligations under itslicences, including without limitationsnetwork expansion, equipmentprocurement, tariff setting andpackaging, customer service andmarketing; and
• Prepare, review and recommend to theBoard the annual budgets and anyamendments thereto.
Audit and risk committee (ARC)
The ARC is chaired by Mr PCS Luthuli, anon-executive director; it held fourscheduled meetings and six specialmeetings during the financial year. Mr Luthuli is considered an audit committeefinancial expert within the meaning of therequirements of the US Securities andExchange Commission (SEC). He is achartered accountant.
In terms of its charter, the ARC evaluates theGroup’s systems of internal and financialcontrol; reviews accounting policies andfinancial information issued to the public;reviews the performance of the internal andexternal auditors and determines the feespayable to the external auditors. It alsodetermines and monitors the use of theexternal auditors for non-audit related
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 43
Telkom Annual Report 200944
Corporate governance (continued)
services. The committee examines, reviewsfinancial results and recommends same tothe Board for approval. A quorum for ameeting is two members.
As at March 31, 2009, the committeecomprised four non-executive directors ofwhich three are considered independent:
Mr PCS Luthuli (independent)Mr RJ HuntleyMr DD Barber (independent)Mr PG Joubert (independent)
The new terms of reference of thecommittee were approved during the year.
At the time of the Chief Financial Officer’sappointment on December 8, 2008 theaudit and risk committee satisfied itself ofthe appropriateness of his credentials,professionalism, technical competency andexperience.
The audit and risk committee will conduct asimilar review on an annual basis asrequired by the JSE Listings Requirements.
The internal and external auditors haveunlimited access to the Chairman of theaudit and risk committee.
The audit and risk committee is satisfiedthat Ernst & Young is independent inaccordance with section 270A of theCorporate Laws Amendment Act, andnominated the re-appointment of Ernst &Young as registered auditors for the2009/2010 financial year.
Nominations committee
The nomination committee, which must have
a minimum of three members and is chaired
by an independent non-executive director,
consists of Mr PCS Luthuli (Chairman),
Ms ST Arnold and Mr B du Plessis. A quorum
for a meeting is two members.
The committee makes recommendations to
the Board on the composition of the Board,
and the balance between executive, non-
executive and independent non-executive
directors with regard to all aspects of
diversity and experience.
The committee is responsible for identifying
and nominating candidates and formulating
succession plans for the approval of the
Board.
In addition, the committee recommends to
the Board continuation (or not) of services
of any director who has reached the
retirement age as well as directors who are
retiring by rotation, for re-election.
Investment and strategy committee
The investment and strategy committee,
consists of Mr DD Barber (Chairman),
Dr E Spio-Garbrah, Mr RJ Huntley,
Mr RJ September, Mr PG Nelson and
Dr VB Lawrence.
The function of the committee is to assist the
Board in evaluating investments, corporate
actions and key funding and financial
proposals.
Human resources review and
remuneration committee (HRRRC)
The committee consists entirely of non-
executive directors. Mr B du Plessis, an
independent non-executive director, was
appointed as Chairman of the HRRRC as
of June 2008. The HRRRC comprises the
following non-executive directors, of which
two must be independent:
Board committees
in distinctive business areas
specialiseMr B du Plessis (Chairman)
Mr PG Joubert (independent)
Ms KST Matthews
Mr E Spio-Garbrah
The HRRRC held four scheduled meetings
and one special meeting during the
financial year. This committee, in
consultation with management, ensures that
the Group’s directors and senior executives
are fairly rewarded for their individual
contribution to the Group’s performance. In
fulfilling its duties, the HRRRC gives
consideration to industry and local
benchmarks to ensure that remuneration
packages remain competitive. Senior
executives receive a salary, short-term
incentive and an allocation in terms of the
rules of the Conditional Share Plan.
Medical and retirement benefits are also
offered. Remuneration packages are
reviewed annually and performance
bonuses are linked both to individual
performance and to the performance of the
Group. Non-executive directors are paid
fees for their services as directors of the
Company and for their participation as
members of the Board committees.
Board effectiveness
An appraisal of the effectiveness of the
Board was conducted externally during the
year. The appraisal was benchmarked
against the strategic requirements of Telkom
SA to ensure the capacity to deliver these
requirements and strengthen the diversity
and sector expertise of directors. The
appraisal was positive and its
recommendation will be followed through
implementation.
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Telkom Annual Report 2009 45
Share dealings
In line with JSE Listings Requirements and
the Group’s insider trading policy,
executives who wish to trade in Telkom
securities are required to obtain prior
written approval from the Chairman of the
Board and the Group Company Secretary
before dealing in Telkom securities. The
Group operates closed periods as defined
in the JSE Listings Requirements. Additional
closed periods are enforced, when
required, in terms of corporate activities as
and when these occur.
Compliance with Sarbanes-Oxley
The Sarbanes-Oxley Act of 2002 was
passed in the United States of America to
protect investors by improving the accuracy
and reliability of corporate disclosures,
accounting practices and corporate
governance. Telkom, as a listed company
on the New York Stock Exchange (NYSE),
registered in terms of the US Securities
Exchange Act of 1934, is required to
comply with the Sarbanes-Oxley Act.
Telkom is committed to good corporate
governance practices and compliance with
the Act as directed by the US Securities
and Exchange Commission (SEC).
Telkom’s Sarbanes-Oxley steering committee
represents divisions directly impacted by
the requirements of the Act. Working
closely with line management, a Sarbanes-
Oxley compliance team is responsible for
ensuring that risks and controls that may
impact on the integrity of financial
reporting are properly documented,
reviewed and reported on. The
independent external auditor attested to
and reported on management’s assessment
of the effectiveness of internal control over
financial reporting for the year ended
March 31, 2009.
The Chief Executive Officer and the Chief
Financial Officer (CFO) have certified that
the requirements of Section 302 have been
met for the year ended March 31, 2009.
In addition to the Sarbanes-Oxley Act, the
NYSE corporate governance rules,
approved by the SEC, permit NYSE-listed
companies that are foreign private issuers,
such as Telkom, to follow home-country
practices in lieu of the requirements
applicable to listed US companies, subject
to certain exceptions.
In particular, foreign private issuers must
have an audit committee that satisfies the
requirements of Rule 10A-3 under the
Securities Exchange Act of 1934, as
amended and must disclose the significant
ways in which their corporate governance
practices differ from those followed by US
companies under the NYSE listing
standards. In addition, the CEO of a
foreign private issuer must promptly notify
the NYSE in writing after any executive
officer of the listed company becomes
aware of any material non-compliance with
any applicable provisions of the NYSE
corporate governance standards and
foreign private issuers must submit an
annual and interim written affirmation to the
NYSE with regard to compliance with the
foregoing requirements and certain
changes to their audit committees.
As a foreign private issuer the definition of
independence of directors for Telkom is
only relevant to the audit committee and is
included in Rule 10A-3 of the US Security
Exchange Act. This states that each
member of the audit committee must be a
member of the Board and should be
independent as defined in Rule 10A-3
(b)(1)(ii) of the US Securities Exchange Act.
A member of an audit committee of a listed
issuer may not, other than in his capacity
as a member of the audit committee, the
Board, or any other Board committee:
• Accept directly or indirectly anyconsulting, advisory or othercompensation from the listed entity; and
• Be an affiliated person of the listedentity.
An affiliated person of an issuer is a person
who directly, or indirectly, through one or
more intermediaries, controls, or is
controlled by or is under common control
with the issuer.
Rule 10A-3(b)(1)(iv)(E) of the US Securities
Exchange Act provides an exemption from
the prohibition on being an affiliated
person of the issuer for an audit committee
member of a foreign private issuer, who is
a representative or designee of a foreign
governmental entity that is an affiliate of the
foreign private issuer if the member is not
an executive officer of the foreign private
issuer.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 45
Telkom Annual Report 200946
Corporate governance (continued)
Key differences between NYSE corporate governance listing rules and Telkom practice are:
NYSE rules Telkom practice
Board of directors
Composition The Board of directors should have a majority The majority of Telkom’s directors are non-executive
of independent directors. Four of the 12 directors are considered independent, based
on the King II definition of ‘independent’. Based on their
ordinary shareholding at March 31, 2009 and their
holding of the Class A and Class B shares respectively, the
government is entitled to appoint five directors to the Board,
while Black Ginger is entitled to appoint one director to the
Board.
King II defines an independent director as a non-executive
director who:
• Is not a representative of a share owner who has the
ability to control or significantly influence management;
• Has not been employed by the company or the Group,
of which it currently forms part, in any executive capacity
for the preceding three financial years;
• Is not a member of the immediate family of an individual
who is, or has been in any of the past three financial
years, employed by the company or the Group in an
executive capacity;
• Is not a professional advisor to the company or the
Group other than in a director capacity;
• Is not a significant supplier to, or customer of the
company or Group;
• Has not been a significant supplier to, or customer of the
company or Group;
• Has no significant contractual relationship with the
company or Group; and
• Is free from any business or other relationship that could
be seen to materially interfere with the individual’s
capacity to act in an independent manner.
Board committees
Committees Companies are required to establish an audit Telkom has an ARC, investment, and strategy committee,
required committee, a nominating or corporate nominations committee and HRRRC. For the description and
governance committee and a compensation composition of these committees and the members refer to
committee. Each of these committees must have pages 43 and 44. Board members who are not appointed
a written charter that addresses certain matters by the Class A and B shareholders are appointed by
specified in the NYSE listing standards, shareholders at the annual general meeting as stipulated in
including the committee’s purpose and Telkom’s articles of association. Telkom does not perform an
responsibilities and an annual performance annual performance evaluation of each committee.
evaluation of each committee.
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Telkom Annual Report 2009 47
NYSE rules Telkom practice
Board committees
Composition All of the required committees should be All the committees have non-executive directors as members.
composed entirely of independent non-executive However, not all non-executives are independent.
directors.
Audit committee
Written charter The audit committee must have a written charter The ARC has a written charter. The responsibilities of the
that addresses certain matters specified in the ARC are described in further details, on pages 43 and 44.
NYSE listing standards, including the In addition, Telkom’s audit and risk committee charter, as a
committee’s purpose, an annual performance listed issuer, complies with the Sarbanes-Oxley
evaluation and the duties and responsibilities of requirements.
the audit committee.
Composition The audit committee must include a minimum The ARC consists of four non-executive members of Telkom’s
of three members that satisfy the independence Board of directors, three of which are independent.
requirements of both the NYSE listing standards Pursuant to the Sarbanes-Oxley Act, each member of
and the Sarbanes-Oxley Act. Telkom’s ARC, as a non-US listed company, is a member of
the Board of directors. In addition, although one of the
members is appointed by the government, who may be
deemed to be affiliated persons of Telkom, such
appointments fall within the exception for the SEC
independence requirements.
Each of the members of the audit committee For members’ work experience refer to pages 28 to 29 under
must be financially literate. In addition, at Board of directors. The Chairman of Telkom’s ARC,
least one member of the audit committee Mr PCS Luthuli, who is a Chartered Accountant, is
must have accounting or related financial considered an audit committee financial expert within the
management skills. An audit committee financial meaning of item 16A of the requirements of Form 20-F in
expert within the meaning of the SEC rules terms of the definition in the Sarbanes-Oxley Act. The SEC
adopted pursuant to the Sarbanes Oxley Act has determined that the audit committee financial expert
satisfies this requirement. designation does not impose on the person with that
designation any duties, obligations or liabilities that are
greater than the duties, obligations or liabilities imposed on
such person as a member of the audit committee in the
absence of such designation.
Disclosure and
Communication
Corporate Listed companies are required to adopt, and The corporate governance statement is available on the
governance post on their websites, a set of corporate company’s website, www.telkom.co.za/ir.
guidelines governance guidelines and the charters of their
most important committees, including at least the
audit, and, if applicable, compensation and
nominating committees. The guidelines must
address, among other things: director qualification
standards, director responsibilities, director access
to management and independent advisers,
director compensation, director orientation and
continuing education, management succession,
and an annual performance evaluation of the
Board of directors.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 47
Telkom Annual Report 200948
Corporate governance (continued)
Internal controls
Our internal control environment is
monitored by the ARC, which:
• Ensures that risks are identified and
assessed.
• Ascertains that all systems and
processes to prevent and/or mitigate
these risks are monitored; and
• Reviews the quality of reporting and
adherence to internal policies and other
governance best practices.
Our organisational structure facilitates and
allows the flow of information upstream,
downstream and across all business
activities. This is supported by formal
mechanisms in place to communicate the
responsibilities and expectations of
business activities at executive level.
Section 404 of the Sarbanes-Oxley Act
requires that companies listed on the NYSE
annually evaluate and report on the
effectiveness of their controls over financial
reporting. We submit progress reports at
least quarterly to the ARC which then
reports to the Board.
Our internal audit function plays a key role
in providing an objective view and
continuous assessment of the effectiveness
of the internal control systems throughout
the Group to both management and the
ARC.
Mechanisms are in place that capture andreport on identified internal control
Telkom Audit Services (TAS) is an independent andobjective assurance and consulting function that focuses on a balance between
and value enhancementvalue protection
weaknesses, including processes thatascertain the level at which deficienciesare reported. Significant deficiencies andmaterial weaknesses in internal controls arereported to top management, the Board orthe ARC, and the external auditors.
Telkom Audit Services (TAS)
TAS, in accordance with global bestpractices, is a value-adding, independentand objective assurance and consultingfunction, designed to add value to, andimprove our operations. Its mandate is toprovide an independent assessment on thereliability of financial reporting, validatecontrol systems and provide an oversight ofmanagement and overall businessactivities, bringing a systematic, disciplinedapproach to the evaluation andimprovement of the effectiveness of riskmanagement, internal controls andcorporate governance processes. Incarrying out its mandate, TAS co-ordinateswith other control and monitoring functions(enterprise risk management, compliance,security, legal, ethics, environment andexternal audit).
TAS is required to provide reasonableassurance and to determine whether or notour control processes and systems areadequate and functioning to ensure that:
• Resources and assets are effective andefficiently used and adequatelyprotected;
• Risks are appropriately identified andmanaged;
• Significant financial, managerial and
operating information is accurate,
reliable and timely;
• Employees’ actions are in compliance
with policies, standards, procedures,
applicable laws and regulations;
• Significant legislative or regulatory
issues impacting on us are recognised
and addressed appropriately; and
• An assessment is provided regularly of
the adequacy and effectiveness of our
corporate governance, risk and control
processes for controlling our activities
and managing our risks.
To ensure the independence of TAS, the
Group Executive: Telkom Audit Services
reports functionally to the ARC Chairman
and administratively to the Chief Financial
Officer and has direct access to the Chief
Executive Officer. In this context, the ARC
oversees processes related to financial risks
and internal controls, financial reporting
and the monitoring of internal and external
auditing processes. In carrying out its
duties, the team has unrestricted access to
all Telkom functions, records, property and
personnel.
The TAS team conducts audit work, or any
other task, in accordance with the internal
auditing standards set by the globally
recognised Institute of Internal Auditing
(IIA). This requires compliance with the
Standards or Professional Practice of
Internal Auditing (SPPIA) and, in particular,
Telkom AR front.qxp 8/12/09 6:21 PM Page 48
Telkom Annual Report 2009 49
n
the codes of conduct and ethics that are promulgated from time to
time by relevant professional bodies and any other corporate
governance initiatives. Internal audit practices and activities are
also benchmarked independently by an authoritative external party
as recommended by the SPPIA and required by the ARC.
The Network Operations Centre (NOC)
Our world-class campus in Centurion, outside Pretoria,
enables us to offer our customers an integrated solution to
their network requirements. At its heart is the Network
Operations Centre (NOC). Developed from the best in
world-class practices and centres, it employs the latest
technologies and houses high level technical skills and
support teams. It offers full network monitoring, fault
management, configuration management, accounting
management, performance management and security
management 24 hours a day, seven days a week.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 49
Telkom Annual Report 200950
Enterprise risk management
Our Enterprise Risk Management (ERM)
strategy was comprehensively reviewed
during the year, in particular the capturing
and reviewing of the high risks for
the business for the Telkom enterprise
risk management committee (TERMC),
together with the compilation of an
improved TERMC report.
As a result of certain gaps identified by
KPMG’s risk maturity assessment, the risk
management framework, risk policy and
procedure deliverables were updated and
approved by the Board.
A proposed risk reporting format for the
various risk committees was developed to
help the audit and risk committee (ARC)
monitor ERM’s effectiveness across the
Group and the Risk Portfolio was monitored
on an on-going basis.
Our various subsidiaries and service
organisations completed risk management
compliance plans and all Telkom SA policies
were endorsed. In addition, all Telkom
Group subsidiaries are now covered.
Enterprise risk management governance
We manage a variety of risks including
financial; political; regulatory; technology;
human capital; operational; safety, health
and environment; security; strategic and
We manage a variety of risks including financial,political, regulatory and technology across the
Maur i t a i n i aMa l i
N ige r
Ben in
Bu rk ina
L ibe r i a
S i e r ra L eone
Senega l
E th i op iaSoma l i a
Gu inea
Madagas ca rMozamb ique
Bo t swana
Ango la
DRC
Burund i
Rawanda
UgandaCongoGabon
Cameroon
Z imbabweNamib ia
Zamb ia
Tanzan ia
Keny a
Cen t ra l A f r i c anRepub l i c
Sudan
Le so tho
Swaz i l and
Sou th A f r i c a
N ige r i aTogo
GhanaI vo r yCoa s t
Gamb ia
Ove r l ap o f P r imar y Ope ra to r so f A f r i c a On l i ne and MWEB
Ove r l ap o f Mu l t i - L i nk s and MWEB
On ly A f r i c a On l i ne Ope ra to r s
Ove r l ap o f D i s t r i bu to r s o fA f r i c a On l i ne and MWEB
On ly A f r i c a On l i ne A f f i l i a t e s(Pa r tne sh ip w i t h A - l i nk )
Te l kom S A L im i t ed
S AT -3
S AT -3
S AT -3
S AT -3
EASSy
EASSy
EASSy
Equa .Gu inea
African continent
Telkom AR front.qxp 8/12/09 6:21 PM Page 50
Telkom Annual Report 2009 51
Enterprise risk management governanceEnterprise risk management at Telkom is guided and monitored by various committees that have adopted certain principles to assist themin executing their respective enterprise risk management functions. The model below outlines the key enterprise risk management structures,the key role-players and their roles and responsibilities.
t
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 51
Telkom Annual Report 200952
Enterprise risk management (continued)
legal, across the African continent. These
are identified, measured and monitored
through various control mechanisms.
Our Board which sets the risk management
standard and risk appetite* for the group is
supported by various committees whose
responsibilities include:
• Reviewing and recommending to the
Board risk management standards,
including risk control principles and
overall risk measure.
• Reviewing the overall risk appetite and
profile of the Group.
• Reviewing significant changes in the risk
framework, risk policy and the various
procedures that support the risk strategy.
• Reviewing the dashboard of strategic
risks that impact on us; and
• Reviewing reports on specific material
aspects of our risk governance and risk
management processes.
On a daily basis, risks are managed by a
number of committees (see chart), mainly
through the ARC, which reports to the
Board.
*Risk appetite is a framework which we use to measure
the ‘amount of risk’ – on a broad level – which we are
prepared to accept in our pursuit of our strategic and
financial objectives. As part of our business strategy, it
helps management allocate resources across the various
service organisations to ensure that objectives are met.
Responsibility and accountability
• The Board
The Board, through the ARC, is responsible
for the total risk management process and
the formation of its own opinion on the
effectiveness of the process. The Board
approves the risk strategy in liaison with,
and through recommendations of, the
ARC.
• Audit and risk committee (ARC)
The ARC, which is empowered by the
Board, operates within written guidelines
established by it. The ARC is responsible
for reviewing and monitoring our risk
management performance and providing
an on-going high level risk assessment
to the Board. To ensure it fulfils its
responsibilities, the ARC can access any
information it needs.
• Telkom enterprise risk management
committee (TERMC)
This is a dedicated risk management
committee appointed by the ARC to
implement an effective risk management
process that will optimise our risk taking.
• Group managementThe senior and line management teams of
our service organisations are responsible
for effective risk management.
Enterprise risk management framework
Risk is an unavoidable consequence of
doing business but, managed correctly, it
can be an opportunity for us to operate
competitively.
In our quest to be the leading customer and
employee-centred ICT solutions service
74%
10%
8% 8%
2006/07
Copper cable Dect (CPE) Optic Damages (unknown third parties)
69%7%
11%13%
2007/08
68%3%
14%
15%
2008/09
We practice a risk management approachthat triggers an
and dynamic approach
informed
In the year under review our coppercable losses amounted to R284.9 millionexcluding outbound revenue losses whichis estimated at R907 million.
Loss statistics for 2008/2009
Telkom AR front.qxp 8/12/09 6:21 PM Page 52
Telkom Annual Report 2009 53
provider, we practice a risk management
approach that triggers an informed and
dynamic response through the evaluation
and management of the many
opportunities and threats that permeate our
business environment.
Protecting our assets
To minimise, and preferably prevent, fraud,
corruption and theft, we have a Telkom
Asset and Revenue Protection Services
(TARPS) section in place. Its scope includes
forensic services, a fraud committee and
an anti-fraud policy statement.
Forensic services investigates all fraud-
related activities; the committee, which
meets continuously, monitors all fraud-
related activities and the policy statement
implements fraud risk management.
Although no major fraud incidents were
reported in the year under review, asset
theft losses increased by 27%, mainly as a
result of information technology equipment
compliance which highlighted past
lost/stolen equipment at ‘unknown times’.
The Telkom Crime Hotline 0800 124 000
The Hotline 0800 124 000, which takes
calls from employees and the public
regarding any Telkom-related alleged
unethical or criminal activities, was
contracted out to an independent
administrator on January 1, 2009 in
compliance with the Sarbanes-Oxley Act
requirements. The administrator does,
however, forward all information to TARPS
for investigation.
As a result, employee trust in the line has
been rejuvenated in terms of anonymity. In
addition, our Whistleblower policy was
updated to ensure more effective support
for the whistleblowing process.
Security services
We continue to use physical and technical
security services for physical access control
to all our sites and the protection of our
assets, and the provision of electronic
solutions for all our security needs and
requirements.
Cable theft has
to affect our operations
Statistics
2006/07 2007/08 2008/09
Total incidents reported 9,279 7,954 7,216
Total cases investigated 8,863 7,838 7,116
Total cases resolved 8,443 6,427 5,960
Case types investigated
TARPS investigations
Asset theft 1,794 2,026 2,573
Burglary 117 141 196
Business Code of Ethics 294 293 265
Fraud 192 124 130
Line management requests 72 27 15
Payphones 224 157 112
Reputational risk (Refund scam) 594 469 657
Robbery 111 159 244
Security breaches 57 16 16
Vehicle 96 39 19
Forensic projects 3 – –
Total TARPS investigations 3,554 3,451 4,227
Network Protection Services (NPS) investigations
Cable 3,399 3,198 2,018
Network fraud 786 716 690
Solar panel theft 1,124 473 181
Total NPS investigations 5,309 4,387 2,889
Successes
Number of arrests 1,250 1,079 568
Number of convictions 156 165 128
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 53
Telkom Annual Report 200954
Enterprise risk management (continued)
Cable theft
Cable theft has been a problem for the last
10 years and increased at an alarming
rate. In the year under review our copper
cable losses amounted to R284.9 million
excluding outbound revenue losses which
is estimated at R907 million.
Our main cable network and open wire
routes have been targeted by highly
organised syndicates and, on our smaller
cable routes, we have seen an increase in
petty crime. The key drivers, we believe,
are the rising price of copper which, on
average, increased by 600% over the last
five years, and the strong demand for the
metal from international markets, in
particular China.
While the problem is not unique to us or,
indeed, South Africa, as evidenced by
reports from, amongst other countries,
Zambia, Tanzania, Kenya, Great Britain
and the United States, it is impacting on
our performance as the resources used to
replace the stolen cable should actually
be used to roll out new infrastructure and
provide new services.
We have instituted a number our own
contingency measures – the investment of
millions of rands in security personnel; cable
alarms; placing cables underground;
replacing manhole covers with lockable lids,
closer working relationships with the South
African Police Services, Non-Ferrous Theft
Combating Committee and Business Against
Crime, amongst others – to combat the
problem.
In addition, we believe the amendedSecond Hand Goods Act, whose aim is to
The Second Hand Goods Actprovides for stiff
including imprisonment
Cable statistics
Total cable losses
R millions 2006/07 2007/08 2008/09
Copper cable 227.1 194.6 190.6
Dect (CPE) 31.8 20.0 9.2
Optic fibre 25.7 31.6 40.0
Damages 26.1 37.7 40.8
Payphone vandalism 15.0 5.8 4.3
Total 325.7 289.7 284.9
Cable theft repair costs
R millions 2006/07 2007/08 2008/09
Copper 179.5 151.2 141.2
Fibre 5.5 7.9 10.2
Total 185.0 159.1 151.4
Estimated outbound revenue loss due to cable theft
R millions 2006/07 2007/08 2008/09
Outbound revenue1 368.1 626.3 906.8
1 Estimates based on certain assumptions
penalties
Telkom AR front.qxp 8/12/09 6:21 PM Page 54
Telkom Annual Report 2009 55
regulate the business of dealers in second hand goods in order tocombat the trade in stolen goods, will be a valuable tool in thefight against this problem.
The Act provides for stiff penalties, including imprisonment, forconvicted metal thieves and scrap metal dealers.
We are also lobbying to have copper declared in the samecategory as diamonds and for charging cable thieves with‘sabotage’ instead of ‘theft’.
Telkom Business Continuity Management (BCM)In 2002 we established the Telkom Business Continuity/DisasterRecovery unit (Telkom BC/DR) which mainly focused on thereadiness of our critical sites in case of a disaster or major incident.
In February 2008, we reviewed BC/DRs network-driven focusand re-established the function as an enterprise-wide BusinessContinuity Management organisation. Its focus areas are toimprove all disaster-related activities across the Group, rangingfrom management to operations and systems.
A key deliverable in the year under review was the re-establishment of our BCM Institutional Capacity which resultedin an improved BCM Governance, Additionally, we reviewed ourBCM company policy and charter, the implementation of a BCMtraining programme – which 32.1% of Telkom managers andsenior managers completed – the review of the BCM websiteand generic BCM awareness on all managerial levels. Theestablishment and implementation of operational businesscontinuity plans was also a key deliverable.
Going forwardOur key focus areas for the year ahead are:
• Implement, through a phased approach, the revised ERMstrategy and align it to an enterprise-wide view of all risks.
• Upgrade our risk management training programme.
• Align corporate governance and ERM to the draft King III code.
• Conduct compliance risk assessments in terms of the agreedframework.
• Present the first critical element in the determination of our riskappetite – the draft Risk Bearing Capacity (RBC) – to TERMC.
• Create an independent division by separating ERM from theARC, but ensuring that audit is still an integral part of our overallrisk management; and
• A significant enhancement of the quality of ERM reporting to theBoard, business units and subsidiaries.
We will also continue to improve our communication to internaland external stakeholders through a review and furtherdevelopment of our risk management processes. Our riskmanagement database will also be re-examined to ensure weprovide timeous, current, accurate and accessible information toour stakeholders.
ent
Menlyn Park – the flagship of the new generation
TelkomDirect stores
Since its opening in December 2008, the TelkomDirect store
in Pretoria’s up-market Menlyn Park shopping centre has
proved to be a huge hit with customers, justifying our faith in
launching this ‘third generation’ store offering to South
African consumers.
Open seven days a week from 09:00 to 19:00, the store
is one of the 136 we have in major shopping centres across
the country.
It provides not only a range of goods from fixed mobile
conversions (the phones of the future) to laptops, ADSL units,
mobile phones, play stations and satellite navigation units,
but also free technical support.
“Basically,” says store manager Thobeng Choeu, “we can
fix or help with anything that is software-related. No other
operator offers this service, making it a unique plus for
Telkom.”
With its ‘touch and feel’ ambience, the store is a superb
marketing tool for us as it showcases our new technologies
and technical expertise. A key customer ‘pull’ factor is the
free doBroadband gaming facilities at the rear of the store.
Here youngsters – and adults – can play a range of games
to their heart’s content.
Says Thobeng: “Because of the tactile experience, many
customers end up buying the games and play stations”.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 55
Telkom Annual Report 200956
Enterprise risk management (continued)
Risk factorsYou should carefully consider the risksdescribed below in conjunction with theother information and the consolidatedfinancial statements of the Telkom Groupand the related notes included elsewhere inthis annual report before making aninvestment decision with regard to Telkom’sordinary shares or ADSs.
Risks related to our business• We may be affected by global
economic and financial conditionswhich could cause our growth rates,operating revenue, net profit anddividends to decline.
• Any changes to our mobile strategy orour inability to successfully implementsuch strategy and organisationalchanges, could cause our growth rates,operating revenue, net profit anddividends to decline.
• If we are not able to turn aroundthe financial performance of our Multi-Links subsidiary, our Group’s financialcondition could decline.
• Increased competition in the SouthAfrican communications market mayresult in a reduction in overall averagetariffs and market share and an increasein costs in our fixed-line business, whichcould cause our growth rates, operatingrevenue and net profit to decline andour churn rates to increase.
• Increased competition in the SouthAfrican data communications marketmay adversely impact our growth rates,operating revenue and net profit.
• We may not be successful inimplementing our strategy of transformingfrom basic voice and data connectivityto fully converged solutions offeringintegrated voice, data, video and internetservices and managing costs through ourrestructuring programme, which couldadversely impact our ability to maintainprofitability by growing and protectingrevenue, while managing costs.
• There are significant political,economic, regulatory, taxation andlegal risks associated with our African
investments outside of South Africa,which could adversely affect ourbusinesses and cause our financialcondition and net income to decline.
• The number of commercially attractiveacquisition and investment opportunitiesfor our fixed-line and mobile businesseson the African continent is limited.Moreover, the consummation ofacquisitions and investments may beunsuccessful, which could have a materialadverse effect on our future growth.
• The growth in the mobile market inSouth Africa has resulted in an increasein the number of Telkom calls terminatingon mobile networks as opposed toour fixed-line network. Telkom’s netinterconnect margins and net profitcould decline if this trend continues.
• If we are not able to continue toimprove and maintain our managementinformation and other systems, we couldbe subject to losses and inaccuracies inour financial reporting, our ability toprovide accurate and comprehensiveoperating information and to competemay be harmed and our share pricecould decline.
• If we lose key personnel or if we areunable to hire and retain highlyqualified employees and partners, ourbusiness operations could be disruptedand could impact on our ability tocompete successfully.
• If Telkom is not able to successfully growrevenues, profits and cash flows from itsexisting and new businesses to replacerevenues, profits and cash flowspreviously received from Vodacom,Telkom may not be able to paydividends and service its debt andcould be required to lower or defercapital expenditures, dividends anddebt reduction, which could cause thetrading prices of Telkom’s ordinaryshares and ADSs to decline.
• We have negative working capital,which may impair our operating andfinancial flexibility and require us todefer capital expenditures and we may
not be able to pay dividends and ouroperations and financial conditioncould be adversely affected.
• Continuing rapid changes intechnologies could increase competitionor require us to make substantialadditional investments in technologiesand equipment, which could reduce ourreturn on investment and net profit.
• If we continue to experience high ratesof theft, vandalism, network fraud,payphone fraud and lost revenue due tonon-licensed operators in our fixed-linebusiness, our fixed-line fault rates couldincrease and our operating revenueand net profit could decline.
• Delays in the development and supply ofcommunications equipment may hinderthe deployment of new technologies andservices and cause our growth rates andnet profit to decline.
• Actual or perceived health risks relatingto mobile handsets, base stations andassociated equipment and any relatedpublicity or litigation could make itdifficult to find attractive sites for basestations and impact our ability to growour 3G mobile network business, andreduce our customer base, averageusage per customer and net profit.
Risks related to Telkom’s ownership bythe government of South Africa andmajor shareholders• Telkom’s major shareholders are entitled
to appoint the majority of Telkom’sdirectors and exercise control overTelkom’s strategic direction and majorcorporate actions.
• The government of the Republic of SouthAfrica may use its position asshareholder of Telkom and policymakerfor, and customer of, the telecommuni-cations industry in a manner that maybe favourable to our competitors andunfavourable to us.
Risks related to regulatory and legalmatters• The regulatory environment for the
telecommunications industry in SouthAfrica is evolving and regulations
Telkom AR front.qxp 8/12/09 6:21 PM Page 56
Telkom Annual Report 2009 57
addressing a number of significantmatters have not yet been made. Theinterpretation of existing regulations, theadoption of new policies or regulationsthat are unfavourable to us, or theimposition of additional licenceobligations and fees on us, coulddisrupt our business operations andcould cause our net profit and thetrading prices of Telkom’s ordinaryshares and ADSs to decline.
• Our tariffs are subject to approval bythe regulatory authorities, which maylimit our flexibility in pricing and couldreduce our revenues and net profit.
• Any payments to Telcordia TechnologiesIncorporated, or Telcordia, in thedamages phase of its arbitrationproceedings against Telkom, will berequired to be funded by Telkom fromcash flows or the incurrence of debt,which could have a material adverseeffect on its financial condition andresults of operations.
• We are parties to a number of legaland arbitration proceedings, includingcomplaints before the South AfricanCompetition Commission. If we losethese legal and arbitration proceedings,we could be prohibited from engagingin certain business activities and couldbe required to pay substantial penaltiesand damages, which could cause ourrevenue and net profit to decline andhave a material adverse impact on ourbusiness and financial condition.
• If we are required to unbundle the localloop, or are unable to negotiatefavourable terms and conditions for theprovision of interconnection servicesand facilities leasing services or ICASAfinds that we have significant marketpower or otherwise imposesunfavourable terms and conditions onus, our business operations could bedisrupted and our net profit coulddecline.
• If we are unable to recover thesubstantial capital and operational costsassociated with the implementation ofcarrier pre-selection and number
portability or are unable to implementthese requirements in a timely manner,our business operations could bedisrupted and our net profit coulddecline. The implementation of carrierpre-selection and number portability willalso likely further increase competitionand cause our churn rates to increase.
• The implementation of the Regulation ofInterception of Communications andProvisions of Communication-RelatedInformation Act, or RICA, could becostly and may negatively impact theability of Telkom to register customersand may require us to disconnectexisting customers, causing ourpenetration rates, growth rates, revenueand net profit to decline.
• If Telkom is required to comply with theprovisions of the South African PublicFinance Management Act, 1 of 1999,or PFMA, and the provisions of theSouth African Public Audit Act of 2004,or PAA, Telkom could incur increasedexpenses and its net profit could declineand compliance with the PFMA andPAA could result in the delisting ofTelkom’s ordinary shares from the JSE.
• Our total property taxation expensecould increase significantly and our netprofit could decline as a result of theenactment of the South African LocalGovernment: Municipal Property RatesAct, 6 of 2004.
Risks related to the Republic of SouthAfrica• Fluctuations in the value of the rand and
inflation rates in South Africa could havea significant impact on the amount ofTelkom’s dividends, the trading prices ofTelkom’s ordinary shares and ADSs, ouroperating revenue, operating expenses,net profit, capital expenditures and onthe comparability of our results betweenfinancial periods.
• The levels of unemployment, povertyand crime in South Africa may cause thesize of the South African communicationsmarket and our growth rates, operatingrevenue and net profit, as well as the
trading prices of Telkom’s ordinaryshares and ADSs, to decline.
• Should the country continue toexperience high occurrences of poweroutages, Telkom’s operational capacity,expenses and revenues will be affectedand its operating revenue and net profitcould decline.
• The high rates of HIV infection in SouthAfrica could cause the size of the SouthAfrican communications market and ourgrowth rates, operating revenue and netprofit to decline.
• Significant labour disputes, workstoppages, increased employee expensesas a result of collective bargaining andthe cost of compliance with SouthAfrican labour laws could limit ouroperating flexibility and disrupt ourfixed-line business operations andreduce our net profit.
• South African exchange controlrestrictions could hinder our ability tomake foreign investments and procureforeign denominated financing.
Risks related to ownership of Telkom’sordinary shares and ADSs• The future sale of a substantial number
of Telkom’s ordinary shares or ADSscould cause the trading prices ofTelkom’s ordinary shares and ADSs todecline.
• Your rights as a shareholder aregoverned by South African law, whichdiffers in material respects from therights of shareholders under the laws ofother jurisdictions.
• It may not be possible for you to effectservice of legal process, enforcejudgments of courts outside of SouthAfrica or bring actions based onsecurities laws of jurisdictions other thanSouth Africa against Telkom or againstmembers of its Board.
• Your ability to sell a substantial numberof ordinary shares and ADSs may berestricted by the limited liquidity ofordinary shares.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 57
Telkom Annual Report 200958
Black economic empowerment
In the year under review, we continued to
make a significant contribution towards the
achievement of the objectives of our
government’s Broad-Based Black Economic
Empowerment (BBBEE) policies and the
transformation of the Information and
Communications Technology (ICT) sector.
One of our strategic goals is to become
one of South Africa’s leading empowered
companies. Our BBBEE Strategy and
Implementation Roadmap, which are the
enablers to achieve the objectives of our
2010 Strategic Plan, have both been
approved by the Board.
Our BBBEE self-assessment has revealed a
number of highlights.
• In ownership, a series of landmark
transactions – the sale of 15% of our
shares in Vodacom, the declaration of a
special dividend and the listing and
unbundling of Vodacom shares –
unlocked value for our shareholders, the
majority of whom are public entities and
black shareholders.
• In management control, we were
ranked the second most empowered
company on the JSE Securities
Exchange by the Financial Mail Top
Companies Survey. This ranking
reflected the total transformation of our
Board and top management structures
to significantly exceed government’s
targets for this element of BBBEE.
• In preferential procurement, we were
again ranked one of the best performers
on the JSE Securities Exchange by the
Financial Mail Top Empowerment
Companies Survey. Our Preferential
Procurement is recognised as a champion
in driving economic transformation
among JSE Listed companies, state-
owned enterprises and within the ICT
sector. During the past financial year,
we procured goods and services
worth R4.1 billion from black-owned
companies, equivalent to 33.2% of total
measured procurement spend. This
figure exceeds the 15% target in the
BEE Codes by a significant margin. BEE
recognised procurement spend from all
suppliers was R8.8 billion, equivalent to
70.4% of total measured procurement
spend. Again, this figure significantly
exceeds the 50% target in the BEE
Codes. BEE recognised procurement
spend from Qualifying Small Enterprises
(QSEs) and Exempted Micro-Enterprises
(EMEs) declined slightly as many of our
small suppliers graduated to become
large enterprises measured under the
Generic Scorecard of the BEE Codes of
Good Practice.
In this regard, we have a dual BEE
evaluation policy that considers both the
DTI scorecard (broad-based BEE
evaluation criteria) and levels of black
ownership (narrow-based BEE criteria)
when making procurement decisions.
This policy is in line with best practices in
the South African economy. Our
preferential procurement policy also
seeks to move beyond BBBEE
compliance and achieve other qualitative
and industrial policy objectives such as
reducing our dependence on
international resources, the development
of domestic technology production
capabilities and the creation of
sustainable black-owned ICT companies.
Although our preferential procurement
policy is perceived to be stringent, the
majority of our large suppliers, many of
them multi-national companies, have set
up local operations, sold equity to black
shareholders and developed BBBEE
Commitment Plans that are in line with
our policy.
2007/ 2008/BBBEE element Target 08 09
BBBEE procurement spend from all suppliers 50% 55% 70.4%
BBBEE procurement spend from qualifying small enterprises or exempted micro-enterprises 10% 6.7% 5.1%
BBBEE procurement from black-owned suppliers 9% 23.4% 33.2%
BBBEE procurement from black women-owned suppliers 6% 6.3% 4.8%
We constantly strive to maintain our
in terms of implementing ourBBBEE transformation pillars
momentum
Telkom AR front.qxp 8/12/09 6:21 PM Page 58
Telkom Annual Report 2009 59
Over the past decade, we have made a
major contribution towards the economic
transformation of our sector by awarding
large contracts worth tens of billions of
rands that facilitated the creation of
sustainable black-owned ICT companies.
Through Procurement’s intervention, wehave managed to persuade multi-nationalsto partner with local BEE companies. Thesepartnerships will provide black-ownedcompanies with the opportunity to upgradetheir skills and other capabilities. During thenext phase, they will be in a position todevelop their own independent brands,products and services that can be marketedin South Africa and the rest of the world.
Thank you Telkom for having faith in
me, says Maletsati
Tracking the health of its employees is
critical for Telkom as, not only is it a legal
requirement but it’s the right thing to do in a
company whose employees are subjected
to various levels of stress in their daily lives.
In line with our commitment to sourcing
BBBEE suppliers, we regularly put out
tenders for the outsourcing of various
activities and, in 2002, a tender for
occupational health testing was awarded
to a small company, Maletsati
Occupational Health.
Initially the company, owned and run by
Maletsati Mosweu, worked in the Gauteng
region, providing an in-house clinic service
from the Telkom Centre For Learning in
Johannesburg. We were so impressed with
the service and attention to detail that in
2004 we offered Maletsati a national
There was a major
in our BBBEE suppliers spendimprovement
We have various programmes in placeto attract and retain black employees,particularly women. A total of 87% ofnew appointments in 2009 were black,bringing overall representation in theworkforce to 62%.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 59
Telkom Annual Report 200960
Black economic empowerment continued
contract for our five regions, creating
additional jobs in the process as she had
to set up satellite offices.
Maletsati, who says she is eternally grateful
to Telkom for the faith shown in her and her
colleagues, tests up to 2,000 employees a
year, screening them for ailments such as
diabetes, blood pressure, impaired vision
and hearing.
“Telkom has been my springboard. It hasallowed me to pace myself to the pointwhere I am now ready to take on otherjobs and, at the same time, intensify mycommitment to the community through thecompany’s support for, amongst others, theSociety For the Blind, mentoring newlyqualified nurses and helping some children
through school. Telkom has taught me thatsupporting the smaller people paysdividends all round,” says Maletsati.
• We have developed aggressiveemployment equity targets to addressthe challenges we face in terms ofincreasing the diversity of ourworkforce, especially the representationof black women and black disabledpeople in the middle and seniormanagement levels of the organisation.We have put a Human Capital andDiversity Strategy in place to ensure thatour workforce reflects South Africandemographics in terms of race, genderand disability. We also have variousprogrammes in place, including adedicated talent management division,
to attract and retain black employees,especially black women. A total of 87%of new appointments in 2009 wereblack, bringing overall black repre-sentation in the workforce to 62%. Theproportion of disabled employees hasrisen from 0.93% in 2007 to 1.13% in2009. We continue to drive variousinitiatives across the organisation toensure that our policies and guidelinesattract and support the recruitment ofpeople with disabilities and toencourage the disclosure of currentemployees with disabilities.
• As part of our commitment towardsEnterprise Development, more than100 black-owned companies are nowbeneficiaries of a new short-term
We have developed
employment equity targets
The elements in turn have indicators, each of which has its own weightings, measurement principles and compliance targets.
Based on its scorecard performance, a business/enterprise is awarded a BEE Status and Recognition Level. The highest BEEStatus is Level 1. This is awarded to an enterprise which scores more than 100 points and gives it a BEE recognition level of135%. Effectively an enterprise purchasing goods and services from a Level 1 supplier can recognise 135% of the procurementon its own scorecard.
The lowest BEE Status is Level 8, which is awarded to an enterprise with a score of between 30 and 40 points. This equatesto a BEE recognition level of 10%.
An enterprise that scores less than 30 is a non-compliant BEE contributor with a BEE recognition level of 0%.
How BBBEE worksOn February 9, 2007, the Department of Trade and Industry (DTI) released its Broad Based Black Economic Empowerment(BBBEE) Codes of Good Practice (the Codes), a framework to guide government departments in the implementation of BBBEE.
The Codes have a generic scorecard (the Scorecard) with seven elements:
• Ownership (20 points)
• Management control (10 points)
• Employment equity (15 points)
• Skills development (15 points)
• Preferential procurement (20 points)
• Enterprise development (15 points)
• Socio-economic development (5 points).
progressive
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Telkom Annual Report 2009 61
payment policy that facilitates thesettlement of invoices in less than15 days. Other initiatives includetraining provided by senior staffmembers within procurement to enablesuppliers to comply with qualitystandards and the training provided tosuppliers at the Telkom Centre forLearning. Khayelihle Projects, whichwas assisted to develop and implementPCR, an abridged ISO 9000 of 2000quality system, is one of manybeneficiaries of Telkom’s EnterpriseDevelopment. Management has beenworking hard at identifying varioussustainable initiatives in this area toimprove on current enterprisedevelopment contributions. Many of theidentified initiatives have beenapproved by the Company’s topmanagement and are in the process ofbeing implemented.
• We recognise that we have a critical
role to play in transforming communities
and in ensuring that they are
sustainable.
Our Telkom Foundation is a key driver in
this regard and its activities are detailed on
pages 78 to 80.
Guma – smart by name and nature
Success stories include Guma Smart Card. This black-owned company has grown
from small beginnings to become a world-class manufacturer of smart cards that has
replaced imports with local production and employment and developed lucrative
export markets. Guma recently produced its 100 millionth smart card.
“Today Guma is a role model black company with ownership of Gijima AST, Tourvest,
etc. employing over 10,000 value-adding employees including those in our overseas
offices like Australia, Canada, America, etc. Thanks to Telkom for having put faith in
us as a small company with big dreams. This year we achieved 100 million Telkom
phonecards manufactured locally and delivered by Guma Smart Card. Through
Telkom’s vigorous support and commitment to quality, Guma Smart Card attained
ISO 9001 certification over six years ago. Without Telkom’s commitment to BEE, the
success we have achieved thus far would not have been possible. Thanks to Telkom
management for staying true to the spirit of empowerment,” says Robert Matana
Gumede, Chairman: Guma Group and Gijima AST.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:21 PM Page 61
Telkom Annual Report 200962
Human capital management
Introduction
The labour dynamics in the global and local
integrated communications technology (ICT)
industry have been impacted by the rapid
pace of change in the industry, and by the
changes in the sector-specific and broader
economies. These events have led to a
marked change in the labour supply and
skills retention patterns in recent years.
This complex and evolving environment has
tested our ability to provide a continuous
supply of skills to ensure we achieve our
strategy of growing our business and
delivering shareholder value.
The year under review’s performance has
given us a platform to critically identify and
prioritise interventions and test our progress
in this regard.
Our workforce
We currently have 23,520 full-time
employees, 5.5% less than the previous year,
with the majority (68%) in operational and
support roles; a further 21% in supervisory
roles and 11% in managerial positions.
The proportional distribution of our people
largely corresponds with our existing and
potential customer base.
Staffing and staff exits
In line with the changing labour dynamics of
the industry, our natural attrition (employees
who resigned and were not replaced) rate
rose to 9% (7% in the previous year) and
resignations rose to 8% (6% in 2007/08).
This , however, is still in line with the South
African industry norm.
We have developed progressiveemployment equity targets to addressthe challenges we face in terms of thediversity of our work force.
The past year’s performance has given us aplatform to critically identify and
prioritise interventions
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Telkom Annual Report 2009 63
Headcount movement
Compensation and benefits
• Remuneration
While the fixed, or guaranteed, remune-
ration packages are reviewed each year,
in certain critical skills areas, depending on
the supply and demand of those skills in the
market, there are ad hoc reviews to ensure
we remain competitive.
• Non-executive directors
The directors, on recommendation of the
human resources review and remuneration
committee, determine the fees of non-
executive directors who do not participate
in the incentive scheme for top
management. These fees are set out on
Page • and in Note • in the consolidated
annual financial statements.
• Executive remuneration
Fixed remuneration is currently set at
the market median and independent
remuneration consultants advise the Board’s
remuneration committee on executive
management packages.
Guaranteed packages are influenced by the
scope of each individual’s role, knowledge,
skills and experience. These are reviewed
2006 2007 2008 2009(**)
Opening balance 28,972 25,575 25,864 24,879
Employee gains 706 1,512 918 1,047
Appointments 686 1,486 891 1,034
Re-instatement 20 26 27 13
Employee losses 4,103 1,223 1,903 2,406
Employee retrenchments 2,990 20 4 10
Voluntary early retirement 674 7 2 5
Voluntary severance 2,295 13 2 5
Involuntary reductions 21 0 0 0
Natural attrition 1,113 1,203 1,899 2,396
Closing balance 25,575 25,864 24,879 23,520
Other employees* 4,227 5,807 3,801 4,307
* Other employees refer to contract and temporary employees but exclude Board members,learnerships and bursary students.
** Employee retrenchments for 2009 were employee initiated.
each year as part of our overall
remuneration review process and they are
assessed against individual performance.
The difference between the upper quartile
and the market median for guaranteed
packages is used when calculating
incentives for top management.
• Other employees
Salary increases for all employees –
management and bargaining unit – are
approved by the Board. Non-management
employees are paid in terms of the
negotiated agreements with the relevant
unions.
• Short-term incentive plan
There is an incentive scheme for our
management based on a balanced set of
measures determined by the Board. The
measures consist of financial and key
performance driven targets, based on the
approved business plan. All other
employees participate in an incentive
scheme with different measures applied at
the lower levels.
In the top management scheme, the
financial driver accounts for 45% of the
total award, and this is measured by the
basic earning per share, return on assets
(ROA) and the defend and grow revenues
strategy. Performance drivers (customer
satisfaction and organisational renewal
components) account for 35% and 20% is
allocated for individual performance.
• Long-term incentive plan
All employees receive conditional shares,
subject to their individual performance for
each year preceding the allocation. The
allocation is based on the average share
price 10 days before the award date of
June 1 each year, using a percentage of
the employees’ total package. Our
employees have no right or title to the
shares and cannot receive dividends until
the shares have vested. The shares will only
vest if we meet our annual financial targets
which are set out in the relevant team
award plan, and employees must remain in
continuous employment. The Company will
introduce a new share scheme subject to
shareholders’ approval.
• The Telkom Pension Fund and
Retirement Fund
The old Pension Fund, only had 123
members and the Telkom Retirement Fund
had 23,389 members at March 31, 2009
and both are financially sound.
Performance management
The performance management system has
been enhanced to ensure that our
leadership is measured on the right criteria
to drive behaviours that will ensure we
continuously improve on the value we
obtain from our employees. A five point
assessment scale has been introduced that
ranges from ‘consistently exceeds job
requirements’ to ‘consistently does not meet
job requirements’ to distinguish those who
do from those who do not.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:22 PM Page 63
Telkom Annual Report 200964
Human capital management (continued)
(CFL) with the balance conducted via the
virtual (PC-based) campus interactive
satellite-based facility, Skytrain.
Telkom invested R300 million in employee
training and development in the year under
review (2008: R283 million). At CFL,
12,271 employees (7,796 black
candidates and 3,641 women) were
trained.
The CFL, which conducts most of its training
in-house, spent R35.0 million with external
vendors in the key areas of technical and
IT, management, marketing and Safety,
Health and Environment (SHE).
Training and development
In the past year we focused on building the
necessary current and future competencies
through training programmes in:
• Customer Service Academy (marketing,
sales, call/contact centre and customer
service competencies).
• Leadership and management develop-
ment (enterprise leadership, general
management, frontline leadership and
business development competencies),
and
• Technical training (product knowledge,
technical service, ICT infrastructure, IT
solutions and technology and
innovation management competencies).
The bulk of the training (64%) was through
the classroom-based Centre For Learning
Reward and recognition
Our ‘Name In Lights’ programme that
recognises outstanding achievement by
employees or teams who go the extra mile
is one of the yardsticks that distinguishes
our business from others.
Our Gold Award team award for
2007/2008 went to Daniel Fourie, Alan
Gould, Kevin Burns, Deon Minnie and
Willie Engelbrecht, for developing a
software application that created a service
view for the DSLAM. This application has
enabled us to determine within minutes
whether a DSLAM has been affected by a
major failure. It also provides us with
valuable information for special investigation
sections as it identifies problematic networks
for future investigations.
Daniel also won the CEO Award.
EE training 2008–2009
African female
Coloured female
Indian female
White female
Foreign female
AA and EE as a % of total trained
AA
EE
White male
EE/AA 2008–2009
African female
Female coloured
Foreign female
Female Indian
Female white
Male African
Male coloured
Male foreigner
Male Indian
Male white
In the past year we focused on building thenecessary current and future
competencies
Telkom AR front.qxp 8/12/09 6:22 PM Page 64
Telkom Annual Report 2009 65
• Accelerated development of women, blacks and young
talent
In the year under review, 257 employees (50% female and 70%
black) were trained in value management and technology
management.
Some 18 graduates from the ICT GMP obtained their MSc
degrees in technology and innovation management. Of these,
seven were women and 11 were black.
• Technical training
Approximately 2,883 field technicians were trained in IP
telephony and the installation and maintenance of ADSL and, to
date, more than 3,300 students have been trained on IP-related
offerings, including LAN technologies, router installation and
maintenance programmes.
• Network and IT training
Some 350 ICT diploma and degree graduates and 400 diploma
students were exposed to the industry via theoretical and field
training. This resulted in the creation of various talent pools
including specific functional skills needed by line management; IP
skills and field operations.
• Other training
The CFL trained 200 candidates in 22 events relating to IO driven
Telkom OSS/BSS projects and an additional 240 people were
trained in infrastructure and product/service training on emerging
technologies. Some 111 employees received IT certification with
1,823 attending IT short courses and 154 attending IBM Tivoli
Netcool training.
Jobs Initiative on Priority Skills Acquisition (JIPSA)
This is a government initiative aimed at addressing the skills
shortage in certain areas in South Africa and, to date, 1,138
unemployed ICT graduates have participated in internship
programmes. Of these, we appointed 644 (75% of total industry
appointments). In addition, 40 unemployed female ICT graduates
were trained and completed advanced Internet Protocol
Networking/Solutions development and we offered 22 (55%) of
them full-time employment.
Leadership and management development programmes
During the year under review:
• 22 employees completed the Implementing Strategy and
Managing Performance programme.
• 33 employees from the top leadership team enrolled for the
Telkom Global Leadership Development programme.
Tyron Truter, manager of the Cape Town Electronic Business
Support Centre (ESBC), is a 20 year Telkom veteran who has
worked his way up from being an ‘appie’ in the Mitchell’s
Plan branch of the old Posts and Telecommunications
department in 1989, to where he is today.
He has worked all over the Western Cape, run call centres
on the West Rand of Gauteng and Pretoria and returned to
Cape Town in January 2009 to take over the ESBC.
“This job is what you make of it and I’m having a lot of fun.
I’m not a military style manager, I like to get down and dirty
with my team to ensure we deliver on our key performance
indicators (KPIs). Our customers make us responsible for
everything so we have to keep them happy. South Africans,
in the main, are not techno savvy so it’s up to us to help them
set up their systems. Also, a lot of people don’t realise that we
support all users from MNet to ourselves and we provide a
value-added service to them all.”
Tyron – a fine example of our development programme
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:22 PM Page 65
Telkom Annual Report 200966
Human capital management (continued)
• 40 employees were nominated for the
NGN Professional programme.
• 100 employees have graduated to
date from the Advanced Operations
Management Development programme
(AOMDP).
• 81 employees attended the Gordon
Institute of Business Science (GIBS)
programme in managing the customer
relationship (PMCR), and
• 453 employees have been trained in
the Next Generation Network (NGN)
Essentials programme.
Employee engagement
Two developments stand out in the year
under review:
• There has been a marked improvement
in our relationship with the unions, and
• There is the emerging phenomenon of
managerial employees joining trade
unions.
The former is, we believe, because of our
deliberate action in 2007 to invest in
rebuilding the relationship between
ourselves and the unions following 2006’s
industrial action. While the suspicions are
still there, the propensity to engage in
confrontational conduct has diminished.
There is also some semblance of shared
vision and a willingness to co-operate.
Although the latter increase is not material
it is, nevertheless, a worrying development,
albeit one that is within our control if we
are prepared to change the way we relate
to these employees.
Two factors are involved here – a feeling of
abandonment of junior and middle
management by top management, and the
annual general salary increase approach
which tends to treat management
employees as immune to the economic
hardships that we are all facing. As a result
of the increases gained by union members,
the unions are seen as viable vehicles for
channelling frustrations with some of our
practices.
Industrial action
Following an impasse in wage
negotiations in 2008, some 2,500 out of
Union memberships – bargaining unit
Non-
recognised Non- Grand
Union name CWU SACU Solidarity unions Total unionised total
Number of members 8,205 4,682 2,836 52 15,775 5,259 21,034
% membership: 2008/09 39.0 22.3 13.5 0.2 75.0 25.0 100
% membership: 2007/08 37.6 23.8 13.2 0.2 74.8 25.2 100
Non-
recognised Non- Grand
Union name CWU SACU Solidarity unions Total unionised total
Number of members 149 319 125 225 818 1,668 2,486
% membership: 2008/09 6.0 12.8 5.0 9.1 32.9 67.1 100
% membership: 2007/08 5.7 12.0 4.3 8.7 30.7 69.3 100
We remain committed to continuous
with the unions
Union memberships – managerial staff
engagement
Telkom AR front.qxp 8/12/09 6:22 PM Page 66
Telkom Annual Report 2009 67
14,500 union members participated in a short-lived strike
in August 2008 and 1,680 bargaining unit employees
participated in industrial action in August 2009. Telkom
continues to engage with unions in order to find equitable
solutions.
• Heartbeat
The company measures the level of employee
engagement, through the annual Heartbeat Survey.
In the year under review our employees were more
committed to Telkom and indicated that their intention was
to stay with the Company and take up the challenges that
come their way. For the first time in a long period
employees are proud to say that they are part of the Telkom
family. They are willing to continue to focus on the positive
in spite of negative economic conditions; internal
performance pressures; and changing market forces.
The great news is that even in the light of the above
challenges the Company’s engagement increased by a
pleasing 10%. Some 62% of the Company’s employees
were engaged compared to 52% in 2008. It is expected
that this will be reflected in increased individual, team and
Company performance, as well as in the retention of the
right people in the Company.
Engaged employees focus on what’s good for the customer
and what’s good for shareholders. There is positive growth
in customer satisfaction in most of the customer segments,
which is indirectly the result of the positive engagement of
our employees.
Telkom intends to continue its effort to improve employee
engagement through a particular focus on improving the
accessibility and availability of top management and
improving Telkom’s ability to attract and retain a quality
workforce.
Talent management
Managing our talent pool is a critical aspect of our
business, from retaining key skills to unearthing the leaders
of tomorrow. We have a number of initiatives in place to
ensure we are well placed to face current and future
challenges.
Hartebeeshoek keeps track of South Africa
The multi-billion rand Hartebeeshoek satellite station lies deep
in a valley between Krugersdorp and Hartbeespoort Dam.
Since its opening in 1975 it has relayed literally billions of
signals from two satellites deep in space to South Africa’s data,
television and voice units, 24 hours a day, seven days a week.
Donovan Horn is one of the 28 people that man the station.
As a technical specialist, Donovan heads a team of eight
technicians who ensure that the station runs smoothly and
efficiently. “We have to be fully operational at all times and our
equipment is in what we call full redundancy mode so that if
anything goes down it kicks in automatically,” he says.
For some people, working at the station could be a lonely
experience, but not for Donovan. “We are surrounded by
prime bushveld with its myriad species of flora and fauna, so
there’s always something to see, whether it’s a Piet-my-Vrou
whose call echoes from the satellite dishes, or our lone
Blesbok. The only thing I do miss about ‘civilisation’ is that
there is no canteen on site so, if you forget your lunch, the
nearest hamburger is 23km away!”
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:22 PM Page 67
In the year under review our employeeswere more committed to Telkom andindicated their intention to stay.
Telkom Annual Report 200968
Human capital management (continued)
• Succession planning
During the year under review our talent
pool bench strength rose to 1,474.
Effectively this means that there is at least
one candidate in the talent pool for each
group executive and executive position
who can replace the current incumbent.
• Retention programme
The four focus areas of our retention
strategy are:
• Create knowledge (attract and seek
talent)
• Store and protect knowledge (retain
talent)
• Share and distribute knowledge
(develop potential talent); and
• Use knowledge (deploy talent).
The success rate of our retention
programme to date is 95%, with 253
employees on retention.
• Global talent
To ensure we have a sustainable talent
pool to staff our international businesses we
established a Global Talent Pool and,
currently, 48 employees are on short- or
long-term assignments with Multi-Links/
Africa Online.
• Managed career development for
high potential employees
The six employees who obtained their
Masters degrees in engineering and
computer science at Cornell University in
New York in 2007/08, rejoined us in
September 2008 with two being
promoted. An additional three employees
Our Graduate Development Schemes division is
to growing and developing young talentdedicated
Telkom AR front.qxp 8/12/09 6:22 PM Page 68
Telkom Annual Report 2009 69
were admitted to the university in May
2009.
Six employees, identified by the CEO
Rising Stars programme, are attending the
IMD’s Building On Talent programme in
Switzerland.
51 female employees attended a Chat
and Learn programme which focused on
Women Leaders Under Construction –
Blazing Your Own Path. In addition,
10 female employees attended a two day
workshop on Women In Management and
Leadership.
Graduate and skills pipelines (future
talent)
Our Graduate Development Schemes
Division is dedicated to growing and
developing young talent, not only for
ourselves, but for South Africa as a whole.
Some R29.7 million was invested in
student bursaries in the fields of information
technology, electrical engineering and
marketing management during the year
and an additional R3.7 million was spent
on our Centres Of Excellence programme.
We also funded 833 full-time bursaries;
667 part-time bursaries and 1,121 study
loans for employees or their dependants in
the 2008 academic year.
The voices of Telkom
Telkom has 34 call centres in South Africa, each geared to providing technical
support and service to business and domestic customers. For the men and women
who staff the centres, life can, at times, be challenging and stressful for these
people are the ‘voice’ of Telkom, the ones who take the brunt of customer
complaints.
Hilary Peacock, an agent in the Cape Town Service Activation Unit, says a key
attribute to surviving in the job is the ability to not take any of the abuse received
as personal. The other key attributes are learning what tone of voice to adopt
when handling calls, good or bad, and having a passion for customers
“I try to put myself in the customer’s place and take the good with the bad when
handling calls. Overall, the good definitely outweighs the bad and I would go as
far as to say that about 90% of the calls I receive are good,” she says.
Colleague Marlon Ernstzen agrees, particularly when it comes to adopting the
right tone of voice.
“There’s nothing better than talking to an irate customer who’s upset because
something he was promised didn’t happen, and then, at the end of the call,
hearing him, or her, calm down and apologising and then saying thank you for
the help. That experience energises you for the next day.”
Blanche Machelm is an agent in the Electronic Business Support Centre (EBSC) in
Cape Town, a unit which handles between 6,000 and 8,000 calls a day, mainly
in the areas of ADSL support (90% of the calls) and fault and connectivity issues –
e-mail, for example.
Blanche, who estimates that she handles approximately 50 calls a day, says all
EBSC agents have to have an IT background as they have to have an intimate
technical knowledge in areas such as routing, configurations, outages, modems
and cable passwords.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:22 PM Page 69
Telkom Annual Report 200970
Human capital management (continued)
Overall, the year under review was ourmost successful to date in terms of bursarplacements (80%) and a pass rate of morethan 95%.
Africa Online and Multi-Links
Africa Online is our internet serviceprovider (ISP) in Nairobi, Kenya and Multi-Links is Nigeria’s first private telecommuni-cations operator. Two of our topmanagement employees are on three yearcontracts in Nairobi and 39 are based inLagos.
Telkom Centres of Excellence
Telkom's Centres of Excellence (CoE) is acollaboration programme between Telkom,the telecommunications industry andgovernment to promote research incommunication technology and alliedsciences and to provide facilities toencourage young scientists and engineersto pursue their research interests in SouthAfrica
The CoE programme was launched inFebruary 1997 when the then Minister ofCommunications, Mr Jay Naidooparticipated in the signing ceremony of thefirst research agreement between Telkom,Siemens and the University of Cape Town.During 1997 a total of seven CoEs werelaunched and subsequently, during thefollowing year another five wereestablished, including several attechnikons. From the launch of theprogramme, the current Chief ExecutiveOfficer of Telkom, Mr Reuben September,became the patron of the programme andhas guided and supported the initiative. Ateach of the launches during 1997/98,top ranking government officials, includingMr Andile Ngcaba, Mr Tokyo Sexwaleand Minister Sibusiso Bhengu participatedin the signing ceremonies of thecollaborative research agreements.
As part of Telkom’s contribution to the
upliftment of advanced research skills in
South Africa, several of the previously
under-resourced universities were partnered
with historically white universities. After a
number of years these previously
disadvantaged institutions have established
themselves as research centres that can
operate independently. Examples of these
joint research centres are Rhodes University
and the University of Fort Hare as well as
the University of KwaZulu-Natal together
with the University of Zululand. Currently,
there are 16 CoEs across the country, each
with a unique research focus.
The CoEs are jointly funded by Telkom, ICT
industry players and the Department of
Trade and Industry - through its Technology
and Human Resource for Industry
Programme (THRIP).
Sound governance ensures that allocated
funds are well managed. Various levels of
governance have been formally
established.
• Formal CoE Agreement between all
stakeholders.
• Each CoE is managed by a Steering
Committee represented by the research
staff, Telkom, the respective industry
sponsor and a representative from the
THRIP management team.
• Research project selection mechanisms
are aligned with; industry partner/s and
THRIP funding criteria.
• High level governance of the CoE
programme is provided by an Executive
Management Council with representivity
from Telkom, industry, academia and
THRIP.
The various CoEs have been encouraged
to build relationships with African
universities to expand the ICT blueprint in
Africa as a catalyst for job creation and
economic development.
Major progress has already been made in
this regard and formal agreements exist,
inter alia, with institutions in Egypt,
Ethiopia, Uganda, Namibia, Kenya, Libya
and Tunisia.
The CoE programme enables the various
institutions to establish research facilities
that would not otherwise have been
possible without the necessary Telkom,
industry and government sponsorship.
Skills retention in South Africa is a major
challenge as many talented post-graduate
students are attracted to opportunities
overseas. An important feature of the CoE
programme is that the extensive research
opportunities offered to students effectively
contribute to minimising the “brain drain”,
thus keeping our talent here to provide a
valuable human resource to the industry.
Approximately 250 students are currently
pursuing post graduate degrees through
the programme and since its inception,
more than 1,800 post graduate degrees
have been awarded.
The profile of the current CoE students is:
• 84 Doctoral students
• 166 Masters students
• 20 women
• 150 BEE candidates
• 38% non-South African students
Currently 27 industry partners are involved
in the CoE programme. Industry
stakeholders are more than financiers of the
CoE programme as they also play a vital
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Telkom Annual Report 2009 71
role in exposing students to the real world
of communication.
Telkom’s CoE programme has been
recognised as a catalyst for ICT research in
Africa.
Intuitions, research areas and industry
partners
Tshwane University of Technology
Radio planning: projects involve
comparing the calculated or predicted
value of radio signals with the measured
signals.
Industry Partners: Telkom, Alcatel-Lucent
and Molapo Technology
North West University (Potchefstroom
Campus)
Telecommunications Application Modelling
includes projects on the Super Parallel
Computing facility; data mining; decision
support systems and mathematical
programming applications.
Industry Partners: Telkom and Saab Grintek
University of Johannesburg
Modelling Optical communication: involving
Dense Wave Division Multiplexing (DWDM)
projects; optical filters and transport
networks
Industry Partners: Telkom, CBi Electric and
Ericsson
Operational Support Systems (OSS)
Industry Partners: Telkom and SAP
Nelson Mandela Metropolitan University
Multimedia software: includes usability
laboratory projects, virtual classroom;
programming tools and 3D system design
Industry Partner: Telkom and Dimension
Data
Optical Fibre Measurements
Industry Partners: Telkom, Hezeki and MCT
Communications
Solar Energy Research
Industry Partners: Telkom and TFMC
Rhodes University
Distributed Multimedia: projects deal with
virtual reality; Internet Protocol telephony,
protocols and intelligent agents
Industry Partners: Telkom, Comverse,
Tellabs and StorTech
University of Fort Hare
Electronic Commerce
Industry Partners: Telkom, Saab Grintek
and Tellabs
University of Stellenbosch
Satellite communication, speech and
image processing
Industry Partners: Telkom, Motorola and
Spescom
University of Witwatersrand
Telecommunications Access and Services
based on the TINA Architecture
Industry Partners: Telkom, Vodacom and
Nokia Siemens Networks
University of Limpopo
Automatic Speech technology
Industry Partners: Telkom and Maredi
University of Pretoria
Next Generation Networks
Industry Partners: Telkom, Unisys, Alvarion,
EMC and Tellumat
University of KwaZulu-Natal
Radio access involving CDMA receivers;
traffic modelling; adaptive antenna arrays
and resource management.
Rural telecommunications with a variety of
projects in the wireless networking arena.
Industry Partners: Telkom and Alcatel-Lucent
University of Zululand
Mobile e-Services
Industry Partners: Telkom and Huawei
Universities of Cape Town and
Stellenbosch
ATM/Broadband Networks and their
applications with research on MPLS and IP
networks; congestion control and network
performance.
Industry Partners: Telkom, Nokia Siemens
Networks and Telesciences
University of Western Cape
Internet Protocol Networks and their
applications
Industry Partners: Telkom and Cisco
University of the Free State
The identification of usability and human
factors that will ensure higher accessibility
to Information Technology
Industry Partner: Telkom
Vaal University of Technology
Power (fuel cells etc) and optic fibre
research
Industry partners: Telkom, M-Tec and
TFMC
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:22 PM Page 71
Telkom Annual Report 200972
Safety, health and environment
Safety, health and environment
Our entrenched and integrated Employee
Wellness and Safety, Health and
Environment (SHE) portfolio continues to be
one of the most admired in South African
industry, as evidenced by the following
achievements in the year under review.
• We received the coveted international
Global Business Coalition (GBC)
Award for Excellence as the best
HIV/AIDS workplace programme for
our integrated Voluntary Counselling,
Testing and Treatment programme for
2008. The award was made by the
United Nations Secretary General in
New York.
• Our annual national HIV/AIDS
celebrations campaign, ‘Don’t hesitate,
donate’, was successfully launched
on World AIDS Day 2008 with our
employees donating thousands of
kilograms of food, clothes and toys
to 26 adopted HIV/AIDS havens,
orphanages and hospices.
• Our Direct Retail shops initiated the
Thuso Bus concept (Thuso is our
employee wellness programme). Outlets
in the Eastern Cape, including the
former Transkei, were given a working
day off to attend Thuso programmes.
• We successfully piloted a stress
resilience and emotional intelligence
(EQ) workshop in areas with high
degrees of trauma as a result of
hijackings, robberies and other criminal
activities. This will be rolled out
nationally in the new financial year.
An industrial theatre show was a key driver in the roll-out of our Thuso Wellness dayswhich highlighted a step-by-step approach to improve employee wellbeing throughlifestyle changes.
We successfullypiloted a
resilience and emotionalintelligence workshop
stress
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Telkom Annual Report 2009 73
• We saved R2 million on our Operational
Hygiene surveys thanks to the application
of specific criteria in key areas.
• Our ISO 14001:2007 and OHSAS
18001:2007 Safety, Occupational
Health and Environmental Management
systems were recertified by Dekra
Norisko Industrial South Africa.
• The Compensation Commissioner
granted us a dedicated resource to deal
specifically with Telkom-related cases.
This resulted in a ‘quicker return to work’
by employees who were injured on duty.
• As a result of effective risk management
controls, there were significant
reductions in three reportable incident
categories – working in elevated
positions (17%); lifting and pushing
(30%); and vehicle accidents (16%).
• We established the Telkom Green
Initiative (TGI) project team to enable us
to better manage our environmental
impact.
Absenteeism through illness
There were no significant variations in the
absenteeism through illness and year-to-
date sick leave use figures, although there
was a 5.5% improvement in overall sick
leave days used.
We remain concerned about the high level
of sick leave taken (71.7% compared to
70.1% in the previous year) and we will be
making planned changes in sick leave
policy stipulations and management
effectiveness to decrease this business risk
and impact. In terms of productivity and
direct/indirect cost factors, the data
indicates that 791 employees are off sick
each working day. While this is an
improvement of 2.6% on the previous year,
it is still unacceptable and a significant
improvement is necessary. Our new target
is to reduce the sick leave per day to
600 employees in 2010/2011.
Physical wellness
An industrial theatre show, ‘How Do I Eat
This Elephant’ was a key driver in the roll-
out of our Thuso Wellness days which
highlighted a step-by-step approach to
improve employee wellbeing through
lifestyle changes. Our challenge remains to
reconstruct the “Terrible Triangle” of high
stress levels, poor chronic disease profile
and bad lifestyle habits.
• Eye screening
2,113 employees were screened for vision
impairment and 194 were identified for
further treatment intervention.
• Individual health risk assessments
(chronic profile)
2,903 employees at selected sites in the
Free State, KwaZulu-Natal, Western Cape
and Gauteng were screened for
hypertension, cholesterol, diabetes and
body mass.
# Hypertension profile: While there was a
decrease in the normal range from 63% to
46%, this remains a major risk area as
more than 50% of those tested had some
abnormality in their blood pressure. The
high systolic range (heart subtraction)
Sick leave indices
Sick leave measure 2006/2007 2007/2008 2008/2009 % variance
SAR (%) 2.24 2.51 2.52 (0.4)
Defined as a total number of sick days as % of total
available man-days
ASR (days) 2.45 2.48 2.53 2.0
Defined as the average number of days used per sick leave
incident
AFT (incidents) 3.38 3.59 3.30 (8.1)
The average number of sick leave incidents per sick leave user
SUR (%) Monthly average 15.7 17.3 17.3 0
Number of sick leave users per month as % of total number of
employee population
SUR (%) Year-to-date 67.2 70.1 71.7 2.3
Number of sick leave users progressively utilising sick leave as
% of total number of employee population (all sick leave users
are only calculated once)
Total number of man-days/shifts lost due to sick leave 176,795 194,364 183,679 (5.5)
implying the progressive and accumulative total of sick leave
days over 12-month period
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:22 PM Page 73
Telkom Annual Report 200974
Safety, health and environment (continued)
percentage was similar to the previous
year but the diastolic (heart pumping) rate
increased from 15% to 25% as a result
of increased cardio-vascular illnesses;
increased stress levels and poor lifestyles.
# Cholesterol profile: There was a 7%
increase in the at-risk category, again due
to lifestyle factors such as lack of exercise
and incorrect eating habits. This profile will
be a priority going forward in our wellness
campaigns.
# Diabetes profile: There was an 11%
improvement in the diabetes chronic
profile, thanks to regular testing and the
fact that diabetes remains a high focus
area. However, we are concerned that low
blood sugar levels rose from 28% to 37%
and this will be another key focus area in
our awareness campaigns.
# Obesity profile: This is a high risk area
for us as 65% of the employees tested were
overweight or obese. As a result, the
importance of lifestyle modification is a
priority for us in the new financial year.
# Opportunistic diseases: We are
pleased to note that only six cases of TB
were reported in the year under review
and all cases were successfully treated.
Psychological wellness
In the year under review we transformed
this section of the Wellness programme into
a more proactive, competency-based
approach, highlighted by the following:
• Some 1,216 employees and their
dependants were referred to our
psychological counselling interventions,
a 10% decrease on the previous year.
This decrease is, we believe, largely
due to the fact that employees did, from
time to time, use their own private
psychologists. From the referrals,
4,132 sessions were conducted at an
average of 3.4 sessions per referred
patient at a cost to us of R1.8 million.
• Of particular concern is the 3.8%
increase in cases in the ‘other
psychological illnesses’, such as
psycho-sexual, personality disorders
and related psychosis. This could be the
tip of the iceberg as some of
the problems experienced by our
employees are of such a sensitive nature
that they are discussed with their own
psychologists.
• The stress category (which includes
work-related poor performance,
incapacity, job security etc) constitutes
almost 14% of all diagnoses and the
293 cases recorded during the year is
an increase of 17.6% on the previous
year. This is a major challenge for us in
the next financial year, particularly
in view of the roll-out of Project
Renaissance and the resultant
uncertainty of job security and fears of
job losses.
Preventative interventions
Five key workshops were held during the
year:
• Stress and resilience;
• Team and value development;
• Trauma and resilience;
• Bereavement therapy; and
• Conflict management.
The following table shows the diagnostic causal factors for the EAP referrals
Diagnosis 2006/2007 2007/2008 2008/2009 % variance
Crisis and trauma 41.7% 41.3% 40.5% (1.9%)
Family relationships and divorce 15.4% 17.6% 16.1% (8.5%)
Stress related 7.6% 6.8% 8.0% 17.6%
Of particular
is the 17.6% increase in stress-related cases due to work related relations, poor performance,incapacity and job security.
concern
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Telkom Annual Report 2009 75
These will be augmented by another six workshops in the next
financial year:
• Psychological and emotional resilience;
• Financial wellness;
• Prevention of emotional burnout;
• Emotional intelligence;
• Dealing with challenging circumstances; and
• The psychology of customer care.
Socio-economic wellness
We provided guidance in the areas of lifestyle, finance and debt
counselling during the year, three key areas that impact on the
wellbeing of our employees with the specific focus to reduce stress
and poor lifestyle habits.
# Lifestyle: We contracted a lifestyle service provider to run our
Telkom Touch Lifestyle Programme which connects employees to a
range of lifestyle services such as recreational, vocational,
household, educational and general lifestyle value offerings at
great prices.
# Financial resilience: There was an increase in counselling
referrals (three to four a month) for employees with financial
problems, which was underscored by the increase in garnishee
orders against employees. As a result, a bid for the outsourcing of
a financial resilience intervention and a financial advice service
has been approved and is in process,
# Debt counselling: We have set up a debt counselling service
which registers employees who have huge debt under the
National Credit Act of 2005. This protects them against parties
demanding payment. A debt counselling company will act for such
employees, negotiating new payback terms for bonds, vehicle
leases and other creditors and preventing repossession of these
assets.
Safety management
The Occupational Health and Safety (OHS) of Telkom’s employees
is a fundamental right and therefore Telkom acknowledges that a
healthy and safe working environment enhances performance in
the workplace and also contributes to employee wellbeing.
Our carbon footprintIt now takes the earth 16 months to regenerate the resources ituses in a year and so businesses that look ahead and activelymanage their ecological risks and opportunities can not onlymake a major contribution to saving the world’s resources but,at the same time, gain a strong competitive advantage overthose that don’t.
At Telkom, via our Green Initiative, we are consolidating all ourenvironmental initiatives to ensure we meet our, and legislation’s,targets and, additionally, educate our people and encouragethem to lead a greener lifestyle.
We have 10 key focus management areas – energy, water,waste, greenhouse gas emissions, green procurement,biodiversity, renewable energy, company initiatives, ourcorporate image and our people. Some of our key objectives inthese areas are to offset emissions, participate in carbontrading, provide the greater ICT sector and stakeholders withproducts and services that will help them to reduce theirfootprints and provide our shareholders with ‘green’ returns.
Some of the areas where we can improve are:
• Employee business travel (currently 26.7 million km a year).Our aim is to reduce this by 5.3 million km.
• Our 2008/09 electricity consumption was 537,300MWh.Our aim is a reduction of 107,460MWh.
• EPS generators use 2.3 million litres of diesel. Our aim is toreduce this by 456,000 litres.
• Employee business air travel sits at 31.8 million km. Our aimis to reduce this by 6.4 million km.
Overall, we believe we can reduce our carbon emissions bybetween 15% and 30% over the next three to five years.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:22 PM Page 75
Telkom Annual Report 200976
Safety, health and environment (continued)
To ensure Telkom complies with the
minimum safety requirements as per
national legislation and to support Telkom’s
OHS policy, a:
• Well structured SHE Governance policy
is developed and revised annually.
• Incident on Duty (IOD) system is
developed to provide intelligent
information to assist management in
identifying trends and to implement
corrective actions to mitigate future
incidents.
• Contractor management audit pro-
gramme is implemented to ensure
contractors are audited monthly to meet
the requirements of the Construction
Regulations; and
• Telkom Subsidiary audit initiative is
implemented to provide support to the
subsidiaries to meet minimum statutory
SHE requirements.
HIV/AIDS workplace programme
In addition to our international award, our
Thuso programme is recognised for its best
practices by researchers and academics
who visit us for benchmarking purposes.
Since the inception of our voluntary
counselling and testing programme (VCT) in
2004, 23,391 employees have been
tested. In the year under review,
2,353 employees, from a target population
of 3,178 at 52 sites, were tested.
We have 280 employees receiving anti-
retroviral therapy of which the majority
have a normal sick absence profile, being
healthy and productive at work.
In analysing this data, 32% of HIV positive
employees are either in the process of
being registered or are unaccounted for.
This remains a challenge for the
programme to improve on this conversion
rate to get identified HIV positive
employees on to the programme. In the
2008/2009 performance cycle, there
were 74 new registrations on the
programme (40 via onsite VCT; 32 self-
identified and two prophylaxis patients).
The gender distribution on the chronic
programme is 203 (52%) male and 186
(48%) female. The median age is 36 years
with ranges between four and 56 years.
We have adopted a conservative
approach in providing anti-retrovirals for
employees registered on the programme
with a CD4 count of 350 versus a
governmental and NGO norm of 200.
Using this as measurement category, only
14 (4.9%) of the 284 employees on anti-
retrovirals are categorised in the AIDS or
fully blown AIDS category.
• Preventative strategy
Since 1996, we have dispensed free
condoms at all sites. In the year under
review more than 703,000 condoms
were dispensed and more than 120,000
expired condoms of previous governmental
issues were withdrawn.
• Peer education
Currently 594 employees have been
trained and registered as fully fledged peer
educators. It is gratifying to note that the
involvement of peer educators has
extended beyond the boundaries of the
Company into the communities they serve
via the adoption of various havens,
orphanages, hospices and presentations to
community youth groups. As a result, a
Champions Programme will be launched
later in 2009 to formalise community
involvement.
• Thuso Toll-free Call Centre
Some 4,234 calls were routed via theThuso Call Centre for the year underreview. Outbound calls comprised 65.5%of these, mainly providing clinical supportto patients. Inbound personal advice callsmade up 29.7% of all calls.
• KABP Study
The regular KABP (Knowledge, Attitude,Behaviour and Perception) studies whichtest the general level of information,understanding and influencing behaviourof employees about education andawareness interventions have beenextended to the HIV positive employees totest their understanding and also determinethe level of stigmatisation experienced bythem in the workplace.
Environmental management
While our environmental impact is not big,our contribution is not totally insignificantand, as a result, during the year under reviewwe launched our Telkom Green Initiative, aconcerted effort to place green issues firmlyin the mainstream of our operations.
Treatment aspect Number of employees
HIV positive employees 708
HIV positive status via VCT 512 (72%)
HIV positive status via self-identification 196 (28%)
HIV employees registered on the Chronic Disease
Programme 389 (55%)
HIV employees registered on Medical Aid, NGO or
Government Programmes 92 (13%)
HIV positive employees on treatment (Expert Treatment
Programme (ETP)) 284 (40%)
• Treatment protocols
In terms of treatment protocols, the following table reflects the current treatment status:
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Telkom Annual Report 2009 77
Some of the key deliverables are:
• Measuring our carbon footprint through
the monitoring of electricity and fuel use;
minimising travel and reducing waste
and carbon emissions (there is no
carbon trading legislation in South
Africa as yet). Reducing our electricity
bill through the installation of meters at
key sites, a possible return to using more
solar power and the installation of wind
chargers.
Raptors
As part of our commitment to active environmental stakeholder
engagement with both governmental and non-governmental
organisations we attended various meetings around the country.
One of these is the annual meeting of the Northern Cape Raptor
Forum (NCRF). At the last meeting issues relating to the nesting
habits of sociable weavers on our towers were raised, specifically
the environmental impact the removal of these nests would have on
the survival of the Pygmy Falcons which prey on the weavers.
Bats
We are currently managing a bat encroachment concern in a
remote exchange building in Mpumalanga. A colony of free tailed
bats is roosting and raising its young in the ceiling, which creates
an unhealthy environment for our technicians performing routine
maintenance work. We are allowing the young to mature and will
then install a one-way excluder exit. This will allow the mature
adults and young to leave but not return. The final phase of the
project will be the erection of a bat house on the site to provide
an artificial roosting site for the colony.
Blue cranes
We are delighted to announce that since the installation of
‘flappers’ on our lines in the central region, no blue crane
mortalities have been recorded.
• Participation in national and
international climate change awareness
programmes.
• Employee behavioural change aware-
ness programmes.
• Computerised destination control
elevator system in our high rise
buildings.
• Improved functional efficiency of
underfloor cooling requirements in
equipment rooms.
• The implementation of the Green
building concept in partnership with our
facility management company; and
• Installation of motion sensor light
switches and upgrade of existing
lighting technology with more efficient
technology.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 200978
Corporate social investment
All our corporate social investment (CSI)
programmes are run and managed by the
Telkom Foundation which we established
10 years ago.
As a result of the Foundation’s work, we are
recognised as one of the largest CSI
investors in South Africa and in the year
under review we invested more than
R47 million, mainly in the areas of education
and the roll-out of information and
technology in disadvantaged communities.
As a result of this commitment, the Foundation
was voted the Top Empowerment Company
in CSI at the 2009 Oliver Empowerment
Awards, hosted by Topco.
The Foundation’s focus on education andtechnology is governed by our belief thatthese areas are key contributors to an equalopportunity society in South Africa. One ofthe most powerful learning resources is theinternet and by bringing this medium intoclassrooms around the country, educationalstandards will be enhanced.
It is our hope that our continued investmentin these fields will help redress skillsshortages, particularly in the engineering,science and IT fields.
We focused on four main projects in theyear under review:
• 2,010 for 2010 Schools ConnectivityInitiative
This is the Foundation’s biggest and most
ambitious project ever. Our goal is to
provide 2,010 schools across the country
with internet access by 2010.
The Foundation was voted the
Empowerment Company in CSITop
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Telkom Annual Report 2009 79
Fittingly, the initiative was launched in
February 2009 by our CEO, Reuben
September, at his former school, Grassy
Park High School in Cape Town.
Each participating school will receive an
internet connection; discounted broadband
subscription rates and interactive electronic
whiteboards and laptops.
Grassy Park also received an Internet Café
for use by not only the learners, but the
community. If this pilot programme is
successful, it will be rolled out to the other
schools as part of the overall initiative.
We have been a proud supporter of theSouth African Paralympic team since1992. Our team achieved 6th place inthe overall medal table in the 2008Beijing Olympics.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:22 PM Page 79
Telkom Annual Report 200980
Corporate social investment (continued)
• Beacon of HopeThis programme, which was launched in2006, is designed to develop promisingyoung learners into future leaders byplacing top students from under-resourcedschools in some of the country’s leadinghigh schools.
The Foundation pays for the tuition andboarding fees; uniforms; books andstationery for the 186 learners enrolled inthe programme.
• Giving from the HeartInitiated by our Human Resourcesdepartment to encourage employees togive something back to the community, theproject was taken over by the Foundationin 2006.
Employees can either donate a portion oftheir salary to Giving from the Heart projects;donate their time and skills to projects, oridentify their own charities to which theycontribute either money or time. The TelkomFoundation matches every rand an employeedonates with the same amount.
In the year under review, the Foundationlaunched an Employee Volunteer Weekwhich resulted in our people working andassisting at the Tumelo Hospice inMabopane; the Centre of Hope inMahwelereng; the Nokuthula School forthe Intellectually Disabled in Marlboro; theUthando Orphanage House in Hazyview;St Patrick’s College in Kokstad and theHospice Association of Transkei inSouthernworld.
• SponsorshipsIn the year under review various grantswere made to organisations ranging fromChildline to Nurturing Orphans of AIDSfor Humanity (Noah) in line with ourcommitment to improving the lot ofpreviously disadvantaged communities.
Going forwardIn the next financial year, the TelkomFoundation will launch the Telkom Teacherof the Year awards to honour South Africa’stop maths, science and technologyeducators at the Further Education andTraining and the General Education andTraining level. The awards will be made inAugust 2009.
Our Telkom Business golf sponsorships enable us to position our brand in the businessenvironment. They also help us to introduce new products and reinforce our relationshipmarketing programme.
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Telkom Annual Report 2009 81
Sponsorships
Sponsorships continue to be an important
part of our brand building and reputation
management strategies. In the year under
review we focused on soccer, swimming
and golf.
Soccer
For the third consecutive year we
sponsored the Telkom Knockout, a Premier
Soccer League (‘PSL’) event played by all
16 PSL teams between October and
December. It is a knockout event that plays
a major role in honing South Africa’s soccer
skills.
For the ninth consecutive year we also
sponsored the Telkom Charity Cup, a one
day PSL event where the fans choose the
four competing teams. The teams who
receive the most telephone and SMS votes
play in a round robin series of games.
A significant portion of the money
generated by ticket sales and telephone
voting is given to charities working with
children, the elderly and people with
disabilities. Some 695,000 fans voted in
the 2008 event and R4.6 million was
raised for the charitable organisations.
2010 FIFA Soccer World Cup
Telkom is a tier three National Supporter
within the fixed-line environment. The
biggest sporting event in the world is the
perfect platform for Telkom to showcase its
ICT capabilities. In June 2009, the
Confederations Cup was utilised as a dress
rehearsal for the World Cup finals in
2010. Telkom exceeded all FIFA’s
requirements in ensuring that broadcasting
and media requirements were met. Telkom
has approximately 128,000 cable
kilometres of optical fibre in the ground –
enough to circle the world three times. This
is more than enough fibre to support the
massive amounts of bandwidth that FIFA
will need in 2010.
SwimmingSince 2000, we have sponsoredSwimming South Africa, a public benefitorganisation which promotes all aquaticsports in the country. In addition to manySouth African swimming stars such asRyk Neethling, Natalie du Toit andRoland Schoeman, Swimming South Africahas played a key role in boosting publicawareness of swimming as a life andsurvival skill. Swimming contributes towardsthe Company’s objectives of being acaring organisation, as the sport offersopportunities for both able and disabledpeople.
Drowning remains a major cause of deathamong children under the age of 14 and,as a result of our support for SwimmingSouth Africa’s ‘Learn to Swim’ programme,many children and adults in the countryhave the opportunity to learn to swim.
The programme is sub-divided into the
‘Pool Splash’ project which focuses on safe
swimming in pools; the ‘Ocean Splash’
project which concentrates on sea
swimming and the ‘Rural Splash’ project
which concentrates on swimming in rivers
and dams.
Golf
Our Telkom Business golf sponsorships –
the Telkom PGA Championships, the
Telkom PGA Pro-Am on the Sunshine Tour
and two Telkom Business Pro-Ams – enable
us to position our brand in the business
environment. They also enable us to
introduce new products and reinforce our
relationship marketing programme.
We also have a presence on Sunshine Tour
tournaments such as the SA Open and the
Nedbank Golf Challenge. In addition we
are a broadcast sponsor of international
events like the European Tour and World
Gold championships.
Paralympics
Telkom has been a proud supporter of the
South African Paralympics team since
1992. Our team achieved 6th place on
the overall medal table in the 2008 Beijing
Olympics. The Paralympics are not only
about sport; they are about hope, pride,
inspiration and courage. Telkom is
honoured to align our brand with this
message of upliftment.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 81
Telkom Annual Report 200982
Global reporting initiative (GRI) content index
Telkom has opted for an incremental adoption of the guidelines to the GRI index, the full adoption will include a quality assurance and
compliance audit report. In many cases, Telkom’s internal reporting frameworks pre-date external frameworks, hence this is presented as
a navigation aid as opposed to a “tick-box” compliance exercise.
Item Comment and reference
Vision and strategy
1.1 Statement of the organisation’s vision and strategy regarding its See Telkom’s website: www.telkom.co.za/ir
contribution to sustainable development.
1.2 Statement from CEO (or equivalent senior manager) describing Chief Executive Officer’s review
key elements of the report.
Profile
Organisational profile
2.1 Name of reporting organisation. Telkom SA Limited
2.2 Major products and/or services including brands if appropriate. Operational review
Further details of products and service can be accessed
on the website www.telkom.co.za
2.3 Operational structure of the organisation. Group structure
2.4 Description of major divisions, operating Group structure
companies, subsidiaries.
2.5 Countries in which the organisation’s operations are located. Enterprise risk management
2.6 Nature of ownership; legal form. Telkom Group structure
2.7 Nature of markets served. The telecommunications industry
Report scope
2.10 Contact person(s) for the report, including e-mail and Administration page and www.telkom.co.za/ir
web addresses.
2.11 Reporting period for information provided. Year ended March 31, 2009
2.12 Date of most recent previous report. Year ended March 31, 2008
Report profile
2.17 Decisions not to apply GRI principles or protocols. Sustainability review
2.18 Criteria/definitions used in any accounting for Notes to the consolidated annual financial statements
economic environment.
2.19 Significant changes from previous years in the Notes to the consolidated annual financial statements
measurement methods.
2.22 Means by which report users can obtain additional information See Telkom’s website: www.telkom.co.za/ir
and reports about economic, environmental and social aspects of
the organisation’s activities, including facility-specific information.
Telkom AR front.qxp 8/12/09 6:23 PM Page 82
Telkom Annual Report 2009 83
Item Comment and reference
Governance structure and management systems
Structure and governance
3.1 Governance structure, including major Board committees. Corporate governance report
3.2 Percentage of the Board of directors that are independent, Corporate governance report
non-executive directors.
3.3 Board-level processes for overseeing economic, environmental Corporate governance report
and social risks and opportunities.
3.4 Linkage between executive compensation and achievement Human capital management report
of goals.
3.5 Organisational structure and key responsibilities. Chief officers and management team
3.6 Mission and values statements and codes of conduct. See Telkom’s website: www.telkom.co.za/ir
3.7 Mechanisms for shareholders to provide recommendations to the Company Secretary (see contact details on ibc;) IR road-
Board of directors. shows; AGM and the IR website www.telkom.co.za/ir
Stakeholder engagement
3.8 Major stakeholders. Sustainability review
3.9 Approaches to stakeholder consultation. Sustainability review
3.10 Type of information generated by stakeholder consultations. Sustainability review
3.11 Use of information resulting from stakeholder engagements. Sustainability review
Economic performance indicators
EC1 Net sales. Consolidated income statement
EC2 Geographic breakdown of markets. Notes to the consolidated annual financial statements
EC3 Cost of all goods, material and services purchased. Consolidated income statement
EC5 Total payroll benefits. Consolidated income statement
EC6 Distributions to providers of capital. Consolidated statement of changes in equity
EC7 Increase/decrease in retained earnings at end of period. Consolidated statement of changes in equity
EC8 Total sum of taxes of all types paid broken down by country. Notes to the consolidated annual financial statements
EC10 Donations to community, civil society and other groups. Corporate social investment report
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 83
Telkom Annual Report 200984
Global reporting initiative (GRI) content index (continued)
Item Comment and reference
Environmental performance indicators
Materials
EN1 Total material use other than water, by type (report in tonnes, Safety, health and environment report
kilograms or volume). Provide definitions used for types
of materials.
EN2 Percentage of materials used that are waste (processed Safety, health and environment report
or unprocessed) from sources external to the reporting
organisation.
EN5 Total water use. Safety, health and environment report
EN6 Land owned, leased, or managed in biodiversity-rich habitats. Safety, health and environment report
EN7 Description of major impacts on biodiversity, associated with Safety, health and environment report
the organisation’s activities and/or products and services in
terrestrial, freshwater and marine environments.
Social performance indicators
Labour practices and decent work
LA1 Breakdown of workforce. Human capital management report
LA2 Percentage of employees represented by independent Human capital management report
trade unions.
LA3 Occupational accidents and diseases. Safety, health and environment report
LA4 Standard injury, lost day and absentee rates and number of Safety, health and environment report
work-related fatalities.
LA5 Description of policies or programmes on HIV/AIDS. Safety, health and environment report
LA6 Average hours of training per year per employee by category Human capital management report
of employee.
LA7 Equal opportunity policies or programmes. Human capital management report
LA8 Composition of senior management and corporate Chief officers and management team
governance bodies. Corporate governance report
Telkom AR front.qxp 8/12/09 6:23 PM Page 84
to competitivechallengesPerformance reviewFive year operational review 86Operational review 87Three year financial review 104Financial review 105
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 85
Telkom Annual Report 200986
Five year operational review
for the years ended March 312005 2006 2007 2008 2009 CAGR (%)
Fixed-line operational dataADSL subscribers1 58,278 143,509 255,633 412,190 548,015 75.1Calling plan subscribers – 62,803 272,071 464,038 590,590 111.1
Closer subscribers – 62,803 266,300 451,122 575,812 109.3Supreme call subscribers – – 5,771 12,916 14,778 60.0
W-CDMA subscribers – – – – 5,253 n/aFixed access lines (’000)1 4,726 4,708 4,642 4,533 4,451 (1.5)
Post-paid – PSTN 3,006 2,996 2,971 2,893 2,769 (2.0)Post-paid – ISDN channels 664 693 718 754 781 4.1Prepaid 887 854 795 743 766 (3.6)Payphones 169 165 158 143 135 (5.5)
Fixed-line penetration rate (%) 10.1 10.0 9.8 9.5 9.1 (2.6)Revenue per fixed access line (ZAR) 5,250 5,304 5,275 5,250 5,349 0.5Total fixed-line traffic (millions of minutes) 31,706 31,015 29,323 26,926 24,869 (5.9)
Local 19,314 18,253 14,764 11,317 8,822 (17.8)Long distance 4,453 4,446 4,224 3,870 3,631 (5.0)Fixed-to-mobile 3,911 4,064 4,103 4,169 4,126 1.3International outgoing 415 515 558 635 622 10.6International VoIP 89 83 38 43 34 (21.4)Subscription based calling plans – – 1,896 2,997 3,546 36.8Interconnection 3,524 3,654 3,740 3,895 4,088 3.8
Domestic mobile interconnection 2,206 2,299 2,419 2,502 2,484 3.0Domestic fixed interconnection – – – 113 415 n/aInternational interconnection 1,318 1,355 1,321 1,280 1,189 (2.5)
Managed data network sites 11,961 16,887 21,879 25,112 29,979 25.8Internet all access subscribers2 225,280 282,927 302,593 358,066 423,196 17.1Fixed-line employees 28,972 25,575 25,864 24,879 23,520 (5.1)Fixed access lines per fixed-line employee3 163 184 180 182 189 3.8(1) Excludes Telkom internal lines.(2) Includes Telkom Internet ADSL, ISDN, WiMAX and dial-up subscribers.(3) Based on number of fixed-line employees, excluding subsidiaries.
Mobile operational data4
Total mobile customers (’000) 15,483 23,520 30,150 33,994 39,614 26.5South AfricaMobile customers (’000) 12,838 19,162 23,004 24,821 27,625 21.1
Contract 1,872 2,362 3,013 3,541 3,946 20.5Prepaid 10,941 16,770 19,896 21,177 23,561 21.1Community services telephones 25 30 95 103 118 47.4
Mobile churn (%) 27.1 17.7 33.8 42.3 40.1 10.3Contract 9.1 10.0 9.7 8.3 9.9 2.1Prepaid 30.3 18.8 37.5 47.9 45.4 10.6
Estimated mobile market share (%)5 56 58 58 55 53 (1.4)Mobile penetration (%) 49.5 70.6 84.2 94.3 108.0 21.5Total mobile traffic (millions of minutes) 14,218 17,066 20,383 22,769 24,383 14.4Mobile ARPU (ZAR)6 163 139 128 128 133 (5.0)
Contract 624 572 517 486 474 (6.6)Prepaid 78 69 63 62 68 (3.4)Community services 2,321 1,796 902 689 534 (30.7)
Mobile employees7 3,919 4,305 4,727 4,849 5,451 8.6Mobile customers per mobile employee7 3,276 4,451 4,867 5,119 5,068 11.5Other African countriesMobile customers (’000) 2,645 4,358 7,146 9,173 11,989 45.9Mobile employees8 1,074 1,154 1,522 1,992 2,336 21.4Mobile customers per mobile employee8 2,463 3,776 4,695 4,605 5,132 20.1Gateway employees – – – – 389 n/a(4) 100% of Vodacom data.(5) Based on Vodacom estimates.(6) With effect from April 1, 2008, ARPU calculations include revenues from national roamers and international visitors roaming on Vodacom’s network.
Historical ARPU numbers have been restated in line with this new methodology.(7) Includes Holding company and Mauritian employees and temporary employees.(8) Includes temporary employees.
Multi-LinksSubscribers – – 185,619 813,392 2,516,109 268.2Employees – – – 782 1,124 n/a
Permanent – – – 680 775 n/aExpatriate – – – 71 95 n/aTemporary – – – 31 254 n/a
Africa OnlineSubscribers9,10 – – n/a 17,252 18,441 n/aEmployees – – 317 379 313 (0.6)(9) From April 1, 2008, Africa Online changed the method of counting subscribers to include all the individual corporate sites as individual customers. The comparative information for 2008 has
been restated.(10) Excluding UUNet joint venture partner’s subscribers in Kenya. UU-Net had 300 and 320 subscribers as at March 31, 2008 and 2009, respectively.
Telkom AR front.qxp 8/12/09 6:23 PM Page 86
Telkom Annual Report 2009 87
Operational review
History and development of the
Company
Telkom was incorporated on September
30, 1991 as a public limited liability
company registered under the South
African Companies Act No. 61 of 1973,
as amended.
Registration number: 1991/005476/06
The Company’s principal executive offices
are located at:
Telkom Towers North
152 Proes Street
Pretoria
0002
Gauteng Province
South Africa
Telephone number: +27 (0)12 311 3566
Website address: http://www.telkom.co.za
Historical background
Prior to 1991, the former Department of
Posts and Telecommunications of South
Africa exclusively provided telecommuni-
cations and postal services in South Africa.
In 1991, the government of South Africa
transferred the entire telecommunications
enterprise of the Department of Posts and
Telecommunications of South Africa to a
new entity, Telkom, as part of a
commercialisation process intended to
liberalise certain sectors of South Africa’s
economy. Telkom remained a wholly state-
owned enterprise until May 14, 1997,
when the government of South Africa sold
a 30% equity interest in Telkom to Thintana
Communications LLC, a strategic equity
investor beneficially owned by SBC
Communications Inc. and Telekom Malaysia
S.D.N. Berhard. On March 7, 2003, we
completed our initial public offering and
listing on the JSE and NYSE, pursuant to
which the government of South Africa sold
a total of 154,199,467 ordinary shares,
including 14,941,513 ordinary shares
through the exercise of an over-allotment
option.
Sale and unbundling of Vodacom
shareholding
Effective as of April 20, 2009, Telkom
concluded the sale and unbundling of its
interest in Vodacom, pursuant to which the
following inter-conditional transactions
occurred:
• Telkom sold a 15% stake in Vodacom
for R22.5 billion of cash less the
attributable net debt of Vodacom as at
September 30, 2008 and 15% of any
dividends, and any secondary taxation
on companies (STC) levied thereon,
which amounted to R20,583 million.
• Telkom distributed to its shareholders a
sum equal to 50% of the after-tax
proceeds from the sale to Vodacom, net
of any STC levied thereon (R19 per
share) by way of a special dividend.
• Vodacom converted to a public
company and was listed on the main
board of the JSE Limited on May 18,
2009; and
• Telkom distributed its remaining 35%
stake in Vodacom to eligible Telkom
shareholders in proportion to their
shareholdings in Telkom, by way of an
unbundling in terms of Section 90 of the
Companies Act 61 of 1973, as
amended, and Section 46 of the
Income Tax Act 58 of 1962, as
amended.
On June 2, 2009, Telkom completed a
placement of 28,993,233 shares of
Vodacom, on behalf of ineligible foreign
shareholders, with institutional investors
through an accelerated bookbuild offering,
pursuant to Regulation S under the US
Securities Act of 1933. The Vodacom
shares were placed at a price of R53.00
per share, raising gross proceeds of
R1.54 billion for such ineligible foreign
shareholders. The proceeds from the
offering, net of applicable fees, expenses,
taxes and charges, were distributed to the
ineligible foreign shareholders in
proportion to their entitlement to Vodacom
shares. JP Morgan Securities Limited acted
as the Sole Bookrunner for the placement.
For further information on this transaction
please refer to the detailed announcements
posted on the Investor Relations website at
www.telkom.co.za.
Delisting on the New York Stock
Exchange
Given the current global economic climate
and the business imperative for Telkom to
reduce its cost base, the Board has
decided to delist from the New York Stock
Exchange. Maintaining a listing in the
United States is expensive and takes
considerable management time. The
methodology employed and discipline
gained from compliance with the
Sarbanes-Oxley reporting requirements
will be retained, where appropriate, to
ensure strict corporate governance
compliance and transparent financial
reporting.
Telkom is comfortable that the JSE provides
sufficient access to capital from both South
African and global investors. Telkom
intends to maintain a level 1 American
Depositary Receipt programme to facilitate
over-the-counter trading in the United States
of America.
Senior management
On November 14, 2008, the Board
announced that our business would be split
into three operational units – Telkom SA,
Telkom International and Telkom Data
Centre Operations, effective from April 1,
2009. On April 15, 2009 Thami
Msimango was appointed Managing
Director of the Telkom International business
unit. On May 1, 2009 Nombulelo Moholi
was appointed Managing Director of
Telkom SA and on July 30, 2009
Pierre Marais was appointed as acting
Managing Director of Telkom Data Centre
Operations.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 87
Telkom Annual Report 200988
Operational review (continued)
Peter Nelson was appointed Chief
Financial Officer on December 8, 2008.
On July 7, 2009 Telkom announced the
appointment of Jeffrey Hedberg as Chief
Executive Officer of Multi-Links.
Segmental reporting and discontinued
operations
At the beginning of 2009, Multi-Links was
added as a separate financial reporting
segment. Our four reporting segments are
now fixed-line, Multi-Links, mobile and
other. The other segment includes Trudon,
formerly TDS Directory Operations; Africa
Online; Swiftnet and Telkom Media.
Discontinued operations include Vodacom,
Swiftnet and Telkom Media.
Acquisitions and investments
During the year under review we purchased
an additional 25% of Multi-Links in Nigeria,
giving us 100% control of the company. In
addition, after year end we acquired
MWEB Africa and 75% of MWEB
Namibia from Naspers and we sold our
75% shareholding in Telkom Media to
Shenzhen Media South Africa.
Strategic agreement with AT&T
On April 16, 2009 we entered into a
strategic memorandum of understanding
with global communications leader AT&T to
enable the Company to extend its reach
into sub-Saharan Africa to service corporate
customers and boost our strategy to grow a
strong local footprint in Africa.
Business summaryWe are one of the largest companiesregistered in South Africa and one of thelargest communications service providers inAfrica based on operating revenue andassets. As of March 31, 2009, we hadtotal assets of R85.8 billion; operatingrevenue from continuing operations ofR35.9 billion; approximately 4.5 milliontelephone access lines with 99.9% of theseconnected to digital exchanges.
We offer our customers fixed-line voiceservices, fixed-line and wireless dataservices and mobile communicationsservices. Other services include the TrudonGroup, our directory services, Multi-Linksand MWEB Africa subsidiaries.
OverviewOur fixed-line segment is our largestbusiness segment and includes our fixed-line voice, data and internet businesses.Telkom’s fixed-line services comprise:
• Fixed-line subscription and connectionservices to postpaid, prepaid andprivate payphone customers using PSTNlines including ISDN lines, and the saleof subscription based value-added voiceservices and customer premisesequipment (CPE) rental and sales.
• Fixed-line traffic services to postpaid,prepaid and payphone customersincluding local, long distance, fixed-to-mobile, international outgoing andinternational Voice over Internet Protocol(VoIP) traffic services.
• Interconnection services, including
terminating and transiting traffic from
South African mobile operators and
international operators, as well as
transiting traffic from mobile to
international destinations, and
• Data and internet services, includingdomestic and international datatransmission services, such as point-to-point leased lines, ADSL services, W-CDMA packet based services,managed data networking services, aswell as internet access and relatedinformation technology services.
Products and services
Subscriptions and connectionsTelkom provides post-paid, prepaid andprivate payphone customers with digitaland analogue fixed-line access servicesincluding PSTN lines, ISDN lines, andwireless access between a customer’spremises and our fixed-line network. Eachanalogue PSTN line includes one accesschannel, each basic rate ISDN lineincludes two access channels and eachprimary rate ISDN line includes 30 accesschannels. Each ISDN line transmits signalsat speeds of 64 Kbps per channel.Subscriptions to ADSL are included in ourdata services revenue.
We were the first fixed-line operator
globally to provide a prepaid service on a
fixed-line network. Our prepaid service
offers customers an alternative to the
conventional post-paid fixed-line telephone
Year ended March 31,
2008/2007 2009/2008
(in thousands, except percentages) 2007 2008 2009 % change % change
Post-paid PSTN(1) 2,971 2,893 2,769 (2.6) (4.3)
Business 1,426 1,429 1,396 0.2 (2.3)
Residential 1,545 1,464 1,373 (5.2) (6.2)
Prepaid PSTN 795 743 766 (6.5) 3.1
ISDN channels 718 754 781 5.0 3.6
Payphones(2) 158 142 135 (10.1) (4.9)
Total fixed access lines(3) 4,642 4,532 4,451 (2.4) (1.8)
(1) Excluding ISDN channels. PSTN lines are provided using copper cable, DECT and fibre.(2) Includes public and private payphones.(3) Total fixed access lines are comprised of PSTN lines, including ISDN channels, prepaid lines, ADSL lines and public and private payphones, but excluding
internal lines in service. Each analogue PSTN line includes one access channel, each basic rate ISDN line includes two access channels and each primaryrate ISDN line includes 30 access channels.
Telkom AR front.qxp 8/12/09 6:23 PM Page 88
Telkom Annual Report 2009 89
service. All costs including installation,
telephone equipment, line rental and call
charges are paid in advance, eliminating
the need for monthly telephone bills. We
target our prepaid service mainly at first-
time residential customers who do not have
sufficient credit history, and are located in
areas where we can provide access to our
network without significant additional
investment. Customers who have previously
had their telephone service disconnected
due to non-payment are also encouraged
to migrate to our prepaid service option in
order to reduce future non-payments while
satisfying demand for our services.
We also offer a broad range of value-
added voice services on a subscription or
usage basis including call forwarding, call
waiting, conference calling, voicemail, toll-
free calling, ShareCall which permits
callers and recipients to share call costs,
speed dialling, enhanced fax services and
calling card services for payphones. These
services complement our basic voice
services and provide us with additional
revenue while satisfying customer demand,
enhancing our brand and increasing
customer loyalty. Value-added voice
services such as our CallAnswer voicemail
service are also bundled with value-added
calling plans such as Telkom Closer, to
further enhance the value of these services
to our customers.
We provide payphone services throughout
South Africa. As at March 31, 2009,
Telkom operated approximately 132,208
public payphones and approximately
3,146 private payphones, of which
approximately 39% were coin-operated
and combination payphones, and the
remainder card-operated payphones.
The table opposite presents information
regarding our post-paid and prepaid lines
as well as payphones as at the dates
indicated, excluding our internal lines.
The table above shows information related
to the number of our fixed access lines in
service, net line growth and churn for the
periods. Churn is calculated by dividing
the number of disconnections by the
average number of fixed access lines in
service during the year.
Connections include new line orders resulting
primarily from changes in service and, to a
lesser extent, new line roll-out. Disconnections
include both customer-initiated disconnections
and Telkom-initiated disconnections. Included
in disconnections and churn are those
customers who have terminated their service
with Telkom and subsequently subscribed to a
new service with Telkom as a result of
relocation or change of subscription to a
different type of service.
Value-enhancing bundles
During the year under review, Telkom
continued to focus on customer retention
and offering value for money by
continuously enhancing packages such as
PC bundles and Telkom Closer, including
the following:
From August 1, 2009, Closer customers
will have the option to choose between
CallAnswer and Identicall. Currently the
package includes only CallAnswer.
Telkom Closer 1
Includes line rental, CallAnswer, a minimum
flat-rate charge for calls during off-peak
time up to one hour, a discounted per
record rate for local and long distance
calls subject to a minimum charge, as well
as 30 free local minutes during standard
time introduced since August 2007. In
addition, with effect from August 2008,
this package includes 60 free local internet
minutes during off-peak time.
Telkom Closer 2
Includes line rental, CallAnswer, unlimited
free calls during off-peak time up to one
hour, a discounted per record rate for local
and long distance calls subject to a
minimum charge, as well as 30 free local
minutes during standard time introduced in
August 2007. In addition, with effect from
August 2008, this package includes
60 free local internet minutes during off-
peak time.
Telkom Closer 3
Includes line rental, CallAnswer, 1,300
inclusive free peak-time minutes, unlimited
free calls during off-peak time up to one
hour, a discounted per second rate for
local and long distance calls subject to a
minimum charge, as well as reduced rates
to selected international destinations and
pure per second billing for fixed-to-mobile
calls since August 2007.
Telkom Closer 4
All the benefits of Telkom Closer 3 bundled
with Fast DSL up to 384 Kbps.
Telkom Closer 5
All the benefits of Telkom Closer 3 bundled
with Fastest DSL up to 4096 Kbps.
Telkom Closer plans 1 to 3 have an option
to purchase 150 or 75 local internet hours
during call more time.
Year ended March 31,
2008/2007 2009/2008
(in thousands, except percentages) 2007 2008 2009 % change % change
Opening balance 4,708 4,642 4,532 (1.4) (2.4)
Net line growth (66) (110) (81) (66.7) (26.4)
Connections 572 497 482 (13.1) (3.0)
Disconnections (638) (607) (563) (4.9) (7.2)
Closing balance 4,642 4,532 4,451 (2.4) (1.8)
Chum (%) 13.6 13.3 12.5 (2.2) (6.0)
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 89
Telkom Annual Report 200990
Operational review (continued)
The Telkom Closer packages have
performed well, increasing by 27.6% to
575,812 plans. Supreme call packages,
targeted at the business segment, have
increased by 14.4% to 14,778 packages
and PC bundles have increased 48.3% to
11,336. Telkom continues to be successful
in tying in large corporate customers to
term and volume discount plans. Annuity
revenue streams, which exclude line
installations, reconnection fees and
CPE sales, have increased by 6.8% to
R7.4 billion. Telkom will seek to continue
converting revenue streams to annuity
revenues. This will be done largely through
bundling call minutes and ADSL services
with access line rental in attractive
subscription based value propositions. This
is an important strategy for delivering
greater value to our customers. Our current
line penetration of bundled products is
41.7% and we are targeting a penetration
of 56% by 2013/14.
Pricing is a key element of the value
proposition and our pricing strategy is
aimed at improving our competitiveness in
areas where competition is expected to
intensify and where arbitrage opportunities
exist. Telkom’s strategy to counter pricing
pressures is as follows:
• Actively offer value based calling plans
and bundles to extend value and
savings to our customers.
• Reduce international and long distance
rates to reduce arbitrage opportunities;
• Rebalance standard/off-peak local
rates, to better align these with
international norms and improve our
competitive position; and
• Reduce and rebalance national and
international data prices to improve our
competitive position.
The decrease in the number of subscriber
lines was largely in the residential post-
paid PSTN line and, to a lesser extent,
business post-paid PSTN lines, partially
offset by an increase in ISDN channels.
The decrease in the number of residential
post-paid PSTN lines was mainly due to the
introduction of competition in the fixed-line
arena from Neotel, including due to
customers relocating and changing
providers, customer migration to mobile
and higher bandwidth products and, to a
lesser extent, cable theft incidents. The
increase in prepaid services in the 2009
financial year was due primarily to our
lower priced “Waya-Waya” offering,
which accounted for approximately 60.2%
of prepaid services as of March 31,
2009. The increase in ISDN channels and
ADSL services was mainly driven by
increased demand for higher bandwidth
and functionality. This is evident in the 6%
growth in ISDN Primary rates and the 33%
growth in ADSL services. The upgrading of
DSL 1024 to DSL 4096 increased the
attractiveness of this DSL band, with
customers migrating from DSL 512 to the
high speed offering despite the added
cost. Telkom’s aggressive marketing
campaigns for Do Broadband products,
also contributed to the ADSL growth. In the
2009 fiscal year, Telkom introduced a
wireless W-CDMA service to combat the
effects of theft, as well as grow market
share in anticipation of Telkom moving into
the mobile market. Connections to our
wireless W-CDMA service are included in
our numbers of subscribers, but not lines.
We also offer telecommunications equip-
ment rentals and sales such as telephones
and private branch exchange (PABX)
systems, as well as related post-sales
maintenance and service for residential
and business customers in South Africa.
The market in South Africa for such
equipment and systems, commonly known
as customer premises equipment (CPE), is
characterised by high competition and low
profit margins. We believe, however, that
the supply and servicing of CPE is an
essential part of providing a full service
to our customers and in the process
stimulating usage on our network.
Traffic minutes
We offer local, long distance, fixed-to-
mobile, international outgoing and
international voice over internet protocol
services to business, residential and
payphone customers throughout South
Africa at tariffs that vary depending on the
destination, length, day and time of call.
The following table presents information
regarding our fixed-line traffic minutes,
excluding interconnection traffic, for the
periods indicated. We calculate fixed-line
traffic by dividing fixed-line traffic revenues
for the particular category by the weighted
average tariff for that category during the
relevant period.
Year ended March 31,
2008/2007 2009/2008
(in millions of minutes, except percentages) 2007 2008 2009 % change % change
Local(1) 14,764 11,317 8,822 (23.3) (22.0)Long distance(1) 4,224 3,870 3,631 (8.4) (6.2)Fixed-to-mobile 4,103 4,169 4,126 1.6 (1.0)International outgoing 558 635 622 13.8 (2.0)International voice over internet protocol 38 43 34 13.2 (20.9)Subscription based calling plans 1,896 2,997 3,546 58.1 18.3
Total 25,583 23,031 20,781 (10.0) (9.8)
(1) Local and long distance traffic includes dial-up Internet traffic.
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Telkom Annual Report 2009 91
Traffic was adversely affected in both the
2009 and 2008 financial years by the
increasing substitution of calls placed using
mobile services rather than our fixed-line
service and dial-up internet traffic being
substituted by our ADSL service, as well as
the decrease in the number of residential
post-paid PSTN lines and increased
competition in our payphone business. In
addition, the 2009 financial year traffic
was adversely affected by customer
migration to broadband services offered
by mobile operators.
The table above sets forth information
regarding interconnection traffic terminating
on or transiting through our network for
the periods indicated. We calculate
interconnection traffic, other than
international outgoing mobile traffic and
international interconnection traffic, by
dividing interconnection revenue for the
particular category by the weighted
average tariff for such category during the
relevant period. Fixed-line international
outgoing mobile traffic and international
interconnection traffic are based on the
traffic registered through the respective
exchanges and reflected in international
interconnection invoices.
The increase in domestic mobile
interconnection traffic in the years ended
March 31, 2009 and 2008 was primarily
due to an overall increase in mobile calls
as a result of growth in the mobile market,
partially offset by increased mobile-to-
mobile calls bypassing our network. The
decrease in domestic mobile inter-
connection traffic in the 2009 financial
year was primarily due to increased
mobile-to-mobile calls bypassing our
network.
Domestic fixed interconnection traffic
includes traffic from Neotel, USALs and
VANS. The increase in domestic fixed
interconnection traffic in the year under
review was mainly due to increased
competition.
International interconnection traffic
decreased in the 2009 and 2008
financial years due to a decrease in
volumes as a result of loss of volumes to
Neotel, Sentech, the USALs and illegal
operators terminating traffic in the country.
The decrease was partially offset by
increased international hubbing traffic in
the year under review.
Tariff rebalancing
We made significant progress in
rebalancing our fixed-line tariffs. Our tariff
rebalancing programme was historically
aimed at better aligning our fixed-line traffic
charges with underlying costs and
international norms. We expect that our
tariff rebalancing in future will focus more
on the relationship between the actual
costs and tariffs of subscriptions,
connections and traffic in order to more
accurately reflect underlying costs, and in
response to increased competition.
Regulations under the Telecommunications
Act, which remain in effect, impose a price
cap on a basket of Telkom’s specified
services including installations, prepaid
and post-paid line rental, local, long
distance and international calls, fixed-to-
mobile calls, public payphone calls, ISDN
services, our Diginet product and our
Megaline product. A similar cap applies to
a sub-basket of those services provided to
residential customers, including leased
lines up to and including lines of 2 Mbps
of capacity and the rental and installation
of business exchange lines. Approximately
57% of our operating revenue for the year
ended March 31,2008 was included in
this basket, compared to approximately
54% in the year ended March 31, 2009.
Our tariffs for these services are filed with
ICASA for approval. The price cap
operates by restricting the annual
percentage increase in revenues from all
services included in the basket that are
attributable solely to changes in annual
inflation, measured by changes in the
consumer price index, less a specified
percentage.
Historically, the annual permitted
percentage increase in revenues from both
the whole basket and the residential sub-
basket was 1.5% below inflation. Effective
from August 1, 2005 through July 31,
2008, the annual permitted increase in
revenues from both the whole basket and
the residential sub-basket was lowered to
3.5% below inflation, and ADSL products
and services have been added to the
basket. In addition, the price of no
individual service within the residential sub-
basket can be increased by more than 5%
above inflation except where specific
approval has been received from ICASA,
and pursuant to the Electronic Communi-
cations Act, revenue generated from
services where we have significant market
power may not be used to subsidise
competitive services. Early in 2008,
ICASA commissioned a review of the
existing price control regulations
applicable to Telkom; however, ICASA has
not initiated the statutory public process of
reviewing the existing regulations. Telkom is
Year ended March 31,
2008/2007 2009/2008
(in millions of minutes, except percentages) 2007 2008 2009 % change % change
Domestic mobile interconnection traffic 2,419 2,502 2,484 3.4 (0.7)
Domestic fixed interconnection traffic – 113 415 n/a 267.3
International interconnection traffic 1,321 1,280 1,189 (3.1) (7.1)
Total 3,740 3,895 4,088 4.1 5.0
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 200992
Operational review (continued)
awaiting communications from ICASA in
respect of proposed timelines for the
review.
ICASA approved a 2.1% reduction in the
overall tariffs for services in the basket
effective August 1, 2006, a 1.2%
reduction in the overall tariffs for services in
the basket effective August 1, 2007 and a
2.4% increase on its regulated basket of
products and services effective August 1,
2008. On June 22, 2009, Telkom filed
with ICASA proposed average price
increases on its regulated basket of
products and services of 1.7% as a result
of inflation increases, effective August 1,
2009. The price control formula would
have permitted Telkom to apply for a
19.7% price increase due to the high
consumer price index in South Africa and
excess carryover of lower price increases
for prior periods. Our tariffs are subject to
approval by the regulatory authorities. All
tariffs include value-added tax (VAT) at a
rate of 14%.
Data
Leased lines
A large number of leased lines are
provided to the mobile operators at
negotiated wholesale rates for the build-out
of their networks. With the growth in traffic
carried on the mobile networks, a need
was identified for the deployment within
these networks of transmission links with
speeds higher than the 2 Mbps provided
by existing agreements. We have
broadband fixed-link leasing agreements
with Vodacom, MTN and Cell C. These
agreements have been enhanced over
time, and we currently provide broadband
links at speeds of 45 Mbps, 155 Mbps
and 622 Mbps, and anticipate that we
will soon be providing links at speeds of
2.5 Gbps. Formalised service level
agreements as well as term and volume
based discount structures, as a counter to
the competitive challenges that are
occurring in this area of the business, have
been implemented.
Recognising the increasing threat ofcompetition in the provision of leased linesto the mobile operators, Telkom introducedfurther discounting structures in the 2007and 2008 financial years to enhance theattractiveness of Telkom’s product offeringsto this rapidly growing market. Fixed-linkleasing agreements were also entered intowith some of the smaller operators,including VANS and USALs, as well as withNeotel. Vodacom and MTN have bothindicated that they intend to self-providesome of the leased lines, which they requirefor the build-out of their networks, as analternative to leasing from Telkom. We arecurrently negotiating improved leased lineprices with the mobile operators in order toretain revenue from leased lines.
The table below indicates the bandwidthcapacity of our Diginet, Diginet Plus, ATMExpress and broadcasting datatransmission services:
Leased line BandwidthDiginet 64 KbpsDiginet Plus 128 Kbps to 2 MbpsATM Express 2 Mbps to 155 Mbps
BroadcastingAnalogue audio 7.5 or 15 KHzAnalogue video 70 MHzDigital 2 Mbps to 155 Mbps
Managed data networking services
Our managed data networking services
combine our data transmission services
discussed above with active network
management provided through our state-of-
the-art national network operations centre.
We offer a wide range of integrated and
customised networking management
services, including design, planning,
installation, management and maintenance
of corporate-wide data, voice and video
communications networks, as well as other
value-added services such as capacity,
configuration and software version
management on customers’ networks. To
support our service commitment, we offer
guaranteed service level agreements on a
wide range of our products, which include
guaranteed availability, or uptime, of the
network through the use of our national
network operations centre.
Our managed data networking services
include our customer network care service
which facilitates the network management
of all our data transmission services using
the leased lines or packet based services
discussed above, and our Spacestream
and IVSat products, which are satellite
based products. Spacestream is a high
quality, flexible satellite networking service
that supports data, voice, fax, video and
multimedia applications, both domestically
and in the rest of Africa.
Managed data networking services are
billed on a monthly basis and vary by
customer depending on the particular
services provided and the number of
network sites under management.
As of March 31,
2008/2007 2009/2008
2007 2008 2009 % change % change
Terrestrial based 12,905 17,237 19,042 33.6 10.5
Satellite based 8,974 7,875(1) 10,937(2) (12.2) 38.9
Total managed network sites 21,879 25,112 29,979 14.8 19.4
(1) Satellite based managed network sites declined during the 2008 financial year as a result of Uthingo, the South African lottery operator, losing its licenceto operate.
(2) The increase in the 2009 financial year was mainly due to new global and corporate customers and expansion of the networks of existing customers.
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Telkom’s focus on bringing new innovativeproducts to the market that cater forincreased data usage and convergedservices has resulted in our new VPNproducts gaining increased traction in themarket. We have increased VPN sites by20.7% to 14,659. Our VPN Lite products,which are delivered over the ADSLnetwork, include advanced self-help andonline charging solutions. This product waslaunched during November 2007. Telkomis in the process of building on a culture ofresearch and innovation and fast time-to-market, in order to cater for customers whoare increasingly looking for innovative,easy to use products.
Broadband and converged services continueto perform well with ADSL subscribers up33% to 548,015. Do Broadbandsubscribers increased 58.1% to 188,540.Internet all access subscribers increased18.2% to 423,196. Our current broadbandline penetration rate is 15% and our targetedpenetration rate is 25 by 2013/14.
We have increased DSLAMs throughoutthe country by 50.4% to 4,000 sites. Wehave installed 91% of ADSL lines within21 working days where no network buildis required, compared to 79% in the yearended March 31, 2008 and 74% within21 working days where network build isrequired compared to 66% in the yearended March 31, 2008. The ADSL SelfInstall option is expected to continue toimprove the installation times. As of March31, 2009, 57% of all ADSL installationswere being done through the Self Installoption.
ADSL allows provisioning of high speedconnections over existing copper wiresusing digital compression. We havedifferent ADSL services available, aimed atthe distinct needs of our customers.
Internet access services and other relatedinformation technology servicesTelkom is one of the leading internet accessproviders in South Africa in the retail andwholesale internet access provision markets.We also package our TelkomInternetproduct with personal computers, ADSL andISDN services, as well as our satellite accessproducts, SpaceStream Express andSpaceStream Office.
Our South African Internet exchange (SAIX)is South Africa’s largest internet accessprovider, offering dedicated and dial-up,aDSL and satellite internet connectivity tointernet service providers and value-addednetwork providers. SAIX has offered fixed-line network internet access through dial-upservice since 1995. SAIX derives revenuefor its access services primarily fromsubscription fees paid by internet serviceproviders and value-added networkproviders for access services. In order togrow the portfolio, an opportunity has beenidentified to develop a service targetedmainly at night-time users of the SAIX ADSLservice. These customers can be regardedas heavy users as they use the service mainlyfor games, music and movie downloading.The SAIX customer base has expandedbeyond service providers and value-addednetwork providers, and now includesVodacom and other operators in Africa.These include incumbents in Mozambique,Namibia, Angola, Zimbabwe and Lesotho.
Broadband and converged servicesWe have identified an opportunity todevelop a SAIX northern hemisphere
DSL DSL DSL
384 512 4096
Downstream speed Up to 384 Kbps 512 Kbps 4096 Kbps
Upstream speed Up to 128 Kbps 256 Kbps 512 Kbps
The following table indicates our product offerings as at March 31, 2009:
Year ended March 31,
2008/2007 2009/2008
2007 2008 2009 % change % change
Wholesale
Internet leased lines-equivalent 64 kbps 19,247 22,541 24,204 17.1 7.4
Dial-up ports 11,462 7,010 4,541 (38.8) (35.2)
Retail
Internet all access subscribers 302,593 358,066 423,196 18.3 18.2
internet service targeted at African operatorsand ISPs to enhance additional growth ofinternet access services north of the equator.Currently, the customers in this region buytheir internet services from Europe. Byestablishing a central SAIX hub in Londonwe believe we can capture this market andincrease our revenue.
The table below presents informationregarding our wholesale and retail internetservices and customers as at the datesindicated.
Voice over Internet Protocol networkSoftswitch capability has been deployedas an overlay network to enable thecommunication of VoIP services. Ourcurrent VoIP network terminates calls fornumerous international voice carriers intoour fixed-line network as well as localVANS providers. Call centres from aroundthe world that have relocated to SouthAfrica due to favourable economicconditions and lower resource costs arealso hosted on our VoIP network. Telkomhas points of presence for connectivity tothe VoIP network in Amsterdam, London,New York, Ashburn (Washington DC),Hong Kong, Zambia, Zanzibar, Tanzania,Senegal and Madagascar. The networkhas 69 media gateways and can terminatesome 32,700 voice circuits. The mediagateways compress the traditional voicechannels of 64 Kbps to 8 Kbps channels,thus enabling us to reduce the cost ofinternational calls, while maintaining theperceived voice quality of a 64 Kbps call.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 200994
Operational review (continued)
WiFiIn February 2005 Telkom launched a hotspot service that provides wireless dataaccess through 802.11b/g WiFitechnology. Any user with a wireless-enablednotebook computer or personal digitalassistant can connect to the service while inthe coverage area. WiFi is mainly targetedat restaurants, hotel groups, major shoppingmalls and some sites on national routes. AtMarch 31, 2009 Telkom had 335 hotspots,up from 237 at March 31, 2008.
WiMAXTelkom has launched services based on fixed(IEEE 802. 16-2004) WiMAX technology.This technology is a standards basedbroadband wireless access technology thatprovides throughput connectivity in a point-to-multipoint configuration. The technology isdesigned to enable Telkom to complement itsADSL service offering and voice services tocustomers in areas affected by fixed-linecopper cable problems. Currently there are57 WiMAX base stations across all majorcities and towns with 2,615 customers,including voice and internet customers as ofMarch 31, 2009.
W-CDMAWe have started rolling out a W-CDMAWireless Local Loop (WLL) network in the2100MHz band. Initially planned to deliverservice in areas plagued by theft, breakagesand incidents, the network is now expectedto evolve into a full mobile network tocompete with other mobile operators. As ofMarch 31, 2009, we had 141 basestation sites in major metropolitan areas.
Geographic expansion and otheroperationsTelkom aims to establish itself as a regionalvoice and data player through providing arange of hosting services, managedsolutions, mobile voice and wirelessbroadband services. We are also enteringthe field of management consulting tooperators. In addition, we are positioningTelkom as a wholesale facilities andinfrastructure enabler for regional incumbents.
Our expansion to date has been throughMulti-Links, a private telecommunicationsoperator operating in Nigeria and AfricaOnline, an internet services provider with
its head office in Kenya and operating ineight other African countries.
The Telkom Group added Multi-Links as anew segment to its financial reporting for the2009 financial year. As a result, the TelkomGroup’s four reporting segments for the2009 financial year are fixed-line, Multi-Links, mobile and other. The other segmentincludes Telkom’s Trudon, formerly known asTDS Directory Operations, and AfricaOnline subsidiaries. The information in thisannual report has been updated to reflectthe above changes to Telkom’s reportingsegments.
TrudonTelkom owns 64.9% of Trudon, formerlyknown as TDS Directory Operations, thelargest directory publisher in South Africaproviding white and yellow pagesdirectory services and electronic whitepages. In the year ended March 31,2009, Trudon published approximately5.437 million white, 1.995 million yellowand 7.433 million combined directories.Trudon also provides electronic yellowpages and value-added content through fullcolour advertisements. Trudon hasimproved the accessibility and distributionof directories through door-to-door deliveryand electronic media. Trudon also providesnational telephone inquiries and directoryservices. The remaining 35.1% of Trudon isowned by Truvo Services South Africa (Pty)Ltd, formerly known as Maister Directories.On January 23, 2007, Trudon acquired a100% shareholding in a shell companyand subsequently renamed it TDS DirectoryOperations (Namibia) (Pty) Ltd, whichprovides directory services in Namibia.On October 31, 2008, Trudon sold a25% interest in TDS Directory Operations(Namibia) (Pty) Ltd to Ripanga InvestmentHoldings (Pty) Ltd, a black economicempowerment partner in Namibia, for twomillion Namibian dollars.
Trudon’s capital expenditure wasR12 million in the 2009 financial year asthe company sought to continue to expandaccess and distribution into new markets.Trudon has invested in a new onlineplatform in order to combat decliningrevenue from printed products.
Trudon’s primary competitors for printmaterials include Caxton, Easy Info andBrabys. Trudon’s primary internetcompetitors include Yahoo, Google,Ananzi, as well as vertical searchcapabilities such as Auto Trader andSupersport. Trudon’s estimated marketshare as of March 31, 2009 wasapproximately 11% in respect of printmedia and approximately 22% in respectof internet directory services.
Trudon had 531 employees as of March31, 2009.
Multi-LinksWith effect from May 1, 2007, Telkomacquired 75% of Multi-Links Telecom-munications Limited, or Multi-Links, throughTelkom International, a wholly owned SouthAfrican subsidiary, in Nigeria, forUS$280 million, or R1,985 million. Theremaining 25% of Multi-Links was ownedby Kenston Investment Limited, aninvestment company based in the Isle ofMan in the United Kingdom. With effectfrom January 21, 2009, Telkom acquiredthe remaining 25% interest in Multi-Links forUS$130 million, thereby increasing itsownership of Multi-Links to 100%. Thepurchase price was subject to a contractualput option in favour of the minorityshareholder.
Multi-Links is a private telecommunicationsoperator with a Unified Access Licenceallowing fixed, mobile, data, long distanceand international telecommunicationsservices to corporate clients, wholesaleand mass markets in Nigeria.
Multi-Links’ Unified Access Licence wasgranted on November 1, 2006 and has aterm of 10 years, with seven yearsremaining. There are currently13 operators licensed with Unified AccessServices Licences in Nigeria, making theNigerian telecommunications marketextremely competitive as operators may useany technology to deliver voice, data andvideo services to their customers.
We were disappointed with theperformance of Multi-Links. The poorperformance is solely attributable to ourunder-estimation of the competitiveness ofthe Nigerian market and the aggressive
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response of the CDMA operators to oursubsidisation of handsets. We also failedto adequately manage our distributionchannels and opened ourselves up toexploitation by the dealers. We have learntour lessons the hard way. Turning aroundMulti-Links is our number one priority.
Multi-Links reported a 124.9% increase inrevenue to R1.9 billion with subscribersgrowing 209.3% to 2,516,109 in theyear ended March 31, 2009. Voice anddata revenue contributed 75.0% to totalrevenue, handset sales 11.9%, inter-connect revenue 12.6% and SMS 0.5%.
Multi-Links’s slow start in developing anefficient and well controlled distributionchannel, together with a departure from itsinitial strategy of focusing on high ARPUsubscribers, the delayed launch of EVDOand destructive competition in the CDMAmarket caused ARPU to decline fromUS$32 at March 31, 2008 to US$9 atMarch 31, 2009. Telkom is currentlyaddressing these challenges as indicatedbelow.
Operating expenses increased 157.1% toR2.4 billion primarily as a result of upfronthandset subsidies. The average cost per unitequalled approximately R400 and subsidiestotalled R281 million. Payment to otheroperators contributed 26.9%, selling generaland administrative expenses 46.0%,employee expenses 5.2%, operating leases8.0%, service fees 1.6% and depreciation12.3%.
Multi-Links reported a negative EBITDAmargin of 11.9%, an EBITDA loss ofR226 million for the year ended March 31,2009 and a net loss of R1.76 billion afteraccounting for an impairment of thedeferred tax asset of R301 million. Baddebts increased 208.2% to R7.9 million.
Multi-Links has begun focusing its attention onthe SMME, corporate and wholesalemarkets and mainly on high ARPU users. Itsrevenue retention and growth strategy willconcentrate on increasing revenue of fixedwireless and mobile customers through brandawareness and promotion; expandingbroadband internet to offer high valuebundles and services. Through its extensivefibre network it will provide high quality
internet protocol/next generation networkservices to the government, corporate andSMME customers whilst extending its metro-ethernet services. The reach of its fibrenetwork also allows Multi-Links to concentrateon carrier class corporate and wholesaleproduct and services offerings.
Multi-Links has contracted the service ofBlue Label Telecoms Limited to assist withthe development and management ofour distribution channels, dealerships,promotional campaigns and inventorymanagement.
Operating expenses have been driven bynetwork growth, rehabilitation ofdistribution channels, marketing costs andcustomer acquisition and maintenance.Multi-Links is focusing on containing coststhrough reducing handset subsidiesdrastically, continuing to migrate to an all IPnetwork in order to reap the benefits of itscost effective network managementcapabilities and securing cost effectiveinternational connectivity through the SAT-3and other submarine cables.
Capital expenditure increased 112.7% toR2.8 billion in the year ended March 31,2009. In the 2009 financial year, Multi-Links’s build and expansion programmeachieved the following:
• Deployed additional packet basedmobile switching centres increasing theavailable capacity from 1,000,000 to2,800,000 subscribers.
• Extended home location registercapacities from 800,000 to5,100,000 subscribers.
• Rolled out additional base transmissionstations increasing its total capacity from800,000 to 1,800,000 subscribers.
• Successfully launched its broadbandservice offering by rolling out an EVDO3G network to a capacity of 100,000subscribers.
• Added 1,300 kms of optic fibre resultingin a total to 3,711 kms.
• Increased international capacity by theaddition of 2 x 155Mb services on theSAT-3 submarine cable system; and
• Extended coverage to 22 states andAbuja.
Turning around Multi-Links’s performance isvital to Telkom given the extent of theGroup’s investment and the enormousopportunity the Nigerian market provides.
US$100 million has been budgeted for the
2009/10 financial year for the completion
of an additional 1,645 km build and
584 km swop of optic fibre cable for the
DWDM/SDH network. It is anticipated that
the network will connect 80 DWDM/SDH
sites, covering all major cities in Nigeria,
providing us with additional bandwidth
connectivity for voice and data customers.
In addition, 227 cell towers are to be
erected and another 300 commissioned on
third party leased tower infrastructure during
the year. Seven new customer service
centres are planned to facilitate and support
the network growth.
We expect Multi-links to be EBITDApositive in 2010/11 and to be cash flowpositive by 2011/12.
Africa OnlineOn February 23, 2007, Telkom acquired100% of the issued share capital of AfricaOnline from African Lakes Corporation fora total cost of R150 million. Africa Onlineis an internet service provider active inCote d’Ivoire, Ghana, Kenya, Namibia,Swaziland, Tanzania, Uganda, Zambiaand Zimbabwe. Africa Online’s strategyfocuses on brand development, creationand development of customer channels,improvement of network systems, humanresources development and an expansiondrive targeting other African countries.Africa Online offers wireless and fixedtechnologies, hosting and domainregistration to both consumer andcorporate customers.
In the 2009 financial year, Africa Onlinehad R194 million of revenue and R216 million of total assets. The majorcontributors to revenue were corporate andconsumer wireless and broadband VSATservices. Consumer wireless revenuegrowth was predominantly in East Africa,while corporate revenue growth was
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Operational review (continued)
mainly in Ghana and Uganda. The growthin Pan African business, Ghana andTanzania accounted for the increase inBroadband VSAT. In the 2008 financialyear, Africa Online had R110 million ofrevenue, and R122 million of total assets.In the 2008 financial year, dedicatedcorporate links and consumer wirelesswere the highest revenue streams followedclosely by dial-up business. Dial-uppackages are the most popular andaccounted for approximately 62% of AfricaOnline’s total customers as of March 31,2009. Wireless customers are expected tocontinue to grow with Africa Online’scontinued investment in infrastructure.
The reason for the decrease in the numberof dial-up and ADSL customers is that AfricaOnline has shifted its marketing approach
to increase customers on its own wirelessnetwork infrastructure as opposed to dial-up and ADSL networks.
Africa Online’s distribution is conductedthrough various channels, including directsales and different types of resellersdepending on the customer segment.Customers are serviced through customerrelationship managers and a 24 hour callcentre. Africa Online’s primary competitorsinclude former telecommunicationcompanies that have entered the internetservice provider market, mobile providersand other private data companies.
Africa Online’s network had 29 points ofpresence, 46 mobile broadband transceiverstations, 31 fixed broadband wirelessaccess transceiver stations, eight networkoperation and 17 support centres and eightdata centres across nine countries as ofMarch 31, 2009. Africa Online’s capitalexpenditure was US$7 million in the 2009financial year, US$5.7 million in the 2008financial year and US$0.8 million in the2007 financial year. The increase in AfricaOnline’s capital expenditure was primarily forthe improvement of service quality and toincrease the range of information,communications and technology servicesoffered in the market.
Africa Online had 313 employees as ofMarch 31, 2009. UUNet, Africa Online’s40% joint venture partner had70 employees as of March 31, 2009.
Year ended March 31,
Restated(1) 2008/2007 2009/2008
2007 2008 2009 % change % change
Dial-up ports n/a 12,051 11,437 3.9 (5.1)
Consumer wireless n/a 4,075 5,754 110.2 41.2
Unbundled local loop n/a 99 99 (1.0) –
ADSL n/a 325 308 8.3 (5.2)
VSAT n/a 96 210 269.2 118.8
Dedicated corporate n/a 606 633 4.8 4.5
Total(1) n/a 17,252 18,441 18.6 6.9
UUNet subscribers(2) n/a 300 320 – 6.7
(1) In the 2009 financial year, Africa Online changed the method of counting subscribers to include all the individual corporate sites as individual customers.The comparative information for the 2008 financial year has been restated.
(2) Includes 100% of UUNet’s subscribers. UUNet is Africa Online’s joint venture partner that provides internet services in Kenya. We own a 40% interestin UUNet and MTN owns the remaining 60% of UUNet.
Shiletsi Makhofane was appointed asacting chief executive officer in October2008.
Africa Online’s footprint covers East Africa,southern Africa and West Africa. Theregulatory environments are fairly differentin each of Africa Online’s different regions.East Africa is liberalised and Africa Onlineprovides services across the information,communications and technology spectrum,including voice over internet protocolservices, in East Africa. Markets in southernAfrica are still regulated, limiting theservices Africa Online is able to provide toits customers. West Africa is a fairlyliberalised market and Africa Online ispresently seeking to take advantage of thisopportunity.
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MWEB AfricaOn April 21, 2009, we acquired a 100%interest in MWEB Africa Limited, whichowns approximately 88% of ASFATCommunications Limited, and a 75%interest in MWEB Namibia (Pty) Ltd, forR498 million. MWEB Africa is a group ofcompanies offering internet services and itsown VSAT access services in sub-SaharanAfrica (excluding South Africa). MWEBAfrica is obliged to acquire the additional12% of AFSAT Communications Limitedand we are currently in negotiations topurchase such shares.
MWEB Africa’s VSAT service is mostlyfocused on the corporate and enterprisemarkets and is branded iWay. Its VSATservices are using satellite teleport facilitiesin SA, the USA and Europe. The companyhad almost 20,175 customers atMarch 31, 2009.
The group is headquartered in Mauritiuswith operations in Nigeria, Kenya,Tanzania, Uganda, Namibia andZimbabwe and an agency arrangement inBotswana. There are distributors in 26 sub-Saharan African countries.
Other developmentsMobile strategyMobile Strategy – South AfricaThe recent liberalisation in the licensingregime, advancements in convergencetechnology and termination of theVodafone shareholders’ agreement provideTelkom with the opportunity to enter themobile market. We believe that anintegrated fixed-mobile operator is wellpositioned to react to, and take advantageof the future requirements of our customers.By developing an integrated fixed-mobileoffering Telkom will seek to leverage itscustomer base, marketing, logistics anddistribution channels to increase its share ofvoice revenue. In addition, internet accessdemands are increasingly requiringmobility. An integrated bundled offeringwould offer superior speeds and qualitythrough the fixed-line, including theadvantages of mobility when required bythe customer. Mobility provides cost
efficiencies and the opportunity toconsolidate traffic onto Telkom’s network.
Currently mobile customers areexperiencing the effects of highlycongested networks. Telkom intends to usethe strengths of its fixed-line network todifferentiate its mobile service on qualitywith a fully converged array of productsand services. Our Next GenerationNetwork and access to the latesttechnologies will provide further value toour customers.
Telkom has rolled out 141 W-CDMA sitesin major metropolitan areas throughoutSouth Africa. Our initial focus has been ontheft, breakages and incident-prone areas,customers waiting for service andgreenfield areas where Telkom has nocopper infrastructure. In essence, the W-CDMA technology allows Telkom todeploy fixed-line lookalike services withregional fixed numbering plans instead ofdeploying copper, especially in highcopper theft areas or areas where copperdeployment is not feasible or too slow toroll out. This roll-out will be extended torural areas and to replace expensive tomaintain legacy equipment.
Our move into offering a fully fledgedmobile service is dependent on thefinalisation of market research and theoutcome of pilot and customer trialsplanned for the end of 2009.
We are however aware of the power ofthe entrenched mobile companies. Withthis in mind, Telkom will not commit tofurther capital expenditure other than thatfocused on reducing costs before theCompany has completed its marketresearch. Future build will be based onmaximising our current infrastructure andsubscriber numbers in order to reduceoperational and build costs and improvevalue add as far as possible.
Key Next Generation Network, capacityand product developmentsTelkom is in the fourth year of its NextGeneration Network (NGN) build outprogramme. Customer demand and global
standards necessitate the provision ofservices and particularly bandwidth that isonly possible utilising the intelligence of anNGN system.
Our NGN build-out achievements are asfollows:
• In the national layer of the transportnetwork, bandwidth capability hasincreased by more than 500% inbandwidth and automatic self-healingre-routing of bandwidth has beenintroduced based on customer servicelevels.
• Optical fibre deployment has beenaccelerated and Telkom now hasaround 128,000 cable kilometres ofoptical fibre in the ground, enough tocircle the world three times.
• Dense Wave Division Multiplexing(DWDM) systems have been introducedbetween major metropolitan centressuch as Gauteng and Durban. Thesesystems can carry 40 10GB signalsover a single fibre pair.
• Metro Ethernet has been deployed inthe major metros, including Cape Town,Durban, Johannesburg, Pretoria andPort Elizabeth.
• Integrated Multi-Service AccessMultiplexer (IMAX) has been deployedto carry narrowband and broadbandservices for Wireline legacy andconverged systems.
• A Network Interactive Voice Responsesystem has been introduced, givingTelkom and its corporate customers theability to use advanced speech servicessuch as automated speech recognitionand text-to-speech applications.
• The SAT-3/WASC/SAFE underseacable system, which connects SouthAfrica to Europe and the Far East, hasbeen upgraded to treble the amount ofinternational bandwidth available.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 200998
Operational review (continued)
Next Generation Network (NGN)
Telkom has strategic objectives that are
followed as part of network planning to
ensure that we drive the implementation of
the NGN. Telkom’s NGN is based on an
evolutionary approach where the NGN is
deployed in parallel with the legacy
network and migration to the NGN is
phased in over time.
Key to Telkom’s NGN deployment are
Softswitches that function in association
with Application Servers, next generation
transport networks, and IP and Metro
Ethernet networks. In order to leverage on
Telkom’s ubiquitous network deployment,
the transport network will be transformed to
support the expected exponential growth in
bandwidth. The IP Network has been
positioned to differentiate Telkom from
its competitors and to leverage on
the bandwidth capacity increase of the
transport network.
To achieve success with the NGN, two
objectives are actively pursued; the
consolidation of service offerings and the
development and marketing of new and
innovative services which are enabled by
the NGN technology.
NGN is cheaper to maintain and
operate
NGN will provide network convergence
and simplification over the longer term as
separate networks for voice and data
converge to one IP based network with
associated intelligent devices such as
softswitches and application servers. NGN
requires less diverse technology elements
to maintain that will increase network
reliability and manageability and result in
operational savings.
NGN is a revenue generator
There is a critical mass of NGN equipment
that is required before proper converged
services with a viable footprint are
possible. Some NGN services are already
functioning, but in small numbers. Pre-
provisioning in the core of the network is
currently taking place that will be beneficial
in the longer term, in view of the
expectation that bandwidth will grow
exponentially.
The NGN network elements
The Metro Ethernet Network
An extensive Metro Ethernet Network is
being deployed for the provisioning of
high-speed broadband services for
corporate customers and to serve as an
access network backhaul to provide cost
effective transport of high bandwidth
services, typically as a backhaul for access
nodes. Metro Ethernet also serves as an
access network to services provisioned on
the IP Network.
The Transport Network
To achieve the growth and manageability
in the transport network, Telkom is
deploying Next Generation Synchronous
Digital Hierarchy (NG-SDH) and Dense
Wavelength Division Multiplexing
(DWDM). In order to provide automated
provisioning, routing and restoration
capability, Automatic Switching Transport
Network (ASTN) technology is being
deployed on Telkom’s long haul network.
The ASTN network will also improve
resilience, reliability and reduce cost of the
transport network.
Softswitches and application servers
Softswitches have been deployed to
control media gateways, access gateways
and provide basic voice services while it
functions in association with application
servers to provide advanced next
generation voice services. Telkom’s IP
network provides the transport capability
between the network elements while media
gateways mediate between the circuit
switched network and the Voice Over
Internet Protocol (VoIP) network. The need
for such media gateways will diminish as
more traffic moves to VoIP.
The NGN network will continue to be
developed towards an IP Multimedia
Subsystem (IMS) controlled network where
call control will be combined into a single
control layer with IMS architecture. In the
longer term customer services will migrate
to an NGN infrastructure where only a few
Softswitch nodes with multiple Softswitches
are required to fulfil the functionalities of the
Class 4 core and Class 5 edge Time
Division Multiplex switches.
IP Network
Telkom’s IP Network is an extensive
network, providing points of presence
country wide. 34 Edge nodes, each with
multiple routers, have been deployed. At
these nodes, edge routers act as
distribution and aggregation points to
IPNet via the Network Access Servers (dial-
up customers), Access Routers (leased
line Internet customers), customer edges
(Customer Edges for VPN termination) and
also terminate ADSL sessions – 145 Edge
routers are deployed at the 34 edge
nodes.
The IPNet routing platforms support
business customer requirements (VPN) as
well as providing Internet capacity for
leased line and broadband internet
services.
Separate and dedicated edge routers for
business traffic and internet traffic provide
physical separation of corporate customer
Virtual Private Network (VPN) traffic from
that of Internet traffic to ensure secure
implementation of services to the business
segment. Separate routing platforms,
dedicated for ADSL termination, are also
deployed at the IPNet edge nodes.
An extensive access network that could
potentially provide connectivity to almost
any customer provides access to IP
services. These access networks include
legacy networks such as Constant Bit Rate
(CBR), and new point to cloud infrastructure
e.g. Synchronous High-bit rate Digital
Subscriber Line and Metro Ethernet.
To further improve the secure provisioning
of services and create new business
opportunities, IPNet is evolving to a
Carrier-supporting-Carrier (CsC) Multi-
Protocol Label Switching (MPLS)
architecture. In short, CsC is a hierarchical
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Telkom Annual Report 2009 99
VPN model that allows other service
providers or corporate customers to
interconnect their own IP/MPLS networks
over Telkom’s MPLS backbone. This
eliminates the need for customer carriers
and service carriers to build and maintain
their own MPLS backbone. In the
backbone, the CsC concept provides
complete separation of the different service
carriers’ traffic.
A Service Carrier is a collection of
Service (or customer-specific) Provider
Edge routers (S-PEs), essentially forming a
layer around the Backbone Carrier
network. Service Carriers also include their
respective Customer Edge (CE) routers.
S-PE and CE routers can only belong to a
single Service Carrier at any one time.
In essence, IPNet will consist of a
Backbone Carrier, supporting various
Service or Customer Carriers each
retaining a level of autonomy (e.g. security,
management, Quality of Service
implementation) from the core. At a basic
technical level, it means that any number of
customer VPNs are embedded and treated
as a single VPN within the backbone
carrier infrastructure by means of multiple
stacked MPLS labels, while preserving the
customer’s unique parameters, such as
Quality of Service models.
Network resilience
Telkom’s networks are generally viewed as
three layers, ie access, edge and core.
The different network elements are
interconnected utilising Synchronous Digital
Hierarchy (SDH), with the primary physical
interconnecting medium being fibre.
The transport network equipment is
connected in a mesh or ring topology,
providing for redundancy. To further
improve resilience, intelligent ASTN
switches are deployed in the long haul
network to provide automatic provisioning,
routing, and restoration capability.
Generally, at the access, no resilience is
present in the network architecture towards
the edge other than physical protection
at the SDH layer where end-to-end path
protection, utilising 1+1 protection
architecture, i.e. a working path and a hot
standby protection path, has been
deployed.
The traffic leaving or entering edges to or
from the network is protected in the core.
Core redundancy provides protection in
edge to edge and edge to international
destination set-ups. The degree of
redundancy varies across the different
technologies and networks.
Voice network
Dual connectivity exists between edge to
core nodes and core to international
gateway nodes. The transmission links
between the edge and the core pair nodes
are geographically separated. These links
are protected to eliminate any single point
of failure in the transport network. All links
are designed to cater for the busy hour
loads and have been implemented in a
50:50 load sharing fashion with each
route limited to 80% utilisation.
In the event of a failure of an international
gateway during the peak hour, about 38%
of the international traffic will be lost. In the
event of a failure of a core switch during
the peak hour, about 38% of national and
international traffic will be lost from the
secondary layer of a particular region.
Activation of disaster recovery procedures
and plans to re-route traffic will further limit
the loss of traffic. The Intelligent Network
platforms, providing advance services,
cater for protection of traffic under failure
conditions.
Signalling
No risk exists from a national perspective
as full redundancy has been implemented.
Due to the fact that the international
Signalling Transit Points are not connected
as a mated pair to all international
destinations, failure of an international
gateway Signalling Transit Point may
result in the loss of some international
connections.
Data networks
At the core layer and between the core
and the edge nodes, full resilience exists.
Edge devices are connected to two core
devices, located in physically diverse
buildings. The connectivity between the
edge and each core router as well as the
core infrastructure is dimensioned to carry
the full traffic load in the event of a link
failure or core node failure. Edge to core,
inter-core and edge to International
destinations are therefore fully redundant.
Connectivity to international destinations is
provided from two physically diverse
nodes, through different cable landing
stations and different submarine cable
networks to multiple international nodes on
different continents that are all
interconnected using protected or
restorable transmission systems. In the event
of the loss of one of the local nodes,
potentially 38% of the IP throughput traffic
could be lost. Mechanisms will schedule
traffic and prioritisation of traffic will
take place.
Service level agreements are offered to
clients to provide improved resilience from
the customer site to the edge.
Power
Only 12V and 48V direct current (DC)
equipment is utilised. Some alternating
current (AC) equipment is used, mainly in
the server environments, eg data centres
and at sites where DC is not available, eg
at customer service branches.
Operations centres, Core nodes, Edge
nodes, International gateway nodes and
any station carrying core or edge traffic
have been defined as critical sites where a
disruption of service cannot be tolerated.
Power availability is ensured, using a
combination of battery back up and AC
standby plants.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009100
Operational review (continued)
Cost, efficiency and productivitymanagementFaced with competition eroding our
revenue base, cost management continues
to be a key element in creating shareholder
value. Combined with the inflationary
environment affecting our operating
expenses, a number of once-off items
impacted fixed-line expenditure including:
• R177 million expenses relating to the
Vodacom transaction;
• R85 million impairment of Africa
Online;
• R254 million impairment of Telkom
Media; and
• R1.8 billion impairment of Multi-Links.
Fixed-line operating expenses increased
19.6% to R29.8 billion. Employee
expenses increased by 8.1% to
R8.0 billion, payments to other operators
increased 9.2% to R7.5 billion, selling
general and administrative expenses
increased by 68.8% to R6.6 billion,
service fees increased by 14.4% to
R2.8 billion and operating leases
decreased by 1.0% to R613 million.
Depreciation, amortisation, impairment
and write-offs increased by 16.8% to
R4.4 billion resulting in an EBITDA margin
of 25.8%. Excluding the Multi-Links, Telkom
Media and Africa Online impairment the
fixed-line adjusted EBITDA margin was
32.3%.
The Telkom reorganisation programme –
Telkom Renaissance – improves profit and
loss accountability throughout the
organisation and will allow us to focus on
efficient resource management and cost
containment. In addition, the roll-out of our
mobile network is expected to enable us to
provide connectivity in a more cost
effective manner in rural and high cable
theft areas. Next Generation Network and
mobile technology also allows us to
replace expensive to maintain legacy
equipment. We intend to expedite the
retirement of costly legacy systems as a
result of our growing Next Generation
Network in order to reduce maintenance
spend. We continue with the renegotiation
of all supplier contracts and constructive
engagement with labour unions. We are
reviewing our IT investment strategy in
order to ensure optimum levels of spend in
line with our strategy and network
investment. Inventories and capital work-in-
progress are receiving considerable
attention as we seek to lower just-in-time
levels of investment and to monetise any
excessive levels of assets.
Telkom is targeting an operating cost
reduction of 10% over the following three
financial years.
The Telkom Board is focusing on improving
the cost efficiency and free cash flow
profile of the company. It has reduced the
initial five year capital expenditure budget
by 40% to R34 billion and intends to
reduce it further where possible.
Maintaining the quality of services to our
customers
Improved customer service is vital to the
success of Telkom into the future.
Sustainable and profitable growth in the
customer base requires creating and
strengthening capabilities focused on
managing customer relationships and
learning from acquired customer
information. This will allow Telkom to better
manage the customer experience and
anticipate customer needs.
Customer segmentation based on value is
enabling Telkom to understand customers
better in order to give additional value and
services to customers. Surveys with our key
customer segments have shown that service
quality perception has improved in the
small business, medium and large business
and corporate and government sectors.
The residential market perception survey
indicates a stable rating.
Network service quality
We have made significant investments in
our national network operations centre and
our data centre, designed to increase our
ability to identify and anticipate future
customer needs more rapidly, and to
provide appropriate solutions and services.
In order to take advantage of economies of
scale, we have consolidated our six voice
installation and fault management centres
into two centres to address faults,
installation and service appointment sites,
and have consolidated our six data
installation and fault management centres
into two centres.
Faults reported on residential, business and
ADSL business services increased in the
2009 financial year mainly due to the 33%
increase in the ADSL installed base during
the 2009 financial year resulting in an
increase in the number of reported faults,
adverse weather conditions causing many
areas to be flooded, mainly in the coastal
areas of KwaZulu-Natal, Western Cape
and Eastern Cape, and third party
damage to Telkom cable infrastructure, roll-
out of other providers’ services, road
extensions and other 2010 Soccer World
Cup projects. In addition, many customers
were affected by access equipment that
failed following prolonged power outages.
Data and ADSL Business services fulfilment
performances improved following the
introduction of more efficient workflow
processes.
Faults cleared in 24 hours declined in the
2009 financial year due to the increased
number of ADSL services. The ADSL
installed base grew by 61% during the
2008 financial year. This growth resulted
in an increase in the number of reported
faults and impacted on the time taken to
clear faults. This growth also impacted on
data subrate services as they share ADSL
resources. Network failures consist of cable
breaks, cable theft and failures on other
core network elements. We implemented a
self install option for ADSL, which had a
positive impact on ADSL installation.
We expect to continue to change the
method in which we measure performance
to align with changes in the information
communication technology industry that
focus more on broadband and data
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Telkom Annual Report 2009 101
services and also to support Telkom’s
customer centricity drive.
Competition
Competition in the South African fixed-line
communications market is intense and is
increasing as a result of the Electronic
Communications Act and determinations
issued by the Minister of Communications.
The new licensing framework included in the
Electronic Communications Act is resulting in
the market becoming more horizontally
layered, with a large number of separate
licences being issued for electronic
communications network services, electronic
communications services, broadcasting
services and the radio frequency spectrum.
This will substantially increase competition in
our fixed-line business.
We compete primarily on the basis
of customer service, quality, reliability
and price in those areas where we
currently face competition and where we
expect to compete for public-switched
telecommunications services in the future.
We intend to introduce new products and
services as well as tariff structures with the
aim of maintaining and gaining revenue.
Mobile competition
Telkom competes for voice customers with
the three existing mobile operators,
Vodacom, MTN and Cell C. Vodacom,
our previously 50% owned joint venture,
was listed on the JSE on May 18, 2009.
The sale and unbundling of our stake in
Vodacom will further increase competition.
MTN is a public company listed on the JSE
Limited, and Cell C entered into a joint
venture with Virgin Mobile which has
further increased competition. Telkom also
competes with service providers who use
least cost routing technology that enables
fixed-to-mobile calls from corporate private
branch exchanges to bypass our fixed-line
network by being transferred directly to
mobile networks. In recent periods, our
fixed-line business has experienced
significant customer migration to mobile
services, as well as substitution of calls
placed using mobile services rather than
our fixed-line service. ICASA has initiated a
review process of mobile termination rates
aimed at reducing high mobile
interconnect charges which, once
completed, is also likely to impact Telkom’s
own termination rates and interconnection
revenues.
Data competition
Neotel, the former VANS providers such as
Internet Solutions and the three existing
mobile operators are our main competitors
in the data market. Each of Vodacom,
MTN and Cell C currently offer 3G, HSPA
and EDGE mobile broadband data
services that directly compete with our
services. Neotel is entering the market
through competitive pricing and niche
products such as fibre connections and
rings. The mobile operators have also
stated their intention to start competing in
the fixed-line market through building their
own infrastructure. The former VANS
provide competitive internet protocol virtual
private networks and internet service
provider services to the business segment.
Year ended March 31,
2007 2008 2009
Residential voice
% cleared in 24 hours 50 38 32
Faults per 1,000 lines 485 476 650
% installed within 28 working days initial timeframe – No build 84 91 91
% installed within 80 working days initial timeframe – Build 73 82 80
Business voice
% cleared in 24 hours 66 50 45
Faults per 1,000 lines 328 264 369
% installed within 21 working days initial timeframe – No build 77 85 87
% installed within 70 working days initial timeframe – Build 81 84 82
Data subrate
% cleared in 24 hours 84 93 94
Faults per 1,000 lines 870 875 816
% installed within 30 working days initial timeframe – No build 49 48 64
% installed within 90 working days initial timeframe – Build 54 79 80
ADSL business
% cleared in 24 hours 33 42 37
Faults per 1,000 lines 575 575 649
% installed within 28 working days initial timeframe – No build 56 79 91
% installed within 60 working days initial timeframe – Build 68 66 74
The following table presents information regarding Telkom’s service delivery measurements during the periods indicated.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 101
Telkom Annual Report 2009102
Operational review (continued)
Consumer orientated internet service
providers such as MWEB are our main
competitors in the consumer internet
market.
In addition, our data services have faced
increased competition from iBurst, a
wireless competitor that offers competing
broadband services and, to a lesser extent,
Sentech, which owns and operates satellite
transmission systems, a packaged, always-
on bidirectional broadband service via
satellite and a wireless high-speed internet
service offering. The mobile data providers
have reduced prices significantly, leading to
price competition in our data markets. We
believe the former VANS operators and
internet service providers will increasingly
move into the corporate and voice services
market, while telecommunications service
providers aim to expand into the managed
data network and international traffic
markets. We anticipate that alliances will
be forged between the former VANS
operators, telecommunications service
providers and content providers to
concentrate on the delivery of converged
services within the next few years.
Domestically, expansion into new markets
by the former VANS and mobile
companies will occur, while the
development of new products and services
will intensify competition. We expect
competition to further increase as a result of
consolidation in the market, with
competitors growing through mergers,
acquisitions and alliance-forming activity.
The entry of multi-national corporations into
South Africa is expected to be a further
incentive for global communications
operators, which already service these
corporations abroad, to establish or
enhance their presence in South Africa.
Competition in the data market is expected
to increase as a result of the VANS
providers’ ability to deliver complex
managed data solutions and integrated
information communications technology
solutions, as well as expected future
alliances between the VANS and fixed and
mobile operators. Technological advances
will also enable more and more
convergence and integration which in turn
will enable more effective competition and
usage of bandwidth.
As competition increases in the South
African market, South African tele-
communication service providers, including
Telkom, are expected to increasingly look
to other developing markets for new
revenue streams, particularly in sub-
Saharan Africa. Internationally, Telkom’s
new Africa Online business already
competes with Internet Solutions and MTN
Network Solutions. In addition, Verizon is
already present in a number of other
African markets.
Fixed-line voice competition
In September 2004, the Minister of
Communications granted an additional
licence to provide public-switched
telecommunications services to Neotel.
Neotel was 30% owned by Transtel and
Esitel, which are beneficially owned by the
South African government and other
strategic equity investors including 26%
beneficially owned by TATA Africa
Holdings (Pty) Ltd, a member of the large
Indian conglomerate with information and
communications operations. On March
19, 2008 Neotel announced that the
Competition Tribunal of South Africa had
approved its acquisition of Transtel without
any conditions. TATA Africa Holdings (Pty)
Ltd has subsequently acquired the 30%
equity stake beneficially owned by the
South African government, increasing its
shareholding in Neotel to 56%. Neotel
was licensed on December 9, 2005 and
commercially launched on August 31,
2006. Neotel commenced providing
services to large corporations and other
licensees at the beginning of the 2007
calendar year.
On April 25, 2008, Neotel announced
that the first of its consumer products were
available in limited parts of Johannesburg
and Pretoria. Government has created an
infrastructure company, Broadband Infraco,
which stated that it will provide inter-city
bandwidth at cost based prices to Neotel,
and later to the rest of the industry. This will
further compete with our existing
communications network. As an alternative
provider of communications infrastructure,
Broadband Infraco will also be involved in
some of the undersea cable projects.
Broadband Infraco was established by an
Act of Parliament: the Broadband Infraco
Act, No 33 of 2007. The Electronic
Communications Act, No 36 of 2005, has
been amended by the Electronic
Communications Amendment Act, No 37
of 2007, to permit electronic
communications licences to be issued to
Broadband Infraco.
A process to issue additional licences to
small business operators to provide
telecommunications services in
underserviced areas with a teledensity of
less than 5% commenced in 2005 and is
continuing. The Minister of Communi-
cations has identified 27 of these
underserviced areas. ICASA has issued
licences to successful bidders in seven of
these areas and the Minister has issued
invitations to apply for licences in
14 additional areas. In August 2006
ICASA recommended to the Minister that
licences be granted to successful
applicants in 13 of these areas. While it
was expected that further licences would
be issued in the 2007 calendar year, none
were issued. The Minister of
Communications has issued a policy
directive to ICASA directing it to, where
there is more than one licence in a
province, merge the licences and issue one
Provincial Under-Serviced Area Network
Operator (PUSANO) licence. None of
these consolidated licences have yet been
issued by ICASA. In his budget speech of
June 26, 2009, the Minister of
Communications indicated the intention to
review the policy in relation to USALs.
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Telkom Annual Report 2009 103
Telkom’s fixed-line voice business is
expected to be further impacted by
continuing developments of Voice over
Internet Protocol (VoIP) and by the roll-out of
limited mobility services. Wireless operator
iBurst has started to offer portable voice
services over its wireless network.
Additionally, VoIP and other operators with
international gateway licences are
expected to create increased competition
for Telkom’s fixed-line voice business in
carrying international traffic in and out of
South Africa.
We expect that the introduction of number
portability and carrier pre-selection could
further enhance competition in our fixed-line
voice business and increase our churn
rates. As competition intensifies, the main
challenges our fixed-line voice business
faces are continuing to improve customer
loyalty through improved services and
products, and maintaining our leadership
in the South African communications
market. As a result of increasing
competition, we anticipate pressure on our
overall average tariffs and a reduction in
our market share.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009104
Three year financial review
for the years ended March 31Amounts in accordance with IFRS (in ZAR millions, except percentages) 2007 2008 2009 CAGR (%) Fixed-line segment financial data Revenue 32,345 32,572 33,659 2.0Operating profit 8,596 8,107 4,334 (29.0)Operating profit margin (%) 26.6 24.9 12.9 (30.4)EBITDA 12,178 11,839 8,692 (15.5)EBITDA margin (%) 37.7 36.3 25.8 (17.3)Capital expenditure to revenue (%) 20.4 20.9 19.9 (1.2)Multi-Links segment financial data Revenue – 845 1,900 124.9Operating profit – (97) (522) 438.1Operating profit margin (%) – (11.5) (27.5) 139.3EBITDA – (11) (226) 1,954.5EBITDA margin (%) – (1.3) (11.9) 813.7Capital expenditure to revenue (%) – 155.3 146.9 (5.4)Other segment financial data Revenue 873 1,040 1,214 17.9Operating profit 411 453 477 7.7Operating profit margin (%) 47.1 43.6 39.3 (8.6)EBITDA 430 486 527 10.7EBITDA margin (%) 49.3 46.7 43.4 (6.1)Capital expenditure to revenue (%) 5.0 32.1 13.8 66.1Financial review (Group) Income statement data Continuing operationsOperating revenue 32,441 33,611 35,940 5.3Operating expenses (including depreciation) 23,028 25,014 29,895 13.9EBITDA 13,352 13,203 11,668 (6.5)Operating profit 9,751 9,069 6,388 (19.1)Profit before tax 9,093 7,681 3,726 (36.0)Profit from continuing operations 6,290 5,034 2,066 (42.7)Basic earnings per share (cents) 1,204.7 963.7 407.4 (41.8)Headline earnings per share (cents) 1,235.5 1,028.9 557.0 (32.9)Dividend per share (cents) 900.0 1,100.0 660.0 (14.4)Total operations Basic earnings per share (cents) 1,681.0 1,565.0 832.8 (29.6)Headline earnings per share (cents) 1,710.7 1,634.8 994.6 (23.8)Balance sheet data Total assets 59,146 70,372 85,779 20.4Current assets 10,376 12,609 11,287 4.3Non-current assets 48,770 57,763 51,009 2.3Assets of disposal groups held for sale n/a n/a 23,482Total liabilities 27,138 37,035 48,673 33.9Current liabilities 18,584 21,931 17,452 (3.1)Non-current liabilities 8,554 15,104 15,348 33.9Liabilities of disposal groups held for sale n/a n/a 15,873Shareholders’ equity 32,008 33,337 37,106 7.7Continuing operations Capital expenditure 6,623 8,428 9,631 20.6Total debt 11,034 18,365 18,630 29.9Net debt 10,026 16,617 15,497 24.3Total operations Capital expenditure 10,246 11,900 13,234 13.6Net debt 10,026 16,617 23,047 51.6Cash flow data Cash flow from operating activities 9,356 10,603 11,432 10.5Cash flow from investing activities (10,412) (14,106) (17,005) 27.8Cash flow from financing activities (2,920) 2,943 7,093 –Capital expenditure excluding intangibles 8,648 10,108 8,725 0.4Operating free cash flow 3,728 2,229 (2,237) –Financial ratios Continuing operations Operating profit margin (%) 30.1 27.0 17.8 (23.1)EBITDA margin (%) 41.2 39.3 32.5 (11.2)Net profit margin (%) 19.4 15.0 5.7 (45.5)Net debt to EBITDA n/a n/a 1.3 –After tax operating return on assets (%) n/a n/a 5.0 –Capital expenditure to revenue (%) 20.4 25.1 26.8 14.6Total operations Net debt to EBITDA 0.5 0.8 1.2 54.9After tax operating return on assets (%) 22.7 18.3 9.7 (34.6)
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Telkom Annual Report 2009 105
Financial review
Results of operations
The Telkom Group added Multi-Links as a new segment to its
financial reporting for the 2009 financial year. As a result, the
Telkom Group’s four reporting segments for the 2009 financial
year are fixed-line, Multi-Links, mobile and other. The other
segment includes Telkom’s Trudon, formerly known as TDS
Directory Operations, and Africa Online subsidiaries. The
information in this annual report has been updated to reflect the
above changes to Telkom’s reporting segments.
Telkom concluded the disposal and sale of Vodacom, its mobile
segment that provided mobile services through its 50% joint
venture interest in Vodacom, effective as of April 20, 2009. In
addition, Telkom’s Board of directors determined to dispose of
Swiftnet, a wholly owned subsidiary that provides wireless data
services, and determined to wind up its Telkom Media subsidiary.
The Telkom Group’s consolidated financial statements and
information included herein reflects the restatement to Telkom’s
consolidated financial statements in prior years as a result of these
events to disclose the effect of discontinued operations and the
disposal of the subsidiaries held for sale as follows:
• Income statement data for all the periods have been restated to
reflect our 50% share of Vodacom’s results, our 100% share of
Swiftnet’s results and our 75% share of Telkom Media’s results
as discontinued operations in accordance with IFRS5; and
• Balance sheet data for only the year ended March 31, 2009
reflect our 50% share of Vodacom’s results and our 100% share
of Swiftnet’s results as discontinued operations in accordance
with IFRS5.
The discussion of the business below has been revised from
previous years to reflect the changes to Telkom’s segments and its
discontinued operations.
Year ended March 31, 2009 compared to year ended March
31, 2008 and year ended March 31, 2007
Consolidated results
The following table shows information related to our operating
revenue, other income, operating expenses, operating profit,
operating profit margin, profit for the year, profit margin, EBITDA
and EBITDA margin for the periods indicated.
The Board has decided to delist from the New York Stock
Exchange. Maintaining a listing in the United States is
expensive and takes considerable management time. The
methodology employed and discipline gained from
compliance with the Sarbanes-Oxley reporting
requirements will be retained, where appropriate, to
ensure strict corporate governance compliance and
transparent financial reporting.
Telkom is comfortable that the JSE provides sufficient access
to capital from both South African and global investors.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 105
Telkom Annual Report 2009106
Financial review (continued)
Telkom Group’s segmental resultsYear ended March 31,
2008/ 2009/2007 2008 2009 2007 2008
(in millions, except percentages) ZAR % ZAR % ZAR % % change % change
Operating revenue 32,441 100.0 33,611 100.0 35,940 100.0 3.6 6.9Fixed-line 32,345 99.7 32,572 96.9 33,659 93.7 0.7 3.3Multi-Links – – 845 2.5 1,900 5.3 – 124.9Other 873 2.7 1,040 3.1 1,214 3.4 19.1 16.7Intercompany eliminations (777) (2.4) (846) (2.5) (833) (2.4) 8.9 (1.5)Other income(1) 338 100.0 472 100.0 343 100.0 39.6 (27.3)Fixed-line 334 98.8 497 105.3 524 152.8 48.8 5.4Multi-Links – – – – – – – –Other 50 14.8 61 12.9 64 18.6 22.0 4.9Intercompany eliminations (46) (13.6) (86) (18.2) (245) (71.4) 87.0 184.9Operating expenses 23,028 100.0 25,014 100.0 29,895 100.0 8.6 19.5Fixed-line 24,083 104.6 24,962 99.7 29,849 99.8 3.6 19.6Multi-Links – – 942 3.8 2,422 8.1 – 157.1Other 512 2.2 648 2.6 801 2.7 26.6 23.6Intercompany eliminations (1,567) (6.8) (1,538) (6.1) (3,177) (10.6) (1.9) 106.6Operating profit 9,751 100.0 9,069 100.0 6,388 100.0 (7.0) (29.6)Fixed-line 8,596 88.2 8,107 89.4 4,334 67.8 (5.7) (46.5)Multi-Links – – (97) (1.1) (522) (8.2) – (438.1)Other 411 4.2 453 5.0 477 7.5 10.2 5.3Intercompany eliminations 744 7.6 606 6.7 2,099 32.9 (18.5) 246.4Operating profit margin (%) 30.1 27.0 17.8 (10.3) (34.1)
Fixed-line 26.6 24.9 12.9 (6.4) (48.2)
Multi-Links – (11.5) (27.5) – 139.1
Other 47.1 43.6 39.3 (7.4) (9.9)
Profit for the year attributable
to equity holders of Telkom
Profit margin (%)
EBITDA(2) 13,352 100.0 13,203 100.0 11,668 100.0 (1.1) (11.6)
Fixed-line 12,178 91.2 11,839 89.7 8,692 74.5 (2.8) (26.6)
Multi-Links – – (11) (0.1) (226) (1.9) – (1,954.5)
Other 430 3.2 486 3.7 527 4.5 13.0 8.4
Intercompany eliminations 744 5.6 889 6.7 2,675 22.9 19.5 200.9
EBITDA margin (%) 41.2 39.3 32.5
Notes:(1) Other income includes profit and losses on disposal of investments, property, plant and equipment and intangible assets.(2) EBITDA represents profit for the year, which includes profit on sale of investments, before taxation, finance charges, investment income and depreciation,
amortisation, impairments and write-offs. We believe that EBITDA provides meaningful additional information to investors since it is widely accepted byanalysts and investors as a basis for comparing a company’s underlying operating profitability with that of other companies as it is not influenced by pastcapital expenditures or business acquisitions, a company’s capital structure or the relevant taxation regime. This is particularly the case in a capital intensiveindustry such as communications. It is also a widely accepted indicator of a company’s ability to service its long-term debt and other fixed obligationsand to fund its continued growth. You should not construe EBITDA as an alternative to operating profit or cash flows from operating activities determinedin accordance with IFRS or as a measure of liquidity. EBITDA is not defined in the same manner by all companies and may not be comparable to othersimilarly titled measures of other companies unless the definition is the same. In addition, the calculation of EBITDA for the maintenance of our covenantscontained in our TL20 bond is based on accounting policies in use, consistently applied, at the time the indebtedness was incurred. As a result, EBITDAfor purposes of those covenants is not calculated in the same manner as it is calculated in the above table.
Telkom AR front.qxp 8/12/09 6:23 PM Page 106
Telkom Annual Report 2009 107
EBITDA can be reconciled to operating profit as follows:
Year ended March 31,
2007 2008 2009
(in millions) ZAR ZAR ZAR
Fixed-lineEBITDA 12,178 11,839 8,692Depreciation, amortisation, impairments and write-offs (3,582) (3,732) (4,358)
Operating profit 8,596 8,107 4,334
Multi-LinksEBITDA – (11) (226)Depreciation, amortisation, impairments and write-offs – (86) (296)
Operating profit – (97) (522)
OtherEBITDA 430 486 527Depreciation, amortisation, impairments and write-offs (19) (33) (50)
Operating profit 411 453 477
Operating revenue
Operating revenue increased in the years
ended March 31, 2009 and 2008 due to
increased operating revenue in our fixed-
line, Multi-Links and other segment. The
increase in fixed-line operating revenue of
3.3% and 0.7% in the 2009 and 2008
financial years, respectively, was primarily
due to continued growth in data services,
higher revenue from interconnection and
subscription based calling plans, partially
offset by lower traffic revenue. The increase
in revenue in our Multi-Links segment in the
2009 financial year was primarily due to
subscriber growth, an increase in
domestic traffic volumes as well as
increased data revenue. The increase in
revenue in our Multi-Links and other
segment in the 2008 financial year was
primarily due to the inclusion in the 2008
fiscal year of revenue generated by our
newly acquired subsidiaries, Multi-Links
and Africa Online.
Other income
Other income includes profit on the
disposal of investments, property, plant and
equipment and intangible assets. The
decrease in fixed-line other income in the
2009 financial year was primarily due to
the gain on disposal of properties in the
2008 financial year. The increase in fixed-
line other income in the 2008 financial
year was primarily due to the disposal of
more properties at a higher value during
the 2008 fiscal year.
Operating expenses
Operating expenses increased in the years
ended March 31, 2009 and 2008 as a
result of increased operating expenses in
Multi-Links and fixed-line segments.
The increase in the Multi-Links segment’s
operating expenses in the 2009 financial
year was primarily due to increased cost of
sales and associated subsidies as a result
of increased sales volumes, increased
advertising and promotional expenditure
and an increase in expatriate fees as a
result of an increase in staff seconded from
Telkom during the year. The increase in the
Multi-Links segment’s operating expenses in
the 2008 financial year was primarily due
to the inclusion of operating expenses
relating to our newly acquired subsidiary,
Multi-Links, which impacted all expense
categories.
The increase in the other segment’s
operating expenses in the 2009 financial
year was mainly contributed by the
operating expenditure of UUNET, Africa
Online’s 40% joint venture. Increases in the
other segment’s operating expenses in the
2008 financial year were primarily driven
by significant increases in payments to
other operators, employee expenses,
selling, general and administrative
expenses, depreciation, amortisation
impairments and write-offs, operating
leases and service fees.
The increase in fixed-line operating
expenses in the 2009 financial year was
primarily due to increased selling, general
and administrative expenses, payment to
other network operators, depreciation,
amortisation impairments and write-offs,
employee expenses and service fees.
Selling, general and administrative
expenses increased primarily due to the
impairment of the Multi-Links investment in
the 2009 financial year, increased
materials and maintenance expenses and
higher bad debts. Depreciation,
amortisation, impairments and write-offs
increased in the year ended March 31,
2009 primarily as a result of higher
amortisation of intangible assets and
increased depreciation due to the on-going
investment in telecommunications network
equipment and data processing
equipment. Payments to other operators
increased primarily due to increased
payments to international operators due to
increased switch hubbing volumes and
higher exchange rates and settlement rates.
Employee expenses increased in the year
ended March 31, 2009 primarily due to a
higher provision for medical aid for
pensioners as a result of increased interest
costs, higher salaries and wages as a result
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 107
Telkom Annual Report 2009108
Financial review (continued)
of average annual salary increases of
10.86% as well as higher leave benefits.
Service fees increased in the year ended
March 31, 2009 primarily due to
consultancy fees relating to the Vodacom
sale and unbundling transaction and higher
security costs to secure the copper network.
The increase in fixed-line operating
expenses in the 2008 financial year was
primarily due to increased payments to
other operators, higher employee expenses
and service fees, partially offset by lower
leases and selling, general and
administrative expenses. Payments to other
operators increased primarily due to
increased calls from our fixed-line network
to mobile and international operators as
result of higher call volumes from our fixed-
line network to the mobile and international
networks. Employee expenses increased
due to higher salaries and wages as a
result of average annual salary increases
and higher share compensation expenses,
partially offset by a reduced provision for
team award and a reduction in the number
of employees. Service fees increased
primarily due to increased property
management costs mainly related to
increased electricity usage, electricity rates
and taxes, payments to consultants to
explore local and international investment
opportunities, higher security costs due to
increases in contract prices and
maintenance and monitoring of the cable
alarm system and legal fees related to
Telcordia. Operating leases decreased in
the year ended March 31, 2008 primarily
due to a discount received on the extension
of our vehicle lease and a reduction in the
number of vehicles from 9,694 at
March 31, 2007 to 8,792 at March 31,
2008. Selling, general and administrative
expenses decreased primarily due to the
provision for probable liabilities in the
Telcordia dispute in the 2007 financial
year, which were not increased significantly
in the 2008 financial year, and lower
marketing expense, partially offset by the
R217 million impairment of the Telkom
Media loan in the 2008 financial year –
increased materials and maintenance
expenses and higher bad debts.
Depreciation, amortisation, impairments
and write-offs increased in the year ended
March 31, 2008 primarily as a result of
higher amortisation of intangible assets and
increased depreciation due to the on-going
investment in telecommunications network
equipment and data processing equipment,
partially offset by lower asset write-offs.
Operating profit
Operating profit decreased in the 2009
and 2008 financial years due to
decreased operating profit in the fixed-line
and Multi-Links segments as a result of
increased operating expenditure. As a
result, the fixed-line operating profit margin
decreased from 26.6% in the 2007
financial year to 24.9% in the 2008
financial year and decreased to 12.9% in
the 2009 financial year. The operating
margin for our Multi-Links segment
decreased significantly from a negative
margin of 11.5% in the 2008 financial
year to a negative operating margin of
25.7% in the 2009 financial year. The
operating profit margin for our other
segment decreased from 47.1% in the
2007 financial year to 43.6% in the 2008
financial year and decreased to 39.3% in
the 2009 financial year.
Investment income
Investment income consists of interest
received on short-term investments and
bank accounts and income received from
our investments. Group investment income
increased 7.7% to R181 million in the
2009 financial year and decreased
15.6% to R168 million in the 2008
financial year from R199 million in the
2007 financial year. The increase in the
2009 financial year was primarily due to
increased short-term investments and
interest rates. The decrease in the 2008
financial year was primarily due to lower
interest received from fixed deposits and
repurchase agreements mainly due to
lower cash balances.
Finance charges and fair value
movements
Finance charges and fair value movements
include interest paid on local and foreign
borrowings, amortised discounts on bonds
and commercial paper bills, fair value
gains and losses on financial instruments
and foreign exchange gains and losses.
The following table sets forth information
related to our finance charges and fair
value movements for the periods indicated.
Telkom AR front.qxp 8/12/09 6:23 PM Page 108
Telkom Annual Report 2009 109
Finance charges and fair value movements
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Interest expense 1,142 1,543 1,732 35.1 12.2
Local loans 1,303 1,700 1,895 30.5 11.5
Foreign loans – 18 – – –
Finance charges capitalised (161) (175) (163) 8.7 (6.9)
Foreign exchange losses and fair value movements (285) 13 1,111 (104.6) –
Fair value (adjustments) on derivative instruments (344) (80) 268 (76.7) (435.0)
Foreign exchange losses 59 93 843 57.6 806.5
Total finance charges 857 1,556 2,843 81.6 82.7
During the year ended March 31, 2009,
finance charges increased primarily due to
higher foreign exchange losses and fair
value movements incurred by Multi-Links on
foreign denominated loans and creditor’s
balances as a result of the devaluation of
the naira and the mark to market valuation
of the Multi-Links put option as well as
increased interest paid as a result of higher
debt levels and interest rates. During the
year ended March 31, 2008, finance
charges increased primarily due to a
higher interest expense resulting from
higher debt levels in the fixed-line, Multi-
Links and other segments, and foreign
exchange losses and fair value movements
decreased primarily due to currency
movements and fair value losses on the put
option we have in place relating to Multi-
Links. This was partially offset by fair value
adjustments as a result of the significant
weakness of the rand against international
currencies.
TaxationOur consolidated taxation expense fromcontinuing operations decreased 37.3% toR1,660 million in the year ended March31, 2009 and decreased 5.6% toR2,647 million in the year ended March31, 2008 from R2,803 million in the yearended March 31, 2007. The decrease inthe 2009 financial year was primarily dueto the decrease in the STC charge as aresult of lower dividends declared ascompared to the previous year and theR454 million deferred taxation asset that
was raised on the capital gains tax basecost of the 15% investment in Vodacom,that are held for sale and will be utilised forthe future capital gains tax liability of thesale transaction. This was partially offset byhigher non-deductible expenditure relatingto the impairment of Multi-Links and AfricaOnline. The decrease in the 2008financial year was primarily due to highernon-deductible expenses relating mostly tothe impairment of Telkom Media and AfricaOnline assets, the increase in STC taxationcredits utilised in respect of the repurchaseof Telkom shares, the utilisation of the Multi-Links assessed losses and the impact of thetaxation rate change on deferred taxationfrom 29% to 28% with effect from April 1,2008.
The following table sets forth information related to our effective taxation rate for the Telkom Group, Telkom Company and Vodacom for
the periods indicated:
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in percentages) % % % % change % change
Effective tax rate
Telkom Group – continuing operations 30.8 34.5 44.5 12.0 29.3
Telkom Company 24.2 24.6 8.9 1.7 (63.8)
Vodacom 36.9 34.1 39.5 (7.6) 15.8
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 109
Telkom Annual Report 2009110
Financial review (continued)
The increase in the Telkom Group effective
taxation rate in the 2009 financial year
was mainly due to higher non-deductible
expenditure relating to the impairment of
Multi-Links and Africa Online and Vodacom
transaction costs. The increase in the
Telkom Group effective taxation rate in the
2008 financial year was mainly due to
higher non-deductible expenses relating
mostly to the impairment of Telkom Media
and Africa Online assets, the increase in
STC taxation credits utilised in respect of
the repurchases of Telkom shares and the
impact of the taxation rate change on
deferred taxation from 29% to 28% with
effect from April 1, 2008.
The decrease in the Telkom Company
effective taxation rate in the 2009 financial
year was mainly due to the R1,280 million
deferred taxation asset that was raised on
the capital gains tax base cost of the 15%
investment in Vodacom, that are held for
sale and will be utilised for the future
capital gains tax liability of the sale
transaction, partially offset by the
R1,843 million impairment of the Multi-
Links investment, R254 million impairment
of the Telkom Media loan and R85 million
impairment of the Africa Online investment
as well as Vodacom transaction costs. The
higher effective taxation rate for Telkom
Company in the year ended March 31,
2008 was primarily due to higher non-
deductible expenses relating to the
R217 million impairment of the Telkom
Media loan and an increase of
R198 million in secondary taxation on
companies, partially offset by higher
exempt income resulting from dividends
received from Vodacom and other
subsidiaries. Vodacom’s effective taxation
rate increased in the 2008 financial year
primarily due to the disallowable expenses
relating to the BEE deal and non-deductible
interest expenses. Vodacom’s effective
taxation rate decreased in the 2008
financial year primarily due to the decrease
in the rate of secondary taxation on
companies from 12.5% to 10%.
Minority interests
Minority interests in the income of subsidiaries
decreased significantly to R77 million in the
year ended March 31, 2009 primarily due
to an increase in the Multi-Links minorities’
share in net losses. Minority interests in the
income of subsidiaries decreased 3.0% to
R197 million in the year ended March 31,
2008 primarily due to the purchase of the
remaining equity interest of 30% in
Smartphone on August 31, 2007, partially
offset by an increase in profits generated by
our Telkom Directory Services subsidiary and
Vodacom Tanzania.
Profit for the year attributable to equity
holders of Telkom
Profit for the year attributable to equity
holders of Telkom decreased to
R4,170 million in the 2009 financial year
primarily due to decreased operating profit
in our Multi-Links, fixed-line and mobile
segments, partially offset by increased
operating profit in our other segment.
Higher finance charges were partially
offset by lower taxation and higher
investment income. Profit for the year
attributable to equity holders of Telkom
decreased to R7,975 million in the 2008
financial year primarily due to decreased
operating profit in our fixed-line and other
segments, partially offset by increased
operating profit in our mobile segment.
Higher finance charges and lower
investment income were partially offset by
lower taxation.
Fixed-line segment
The following is a discussion of the results
of operations from our fixed-line segment
before eliminations of intercompany
transactions with the mobile and other
segments. Our fixed-line segment is our
largest segment based on revenue and
profit contribution.
Fixed-line operating revenue
Our fixed-line operating revenue is derived
principally from fixed-line subscriptions and
connections; traffic, which comprises local
and long distance traffic, fixed-to-mobile
traffic, international outgoing traffic and
international voice over internet protocol
services; and interconnection, which
comprise terminating and hubbing traffic.
We also derive fixed-line operating
revenue from our data business, which
includes data transmission services,
managed data networking services and
internet access and related information
technology services.
Telkom has in recent years introduced
calling plans as a customer retention
strategy in order to defend revenues. These
calling plan arrangements comprise
monthly subscriptions for access line rental,
value-added services and free or
discounted rates on calls. The access line
rentals and value-added services revenue
components of calling plan arrangements
are included in subscriptions and
connections revenue. In response to the
significant growth in calling plan
arrangements, the need arose to separate
traffic revenue resulting from subscription
based calling plans into annuity revenue
and the respective traffic revenue streams.
Subscription based on calling plans
revenue includes traffic annuity revenue
related to calling plans. Discounted and
out of plan traffic relating to these calling
plans is disclosed under the applicable
traffic revenue streams.
The following table shows operating
revenue for our fixed-line segment broken
down by major revenue streams and as a
percentage of total revenue for our fixed-
line segment and the percentage change
by major revenue stream for the periods
indicated.
Telkom AR front.qxp 8/12/09 6:23 PM Page 110
Telkom Annual Report 2009 111
Fixed-line operating revenue increased in
the 2009 financial year primarily due to
continued growth in data services, higher
revenue from interconnection services and
subscriptions and connections partially
offset by a decrease in traffic revenue,
particularly local and long distance traffic
revenue partially offset by an increase in
traffic revenue from subscription based
calling plans. Fixed-line operating revenue
increased in the 2008 financial year
primarily due to continued growth in data
services and higher revenue from
subscription based calling plans,
interconnection and subscriptions and
connections, partially offset by a decrease
in traffic revenue, particularly local and
long distance traffic revenue.
Fixed-line operating revenue was adversely
impacted in both the 2009 and 2008
financial years due to a decrease in the
number of residential post-paid PSTN lines
primarily as a result of customer migration
to mobile and higher bandwidth products
such as ADSL and lower connections, and
a decrease in the number of prepaid PSTN
lines as a result of customer migration to
mobile services and our residential post-
paid PSTN services to enable access to
subscription based calling plans and was
positively impacted by our increase in
ISDN channels, ADSL services and, to a
lesser extent, business post-paid PSTN
lines. In addition, traffic was adversely
affected in both years by the increasing
substitution of calls placed using mobile
services rather than our fixed-line service
and dial-up traffic being substituted by our
ADSL service, as well as the decrease in
the number of prepaid and residential post-
paid PSTN lines and increased competition
in our payphones business. As a result,
traffic declined 7.6% in the 2009 financial
year and 8.2% in the 2008 financial year.
Revenue per fixed access line increased
2.1% to R5,349 in the 2009 financial
year from R5,250 in the 2008 financial
year primarily due to a 1.4% decrease in
the average number of access lines
and increased interconnection and
subscriptions and connection revenue
partially offset by lower traffic revenue.
Revenue per fixed access line decreased
0.5% to R5,250 in the 2008 financial
year from R5,275 in the 2007 financial
year primarily due to the decline in traffic
tariffs and local traffic volumes, partially
offset by increased subscription based
calling plans, interconnection and
subscriptions and connections tariffs.
Subscriptions and connections. Revenue
from subscriptions and connections consists
of revenue from connection fees, monthly
rental charges, value-added voice services
and the sale and rental of customer
premises equipment for post-paid and
prepaid PSTN lines, including ISDN
channels and private payphones.
Subscriptions and connections revenue is
principally a function of the number and
mix of residential and business lines in
service, the number of private payphones
in service and the corresponding charges.
The following table sets forth information
related to our fixed-line subscription and
connection revenue during the periods
indicated.
Fixed-line operating revenueYear ended March 31,
2008/ 2009/2007 2008 2009 2007 2008
(in millions, except percentages) ZAR % ZAR % ZAR % % change % change
Subscriptions and connections 6,286 19.4 6,330 19.4 6,614 19.7 0.7 4.5
Traffic 16,740 51.8 15,950 49.0 15,323 45.5 (4.7) (3.9)
Local 4,832 14.9 4,076 12.6 3,634 10.8 (15.6) (10.8)
Long distance 2,731 8.5 2,252 6.9 2,036 6.0 (17.5) (9.6)
Fixed-to-mobile 7,646 23.6 7,557 23.2 7,420 22.0 (1.2) (1.8)
International outgoing 988 3.1 986 3.0 933 2.8 (0.2) (5.4)
Subscription based calling plans 543 1.7 1,079 3.3 1,300 3.9 98.7 20.5
Interconnection 1,639 5.1 1,757 5.4 2,084 6.2 7.2 18.6
Data 7,489 23.1 8,308 25.5 9,310 27.6 10.9 12.1
Sundry revenue 191 0.6 227 0.7 328 1.0 18.8 44.5
Fixed-line operating revenue 32,345 100.0 32,572 100.0 33,659 100.0 0.7 3.3
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009112
Financial review (continued)
Revenue from subscriptions and
connections increased in the year ended
March 31, 2009 mainly due to increased
tariffs as well as an increase in the number
of ISDN lines and, to a lesser extent,
residential prepaid PSTN lines, partially
offset by lower business and residential
post-paid PSTN lines. The average monthly
prices for subscriptions increased by
11.0% on August 1, 2008. Revenue from
subscriptions and connections increased in
the year ended March 31, 2008 mainly
due to increased tariffs as well as an
increase in the number of ISDN lines and,
to a lesser extent, business post-paid PSTN
lines, partially offset by lower residential
post-paid PSTN lines and prepaid PSTN
lines. The average monthly prices for
subscriptions increased by 8.3% on August
1, 2006 and 12.0% on August 1, 2007.
The decrease in the number of residential
post-paid PSTN lines in service in both the
2009 and 2008 financial years was
primarily as a result of customer migration
to mobile and higher bandwidth products
such as ADSL and lower connections. The
increase in the number of post-paid ISDN
channels was driven by increased demand
for higher bandwidth and functionality. The
increase in prepaid PSTN lines in the
2009 financial year was primarily due to
our affordable Waya Waya offering. The
decrease in prepaid PSTN lines in the
2008 financial year was primarily due to
continued migration to mobile services and
our residential post-paid PSTN services to
enable access to subscription based
calling plans. In addition, we relaxed our
credit policies which led to fewer
migrations of our postpaid customers to
prepaid service in the 2008 financial year.
Traffic. Traffic revenue consists of revenue
from local, long distance, fixed-to-mobile
and international outgoing calls,
international voice over internet protocol
services and subscription based calling
plans. Traffic revenue is principally a
function of tariffs and the volume, duration
and mix between relatively more expensive
domestic long distance, international and
fixed-to-mobile calls and relatively less
expensive local calls.
Telkom has in recent years introduced
calling plans as a customer retention
strategy in order to defend revenues. These
calling plan arrangements comprise
monthly subscriptions for access line rental,
value-added services and free or
discounted rates on calls. The access line
rentals and value-added services revenue
components of calling plan arrangements
are included in subscriptions and
connections revenue. In response to the
significant growth in calling plan
arrangements, the need arose to separate
traffic revenue resulting from subscription
based calling plans into annuity revenue
and the respective traffic revenue streams.
Subscription based on calling plans
revenue includes traffic annuity revenue
related to calling plans. Discounted and
out of plan traffic relating to these calling
plans is disclosed under the applicable
traffic revenue streams.
Traffic includes dial-up internet traffic.
Fixed-line subscription and connection revenue
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
% change % change
Total subscriptions and connections revenue
(ZAR millions, except percentages) 6,286 6,330 6,614 0.7 4.5
Total subscription access lines (thousands,
except percentages)(1) 4,490 4,395 4,319 (2.1) (1.7)
Postpaid
PSTN(2) 2,971 2,893 2,769 (2.6) (4.3)
ISDN channels 718 754 781 5.0 3.6
Prepaid PSTN 795 743 766 (6.5) 3.1
Private payphones 6 5 3 (16.7) (40.0)
Notes:(1) Total subscription access lines comprise PSTN lines, including ISDN lines and private payphones, but excluding internal lines in service and public
payphones. Each analogue PSTN line includes one access channel, each basic rate ISDN line includes two access channels and each primary rateISDN line includes 30 access channels.
(2) Excluding ISDN channels. PSTN lines are provided using copper cable, DECT and fibre.
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Telkom Annual Report 2009 113
The following table sets forth information related to our fixed-line traffic revenue for the periods indicated.
Fixed-line traffic revenue
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
% change % change
Local traffic revenue (ZAR millions, except percentages) 4,832 4,076 3,634 (15.6) (10.8)
Local traffic (millions of minutes, except percentages)(1) 14,764 11,317 8,822 (23.3) (22.0)
Long distance traffic revenue (ZAR millions,
except percentages) 2,731 2,252 2,036 (17.5) (9.6)
Long distance traffic (millions of minutes, except
percentages)(1) 4,224 3,870 3,631 (8.4) (6.2)
Fixed-to-mobile traffic revenue (ZAR millions,
except percentages) 7,646 7,557 7,420 (1.2) (1.8)
Fixed-to-mobile traffic (millions of minutes, except
percentages)(1) 4,103 4,169 4,126 1.6 (1.0)
International outgoing traffic revenue
(ZAR millions, except percentages) 988 986 933 (0.2) (5.4)
International outgoing traffic (millions of minutes,
except percentages)(1) 558 635 622 13.8 (2.0)
International voice over internet protocol (millions
of minutes, except percentages)(2) 38 43 34 13.2 (20.9)
Subscription based calling plans revenue
(ZAR millions, except percentages) 543 1,079 1,300 98.7 20.5
Subscription based calling plans (millions of
minutes, except percentages) 1,896 2,997 3,546 58.1 18.3
Total traffic revenue (ZAR millions, except
percentages) 16,740 15,950 15,323 (4.7) (3.9)
Total traffic (millions of minutes, except percentages)(1) 29,323 26,926 24,869 (8.2) (7.6)
Average total monthly traffic minutes per average
monthly access line (minutes)(3) 456 417 385 (8.6) (7.7)
Notes:(1) Traffic, other than international voice over internet protocol traffic, is calculated by dividing total traffic revenue by the weighted average tariff during the
relevant period. Traffic includes dial-up internet traffic.(2) International voice over internet protocol traffic is based on the traffic reflected in invoices.(3) Average monthly traffic minutes per average monthly access line are calculated by dividing the total traffic by the cumulative number of monthly access
lines in the period.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009114
Financial review (continued)
Traffic revenue declined in the 2009
financial year primarily due to lower traffic
volumes partially offset by increased
subscription based calling plans and
revenue and higher average traffic tariffs.
Traffic revenue declined in the 2008
financial year primarily due to lower
average traffic tariffs and lower local traffic
volumes partially offset by increased
subscription based calling plans and
revenue, international outgoing and fixed-
to-mobile traffic.
ICASA approved a 2.1% reduction in the
overall tariffs for services in the basket
effective August 1, 2006, 1.2% reduction
in the overall tariffs for services in the
basket effective August 1, 2007 and a
2.4% increase in the overall tariffs for
services in the basket effective August 1,
2008. Traffic was adversely affected in
both the 2009 and 2008 financial years
by the increasing substitution of calls
placed using mobile services rather than
our fixed-line service and dial-up traffic
being substituted by our ADSL service, as
well as the decrease in the number of
prepaid and residential post-paid PSTN
lines and increased competition in our
payphone business.
Local traffic revenue decreased in the
2009 and 2008 financial years primarily
due to significantly lower traffic resulting
primarily from internet call usage being
substituted by our ADSL service, the
substitution of calls placed using mobile
services and discounts to business
customers, partially offset by increased
local off-peak tariffs and traffic volumes
related to Telkom Closer packages. We
increased penetration of subscription
based calling plans to stimulate usage in
the 2009 and 2008 financial years and to
counteract mobile substitution, which
effectively lowers the cost to the customer.
On September 1, 2005, we decreased
the price of local peak calls after the first
unit by 5.0% to 38 SA cents per minute
(VAT inclusive). This price was unchanged
on August 1, 2006 and August 1, 2007.
On August 1, 2008, we increased the
price of local peak calls after the first unit
by 3.2% to 39.2 SA cents per minute (VAT
inclusive). On August 1, 2007, the price of
local off-peak calls increased 4.1% on
average. On August 1, 2008, the price of
local off-peak calls increased 9.2% on
average.
Long distance traffic revenue decreased in
the 2009 and 2008 financial years mainly
due to a decrease in average long
distance tariffs and, to a lesser extent,
decreased long distance traffic, partially
offset by increased traffic related to Telkom
Closer packages and Worldcall. We
decreased our fixed-line long distance
traffic tariffs by 10% on September 1,
2005, a further 10% on August 1, 2006
and a further 10% on August 1, 2007. The
tariff remained unchanged on August 1,
2008.
Revenue from fixed-to-mobile traffic consists
of revenue from calls made by our fixed-line
customers to the three mobile networks in
South Africa and is primarily a function of
fixed-to-mobile tariffs and the number, the
duration and the time of calls. Fixed-to-
mobile traffic revenue decreased in the
2009 and 2008 financial years due to
higher discount offered to customers in
order to retain traffic, partially offset by
higher traffic related to the Telkom Closer
packages. The decrease in fixed-to-mobile
traffic in the 2009 financial year was
primarily due to an increase in the number
of Telkom Closer customers, thereby
decreasing the out of bundle volumes. The
increase in fixed-to-mobile traffic in the
2008 financial year was primarily due to
discounts offered to larger customers on
fixed-to-mobile calls.
Revenue from international outgoing traffic
consists of revenue from calls made by our
fixed-line customers to international
destinations and from international voice
over internet protocol services and is a
function of tariffs and the number, duration
and mix of calls to destinations outside
South Africa. In the 2009 financial year,
international outgoing traffic revenue
declined primarily as a result of a decrease
in volumes mainly as a result of the
increase in the number of Telkom Closer
subscribers, thereby decreasing the out of
bundle volumes. In the 2008 financial
year, international outgoing traffic revenue
declined primarily as a result of a decrease
in the average international outgoing
tariffs, partially offset by an increase in
international outgoing traffic primarily as a
result of the reduced tariffs. The average
tariffs to all international destinations
decreased by 11.1% on August 1, 2006
and by 9.0% on August 1, 2007. On
August 1, 2008 the overall international
tariffs remained unchanged, but tariffs to
certain destinations were increased whilst
others were decreased.
Revenue from subscription based calling
plans includes revenue from Telkom’s
subscription based plans, Telkom Closer
and Supreme Call, which are bundled
products on post-paid PSTN lines that
include discounted rates and free minutes
for a fixed monthly subscription fee. In the
2009 financial year, revenue from
subscription based calling plans increased
by 20.5% primarily due to a 27.6%
increase in customers subscribing to these
packages. In the 2008 financial year,
revenue from subscription based calling
plans increased by 98.7% primarily due to
a 69.4% increase in customers subscribing
to these packages.
Interconnection. We generate revenue from
interconnection services for traffic from calls
made by other operators’ customers that
terminate on or transit through our network.
Revenue from interconnection services
includes payments from domestic mobile,
domestic fixed and international operators
regardless of where the traffic originates or
terminates. The following table sets forth
information related to interconnection
revenue for the years indicated.
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Telkom Annual Report 2009 115
Interconnection revenue
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
% change % change
Interconnection revenue (ZAR millions, except
percentages) 1,639 1,757 2,084 7.2 18.6
Interconnection revenue from domestic mobile
operators (ZAR millions, except percentages) 816 838 916 2.7 9.3
Domestic mobile interconnection traffic
(millions of minutes, except percentages)(1) 2,419 2,502 2,484 3.4 (0.7)
Interconnection revenue from domestic fixed-line
operators (ZAR millions, except percentages) – 28 111 – 296.4
Domestic fixed-line interconnection traffic
(millions of minutes, except percentages)(2) – 113 415 – 267.3
Interconnection revenue from international
operators (ZAR millions, except percentages) 823 891 1,057 8.3 18.6
International interconnection traffic
(millions of minutes, except percentages)(2) 1,321 1,280 1,189 (3.1) (7.1)
Notes:(1) Domestic mobile interconnection traffic, other than international outgoing mobile traffic, is calculated by dividing total domestic mobile and domestic fixed-
line interconnection traffic revenue, respectively, by the weighted average domestic mobile and domestic fixed-line interconnection traffic tariffs during therelevant period. International outgoing mobile traffic is based on the traffic registered through the respective exchanges and reflected in interconnectioninvoices.
(2) International interconnection and domestic fixed-line interconnection traffic is based on the traffic registered through the respective exchanges and reflectedon interconnection invoices.
Interconnection revenue from domestic
mobile operators includes revenue for call
termination and international outgoing calls
from domestic mobile networks, as well as
access to other services, such as
emergency services and directory enquiry
services. Interconnection revenue from
domestic mobile operators increased in the
2009 and financial year mainly due to
higher average tariffs, partially offset by
lower volumes. Interconnection revenue
from domestic mobile operators increased
in the 2008 financial year mainly due to
increased traffic from domestic mobile
operators, partially offset by lower average
tariffs on mobile international outgoing
calls. Domestic mobile interconnection
traffic decreased in the year ended March
31, 2009 primarily due to increased
mobile-to-mobile calls bypassing our
network and volumes lost to other
international carriers. Domestic mobile
interconnection traffic increased in the year
ended March 31, 2008 primarily due to
an overall increase in mobile calls as a
result of a growing mobile market, partially
offset by increased mobile-to-mobile calls
bypassing our network. Interconnection
revenue from domestic mobile operators
includes fees paid to our fixed-line business
by Vodacom of R462 million in the year
ended March 31, 2009, R468 million in
the year ended March 31, 2008 and
R468 million in the year ended March 31,
2007. Fifty percent of these amounts were
attributable to our interest in Vodacom and
were eliminated from the Telkom Group’s
revenue on consolidation.
Interconnection revenue from domesticfixed-line operators includes fees paid byNeotel, underserviced area licence holdersand value-added network service providersfor call termination and internationaloutgoing calls, as well as access to other
services, such as emergency services anddirectory inquiry services. With effect fromMay 23, 2007, ICASA approvedinterconnection rates with Neotel,underserviced area licence holders andvalue-added network service providers forinterconnection on our fixed-line network. InOctober 2007, Neotel commencedinterconnection with Telkom. In July 2007,Telkom began interconnection with theunderserviced area licence holders and inNovember 2007, value added networkservice providers. We expect inter-connection revenue to increase as a resultof the entrance of Neotel and the furtherliberalisation of the South Africantelecommunications industry, which maypartially mitigate declines in revenue inother areas.
Interconnection revenue from international
operators includes amounts paid by foreign
operators for the use of our network to
terminate calls made by customers of such
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009116
Financial review (continued)
operators and payments from foreign
operators for interconnection hubbing
traffic through our network to other foreign
networks. Interconnection revenue from
international operators increased in the
year ended March 31, 2009 primarily
due to the weakening of the Rand against
the SDR, the notional currency in which
international rates are determined, and
increased switched hubbing traffic volumes
due to a reduction in tariffs to stimulate
competitiveness. Interconnection revenue
from international operators increased in
the year ended March 31, 2008 primarily
due to the weakening of the rand against
the SDR, the notional currency in which
international rates are determined, and
increased switched hubbing traffic volumes
due to a reduction in tariffs to stimulate
competitiveness, partially offset by lower
volumes and settlement rates.
Data. Data services comprise data
transmission services, including leased
lines and packet based services, managed
data networking services and internet
access and related information technology
services. In addition, data services include
revenue from ADSL. Revenue from data
services is mainly a function of the number
of subscriptions, tariffs, bandwidth and
distance. The table above sets forth
information related to revenue from data
services for the periods indicated.
Our data services revenue increased in
both the 2009 and 2008 financial years
primarily due to increased revenue from
data connectivity service, including ADSL
connectivity and SAIX, internet access, and
managed data networks, including VPN
Supreme and increased revenue from
leased line facilities from mobile operators.
These increases were partially offset by
decreased tariffs for leased line facilities to
mobile operators and data connectivity
services. Revenue from leased line facilities
from mobile operators was relatively flat in
the year ended March 31, 2009. Revenue
from leased line facilities from mobile
operators increased in the year ended
March 31, 2008 primarily due to the roll-
out of third generation and universal mobile
telecommunications system products by the
mobile operators.
Operating revenue from our data services
included R1,059 million, R1,028 million
and R907 million in revenue received by
our fixed-line business from Vodacom in the
years ended March 31, 2009, 2008 and
2007, respectively. Fifty percent of these
amounts were attributable to our interest in
Vodacom and were eliminated from the
Telkom Group’s revenue on consolidation.
Sundry revenue. Sundry revenue includes
revenue relating to collocation of other
licensed operators on Telkom owned
properties, the sale of materials and
revenue related to the recovery of costs for
work performed on behalf of other licensed
operators. Sundry revenue increased by
44.5% to R328 million in the 2009
financial year and 18.8% to R227 million
in the 2008 financial year from
R191 million in the 2007 financial year.
The increase in the 2009 financial year
was primarily due to revenue from the FIFA
World Cup project. The increase in the
2008 financial year was primarily due to
an increase in prices for collocation and
recoveries.
Fixed-line operating expenses
The following table shows the operating
expenses of our fixed-line segment broken
down by expense category as a
percentage of total revenue and the
percentage change by operating expense
category for the years indicated.
Data services revenue
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
% change % change
Data services revenue (ZAR millions, except
percentages) 7,489 8,308 9,310 10.9 12.1
Leased lines and other data revenue(1) 5,828 6,460 7,452 10.8 15.4
Leased line facilities revenues from mobile
operators 1,661 1,848 1,858 11.3 0.5
Number of managed network sites (at period end) 21,879 25,112 29,979 14.8 19.4
Internet all access subscribers (at period end) 302,593 358,066 423,196 18.3 18.2
Total ADSL subscribers (at period end)(2) 255,633 412,190 548,015 61.2 33.0
Notes:(1) Leased lines and other data revenue includes all data services revenue other than leased line facilities revenue from mobile operators.(2) Excludes Telkom internal ADSL services of 1,029, 751 and 523 as of March 31, 2009, 2008 and 2007, respectively.
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Telkom Annual Report 2009 117
Fixed-line operating expensesYear ended March 31,
2007 2008 2009 2008/ 2009/% of % of % of 2007 2008
(in millions, except percentages) ZAR revenue ZAR revenue ZAR revenue % change % change
Employee expenses(1) 7,096 21.9 7,397 22.7 7,999 23.8 4.2 8.1
Payments to other
network operators 6,461 20.0 6,902 21.2 7,536 22.3 6.8 9.2
Selling, general and administrative
expenses(2)(3) 3,976 12.3 3,899 11.9 6,582 19.5 (1.9) 68.8
Service fees 2,206 6.8 2,413 7.4 2,761 8.2 9.4 14.4
Operating leases 762 2.4 619 1.9 613 1.8 (18.8) (1.0)
Depreciation, amortisation,
impairments and write-offs 3,582 11.1 3,732 11.5 4,358 13.0 4.2 16.8
Fixed-line operating expenses 24,083 74.5 24,962 76.6 29,849 88.7 3.6 19.6
Notes:(1) Employee expenses include workforce reduction expenses of R8 million, R3 million and R24 million in the years ended March 31, 2009, 2008 and
2007, respectively.(2) In the year ended March 31, 2007 we recorded a provision of R527 million for probable liabilities related to Telkom’s arbitration with Telcordia,
excluding legal fees, of which R510 million is included in selling, general and administrative expenses and R11 million for interest and R6 million forforeign exchange rate effect is included in finance charges. In the year ended March 31, 2008 we recorded a provision of R569 million for probableliabilities related to Telkom’s arbitration with Telcordia, including legal fees. The movement in the provision is due to increased interest of R53 million andforeign exchange rate effect of R52 million, which are included in finance charges, partially offset by a provisional payment made in respect of specificsub-claims within the Telcordia claim. In the year ended March 31, 2009 we recorded a provision of R664 million for probable liabilities related toTelkom’s arbitration with Telcordia, including legal fees. The movement in the provision is due to increased interest of R11 million and foreign exchangerate effect of R94 million, which are included in finance charges, partially offset by a R10 million reversal of the provision which is included in selling,general and administrative expenses.
(3) Includes a R254 million and R217 million impairment relating to Telkom Media in the 2009 and 2008 financial years, respectively and R1,843 millionrelating to the impairment of Multi-Links, R85 million impairment relating to Africa Online in the 2009 financial year.
Fixed-line operating expenses increased in
the 2009 financial year primarily due to
increased selling, general and administrative
expenses, payments to other network
operators, depreciation, amortisation,
impairment and write-offs, employee
expenses and service fees. Fixed-line
operating expenses increased in the 2008
financial year primarily due to increased
payments to other network operators,
employee expenses, service fees and
depreciation, amortisation, impairment and
write-offs, partially offset by lower leases and
selling, general and administrative expenses.
Employee expenses. Employee expenses
consist mainly of salaries and wages for
employees, including bonuses and other
incentives, benefits and workforce
reduction expenses.
The following table sets forth information
related to our employee expenses for the
years indicated.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009118
Financial review (continued)
Employee expenses increased in the year
ended March 31, 2009 primarily due to a
higher provision for medical aid for
pensioners as a result of increased interest
costs, higher salaries and wages as a result
of average annual salary increases of
10.85% as well as a higher leave
provision, partially offset by a lower
number of employees. Employee expenses
increased in the year ended March 31,
2008 primarily due to higher salaries and
wages as a result of average annual salary
increases of 7.0%, and increased share
option grant expenses as a result of the
higher number of shares granted in the
year, partially offset by lower team
awards.
Salaries and wages increased in the year
ended March 31, 2009 primarily due to
average annual salary increases of
10.85%, partially offset by lower
headcount. Salaries and wages increased
in the year ended March 31, 2008
primarily due to average annual salary
increases of 7.0% and were further
impacted by increased payments to
contractors from original equipment
manufacturers.
Benefits include allowances, such as
bonuses, company contributions to medical
aid, pension and retirement funds, leave
provisions, workmen’s compensation and
levies payable for skills development.
Benefits increased in the 2009 financial
year primarily due to a higher provision for
medical aid for pensioners as a result of
increased interest costs and a higher
provision for leave as a result of annual
salary increases and a decrease in leave
days taken. Benefits decreased in the
2008 financial year primarily due to lower
team awards, a lower provision for
medical aid for pensioners as a result of the
annuity policy qualifying as a plan asset in
June 2006, a lower provision for leave as
a result of the decrease in the number of
employees and lower training expenses,
partially offset by increased share option
grant expenses as a result of the higher
number of shares allocated during the year.
Workforce reduction expenses include the
cost of voluntary early retirement,
termination severance packages offered to
employees and the cost of social plan
expense to prepare affected employees for
new careers outside Telkom. Workforce
reduction expenses decreased substantially
in the years ended March 31, 2009 and
2008 due to the moratorium on voluntary
severance packages taken in the 2007
financial year. An additional seven
employees in the 2009 financial year, four
employees in the 2008 financial year and
13 employees in the 2007 financial year
left Telkom as part of the conclusion of
Telkom’s workforce reduction initiatives for
the 2005 financial year.
Employee related expenses capitalisedinclude employee related expensesassociated with construction andinfrastructure development projects.Employee related expenses capitaliseddecreased in the year ended March 31,2009 primarily due to an increase in theuse of subcontractors. Employee relatedexpenses capitalised increased in the yearended March 31, 2008 primarily due toannual salary increases and increasedcapital expenditures on projects during theyear.
Payments to other network operators.Payments to other network operatorsinclude settlement payments paid to thethree South African mobile communicationsnetwork operators and commencing in the2008 financial year, Neotel, forterminating calls on their networks and tointernational network operators forterminating outgoing international calls andtraffic transiting through their networks.
The following table sets forth information
related to our payments to other network
operators for the periods indicated.
Fixed-line employee expenses
Year ended March 31,
(in millions, except percentages and 2007 2008 2009 2008/2007 2009/2008
number of employees) ZAR ZAR ZAR % change % change
Salaries and wages 5,095 5,509 5,746 8.1 4.3
Benefits 2,673 2,671 2,981 (0.1) 11.6
Workforce reduction expenses 24 3 8 (87.5) 166.7
Employee related expenses capitalised (696) (786) (736) 12.9 (6.4)
Employee expenses 7,096 7,397 7,999 4.2 8.1
Number of full-time, fixed-line employees
(at period end) 25,864 24,879 23,520 (3.8) (5.5)
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Telkom Annual Report 2009 119
Fixed-line payments to other network operators
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Payments to mobile communications network operators 5,425 5,460 5,432 0.6 (0.5)
Payments to international and other network operators 1,036 1,208 1,853 16.6 53.4
Payments to fixed-line operators – 234 251 n/a 7.3
Payments to other network operators 6,461 6,902 7,536 6.8 9.2
Payments to fixed-line operators increased in the 2009 financial year due to higher call volumes from interconnection with Neotel and
VANS. Payments to fixed-line operators in the 2008 financial year were derived from interconnection commencing with Neotel, USALS
and VANS during the 2008 financial year. Payments to mobile network operators decreased in the 2009 financial year primarily due to
lower call volumes from our fixed-line network to the mobile networks due to an increase in mobile-to-mobile calls. Payments to international
operators increased during the 2009 financial year due to increased switch hubbing volumes and higher exchange rates. Payments to
mobile and international network operators increased in the 2008 financial year primarily due to higher call volumes from our fixed-line
network to the mobile networks, resulting from discounts offered on our CellSaver and Telkom Closer products, increased fixed-to-mobile
calls by business customers due to growth in the mobile market, increased international outgoing traffic arising from our reduced average
international tariffs, a weaker exchange rate in the 2008 financial year and payments to fixed-line operators commencing in the 2008
financial year. Payments to other network operators include payments made by our fixed-line business to Vodacom, which were
R3,020 million, R3,017 million and R2,954 million in the years ended March 31, 2009, 2008 and 2007, respectively. Fifty percent
of these amounts were attributable to our interest in Vodacom and were eliminated from the Telkom Group’s expenses on consolidation.
Selling, general and administrative expenses. Selling, general and administrative expenses include materials and maintenance costs,
marketing expenditures, bad debts, theft, losses and other expenses, including obsolete stock and cost of sales.
The following table sets forth information related to our fixed-line selling, general and administrative expenses for the periods indicated.
Fixed-line selling, general and administrative expenses
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Materials and maintenance 1,900 1,996 2,295 5.1 15.0
Marketing 604 583 574 (3.5) (1.5)
Bad debts 137 217 285 58.4 31.3
Other(1)(2) 1,335 1,103 3,428 (17.4) 210.8
Selling, general and administrative expenses(1)(2) 3,976 3,899 6,582 (1.9) 68.8
Notes:(1) In the year ended March 31, 2007 we recorded a provision of R527 million for probable liabilities related to Telkom’s arbitration with Telcordia,
excluding legal fees, of which R510 million is included in selling, general and administrative expenses and R11 million for interest and R6 million forforeign exchange rate effect is included in finance charges. In the year ended March 31, 2008 we increased the provision to R569 million for probableliabilities related to Telkom’s arbitration with Telcordia, including legal fees. The movement in the provision is due to increased interest of R53 million andforeign exchange rate effect of R52 million, which are included in finance charges, partially offset by a provisional payment made in respect of specificsub-claims within the Telcordia claim. In the year ended March 31, 2009 we increased the provision to R664 million for probable liabilities related toTelkom’s arbitration with Telcordia, including legal fees. The movement in the provision is due to increased interest of R11 million and foreign exchangerate effect of R94 million, which are included in finance charges, partially offset by a R10 million reversal of the provision which is included in selling,general and administrative expenses.
(2) Includes a R254 million and R217 million impairment relating to Telkom Media in the 2009 and 2008 financial years, respectively and a R1,843 millionimpairment of the Multi-Links investment and an R85 million impairment of the Africa Online investment in the 2009 financial year.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Financial review (continued)
Selling, general and administrative
expenses increased primarily due to the
impairment of the Multi-Links investment in
the 2009 financial year, increased
materials and maintenance expenses and
higher bad debts. Selling, general and
administrative expenses decreased
primarily due to the provision for probable
liabilities in the Telcordia dispute in the
2007 financial year, which were not
increased significantly in the 2008
financial year, and lower marketing
expense, partially offset by the R217 million
impairment of the Telkom Media loan in the
2008 financial year – increased materials
and maintenance expenses and higher
bad debts.
Materials and maintenance expenses
include stock write-offs, subcontractor
payments and consumables required to
maintain our network. Materials and
maintenance expenses increased in the
years ended March 31, 2009 and 2008
primarily due to increased operating
maintenance projects as result of an
increase in the number of technologies
employed in the network and higher fuel
costs as a result of the increased price of
fuel. In the 2009 financial year increased
maintenance on the submarine cables as a
result of higher exchange rates also
contributed.
Marketing expenses were relatively flat in
the 2009 financial year. Marketing
expenses decreased in the year ended
March 31, 2008 primarily due to lower
sponsorships and decreased calling plan
advertising during the year.
Bad debt increased in the year ended
March 31, 2009 as more debtors
defaulted on payments as a result of poor
economic conditions in South Africa driven
by higher inflation. Bad debt increased in
the year ended March 31, 2008 due to
provisions for higher international bad
debts in certain countries, including
Nigeria, Gabon and the United Kingdom.
Bad debt as a percentage of revenue was
1.0%, 0.7% and 0.4% in the 2009, 2008
and 2007 financial years, respectively.
Other expenses include obsolete stock,
cost of sales, subsistence and travel and an
offset for bad debts recovered. Other
expenses increased in the year ended
March 31, 2009 primarily due to the
R1,843 million impairment of the Multi-
Links investment, R254 million impairment
of the Telkom Media loan and R85 million
impairment of the Africa Online investment
in the 2009 financial year. Other expenses
decreased in the year ended March 31,
2008 primarily due to the provision for
probable liabilities in the Telcordia dispute
in the 2007 financial year, which were not
increased significantly in the 2008 financial
year, partially offset by the R217 million
impairment of the Telkom Media loan in the
2008 financial year.
Service fees. Service fees include payments
in respect of the management of our
properties, to TFMC, a facilities and
property management company, consultants
and security. Consultants comprise fees
paid to collection agents and to providers
of other professional services and external
auditors. Security refers to services to
safeguard the network and contracts to
ensure a safe work environment, such as
guard services.
The following table sets forth information
relating to service fee expenses for the
periods indicated.
Fixed-line service fees
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Property management 1,141 1,222 1,262 7.1 3.2
Consultants, security and other 1,065 1,191 1,499 11.8 25.9
Service fees 2,206 2,413 2,761 9.4 14.4
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Telkom Annual Report 2009 121
Service fees increased in the year ended
March 31, 2009 primarily due to
consultancy fees relating to the Vodacom
sale and unbundling transaction and higher
security costs to secure the copper network.
Service fees increased in the year ended
March 31, 2008 primarily as a result of
increased property payment costs, mainly
related to increased electricity usage,
electricity rates and taxes, payments to
consultants to explore local and
international investment opportunities,
higher security costs due to increases in
contract prices and maintenance and
monitoring of the cable alarm system and
legal fees related to Telcordia.
Operating leases. Operating leases
include payments in respect of equipment,
buildings and vehicles. Operating leases
decreased by 1.0% primarily due to a
6.0% reduction in the vehicle fleet from
8,792 vehicles at March 31, 2008 to
8,266 vehicles at March 31, 2009.
Operating leases decreased in the year
ended March 31, 2008 primarily due to a
discount received on the extension of our
vehicle lease and a reduction in the number
of vehicles from 9,694 at March 31, 2007
to 8,792 at March 31, 2008.
Depreciation, amortisation, impairments
and write-offs. Depreciation, amortisation,
impairments and write-offs increased in the
year ended March 31, 2009 primarily as
a result of higher amortisation of intangible
assets and increased depreciation due to
the ongoing investment in
telecommunications network equipment
and data processing equipment.
Depreciation, amortisation, impairments
and write-offs increased in the year ended
March 31, 2008 primarily as a result of
higher amortisation of intangible assets
and increased depreciation due to the
ongoing investment in telecommunications
network equipment and data processing
equipment, partially offset by lower asset
write-offs.
Mobile segment
Mobile encompasses all the operating
activities of our 50% joint venture
investment in Vodacom, the largest mobile
operator in South Africa with an
approximate 53% market share as of
March 31, 2009 based on total estimated
customers in South Africa. In addition to its
South African operations, Vodacom has
investments in mobile communications
network operators in Lesotho, Tanzania, the
Democratic Republic of the Congo and
Mozambique. On December 30, 2008
Vodacom acquired 100% shareholding in
Gateway Telecommunications Plc,
Gateway Communications (Proprietary)
Limited, Gateway Communications
Mozambique LDA, Gateway
Communications (Tanzania) Limited, GS
Telecom (Proprietary) Limited and their
respective subsidiaries, or Gateway which
has customers in 40 countries in Africa.
The following table shows information
related to our 50% share of Vodacom’s
operating revenue and operating profit
broken down by Vodacom’s South African
operations and operations in other African
countries and Gateway for the periods
indicated. All amounts in this table and the
discussion of our mobile segment that
follows represent 50% of Vodacom’s results
of operations unless otherwise stated and
are before the elimination of intercompany
transactions with us.
Fixed-line depreciation, amortisation, impairments and write-offs
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Depreciation of property, plant and equipment 2,993 3,061 3,399 2.3 11.0
Amortisation of intangibles 305 409 638 34.1 56.0
Write-offs of property, plant and equipment and
intangible assets 284 262 321 (7.7) 22.5
Depreciation, amortisation, impairments and
write-offs 3,582 3,732 4,358 4.2 16.8
The following table sets forth information relating to depreciation, amortisation, impairments and write-offs for the periods indicate.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009122
Financial review (continued)
Mobile operating revenue
Vodacom derives revenue from mobile
services as well as other related or value-
added goods and services. Vodacom’s
revenue is mainly in the form of airtime
charges, primarily airtime payments from
customers registered on Vodacom’s
network; data products and services;
interconnection revenue from other
operators for the termination of calls on
Vodacom’s network and national roaming
revenue, revenue from equipment sales,
including sales of handsets and accessories;
and revenue from international services,
including airtime charges for the use of
Vodacom’s network through roaming of
customers from other international networks
and Vodacom customers who roam abroad.
The following table shows our 50% shareof Vodacom’s revenue broken down bymajor revenue type and as a percentage oftotal operating revenue for our mobilesegment and the percentage change byrevenue type for the periods indicated.
Mobile operating revenue and profitsYear ended March 31,
2008/ 2009/2007 2008 2009 2007 2008
(in millions, except percentages) ZAR % ZAR % ZAR % % change % change
Operating revenue 20,573 100.0 24,089 100.0 27,594 100.0 17.1 14.6
South Africa 18,504 89.9 21,392 88.8 23,688 85.8 15.6 10.7
Other African countries 2,069 10.1 2,697 11.2 3,502 12.7 30.4 29.8
Gateway – – – – 404 1.5 – n/a
Operating profit(1) 5,430 100.0 6,247 100.0 6,009 100.0 15.0 (3.8)
South Africa 5,170 95.2 5,852 93.7 5,690 94.7 13.2 (2.8)
Other African countries 260 4.8 395 6.3 303 5.0 51.9 (23.3)
Gateway – – – – 16 0.3 n/a
EBITDA(1)(2) 7,123 100.0 8,217 100.0 8,407 100.0 15.4 2.3
Notes:(1) Mobile operating profit and mobile EBITDA include our 50% share of an impairment loss of R23 million, R30 million and R112 million, in the 2007,
2008 and 2009 financial years, respectively, in respect of the assets in Mozambique due to a decrease in the fair value of the assets. R5.8 million ofthe impairment loss related to available-for-sale investments.
(2) Mobile EBITDA comprises our 50% share of Vodacom’s EBITDA, which represents mobile net profit, before taxation, finance charges, investment incomeand depreciation, amortisation and impairments, but includes the profit on sale of investments and broad-based black economic empowerment expenses.We believe that EBITDA provides meaningful additional information to investors since it is widely accepted by analysts and investors as a basis forcomparing a company’s underlying operating profitability with that of other companies as it is not influenced by past capital expenditures or businessacquisitions, a company’s capital structure or the relevant taxation regime. This is particularly the case in a capital intensive industry such ascommunications. It is also a widely accepted indicator of a company’s ability to service its long-term debt and other fixed obligations and to fund itscontinued growth. EBITDA is not an IFRS measure. You should not construe EBITDA as an alternative to operating profit or cash flows from operatingactivities determined in accordance with IFRS or as a measure of liquidity. EBITDA is not defined in the same manner by all companies and may not becomparable to other similarly titled measures of other companies unless the definition is the same.
Mobile operating revenueYear ended March 31,
2008/ 2009/2007 2008 2009 2007 2008
(in millions, except percentages) ZAR % ZAR % ZAR % % change % change
Airtime and access 11,854 57.6 13,548 56.3 15,166 55.0 14.3 11.9
Data 1,671 8.1 2,501 10.4 3,221 11.7 49.7 28.8
Interconnection 3,918 19.0 4,443 18.4 4,899 17.7 13.4 10.3
Equipment sales 2,350 11.4 2,526 10.5 2,650 9.6 7.5 4.9
International airtime 653 3.2 918 3.8 1,043 3.8 40.6 13.6
Other sales and services 127 0.7 153 0.6 615 2.2 20.5 302.0
Mobile operating revenue 20,573 100.0 24,089 100.0 27,594 100.0 17.1 14.6
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Telkom Annual Report 2009 123
Vodacom’s operating revenue from South
African operations increased in the 2009
financial year mainly due to an increase in
customers driven by retention campaigns
and loyalty programmes, the introduction
of more affordable products and lower
denomination vouchers. Revenue growth in
the other African operations was mainly
due to strong customer growth driven by
the launch of new products and services,
aggressive sales and marketing campaigns
as well as enhanced network coverage.
Vodacom’s operating revenue increased in
the 2008 financial year primarily due to
increased airtime, data, interconnection
and equipment sales revenue as a result of
continued customer growth. Vodacom’s
equipment sales further increased in the
2008 financial year due to the added
functionality of new phones based on new
technologies.
Our 50% share of Vodacom’s revenue from
operations outside of South Africa increased
to R3,502 million for the year ended
March 31, 2009 from R2,697 million
for the year ended March 31, 2008 and
R2,069 million in the year ended
March 31, 2007. The increase in
Vodacom’s operating revenue from other
African countries in the 2009 and 2008
financial years was primarily due to
substantial increases in the number of
customers in Vodacom’s operations,
particularly in Tanzania, the Democratic
Republic of the Congo and Mozambique,
and the weakening of the rand in the 2009
and 2008 financial years, which resulted in
higher rand converted revenue, partially
offset by lower ARPU resulting from the
higher volume of lower spending prepaid
customers. Revenue from Vodacom’s other
African countries as a percentage of
Vodacom’s total mobile operating revenue
increased to 12.7% in the year ended
March 31, 2009 from 11.2% in the year
ended March 31, 2008 and 10.1% in the
year ended March 31, 2007.
South African contract ARPU decreased to
R474 per month in the 2009 financial year
from R486 per month in the 2008 financial
year and R517 per month in the 2007
financial year. South African prepaid ARPU
increased to R68 per month in the 2009
financial year from R62 per month in the
2008 financial year, a decrease from
R63 per month in the 2007 financial year.
In the 2008 and 2007 financial years,
contract and prepaid customer ARPU were
also negatively impacted by the high
growth in Vodacom’s hybrid contract
product, Family Top Up, which contributed
to the migration of higher spending
prepaid customers, who tend to spend less
than existing contract customers, to
contracts. In the 2007 financial year,
Vodacom changed its definition of active
customers to exclude calls forwarded to
voicemail from the definition of revenue
generating activity for a six-month period,
resulting in the deletion of approximately
three million customers. Prepaid ARPU was
positively impacted by this temporary rule
change in the 2007 financial year.
Vodacom subsequently changed its
definition of revenue generating activity
back to include calls forwarded to
voicemail effective September 1, 2006.
Such SIM cards were disconnected from
the network after being inactive for a
215 consecutive day period. Since
implementing this change, prepaid SIM
cards remaining in an active state on the
network, with only call forwarding to
voicemail and no other revenue generating
activities, increased significantly. Vodacom
therefore implemented a supplementary
disconnection rule in September 2007 to
disconnect inactive prepaid SIM cards
after 13 months of being kept in an active
state, by call forwarding to voicemail only,
and not having had any other revenue
generating activity on Vodacom’s network.
The implementation of the supplementary
disconnection rule led to the disconnection
of an additional 2.9 million prepaid SIM
cards in September 2007, which resulted
in higher prepaid ARPU than would have
otherwise occurred. Approximately 85.3%
of Vodacom’s South African mobile
customers were prepaid customers at
March 31, 2009 and approximately
94.4% of all gross connections were
prepaid customers in the 2009 financial
year. Vodacom expects the number of
prepaid mobile users to continue to grow
to a greater extent than contract mobile
users. The increasing number of prepaid
users, who tend to have lower average
usage, and the lower overall usage as the
lower end of the market is penetrated have
historically resulted in decreasing overall
average revenue per customer. Total South
African ARPU increased to R133 per month
in the 2009 financial year and remained
stable at R128 per month in the 2008 and
2007 financial years. Total South African
ARPU remained stable in the 2008
financial year, despite declining South
African contract and prepaid ARPU, due to
a shift in the customer mix to higher
spending contract customers, which
represented 14.3% of total South African
customers as of March 31, 2009 and
2008, respectively.
Service providers in South Africa generally
subsidise handsets when a contract
customer enters into a new contract or
renews an existing contract depending on
the airtime and tariff plan and type of
handset purchased. Subsidised handset
sales give customers an incentive to switch
operators to obtain new handsets and
have contributed to churn. Handsets for
prepaid customers are not subsidised by
Vodacom as these users have the freedom
of switching operators and contribute to
churn. Vodacom is more vulnerable to
churn than other mobile communications
providers in South Africa since it has the
largest number of customers in South
Africa. To date, mobile number portability
has had no significant impact on churn.
The cost to acquire contract customers in a
highly developed market is high. Vodacom
has therefore implemented upgrade and
retention policies over the last few years
and has striven to maintain a high level of
incentives to service providers in order to
reduce churn. Vodacom’s churn rate for
contract customers in South Africa
increased to 9.9% in the 2009 financial
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009124
Financial review (continued)
year from 8.3% in the 2008 financial year
mainly due to an increase in involuntary
churn driven by the economic conditions.
Vodacom’s churn rate for contract
customers decreased in the 2008 financial
year to 8.3% from 9.7% in the 2007
financial year mainly due to an
improvement in service and products to
customers and the continued high level of
handset support to retain customers.
Prepaid churn is adversely impeded by an
increasingly competitive market, lower
barriers to entry for prepaid customers in
South Africa and the volatile nature of the
prepaid customer base. Vodacom’s churn
rate for prepaid customers in South Africa
decreased to 45.4% in the 2009 financial
year from 47.9% in the 2008 financial
year mainly due to focused campaigns to
offer greater value to customers to reduce
churn coupled with the marketing of SIM
swaps and various loyalty programmes.
Vodacom’s churn rate for prepaid
customers in South Africa increased to
47.9% in the 2008 financial year from
37.5% in the 2007 financial year. The
increase in prepaid churn in the 2008
financial year was mainly due to the
supplementary disconnection rule
implemented, which led to the
disconnection of an additional 2.9 million
prepaid SIM cards in September 2007.
Airtime. Vodacom derives airtime revenue
from connection and monthly rental fees
and airtime usage fees paid by Vodacom’s
contract customers for use of its mobile
networks. Airtime revenue also includes
fees paid by Vodacom’s prepaid phone
customers for prepaid starter phone
packages and airtime recharge vouchers
utilised, which entitle customers to receive
unlimited incoming calls up to 365 days.
Airtime revenue depends on the total
number of customers, traffic volume, mix of
prepaid and contract customers and tariffs.
Vodacom’s airtime revenue increased in the
years ended March 31, 2009 and March
31, 2008 primarily due to continued
customer growth and an increase in
outgoing voice traffic minutes. As
Vodacom’s primary market in South Africa
continues to mature and Vodacom
continues to connect more marginal
customers in its South African operations,
Vodacom expects that growth in airtime in
South Africa will continue to slow. Total
customers increased 16.5% and 12.7% in
the years ended March 31, 2009 and
2008, respectively, primarily due to strong
prepaid customer growth in South Africa
and significant customer growth in
Vodacom’s operations outside of South
Africa, particularly in Tanzania, the
Democratic Republic of Congo and
Mozambique in the 2009 and 2008
financial years.
Data revenue. Vodacom derives data
revenue from mobile data, including short
messaging services, or SMSs, and
multimedia messaging services, or MMSs,
general packet radio services, or GPRS,
and third generation services, or 3G. Data
revenue contributed 11.7% of Vodacom’s
total revenue in the year ended March 31,
2009, up from 10.4% in the year ended
March 31, 2008 and 8.1% in the year
ended March 31, 2007. Vodacom’s
mobile data revenue increased in the year
ended March 31, 2009 primarily due to
growth in the number of messages sent as
well as an increase in the number of
broadband customers. Vodacom’s mobile
data revenue increased in the year ended
March 31, 2008 primarily due to higher
penetration levels influenced by more
affordable product offerings.
In South Africa, Vodacom transmitted
5.4 billion SMSs and MMSs over its
network in the 2009 financial year,
compared to 5.0 billion in the 2008
financial year. The number of broadband
connectivity customers increased by 79.8%
to approximately 720,000 customers from
approximately 400,000 customers as of
March 31, 2008. The number of
3G/HSDPA handsets on the network as of
March 31, 2009 was 2.8 million, as
compared to 1.3 million as of March 31,
2008. During the 2009 financial year
there was an increase in the usage of
GPRS, 3G and HSDPA, the volume of data
transferred increased to 3,175 Terabytes,
a 97.8% increase from the 2008 financial
year.
Interconnection. Vodacom generates
interconnection revenue when a call
originating from our fixed-line network and
more recently, Neotel, or one of the other
mobile operators’ networks terminates on
Vodacom’s network. Interconnection
revenue also includes revenue from Cell C
for national roaming services. Vodacom
does not have a roaming agreement with
MTN. Vodacom generates national
roaming revenue when its mobile network
carries a call made from a Cell C customer.
Interconnection revenue depends on the
volume of traffic terminating on Vodacom’s
network, the interconnection termination
rates payable by ourselves and the other
mobile operators to Vodacom and national
roaming rates.
Vodacom’s interconnection revenue
increased in the years ended March 31,
2009 and March 31, 2008 primarily due
to an increase in the number of calls
terminating on Vodacom’s network as a
result of the increased number of
Vodacom’s customers and South African
mobile users generally. The increase in the
2009 financial year was mainly driven by
an increase in incoming traffic as well as
an increase in national roaming revenue
from Cell C as a result of their increased
market share and increased calls
terminating on Vodacom’s network. The
growth in the 2008 financial year was
also attributable to the growth in the
substitution of fixed-line calls by mobile
calls and incoming traffic resulting from an
overall increase in the customer base of
other mobile operators. The increases were
partially offset by a reduced number of
fixed-line calls from Telkom’s network
terminating on Vodacom’s network.
Interconnection revenue in our mobile
segment included R1,483 million,
R1,482 million and R1,454 million in the
years ended March 31, 2009, 2008 and
2007, respectively, for calls received from
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Telkom Annual Report 2009 125
our fixed-line business, which were
eliminated from the Telkom Group’s
revenue on consolidation.
Equipment sales. Vodacom generates
revenue from equipment sales primarily
from the sale of mobile phones and
accessories. Vodacom purchases handsets
for itself and for external service providers
in bulk at purchase discounts in order to
lower the cost of handset subsidisation for
contract customers. Equipment sales
revenue fluctuates based on whether
external providers and Vodacom’s other
African operators source equipment from
Vodacom in South Africa or purchase
equipment from third party suppliers.
Vodacom’s equipment sales increased in
the 2009 and 2008 financial years
primarily due to the growth of Vodacom’s
customer base and the continued uptake of
new handsets in South Africa as a result of
cheaper rand prices of new handsets and
the added functionality of new phones
based on new technologies such as 3G
enabled phones, camera phones and
colour screens.
International airtime. International airtime
revenues are predominantly from
international calls by Vodacom customers,
roaming revenue from Vodacom’s
customers making and receiving calls while
abroad and revenue from international
customers roaming on Vodacom’s
networks. International airtime increased
13.6% to R1,043 million in the year ended
March 31, 2009 and 40.6% to
R918 million in the year ended March 31,
2008 primarily as a result of growth in the
customer base.
Other. Revenue from other sales and
services includes revenue from Vodacom’s
cell captive insurance vehicle, wireless
application services provider, or WASP,
revenue, site sharing rental income as well
as other revenue from non-core operations.
Vodacom’s other sales and services
revenue increased 302.0% to R615 million
in the 2009 financial year primarily due to
the acquisition of Gateway. Vodacom’s
other sales and services revenue increased
20.5% to R153 million in the 2008
financial year primarily due to an increase
in inactivated starter packs which do not
contain an expiration date, but which are
recognised as income after a period of
36 months.
Mobile operating expenses
The following is a discussion of our mobile
segment’s operating expenses which
comprise our 50% share in Vodacom’s
operating expenses. Vodacom’s operating
expense line items are presented in
accordance with the line items reflected in
the Telkom Group’s consolidated operating
expenses which are different from the
operating expense line items contained in
Vodacom’s consolidated financial statements.
The following table shows our 50% share
of Vodacom’s operating expenses and the
percentage change for the periods
indicated.
Mobile operating expenses
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Employee expenses 1,186 1,488 1,804 25.5 21.2
Payments to other network operators 2,818 3,279 3,822 16.4 16.6
Selling, general and administrative expenses 8,777 10,271 12,553 17.0 22.2
Service fees 82 115 169 40.2 47.0
Operating leases 629 775 958 23.2 23.6
Depreciation, amortisation and impairments 1,693 1,970 2,398 16.4 21.7
Mobile operating expenses 15,185 17,898 21,704 17.9 21.3
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009126
Financial review (continued)
The following table sets forth information related to our 50% share of Vodacom’s selling, general and administrative expenses for the
periods indicated.
Mobile selling, general and administrative expenses
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Selling, distribution and other 7,703 9,063 11,105 17.7 22.5
Marketing 573 632 762 10.3 20.6
Regulatory and licence fees 490 527 607 7.6 15.2
Bad debts 11 49 79 345.5 61.2
Selling, general and administrative expenses 8,777 10,271 12,553 17.0 22.2
The increase in mobile operating expenses
in the 2009 financial year was mainly due
to the increased cost of connecting prepaid
customers and retaining contract customers,
as well as increased network operational
expenditure due to the roll-out of additional
sites, coupled with increased inter-
connection rates in the DRC. The increase in
mobile operating expenses in the 2008
financial year was primarily due to
inflationary factors and growth in the
business, which led to increased selling,
general and administrative expenses to
support the expansion of 3G, growth in
Vodacom’s South African and African
operations and increased competition,
increased payments to other network
operators due to higher outgoing traffic and
the increased percentage of outgoing traffic
terminating on other mobile networks,
higher employee costs as a result of
increased headcount as well as increased
depreciation, amortisation and impairment.
Employee expenses. Employee expenses
consist mainly of salaries and wages of
employees as well as contributions to
employee pension, medical aid funds and
benefits and the deferred bonus incentive
scheme.
Vodacom’s employee expenses increased
in the year ended March 31, 2009
primarily as a result of the increase in the
average number of employees and annual
salary increases, partially offset by lower
performance based remuneration.
Vodacom’s employee expenses increased
in the year ended March 31, 2008
primarily as a result of a 9.5% increase in
headcount to support the expansion of
customer care operations, the strengthening
of senior management structures to support
the growth in ongoing operations and the
launch of Vodacom Business. Annual salary
increases and increased provisions for
other employee incentive schemes also
contributed to the increase in staff
expenses.
Total headcount in Vodacom’s South
African operations increased 12.4% to
5,451 employees as of March 31, 2009
and 2.6% to 4,849 employees as of
March 31, 2008 from 4,727 employees
as of March 31, 2007. Total headcount in
Vodacom’s other African countries
increased 17.3% to 2,336 employees as
of March 31, 2009 and 30.9% to 1,992
employees as of March 31, 2008 from
1,522 employees as of March 31, 2007.
Total headcount includes temporary
agency employees. Employees seconded
to other African countries are included in
the number of employees of other African
countries and excluded from Vodacom
South Africa’s number of employees.
Payments to other network operators.
Payments to other network operators consist
mainly of interconnection payments made
by Vodacom’s South African and other
African operations for terminating calls on
other operators’ networks. Vodacom’s
payments to other network operators
increased significantly in the years ended
March 31, 2009 and 2008 as a result of
increased outgoing traffic in line with
increased customer growth and the
increasing percentage of outgoing traffic
terminating on the other mobile networks
rather than Telkom’s fixed-line network as
the cost of terminating calls on other mobile
networks is higher than calls terminating on
Telkom’s fixed-line network. As the mobile
communications market continues to grow
in South Africa, Vodacom expects that
interconnection charges will continue to
increase and adversely impact Vodacom’s
profit margins.
Payments to other network operators in our
mobile segment included R231 million,
R234 million and R234 million in the years
ended March 31, 2009, 2008 and
2007, respectively, for interconnection fees
paid to our fixed-line segment, which were
eliminated from the Telkom Group’s
operating expenses on consolidation.
Selling, general and administrative
expenses. Selling, general and
administrative expenses include customer
acquisition and retention costs, packaging,
distribution, marketing, regulatory licence
fees, bad debts and various other general
administrative expenses, including
accommodation, information technology
costs, office administration, consultant
expenses, social economic investment and
insurance.
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Telkom Annual Report 2009 127
Vodacom’s selling, general and
administrative expenses increased in the
year ended March 31, 2009 primarily
due to an increase in selling, distribution
and other expenses and marketing
expenses to support the launch and
expansion of 3G, growth in Vodacom’s
South African and African operations and
competition. Vodacom’s selling, general
and administrative expenses increased in
the year ended March 31, 2008 primarily
due to an increase in selling, distribution
and other expenses, incentive costs,
regulatory and licence fees and marketing
expenses to support the launch and
expansion of 3G, growth in Vodacom’s
South African and African operations and
increased competition.
Selling, distribution and other expenses
include cost of goods sold, commissions,
customer acquisition and retention
expenses, distribution expenses and
insurance. The increase in selling,
distribution and other expenses in the
2009 financial year was primarily due to
increased fuel and electricity costs,
competition and network operational
expenditure as a result of the roll-out of
additional sites. The increase in selling,
distribution and other expenses in the
2008 financial year was primarily due to
increased customer connections,
competition, revenue, cost of equipment as
a result of increased handset sales and
maintenance of the GSM infrastructure and
billing systems as well as due to the
Vodafone global alliance fee.
The increase in marketing expenses in the
2009 financial year was mainly as a result
of promotion campaigns to counter
competition. The increase in marketing
expenses in the 2008 financial year was
mainly due to promoting new technologies,
including 3G and Vodafone live! and
further promoting the Vodacom brand in all
operations. The increases in regulatory and
licence fees during the reporting periods
were directly related to the increase in
operating revenues and corresponding
payments under Vodacom’s existing
licences. The increase in bad debts in the
2008 financial year resulted from a clean-
up of Smartphone debtors following the
increase in shareholding to 100%.
Service fees. Service fees include
consultancy services for technical,
administrative and managerial services,
audit fees, legal fees and communication
and information technology costs.
Operating leases. Operating leases
include payments in respect of rentals of
GSM transmission lines as well as office
accommodation, office equipment and
motor vehicles. Operating leases in our
mobile segment included R529 million,
R514 million and R453 million in the years
ended March 31, 2009, 2008 and
2007, respectively, for operating lease
payments to our fixed-line segment, which
were eliminated from the Telkom Group’s
operating expenses on consolidation.
Depreciation, amortisation and
impairments. Depreciation, amortisation
and impairments increased in the years
ended March 31, 2009 and 2008
primarily due to higher capital expenditure
as a result of the implementation and
expansion of 3G/HSDPA networks, the
weakening of the rand against the other
functional currencies of Vodacom and the
impairment of assets in Vodacom
Mozambique.
Multi-Links segment
Multi-Links operating revenue
Multi-Links operating revenue is derived
principally from fixed, mobile, data, long
distance and international communications
services throughout Nigeria, through our
wholly owned subsidiary, Multi-Links.
The following table shows the operating
revenue for our Multi-Links segment for the
periods indicated.
Multi-Links operating revenue
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Multi-Links operating revenue – 845 1,900 – 124.9
The increase in Multi-Links revenue ismainly as a result of subscriber growth andan increase in domestic traffic volumes aswell as increased data revenue. Multi-Links,
which was acquired with effect from May1, 2007, contributed R845 million in the2008 financial year from its customers inthe Nigerian market since its acquisition.
Multi-Links operating expensesThe following table shows operatingexpenses for our Multi-Links segment brokendown by major expense categories and thepercentage change for the periods indicated.
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009128
Financial review (continued)
Employee expenses increased by 223.1% in
the 2009 financial year primarily due to an
increase in the number of employees as well
as salary increases and bonus payments.
The 686.6% increase in selling, general
and administrative expenditure in the
2009 financial year primarily related to
increased cost of sales and associated
handset subsidies of R281 million as a
result of increased sales volumes,
increased advertising and promotional
expenditure and an increase in expatriates
fees as a result of an increase in staff
seconded from Telkom during the year.
The increases in service fees were mainly
as a result of increased security cost and
payments to consultants as a result of an
increase in operations during the year.
Operating leases increased 421.6% as a
result of an increase in the number of
leased base stations, warehouses and
office buildings as a result of the
expanding operations.
Depreciation, amortisation and impairments
increased 244.2% as a result of higher
capital expenditure incurred during the
year.
Other segment
Other operating revenue
Our other operating revenue is derived
principally from directory services, through
our Trudon Group, internet services outside
South Africa, through our Africa Online
subsidiary.
The following table shows the operating
revenue for our other segment broken
down by major revenue streams and the
percentage change by major revenue
stream for the periods indicated.
Multi-Links operating expenses
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Employee expenses – 39 126 – 223.1
Payments to other operators – 624 652 – 4.5
Selling, general and administrative expenses – 142 1,117 – 686.6
Service fees – 14 38 – 171.4
Operating leases – 37 193 – 421.6
Depreciation, amortisation and impairments – 86 296 – 244.2
Other operating expenses – 942 2,422 – 157.1
Other operating revenue
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Trudon 865 930 1,020 7.5 9.7
Africa Online 8 110 194 n/a 76.4
Other operating revenue 873 1,040 1,214 19.1 16.7
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Telkom Annual Report 2009 129
The increase in other operating revenue
was mainly attributable to UUNET, Africa
Online’s 40% joint venture. Our other
operating revenue increased in the 2008
financial year primarily due the inclusion in
the current year of revenue generated by
our newly acquired subsidiary, Africa
Online. Africa Online, which was acquired
with effect from February 23, 2007,
increased the revenue contribution to the
group from R8 million during the 2007
financial year to R110 million during the
2008 financial year.
These additional revenue streams were
further supported by the continued growth
in advertising revenue from our subsidiary,
Trudon. Revenue from directory services
increased in the years ended March 31,
2009 and 2008 primarily due to annual
tariff increases and increased marketing
and online efforts, resulting in increased
spending on advertising by existing
customers and additional advertising
revenue from new customers.
Other operating expenses
The following table shows operating
expenses for our other segment broken
down by major expense categories and
the percentage change for the periods
indicated.
Other operating expenses
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Employee expense 158 193 220 22.2 14.0
Payments to other operators – 53 89 – 67.9
Selling, general and administrative expenses 310 335 404 8.1 20.6
Service fees 5 12 12 140.0 –
Operating leases 20 23 26 15.0 13.0
Depreciation, amortisation and impairments 19 32 50 68.4 56.3
Other operating expenses 512 648 801 26.6 23.6
Increases in other operating expenses inthe 2009 financial year were primarilydriven by increases in selling, general andadministrative expenses, payments to otheroperators, employee expenses anddepreciation, amortisation and impairments.Increases in other operating expenses inthe 2008 financial year were primarily
driven by increases in payments to otheroperators, employee expenses, depre-ciation, amortisation and impairments,operating leases and service fees. Theincrease in these operating expenses in the2008 financial year was primarily due tothe inclusion of operating expenses relatingto our newly acquired subsidiary, Africa
Online, which impacted all expensecategories.
The following table shows the contributionsto other operating expenses by each of thetwo subsidiaries contained in our othersegment and the percentage change forthe periods indicated.
Other operating expenses
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Trudon 504 530 593 5.2 11.9
Africa Online 8 118 208 1,375.0 76.3
Other operating expenses 512 648 801 210.7 23.6
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
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Telkom Annual Report 2009130
Financial review (continued)
Cash flows from operating activities
Our primary sources of liquidity are cash
flows from operating activities and
borrowings. We intend to fund our
expenses, indebtedness and working
capital requirements from cash generated
from our operations and from capital raised
in the markets. The increase in cash flows
from operating activities in the 2009
financial year is mainly due to a lower
dividend payment in respect of the 2008
financial year and lower taxation paid,
partially offset by higher finance charges
and a decrease in cash generated from
operations. The increase in cash flows from
operating activities in the 2008 financial
year is mainly due to lower taxation
payments as well as an increase in cash
generated from operations, partially offset
by higher dividends paid.
Cash flows from investing activities
Cash flows from investing activities relate
primarily to investments in our fixed-line
network, our other segment’s networks and
our 50% share of Vodacom’s investments in
its mobile networks in South Africa and
other African countries. The increase in
cash flows used in investing activities in the
2009 financial year was as a result of the
increased capital expenditure of Multi-Links
as well as the acquisition of Gateway by
Vodacom and the acquisition of the
remaining 25% share in Multi-Links. The
increase in cash flows used in investing
activities in the 2008 financial year was
mainly the result of R1,985 million cash
utilised for the purchase of Multi-Links and
increased equity investments in Smartphone,
increased capital expenditures in our fixed-
line, mobile and other segments and lower
proceeds on the disposal of investments,
partially offset by higher proceeds on the
disposal of property, plant and equipment
and intangibles.
Cash flows from financing activities
Cash flows from financing activities are
primarily a function of borrowing and share
buy-back activities.
In the 2009 financial year, loans raisedexceeded loans repaid and the increase innet financial assets. In the 2009 financialyear, cash flows from financing activitieswere primarily due to the issuance ofR11,025 million nominal value ofcommercial paper bills, the issue of thenew local bonds, the TL12 and TL15 witha nominal value of R1,060 million andR1,160 million, respectively, as well asentering into a syndicated loan agreementwith a nominal value of R4,100 million.This was partially offset by the repayment ofa term loan of R1,000 million, a bankfacility of R1,000 million, bridging financeof R1,600 million and maturing commercialpaper bills of R9,849 million nominal value.
In the 2008 financial year, loans raised
and the decrease in net financial assets
exceeded loans repaid, shares bought
back and cancelled and finance lease
obligation repaid. In the 2008 financial
year, cash flows from financing activities
were primarily due to the issuance of
R18,806 million nominal value of
Liquidity and capital resources
Group liquidity and capital resources
Cash flows
The following table shows information regarding our consolidated cash flows for the periods indicated.
Year ended March 31,
2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Cash flows from operating activities 9,356 10,603 11,432 13.3 7.8
Cash flows from investing activities (10,412) (14,106) (17,005) 35.5 20.6
Cash flows from financing activities (2,920) 2,943 7,093 200.8 141.0
Net (decrease)/increase in cash and cash
equivalents (3,976) (560) 1,520 85.9 371.4
Effect of foreign exchange rate differences 29 44 (30) 51.7 (168.2)
Net cash and cash equivalents at the beginning
of the year 4,255 308 (208) (92.8) (167.5)
Net cash and cash equivalents at the end of
the year 308 (208) 1,282 (167.5) 716.3
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Telkom Annual Report 2009 131
commercial paper bills, as well as entering
into call and term loans of R5,600 million
to fund the redemption of the TK01 bond
and other cash flows from investing
activities, including R1.6 billion of
additional bank borrowings and interest
bearing debt by Vodacom. This was
partially offset by the maturing commercial
paper debt of R15,773 million nominal
value, the repayment of the TK01 bond
with a nominal value of R4,680 million
and R1,647 million paid for the
repurchase of shares during the year.
In the 2007 financial year, loans and finance
leases repaid and shares repurchased and
cancelled exceeded loans raised and the
decrease in net financial assets, by
R2,920 million. In the 2007 financial year
cash flows used in financing activities
increased primarily due to the lower sale of
repurchase agreements and derivative
instruments that were sold in the 2006
financial year to fund dividends and tax
payments. On October 31, 2006, we
repaid the TL06 local bond having a nominal
value of R2,100 million and during the
2007 financial year, we repaid
R3,731 million in nominal value of
commercial paper bill debt. Commercial
paper bills having a nominal value of
R4,651 million were issued in the 2007
financial year.
Working capital
We had negative consolidated working
capital from continuing operations of
approximately R6.2 billion as of March 31,
2009, we had negative consolidated
working capital from total operations of
approximately R9.3 billion as of March 31,
2008 and approximately R8.2 billion as of
March 31, 2007. Negative working
capital arises when current liabilities are
greater than current assets. The increase in
the Company’s negative working capital in
the 2009 financial year was mainly as a
result of an increase in interest bearing debt
payable, partially offset by higher financial
assets in the form of repurchase agreements.
The increase in negative working capital in
the 2008 financial year was primarily due
to an increase in the current portion of
interest bearing debt due to the repayment
of the TK01 local bond with short-term debt
that was subsequently partially refinanced
by the TL12 and TL15 bonds after the year
end, a reduction in cash available due to
acquisition activities, increased capital
expenditure, increased dividends paid,
shares repurchased and an increase in trade
and other payables. Telkom is of the opinion
that the Telkom Group’s cash flows from
operations, together with proceeds from the
Vodacom transaction and the proceeds from
liquidity available under credit facilities and
in the capital markets, will be sufficient to
meet the Telkom Group’s present working
capital requirements for the 12 months
following the date of this annual report. We
intend to fund current liabilities through a
combination of operating cash flows and
with new borrowings and borrowings
available under existing credit facilities. We
had R6.2 billion available under existing
credit facilities as of March 31, 2009.
Capital expenditures and investments
The following table shows the Telkom
Group’s investments in property, plant and
equipment including intangible assets,
including our 50% share of Vodacom’s
investments, for the periods indicated.
Year ended March 31,2007 2008 2009 2008/2007 2009/2008
(in millions, except percentages) ZAR ZAR ZAR % change % change
Group capital expenditureFixed-line 6,594 6,794 6,690 3.0 (1.5)
Baseline 3,409 4,039 3,343 18.5 (17.2)Revenue generating 159 57 30 (64.2) (47.4)Network evolution 784 1,092 1,373 39.3 25.7Sustainment 416 277 115 (33.4) (58.5)Effectiveness and efficiencies 1,141 841 603 (26.3) (28.3)Company support 497 451 790 (9.3) 75.2Regulatory 188 37 436 (80.3) 1,078.4
Mobile 3,608 3,460 3,569 (4.1) 3.2
Multi-Links – 1,312 2,791 – 112.7
Other 44 334 184 659.1 (44.9)
Total investment in property, plant andequipment and intangible assets 10,246 11,900 13,234 16.1 11.2
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 131
Telkom Annual Report 2009132
Financial review (continued)
Fixed-line capital expenditure, which
includes spending on intangible assets,
decreased by 1.5% to R6,690 million and
represents 19.9% of fixed-line revenue.
Baseline capital expenditure of
R3,343 million in the 2009 financial year
was largely for the deployment of
technologies to support the growing data
services business (including ADSL footprint),
links to the mobile cellular operators and
expenditure for access line deployment in
selected high growth commercial and
residential areas. The continued focus on
rehabilitating the access network and
increasing the efficiencies and
redundancies in the transport network as
well as the initiation of the fixed-wireless
roll-out contributed to the network evolution
and sustainment capital expenditure of
R1,488 million.
Telkom continues to focus on its operations
support system investment with current
emphasis on workforce management,
provisioning and fulfilment, assurance and
customer care, hardware technology
upgrades on the billing platform and
performance and service management and
property optimisation. During the year
ended March 31, 2009, R603 million
was spent on the implementation of several
systems.
Fixed-line capital expenditure, which
includes spending on intangible assets,
increased 3.0% to R6,794 million in the
2008 financial year from R6,594 million
in the 2007 financial year and represented
20.9% of fixed-line revenue compared to
20.4% in the 2007 financial year. The
increase in baseline and revenue
generating capital expenditure to
R4,095 million in the 2008 financial year
from R3,568 million in the 2007 financial
year was largely for the deployment of
technologies to support the growing data
services business (including ADSL footprint),
links to the mobile cellular operators and
expenditure for access line deployment in
selected high growth residential areas.
During the year ended March 31, 2008,
R841 million was spent on the
implementation of systems compared to
R1,141 million in the 2007 financial year.
Mobile capital expenditure (50% of
Vodacom’s capital expenditure) increased
by 3.2% to R3,569 million in the 2009
financial year from R3,460 million in the
2008 financial year and represents 12.9%
of mobile revenue compared to 14.4% in
the 2008 financial year which was mainly
spent on the continued investment to
improve geographic coverage and
increase capacity for both the voice and
data networks in South Africa and to
expand coverage in Tanzania and
Mozambique.
Mobile capital expenditure, which includes
spending on intangible assets, increased
by 3.2% to R3,569 million and represents
12.9% of mobile revenue and was due to
the continued investment to improve
geographic coverage and increase
capacity for both the voice and data
networks. Mobile capital expenditure (50%
of Vodacom’s capital expenditure)
decreased by 4.1% to R3,460 million
in the 2008 financial year from
R3,608 million in the 2007 financial year
and represents 14.4% of mobile revenue
compared to 17.5% in the 2007 financial
year which was mainly spent on the
cellular network infrastructure consisting of
radio, switching and transmission network
infrastructure and computer software. The
decrease in capital expenditure in other
African countries was largely as a result of
decreased investment in Tanzania,
Democratic Republic of the Congo and
Mozambique offset by an increase in
investment in Lesotho.
Our consolidated capital expenditure in
property, plant and equipment for the
2010 financial year budgeted to be
approximately R7.9 billion, of which
approximately R7.0 billion is budgeted to
be spent in our fixed-line segment,
approximately R847 million is budgeted to
be spent in our Multi-Links segment, and
approximately R90 million is budgeted to
be spent in our other segment. Our capital
expenditures are continuously examined
and evaluated against the perceived
economic benefit and may be revised in
light of changing business conditions,
regulatory requirements, investment
opportunities and other business factors.
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Telkom Annual Report 2009 133
The following table sets forth our consolidated indebtedness including finance leases as of March 31, 2009
Nominal amount
Out- outstanding standing Maturing
Interest Interest as of as of Year ended March 31,payment rate/ March 31, March 31, After
dates coupon 2009 2009 2010 2011 2012 2013 2014 2014(in millions) (%) ZAR ZAR ZAR ZAR ZAR ZAR ZAR ZAR
TelkomBonds12.45% unsecured local bond due 29 Apr &April 29, 2012 (TL12)(1, 2) 29 Oct 12.45 1,059 1,060 – – – 1,060 – –11.90% unsecured local bond due 29 Apr & April 29, 2015 (TL15)(1, 3) 29 Oct 11.9 1,159 1,160 – – – – – 1,160 6% unsecured local bond due February 24, 2020 (TL20)(1, 4) 22 Feb 6 1,325 2,500 – – – – – 2,500 Zero coupon unsecured loan stock due September 30, 2010 (PP02)(5) – – 349 430 – 430 – – – –Zero coupon unsecured loan stock due June 15, 2010 (PP03)(6) – – 1,131 1,350 – 1,350 - – – –Commercial paper – 11.44 5,476 5,559 5,559 – – – – –Syndicated loans due December 17, 2011 and 2013(7) 11.46 4,083 4,100 – – 820 – 3,280 –Term loans Various 9.67 2,000 2,000 2,000 – – – – –Bank facilitiesR394 million uncommitted overdraft facility with ABSA Bank Limited, repayable on demand, and a R1 billion unsecured committed facility, repayable on 364 days Mutually Not Not notice – agreed utilised utilised – – – – – –R1 billion unsecured committed facility with The Standard Bank of South Africa Limited, repayable within 365 days of Mutually Not Not drawdown – agreed utilised utilised – – – – – –R1 billion unsecured committed facility with FirstRand Bank Limited, repayable Mutually Not Not on 364 days notice – agreed utilised utilised – – – – – –$35 million unsecured short-term loan facility with Calyon Corporate and Mutually Not Not Investment Bank, repayable on demand – agreed utilised utilised – – – – – –R1 billion uncommitted short term facility with Sumitomo Mitsui Banking Corporation, Mutually Not Not repayable on demand – agreed utilised utilised – – – – – –R500 million call loan facility with iNkotha Investments Limited, repayable Mutually Not Not on demand – agreed utilised utilised – – – – – –R1 billion loan agreement with Old Mutual Specialised Finance Mutually Not Not (Proprietary) Limited, repayable on demand agreed utilised utilised – – – – – –Various bank loans8 – Various 138 138 – 20 13 9 0 96 Bank overdraft and other short-term debt – 106 106 106 – – – –
13.43% – Finance leases(9) n/a 37.78% 984 984 35 231 – – – 718
Total Telkom 17,810 19,387 7,700 2,031 833 1,069 3,280 4,474
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview
Telkom AR front.qxp 8/12/09 6:23 PM Page 133
Telkom Annual Report 2009134
Financial review (continued)
Nominal amount
Out- outstanding standing Maturing
Interest Interest as of as of Year ended March 31,payment rate/ March 31, March 31, After
dates coupon 2009 2009 2010 2011 2012 2013 2014 2014(in millions) (%) ZAR ZAR ZAR ZAR ZAR ZAR ZAR ZAR
OtherTrudon (Pty) LtdVarious finance leases – Various 2 2 1 1 – – – –
Telkom Media (Pty) LtdVarious loans – 13% 9 9 – 5 2 2 – –
Multi-Links Telecommunications LimitedNaira 1,100 million Commercial paper – 18.5% 70 70 70 – – –$18 million Export Development Bank LIBORof Canada funding – + 1.25% 157 157 35 – – 122 – –$41.6 million Huawei Vendor Financing LIBOR Facility funding – + 2% 323 323 – – 323 – – –
Africa Online LimitedVarious loans – Various 11 11 4 7 – – – –Bank overdrafts and other short-term debt – 20 20 20 – – – – –
Total other 592 592 130 13 325 124 – –
Grand total 18,402 19,979 7,830 2,044 1,158 1,193 3,280 4,474
1. Listed on the Bond Exchange of South Africa.2. The TL12 was issued on April 29, 2009 at a yield to maturity of 12.47% and listed on the Bond Exchange of South Africa. 3. The TL15 was issued on April 29, 2009 at a yield to maturity of 11.91% and listed on the Bond Exchange of South Africa. 4. 2,500 of these bonds were issued on February 22, 2000 at a yield to maturity of 15.00%. The TL20 bond was listed on the Bond Exchange of South Africa with effect of April 1,
2005.5. Issued on February 25, 2000. Original amount issued was R430 million. The yield to maturity of this instrument issued by Telkom is 14.37%. 6. Issued on June 15, 2000. Original amount issued was R1,350 million. The yield to maturity of this instrument is 15.175%. 7. Agreement effective from December 17, 2008 for three and five years.8. R138 million of Telkom's indebtedness outstanding as of March 31, 2009 was guaranteed by the government of South Africa. Euro loans converted at the spot rate.9. Secured by land and buildings.
Telkom AR front.qxp 8/12/09 6:23 PM Page 134
economic conditionscontributed to adifficult year
Consolidated financial statementsDirectors’ responsibility statement 137Certificate from Group Company Secretary 137Report of independent auditors 138Directors’ report 140Consolidated income statement 142Consolidated balance sheet 143Consolidated statement of changes in equity 144Consolidated cash flow statement 145Notes to the consolidated annual financial statements 146
Management review
Sustainability review
Performance review
Financial statements
CompanyFinancial
Information
Group overview 1
2
3
4
5
6
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Telkom Annual Report 2009 137
The directors are responsible for the preparation of the annual financial
statements of the Company and the Group. The directors are also
responsible for maintaining a sound system of internal controls to
safeguard shareholders’ investments and the Group’s assets.
In presenting the accompanying financial statements, International
Financial Reporting Standards as issued by the International
Accounting Standards Board have been followed and applicable
accounting policies have been used incorporating prudent judgements
and estimates.
The external auditors are responsible for independently auditing and
reporting on the annual financial statements.
In order for the directors to discharge their responsibilities,
management continues to develop and maintain a system of internal
controls aimed at reducing the risk of error or loss in a cost-effective
manner. The internal controls include a risk-based system of internal
auditing and administrative controls designed to provide reasonable
but not absolute assurance that assets are safeguarded and that
transactions are executed and recorded in accordance with generally
accepted business practices and the Group’s policies and procedures.
The directors, primarily through the audit and risk committee, which
consists of non-executive directors, meet periodically with the external
and internal auditors, as well as executive management to evaluate
matters concerning accounting policies, internal controls, auditing and
financial reporting.
The directors are of the opinion, based on the information and
explanations given by management and internal audit, that the internal
accounting controls are adequate, so that the financial records may be
relied on for preparing the financial statements and maintaining
accountability for assets and liabilities. The directors are satisfied that
the Company and the Group have adequate 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.
Against this background, the directors of the Company accept
responsibility for the annual financial statements, which were approved
by the Board of directors on 10 July 2009 and are signed on their
behalf by:
Shirley Lue Arnold
Chairman
Reuben September
Chief Executive Officer
Peter Nelson
Chief Financial Officer
Pretoria
Directors’ responsibility statement
I hereby certify that in accordance with section 268G(d) of the Companies Act, 1973, as amended, the Company has lodged with the Registrar
of Companies all such returns as are required of a public company in terms of this Act and that all such returns are, to the best of my knowledge
and belief, true, correct and up to date.
Mmathoto Lephadi
Group Company Secretary
Pretoria
10 July 2009
Certificate from Group Company Secretary
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Telkom Annual Report 2009140
To the members of Telkom SA Limited
The directors have pleasure in submitting the annual financial
statements of the Company and the Group for the year ended
March 31, 2009.
NATURE OF BUSINESSTelkom is a leading integrated communications service provider in
South Africa and on the African continent.
FINANCIAL RESULTSEarnings attributable to equity holders of Telkom for the year ended
March 31, 2009 were R4,170 million (2008: R7,975 million)
representing basic earnings per share from continuing operations of
407.4 cents (2008: 963.7 cents). Full details of the financial position
and results of the Group are set out in the accompanying Company
and Group financial statements.
DIVIDENDSThe following dividend was declared in respect of the year ended
March 31, 2009:
• Ordinary dividend number 14 of 115 cents per share (2008:
660 cents);
• Special dividend of 260 cents per share (2008: nil cents).
The level of dividend payments will be based upon a number of
factors, including the consideration of financial results, capital and
operating expenditure requirements, the Group’s debt level, interest
coverage, internal cash flows, prospects and available growth
opportunities.
SUBSIDIARIESParticulars of the significant subsidiaries of the Group are set out in
notes 42 and 43 of the accompanying Group financial statements.
The attributable interest of the Group in the after taxation earnings from
continuing operations of its subsidiaries for the year ended March 31,
2009 were:
2008 2009
Rm Rm
Aggregate amount of loss after taxation (102) (2,142)
SHARE CAPITALDetails of the authorised, issued and unissued share capital of the
Company as at March 31, 2009 are contained in note 22 and
note 20 of the accompanying Group and Company financial
statements respectively.
SHARE REPURCHASEShareholders approved a special resolution granting a general
authority for the repurchase of shares by the Company at its annual
general meeting of September 15, 2008. The Company repurchased
286 ordinary shares at a value of R30,425 (including costs) during the
year under review. These shares have been cancelled as issued share
capital and restored as authorised but unissued share capital.
BORROWING POWERSIn terms of the Company’s articles of association, Telkom has unlimited
borrowing powers subject to the restrictive financial covenants of the
TL20 bond and Syndicated loans.
CAPITAL EXPENDITURE AND COMMITMENTSDetails of the Company’s capital expenditure on property, plant and
equipment as well as intangibles are set out in notes 9 and 10 of the
accompanying financial statements, while details of the Company’s
capital commitments are set out in note 34.
Details of the Group’s capital expenditure on property, plant and
equipment as well as intangibles are set out in notes 11 and 12 of the
accompanying financial statements, while details of the Group’s
capital commitments are set out in note 38.
EVENTS SUBSEQUENT TO BALANCE SHEET DATEEvents subsequent to the balance sheet date are set out in note 45 of
the accompanying Group financial statements and note 39 of the
Company financial statements.
DIRECTORATEThe following changes occurred in the composition of the Board from
April 1, 2008 to date of this report.
Appointments
B Molefe July 3, 2008
PG Joubert August 12, 2008
DD Barber September 1, 2008
PG Nelson December 8, 2008
Resignations
MJ Lamberti June 3, 2008
AG Rhoda July 3, 2008
Directors’ report
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The Board of Directors at date of this report are as follows:
ST Arnold (Chairman)
RJ September (Chief Executive Officer)
PG Nelson (Chief Financial Officer)
DD Barber
B du Plessis
RJ Huntley
PG Joubert
VB Lawrence
PCS Luthuli
KST Matthews
B Molefe
E Spio-Garbrah
Details of each director may be found on pages 28 and 29 in the
Management review section.
DIRECTORS’ INTERESTSAt the date of this report, none of Telkom’s directors other than
Mr RJ September, Mr PG Nelson, Mr PG Joubert and Mr DD Barber,
held any direct and indirect, beneficial and non-beneficial interests in
the share capital of the Company. Mr RJ September directly held
90,815 and indirectly held 1,820 ordinary shares, Mr. PG Nelson
directly held 19,182 ordinary shares, Mr PG Joubert indirectly held
15,000 ordinary shares and Mr DD Barber indirectly held
1,200 ordinary shares in the capital of Telkom.
Details of the Company Secretary’s business address and the
Company’s registered office are set out on the inside back cover.
Directors’ report (continued)
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Telkom Annual Report 2009142
Restated* Restated* Audited
2007 2008 2009
Notes Rm Rm Rm
Total revenue 3.1 32,919 34,084 36,433
Operating revenue 3.2 32,441 33,611 35,940
Other income 4 338 472 343
Operating expenses 23,028 25,014 29,895
Employee expenses 5.1 7,254 7,629 8,345
Payments to other operators 5.2 5,005 6,098 6,919
Selling, general and administrative expenses 5.3 4,184 4,045 5,772
Service fees 5.4 2,209 2,437 2,756
Operating leases 5.5 775 671 823
Depreciation, amortisation, impairment and write-offs 5.6 3,601 4,134 5,280
Operating profit 9,751 9,069 6,388
Investment income 6 199 168 181
Finance charges and fair value movements 7 857 1,556 2,843
Interest 1,142 1,543 1,732
Foreign exchange and fair value movement (gain)/loss (285) 13 1,111
Profit before taxation 9,093 7,681 3,726
Taxation 8 2,803 2,647 1,660
Profit from continuing operations 6,290 5,034 2,066
Profit for the year from discontinued operations 9 2,559 3,138 2,181
Profit for the year 8,849 8,172 4,247
Attributable to:
Equity holders of Telkom 8,646 7,975 4,170
Minority interest 203 197 77
8,849 8,172 4,247
Total operations
Basic earnings per share (cents) 10 1,681.0 1,565.0 832.8
Diluted earnings per share (cents) 10 1,676.3 1,546.9 819.6
Dividend per share (cents) 10 900.0 1,100.0 660.0
Continuing operations
Basic earnings per share (cents) 10 1,204.7 963.7 407.4
Diluted earnings per share (cents) 10 1,201.3 952.6 401.0
* The amounts have been restated for the effect of the discontinued operation and disposal groups held for sale as disclosed in note 9.
Consolidated income statementfor the three years ended March 31, 2009
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2007 2008 2009Notes Rm Rm Rm
ASSETSNon-current assets 48,770 57,763 51,010
Property, plant and equipment 11 41,254 46,815 41,418 Intangible assets 12 5,111 8,468 7,232 Investments 14 1,384 1,448 1,383 Deferred expenses 15 270 221 55 Finance lease receivables 16 158 206 166 Deferred taxation 17 593 605 756
Current assets 10,376 12,609 11,287
Short-term investments 14 77 51 –Inventories 18 1,093 1,287 1,974 Income taxation receivable 34 520 9 91 Current portion of deferred expenses 15 287 362 –Current portion of finance lease receivables 16 88 166 109 Trade and other receivables 19 7,303 8,986 5,980 Other financial assets 20 259 614 1,202 Cash and cash equivalents 21 749 1,134 1,931
Assets of disposal groups classified as held for sale 9 – – 23,482
Total assets 59,146 70,372 85,779
EQUITY AND LIABILITIESEquity attributable to equity holders of Telkom 31,724 32,815 36,253
Share capital 22 5,329 5,208 5,208 Treasury share reserve 23 (1,774) (1,638) (1,517)Share-based compensation reserve 24 257 643 1,076 Non-distributable reserves 25 1,413 1,292 1,758 Retained earnings 26 26,499 27,310 28,852 Reserves of disposal groups classified as held for sale 9 – – 876
Minority interest 27 284 522 853
Total equity 32,008 33,337 37,106
Non-current liabilities 8,554 15,104 15,348
Interest-bearing debt 28 4,338 9,403 10,653 Other financial liabilities 20 36 919 –Provisions 29 1,443 1,675 1,875 Deferred revenue 15 1,021 1,128 997 Deferred taxation 17 1,716 1,979 1,823
Current liabilities 18,584 21,931 17,452
Trade and other payables 31 7,237 8,771 5,538 Shareholders for dividend 35 15 20 23 Current portion of interest-bearing debt 28 6,026 6,330 7,622 Current portion of provisions 29 2,095 2,181 2,150 Current portion of deferred revenue 15 1,983 2,593 1,714 Income taxation payable 34 594 323 50 Other financial liabilities 20 193 371 228 Credit facilities utilised 21 441 1,342 127
Liabilities of disposal groups classified as held for sale 9 – – 15,873
Total liabilities 27,138 37,035 48,673
Total equity and liabilities 59,146 70,372 85,779
Consolidated balance sheetat March 31, 2009
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Telkom Annual Report 2009144
Attributable to equity holders of Telkom
Share-based Discon-
Treasury compen- Non-distri- tinuedShare Share share sation butable Retained opera- Minority Total
capital premium reserve reserve reserves earnings tions Total interest equityRm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Balance at April 1, 2006 5,449 1,342 (1,809) 151 1,128 22,904 – 29,165 301 29,466 Total income and expense for the year 46 8,646 – 8,692 217 8,909 Profit for the year – 8,646 – 8,646 203 8,849 Foreign currency translation reserve (net of taxation of R4 million) (refer to note 25) 46 – – 46 14 60 Dividend declared (refer to note 35) – (4,678) – (4,678) (166) (4,844) Transfer to non-distributable reserves (refer to note 25) 239 (239) – – – –Shares vested and re-issued (refer to note 24) 35 (35) – – – – – –Increase in share-based compensation reserve (refer to note 24) – 141 – – – 141 – 141 Acquisition of subsidiaries and minorities (refer to note 36) – – – – – – (68) (68) Shares bought back and cancelled (refer to note 22) (120) (1,342) – – – (134) – (1,596) (1,596)
Balance at March 31, 2007 5,329 – (1,774) 257 1,413 26,499 – 31,724 284 32,008 Total income and expense for the year 529 7,975 – 8,504 226 8,730 Profit for the year – 7,975 – 7,975 197 8,172 Revaluation of available-for-sale investment (net of taxation of R1 million) 8 – – 8 – 8 Foreign currency translation reserve (net of taxation of R6 million) (refer to note 25) 521 – – 521 29 550 Dividend declared (refer to note 35) – (5,627) – (5,627) (65) (5,692) Transfer to non-distributable reserves (refer to note 25) 11 (11) – – – –Increase in share-based compensation reserve (refer to note 24) 522 – – – 522 – 522 Shares vested and re-issued (refer to note 24) 136 (136) – – – – – –Acquisition of subsidiaries and minorities (refer to note 36) – – – – – – 77 77 Shares bought back and cancelled (refer to note 22) (121) – – – (1,526) – (1,647) – (1,647) Minority put option – – – – (661) – – (661) – (661)
Balance at March 31, 2008 5,208 – (1,638) 643 1,292 27,310 – 32,815 522 33,337 Discontinued operations (4) – 4 – – –Total income and expense for the year (181) 4,171 181 4,171 93 4,264 Profit for the year – 4,171 – 4,171 77 4,248 Revaluation of available-for-sale investment (net of taxation of R1 million) – – (8) (8) – (8) Foreign currency translation reserve (net of taxation of R6 million) (refer to note 25) (181) – 189 8 16 24 Dividend declared (refer to note 35) – (3,306) – (3,306) (33) (3,339) Transfer to non-distributable reserves (refer to note 25) (10) 10 – – – –Increase in share-based compensation reserve (refer to note 24) 554 – – – 554 – 554 Shares vested and re-issued (refer to note 24) 121 (121) – – – – – –Acquisition of subsidiaries and minorities – – – 667 – 667 – 667 Shares bought back and cancelled (refer to note 22) – – – – – – – –Minority put option – – 661 – – 661 – 661 Broad-based black economic empowerment transaction in Vodacom – – – – 691 691 271 962
Balance at March 31, 2009 5,208 – (1,517) 1,076 1,758 28,852 876 36,253 853 37,106
Consolidated statement of changes in equityfor the three years ended March 31, 2009
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2007 2008 2009Notes Rm Rm Rm
Cash flows from operating activities 9,356 10,603 11,432
Cash receipts from customers 50,979 55,627 61,302
Cash paid to suppliers and employees (30,459) (34,371) (40,908)
Cash generated from operations 32 20,520 21,256 20,394
Interest received 422 433 485
Dividends received 6 3 – –
Finance charges paid 33 (1,115) (1,077) (2,164)
Taxation paid 34 (5,690) (4,277) (3,947)
Cash generated from operations before dividend paid 14,140 16,335 14,768
Dividend paid 35 (4,784) (5,732) (3,336)
Cash flows from investing activities (10,412) (14,106) (17,005)
Proceeds on disposal of property, plant and equipment and
intangible assets 54 169 43
Proceeds on disposal of investments 77 8 –
Additions to property, plant and equipment and intangible assets (10,037) (11,657) (13,191)
Acquisition of subsidiaries and minority interest (445) (2,462) (3,778)
Additions to other investments (61) (164) (79)
Cash flows from financing activities (2,920) 2,943 7,093
Loans raised 5,624 23,877 18,168
Loans repaid (6,922) (19,315) (10,212)
Shares bought back and cancelled (1,596) (1,647) –
Finance lease obligation repaid (37) (61) (136)
Decrease/(increase) in net financial assets 11 89 (727)
Net (decrease)/increase in cash and cash equivalents (3,976) (560) 1,520
Net cash and cash equivalents at beginning of the year 4,255 308 (208)
Effect of foreign exchange rate differences 29 44 (30)
Net cash and cash equivalents at end of the year 21 308 (208) 1,282
Consolidated cash flow statementfor the three years ended March 31, 2009
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1. CORPORATE INFORMATIONTelkom SA Limited (Telkom) is a company incorporated and
domiciled in the Republic of South Africa (South Africa)
whose shares are publicly traded. The main objective of Telkom,
its subsidiaries and joint ventures (the Group) is to supply
telecommunication, broadcasting, multimedia, technology,
information and other related information technology services to
the general public, as well as mobile communication services
through the Vodacom Group (Proprietary) Limited (Vodacom) in
South Africa and certain other African countries. The principal
activities of the Group include:
• fixed-line subscription and connection services to post-paid,
prepaid and private payphone customers using PSTN
(‘Public Switched Telephone Network’) lines, including ISDN
(‘Integrated Services Digital Network’) lines, and the sale of
subscription based value-added voice services and customer
premises equipment rental and sales;
• fixed-line traffic services to post-paid, prepaid and payphone
customers, including local, long distance, fixed-to-mobile,
international outgoing and international voice-over-internet
protocol traffic services;
• interconnection services, including terminating and transiting
traffic from South African mobile operators, as well as from
international operators and transiting traffic from mobile to
international destinations;
• fixed-line data and internet services, including domestic and
international data transmission services, such as point-to-point
leased lines, ADSL (Asymmetrical Digital Subscriber Line)
services, packet-based services, managed data networking
services and internet access and related information
technology services;
• e-commerce, including internet access service provider,
application provider, hosting, data storage, e-mail and
security services;
• W-CDMA (Wideband Code Division Multiple Access), a
3G next generation network, including fixed voice services,
data services and nomadic voice services; and
• other services including directory services, through Trudon
(Proprietary) Limited (formerly trading as TDS Directory
Operations (Proprietary) Limited), wireless data services,
through Swiftnet (Proprietary) Limited, television media
services, through Telkom Media Group, internet services
outside South Africa, through Africa Online Limited and
information, communication and telecommunication
operating services in Nigeria, through Multi-Links
Telecommunications Limited.
Mobile communications services, wireless data services and
television media services through Vodacom, Swiftnet and Telkom
Media Group respectively have been classified as disposal
groups held for sale and discontinued operations.
2. SIGNIFICANT ACCOUNTING POLICIESBasis of preparation
The consolidated annual financial statements comply with
the International Financial Reporting Standards (IFRS) of the
International Accounting Standards Board (IASB) and the
Companies Act of South Africa, 1973.
The financial statements are prepared on the historical cost
basis, with the exception of certain financial instruments which
are measured at fair value and share-based payments which are
measured at grant date fair value.
Details of the Group’s significant accounting policies are set out
below, and are consistent with those applied in the previous
financial year except for the following:
The Group has adopted certain amendments to IAS39 and
IFRS7, and adopted IFRIC12 and IFRIC14 which are
applicable for annual periods on or after January 1, 2008.
The principal effects of these changes are discussed below.
Adoption of amendments to standards and new
interpretation
IAS39 Financial Instruments: Recognition and Measurement
and IFRS7 Financial Instruments: Disclosures –
Reclassification of Financial Assets (amended)
The amendments, which are effective on or after July 1, 2008,
permit an entity to reclassify non-derivative financial assets (other
than those designated at fair value through profit or loss by the
entity upon initial recognition) out of the fair value through profit
or loss category in particular circumstances. The amendments
also permit an entity to transfer from the available-for-sale
category to the loans and receivables category a financial asset
that would have met the definition of loans and receivables
(if the financial asset had not been designated as available-for-
sale), if the entity has the intention and ability to hold that
financial asset for the foreseeable future. The amendments do
not have an impact on the consolidated annual financial
statements.
IFRIC12 Service Concession Arrangements
The interpretation, which is effective for annual periods
beginning on or after January 1, 2008, sets out general
principles on recognising and measuring the obligations and
related rights in service concession arrangements from an
operator’s perspective. The interpretation does not have an
impact on the consolidated annual financial statements.
Notes to the consolidated annual financial statementsfor the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Adoption of amendments to standards and new
interpretation (continued)
IFRIC14 The Limit on a Defined Benefit Asset, MinimumFunding Requirements and their InteractionThe interpretation, which is effective for annual periods
beginning on or after January 1, 2008, provides guidance on
assessing the limit in IAS19 on the amount of the surplus that can
be recognised as an asset. It also explains how the pension
asset or liability may be affected by a statutory or contractual
minimum funding requirement. The interpretation does not have
any impact on the consolidated annual financial statements, as
the Group is not subject to minimum funding requirements.
Significant accounting judgements, estimates and
assumptions
The preparation of financial statements requires the use of
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods.
Although these estimates and assumptions are based on
management’s best knowledge of current events and actions that
the Group may undertake in the future, actual results may
ultimately differ from those estimates and assumptions.
The presentation of the results of operations, financial position
and cash flows in the financial statements of the Group is
dependent upon and sensitive to the accounting policies,
assumptions and estimates that are used as a basis for the
preparation of these financial statements. Management has
made certain judgements in the process of applying the Group’s
accounting policies. These, together with the key estimates and
assumptions concerning the future, and other key sources of
estimation uncertainty at the balance sheet date, are as follows:
Revenue recognitionTo reflect the substance of each transaction, revenue recognition
criteria are applied to each separately identifiable component
of a transaction as disclosed in note 3. In order to account for
multiple-element revenue arrangements in developing its
accounting policies, the Group considered the guidance
contained in the United States Financial Accounting Standards
Board (’FASB’) Emerging Issues Task Force No 00-21 Revenue
Arrangements with Multiple Deliverables. Judgement is required
to separate those revenue arrangements that contain the delivery
of bundled products or services into individual units of
accounting, each with its own earnings process, when the
delivered item has stand-alone value and the undelivered item
has fair value. Further judgement is required to determine the
relative fair values of each separate unit of accounting to be
allocated to the total arrangement consideration. Changes in
the relative fair values could affect the allocation of arrangement
consideration between the various revenue streams.
Judgement is also required to determine the expected customer
relationship period. Any changes in these assessments may
have a significant impact on revenue and deferred revenue.
Property, plant and equipment and intangible assets
The useful lives of assets are based on management’s
estimation. Management considers the impact of changes in
technology, customer service requirements, availability of
capital funding and required return on assets and equity to
determine the optimum useful life expectation for each of the
individual categories of property, plant and equipment and
intangible assets. Due to the rapid technological advancement
in the telecommunications industry as well as Telkom’s plan to
migrate to a next generation network over the next few years,
the estimation of useful lives could differ significantly on an
annual basis due to unexpected changes in the roll-out strategy.
The impact of the change in the expected useful life of property,
plant and equipment is described more fully in note 5.6.
The estimation of residual values of assets is also based on
management’s judgement whether the assets will be sold
or used to the end of their useful lives and what their condition
will be like at that time.
For intangible assets that incorporate both a tangible and an
intangible portion, management uses judgement to assess which
element is more significant to determine whether it should be
treated as property, plant and equipment or intangible assets.
Asset retirement obligations
Management judgement is exercised when determining whether
an asset retirement obligation exists, and in determining the
present value of expected future cash flows and discount rate
when the obligation to dismantle or restore the site arises, as
well as the estimated useful life of the related asset.
Impairments of property, plant and equipment and
intangible assets
Management is required to make judgements concerning
the cause, timing and amount of impairment as indicated on
notes 11 and 12. In the identification of impairment indicators,
management considers the impact of changes in current
competitive conditions, cost of capital, availability of funding,
technological obsolescence, discontinuance of services and
other circumstances that could indicate that an impairment
exists. The Group applies the impairment assessment to its
separate cash-generating units. This requires management to
make significant judgements concerning the existence of
impairment indicators, identification of separate cash-generating
units, remaining useful lives of assets and estimates of projected
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Significant accounting judgements, estimates and
assumptions (continued)Impairments of property, plant and equipment andintangible assets (continued)cash flows and fair value less costs to sell. Managementjudgement is also required when assessing whether a previouslyrecognised impairment loss should be reversed.
Where impairment indicators exist, the determination ofthe recoverable amount of a cash-generating unit requiresmanagement to make assumptions to determine the fair valueless costs to sell and value in use. Key assumptions on whichmanagement has based its determination of fair value less coststo sell include the existence of binding sale agreements, and forthe determination of value in use include the weighted averagecost of capital, projected revenues, gross margins, averagerevenue per customer, capital expenditure, expected customerbases and market share. The judgements, assumptions andmethodologies used can have a material impact on the fairvalue and ultimately the amount of any impairment.
Impairment of other financial assetsAt each balance sheet date management assesses whetherthere are indicators of impairment of financial assets, includingequity investments. If such evidence exists, the estimated presentvalue of the future cash flows of that asset is determined.Management judgement is required when determining theexpected future cash flows. To determine whether any decline infair value in available-for-sale investments is significant orprolonged, reliance is placed on an assessment bymanagement. In measuring impairments, quoted market pricesare used, if available, or projected business plan informationfrom the investee is used for those financial assets not carried atfair value.
Impairment of receivablesAn impairment is recognised on trade receivables that areassessed to be impaired (refer to notes 13 and 19). Theimpairment is based on an assessment of the extent to whichcustomers have defaulted on payments already due and anassessment on their ability to make payments based on theircredit worthiness and historical write-offs experience. Should theassumptions regarding the financial condition of the customerchange, actual write-offs could differ significantly from theimpaired amount.
Leases The determination of whether an arrangement is, or contains alease is based on whether, at the date of inception, the fulfilmentof the arrangement is dependent on the use of a specific assetor assets or the arrangement conveys a right to use the asset asset out in notes 16 and 38.
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
A lease is classified as a finance lease if it transfers substantially
all the risks and rewards incidental to ownership.
Deferred taxation asset
Management judgement is exercised when determining the
probability of future taxable profits which will determine whether
deferred taxation assets should be recognised or derecognised.
The realisation of deferred taxation assets will depend on
whether it is possible to generate sufficient taxable income,
taking into account any legal restrictions on the length and
nature of the taxation asset. When deciding whether to
recognise unutilised taxation credits, management needs to
determine the extent that the future obligation is likely to be
available for set-off. In the event that the assessment of the future
obligation and future utilisation changes, the change in the
recognised deferred taxation asset must be recognised in profit
or loss.
Taxation
The taxation rules and regulations in South Africa as well as the
other African countries within which the Group operates are
highly complex and subject to interpretation. Additionally, for
the foreseeable future, management expects South African
taxation laws to further develop through changes in South
Africa’s existing taxation structure as well as clarification of the
existing taxation laws through published interpretations and the
resolution of actual taxation cases. Refer to notes 8 and 17.
Management has made a judgement that all outstanding
taxation credits relating to secondary taxation on companies
(STC) will be available for utilisation before the taxation regime
from STC to withholding taxation change is effective.
The growth of the Group, following its geographical expansion
into other African countries over the past few years, has made
the estimation and judgement required in recognising and
measuring deferred taxation balances more challenging. The
resolution of taxation issues is not always within the control of
the Group and it is often dependent on the efficiency of the
legal processes in the relevant taxation jurisdictions in which
the Group operates. Issues can, and often do, take many years
to resolve. Payments in respect of taxation liabilities for an
accounting period result from payments on account and on the
final resolution of open items. As a result there can be substantial
differences between the taxation charge in the consolidated
income statement and the current taxation payments.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Significant accounting judgements, estimates and
assumptions (continued)
Taxation (continued)Group entities are regularly subject to evaluation, by the relevanttaxation authorities, of their historical taxation filings and inconnection with such reviews, disputes can arise with the taxationauthorities over the interpretation or application of certain taxationrules to the business of the relevant Group entities. These disputesmay not necessarily be resolved in a manner that is favourable forthe Group. Additionally the resolution of the disputes could result inan obligation for the Group that exceeds management’s estimate.The Group has historically filed, and continues to file, all requiredincome taxation returns. Management believes that the principlesapplied in determining the Group’s taxation obligations areconsistent with the principles and interpretations of the relevantcountries’ taxation laws.
Deferred taxation rateManagement makes judgements on the taxation rate applicablebased on the Group’s expectations at balance sheet date onhow the asset is expected to be recovered or the liability isexpected to be settled.
Employee benefitsThe Group provides defined benefit plans for certain post-employment benefits. The Group’s net obligation in respect ofdefined benefits is calculated separately for each plan byestimating the amount of future benefits earned in return forservices rendered. The obligation and assets related to each ofthe post-retirement benefits are determined through an actuarialvaluation. The actuarial valuation relies heavily on assumptionsas disclosed in note 30. The assumptions determined bymanagement make use of information obtained from theGroup’s employment agreements with staff and pensioners,market related returns on similar investments, market relateddiscount rates and other available information. The assumptionsconcerning the expected return on assets and expected changein liabilities are determined on a uniform basis, consideringlong-term historical returns and future estimates of returns andmedical inflation expectations. In the event that further changesin assumptions are required, the future amounts of post-employment benefits may be affected materially.
The discount rate reflects the average timing of the estimateddefined benefit payments. The discount rate is based on long-term South African government bonds with the longest maturityperiod as reported by the Bond Exchange of South Africa.The discount rate is expected to follow the trend of inflation.
The overall expected rate of return on assets is determinedbased on the market prices prevailing at that date, applicableto the period over which the obligation is to be settled.
Telkom provides equity compensation in the form of the TelkomConditional Share Plan to its employees. The related expenseand reserve are determined through an actuarial valuationwhich relies heavily on assumptions. The assumptions includeemployee turnover percentages and whether specifiedperformance criteria will be met. Changes to these assumptionscould affect the amount of expense ultimately recognised in thefinancial statements. An actuarial valuation relies heavily on theactual plan experience assumptions as disclosed in note 30.
Provisions and contingent liabilitiesManagement judgement is required when recognising andmeasuring provisions and when measuring contingent liabilities asset out in notes 29 and 39 respectively. The probability that anoutflow of economic resources will be required to settle theobligation must be assessed and a reliable estimate must be madeof the amount of the obligation. Provisions are discounted wherethe effect of discounting is material based on management’sjudgement. The discount rate used is the rate that reflects currentmarket assessments of the time value of money and, whereappropriate, the risks specific to the liability, all of which requiresmanagement judgement. The Group is required to recogniseprovisions for claims arising from litigation when the occurrence ofthe claim is probable and the amount of the loss can be reasonablyestimated. Liabilities provided for legal matters require judgementsregarding projected outcomes and ranges of losses based onhistorical experience and recommendations of legal counsel.Litigation is however unpredictable and actual costs incurred coulddiffer materially from those estimated at the balance sheet date.
Held-to-maturity financial assetsManagement has reviewed the Group’s held-to-maturityfinancial assets in the light of its capital management andliquidity requirements and has confirmed the Group’s positiveintention and ability to hold those assets to maturity.
Summary of significant accounting policiesBasis of consolidationThe consolidated financial statements incorporate the financialstatements of Telkom and entities (including special purposeentities) controlled by Telkom, its subsidiaries, as well as its jointventures and associates. Control is achieved where Telkom hasthe power to govern the financial and operating policies of aninvestee entity so as to obtain benefits from its activities. Jointventures are those enterprises over which the Group exercisesjoint control in terms of a contractual agreement. Joint venturesare proportionately consolidated. Associates are those entitiesover which the Group has significant influence and that areneither subsidiaries nor joint ventures. Associates are equityaccounted. Significant influence exists when the Group has thepower to participate in the financial and operating policydecisions of these entities, but does not have control or jointcontrol over those policies.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Basis of consolidation (continued)
The results of subsidiaries acquired or disposed of during the
year are included in the income statement from the effective date
of acquisition and up to the effective date of disposal, as
appropriate.
Where necessary, adjustments are made to the financial
statements of subsidiaries, joint ventures and associates to bring
the accounting policies used in line with those used by the
Group.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated.
Unrealised profit or losses are also eliminated.
The Group applies a policy of treating transactions with minority
interests as transactions with parties external to the Group.
Disposals to minority interests result in gains and losses for the
Group and are recorded in the income statement. Acquisition of
minority interests results in goodwill, being the difference
between any consideration paid and the relevant share
acquired of the carrying value of net assets of the subsidiary.
Business combinations
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess
of the cost of acquisition over the fair value of the Group’s share
of the identifiable net assets acquired is recorded as goodwill.
If the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognised
directly in the income statement.
Operating revenue
The Group provides fixed-line communication services, mobile
communication services and other services. Other includes
data services, directory services and communication related
products. The Group provides such services to business,
residential, payphone and mobile customers. Revenue
represents the fair value of fixed or determinable consideration
that has been received or is receivable.
Revenue for services is measured at amounts invoiced to
customers and excludes Value Added Taxation.
Revenue is recognised when there is evidence of an
arrangement, collectability is reasonably assured, and the
delivery of the product or service has occurred. In certain
circumstances revenue is split into separately identifiable
components and recognised when the related components are
delivered in order to reflect the substance of the transaction.
The value of components is determined using verifiable
objective evidence. The Group does not provide customers with
the right to a refund.
Fixed-line and other
Subscriptions, connections and other usage
The Group provides telephone and data communication
services under post-paid and prepaid payment arrangements.
Revenue includes fees for installation and activation, which are
deferred over the expected customer relationship period. Costs
incurred on first time installations that form an integral part of
the network are capitalised and depreciated over the expected
average customer relationship period. All other installation and
activation costs are expensed as incurred.
Post-paid and prepaid service arrangements include
subscription fees, typically monthly fees, which are recognised
over the subscription period.
Revenue related to sale of communication equipment, products
and value-added services is recognised upon delivery and
acceptance of the product or service by the customer.
Traffic (domestic, fixed-to-mobile and international)
PrepaidPrepaid traffic service revenue collected in advance is deferred
and recognised based on actual usage or upon expiration of
the usage period, whichever comes first. The terms and
conditions of certain prepaid products allow the carry over of
unused minutes. Revenue related to the carry over of unused
minutes is deferred until usage or expiration.
PayphonesPayphone service coin revenue is recognised when the service
is provided.
Payphone service card revenue collected in advance is deferred
and recognised based on actual usage or upon expiration of
the usage period, whichever comes first.
Post-paidRevenue related to local, long distance, network-to-network,
roaming and international call connection services is recognised
when the call is placed or the connection provided.
Interconnection
Interconnection revenue for call termination, call transit, and
network usage is recognised as the traffic flow occurs.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Fixed-line and other (continued)
Data
The Group provides data communication services under post-
paid and prepaid payment arrangements. Revenue includes fees
for installation and activation, which are deferred over the
expected average customer relationship period. Costs incurred
on first time installations that form an integral part of the network
are capitalised and depreciated over the life of the expected
average customer relationship period. All other installation and
activation costs are expensed as incurred. Post-paid and prepaid
service arrangements include subscription fees, typically monthly
fees, which are recognised over the subscription period.
Directory services
Included in other are directory services. Revenue is recognised
when printed directories are released for distribution, as the
significant risks and rewards of ownership have been transferred
to the buyer. Electronic directories’ revenue is recognised on a
monthly basis, as earned.
Sundry revenue
Sundry revenue is recognised when the economic benefit flows
to the Group and the earnings process is complete.
Dealer incentives
Telkom provides incentives to its retail payphone card distributors
as trade discounts. Incentives are based on sales volume and
value. Revenue for retail payphone cards is recorded as traffic
revenue, net of these discounts as the cards are used.
Mobile
The Vodacom Group invoices its independent service providers
for the revenue billed by them on behalf of the Group. The
Group, within its contractual arrangements with its agents, pays
them administrative fees. The Group receives in cash, the net
amount equal to the gross revenue earned less the administrative
fees payable to the agents.
Contract products
Contract products that may include deliverables such as a
handset and 24-month service are defined as arrangements
with multiple deliverables. The arrangement consideration is
allocated to each deliverable, based on the fair value of each
deliverable on a stand-alone basis as a percentage of the
aggregated fair value of the individual deliverables. Revenue
allocated to the identified deliverables in each revenue
arrangement and the cost applicable to these identified
deliverables are recognised based on the same recognition
criteria of the individual deliverable at the time the product or
service is delivered.
Vodacom revenue from the handset is recognised when the
product is delivered limited to the amount of cash received.
Monthly service revenue received from the customer is recognised
in the period in which the service is delivered. Airtime revenue is
recognised on the usage basis. The terms and conditions of the
bundled airtime products, where applicable, allow the carry over
of unused airtime. The unused airtime is deferred in full. Deferred
revenue related to unused airtime is recognised when utilised by
the customer. Upon termination of the customer contract, all
deferred revenue for unused airtime is recognised in revenue.
Prepaid products
Prepaid products that may include deliverables such as a SIM-
card and airtime are defined as arrangements with multiple
deliverables. The arrangement consideration is allocated to
each deliverable, based on the fair value of each deliverable
on a stand-alone basis as a percentage of the aggregated fair
value of the individual deliverables. Revenue allocated to the
identified deliverables in each revenue arrangement and the
cost applicable to these identified deliverables are recognised
based on the same recognition criteria of the individual
deliverable at the time the product or service is delivered.
• Revenue from the SIM-card representing activation fees is
recognised over the average useful life of a prepaid customer.
• Airtime revenue is recognised on the usage basis. Unused
airtime is deferred in full.
• Deferred revenue related to unused airtime is recognised
when utilised by the customer. Upon termination of the
customer relationship, all deferred revenue for unused airtime
is recognised in revenue.
Upon purchase of an airtime voucher the customer receives the
right to make outgoing voice and data calls to the value of the
airtime voucher. Revenue is recognised as the customer utilises
the voucher.
Deferred revenue and costs related to unactivated starter packs
which do not contain any expiry date, are recognised in the
period when the probability of these starter packs being
activated by a customer becomes remote. In this regard the
Group applies a period of 36 months before these revenue and
costs are released to the consolidated income statement.
Data
Revenue, net of discounts, from data services is recognised
when the Group has performed the related service and
depending on the nature of the service, is recognised either at
the gross amounts billed to the customer or the amount
receivable by the Group as commission for facilitating the
service.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)Mobile (continued)Equipment salesAll equipment sales are recognised only when delivery andacceptance has taken place. Equipment sales to third partyservice providers are recognised when delivery is accepted.No rights of return exist on sales to third party service providers.
Mobile number portabilityRevenue transactions from mobile number portability areaccounted for in terms of current business rules and revenuerecognition policies above.
Interest on debtors’ accountsInterest is raised on overdue accounts on an effective interestrate method and recognised in the income statement.
MarketingMarketing costs are recognised as an expense when incurred.
IncentivesIncentives paid to service providers and dealers for productsdelivered to the customer are expensed as incurred. Incentivespaid to service providers and dealers for services delivered areexpensed in the period that the related revenue is recognised.
Distribution incentives paid to service providers and dealers forexclusivity are deferred and expensed over the contractualrelationship period.
Investment incomeDividends from investments are recognised on the date that theGroup is entitled to the dividend. Interest is recognised on a timeproportionate basis taking into account the principal amountoutstanding and the effective interest rate.
TaxationCurrent taxationThe charge for current taxation is based on the results for the yearand is adjusted for non-taxable income and non-deductibleexpenditure. Current taxation is measured at the amount expectedto be paid to the taxation authorities, using taxation rates andlaws that have been enacted or substantively enacted by thebalance sheet date.
Deferred taxationDeferred taxation is accounted for using the balance sheetliability method on all temporary differences at the balancesheet date between the taxation bases of assets and liabilitiesand their carrying amounts for financial reporting purposes.
Deferred taxation is not provided on the initial recognition ofassets or liabilities which is not a business combination and at thetime of the transaction affects neither accounting nor taxable profitor loss.
A deferred taxation asset is recognised to the extent that it is
probable that future taxable profits will be available against
which the associated unused taxation losses, unused taxation
credits and deductible temporary differences can be utilised.
The carrying amount of deferred taxation assets is reviewed at
each balance sheet date and is reduced to the extent that it is
no longer probable that the related taxation benefit will be
realised. In respect of deductible temporary differences
associated with investments in subsidiaries, associates and
interest in joint ventures, deferred income taxation assets are
recognised only to the extent that it is probable that temporary
differences will reverse in the foreseeable future and taxable
profit will be available against which temporary differences can
be utilised.
Deferred taxation relating to items recognised directly in equity
is recognised in equity and not in the income statement.
Deferred taxation assets and liabilities are measured at the
taxation rates that are expected to apply to the period when the
asset is realised or the liability is settled, based on taxation rates
(and taxation laws) that have been enacted or substantively
enacted by the balance sheet date. Deferred taxation assets and
liabilities are not discounted.
Deferred taxation assets and deferred taxation liabilities are
offset, if a legally enforceable right exists to set off current
taxation assets against current taxation liabilities and the
deferred taxes relate to the same taxable entity and the same
taxation authority.
Exchange differences arising from the translation of foreign
deferred taxation assets and liabilities of foreign entities where
the functional currency is different to the local currency, are
classified as a deferred taxation expense or income.
Secondary taxation on companies
Secondary taxation on companies (STC) is provided for at a
rate of 10% (12.5% before October 1, 2007) on the amount
by which dividends declared by the Group exceeds dividends
received. Deferred taxation on unutilised STC credits is
recognised to the extent that STC payable on future dividend
payments is likely to be available for set-off.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Property, plant and equipment
At initial recognition acquired property, plant and equipment
are recognised at their purchase price, including import duties
and non-refundable purchase taxes, after deducting trade
discounts and rebates. The recognised cost includes any directly
attributable costs for preparing the asset for its intended use.
The cost of an item of property, plant and equipment is
recognised as an asset if it is probable that the future economic
benefits associated with the item will flow to the Group and the
cost of the item can be measured reliably.
Property, plant and equipment is stated at historical cost less
accumulated depreciation and any accumulated impairment
losses. Each component of an item of property, plant and
equipment with a cost that is significant in relation to the total
cost of the item is depreciated separately. Depreciation is
charged from the date the asset is available for use on a
straight-line basis over the estimated useful life and ceases at the
earlier of the date that the asset is classified as held for sale and
the date the asset is derecognised. Idle assets continue to attract
depreciation.
The estimated useful life of individual assets and the
depreciation method thereof are reviewed on an annual basis
at balance sheet date. The depreciable amount is determined
after taking into account the residual value of the asset. The
residual value is the estimated amount that the Group would
currently obtain from the disposal of the asset, after deducting
the estimated cost of disposal, if the asset were already of the
age and in the condition expected at the end of its useful life.
The residual values of assets are reviewed on an annual basis
at balance sheet date.
Assets under construction represents freehold buildings, integral
operating software, network and support equipment and
includes all direct expenditure as well as related borrowing
costs capitalised, but excludes the costs of abnormal amounts of
waste material, labour or other resources incurred in the
production of self-constructed assets.
Freehold land is stated at cost and is not depreciated. Amounts
paid by the Group on improvements to assets which are held in
terms of operating lease agreements are depreciated on a
straight-line basis over the shorter of the remaining useful life of
the applicable asset or the remainder of the lease period.
Where it is reasonably certain that the lease agreement will be
renewed, the lease period equals the period of the initial
agreement plus the renewal periods.
The estimated useful lives assigned to groups of property, plant
and equipment are:
Years
Freehold buildings 15 to 50
Leasehold buildings 7 to 50
Network equipment
Cables 20 to 40
Switching equipment 2 to 25
Transmission equipment 3 to 18
Other 1 to 20
Support equipment 3 to 13
Furniture and office equipment 2 to 25
Data processing equipment and software 3 to 10
Other 2 to 20
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of
the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in
the income statement in the year the asset is derecognised.
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or,
where shorter, the term of the relevant lease if there is no
reasonable certainty that the Group will obtain ownership by the
end of the lease term.
Intangible assets
Goodwill
Goodwill arising on the acquisition of a subsidiary is
recognised as an asset at the date that control is acquired (the
acquisition date). Goodwill is measured as the excess of the
sum of the consideration transferred, the amount of any minority
interest in the acquiree and the fair value of the acquirer’s
previously-held equity interest (if any) in the entity over the net fair
value of the identifiable net assets recognised.
If, after reassessment, the Group’s interest in the net fair value of
the acquiree’s identifiable net assets exceeds the sum of the
consideration transferred, the amount of any minority interest in
the acquiree and the fair value of the acquirer’s previously-held
equity interest (if any), the excess is recognised immediately in
profit or loss as a bargain purchase gain.
Goodwill is not amortised, but is reviewed for impairment at
least annually. Any impairment loss is recognised immediately in
profit or loss and is not subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of the profit or loss on disposal.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Intangible assets (continued)
Licences, software, trademarks, copyrights and other
At initial recognition acquired intangible assets are recognised
at their purchase price, including import duties and non-
refundable purchase taxes, after deducting trade discounts and
rebates. The recognised cost includes any directly attributable
costs for preparing the asset for its intended use. Internally
generated intangible assets are recognised at cost comprising
all directly attributable costs necessary to create and prepare
the asset to be capable of operating in the manner intended by
management. Licences, software, trademarks, copyrights and
other intangible assets are carried at cost less accumulated
amortisation and any accumulated impairment losses.
Amortisation commences when the intangible assets are
available for their intended use and is recognised on a straight-
line basis over the assets’ expected useful lives. Amortisation
ceases at the earlier of the date that the asset is classified as
held for sale and the date that the asset is derecognised.
The residual value of intangible assets is the estimated amount that
the Group would currently obtain from the disposal of the asset,
after deducting the estimated cost of disposal, if the asset were
already of the age and in the condition expected at the end of its
useful life. Due to the nature of the asset the residual value is
assumed to be zero unless there is a commitment by a third party
to purchase the asset at the end of its useful life or when there is an
active market that is likely to exist at the end of the asset’s useful life,
which can be used to estimate the residual values. The residual
values of intangible assets, amortisation methods and their useful
lives are reviewed on an annual basis at balance sheet date.
Intangible assets with indefinite useful lives and intangible assets
not yet available for use are tested for impairment annually
either individually or at the cash-generating unit level. Such
intangible assets are not amortised. The useful life of an
intangible asset with an indefinite life is reviewed annually to
determine whether indefinite life assessment continues to be
supportable. If not, the change in the useful life assessment from
indefinite to finite is made on a prospective basis.
Assets under construction represents application and other non-
integral software and includes all direct expenditure as well as
related borrowing costs capitalised, but excludes the costs of
abnormal amounts of waste material, labour or other resources
incurred in the production of self-constructed assets.
Intangible assets are derecognised when they have been
disposed of or when the asset is permanently withdrawn from
use and no future economic benefit is expected from its
disposal. Any gains or losses on the retirement or disposal of
assets are recognised in the income statement in the year in
which they arise.
The expected useful lives assigned to intangible assets are:
Years
Licences 5 to 30
Software 2 to 10
Trademarks, copyrights and other 1 to 15
Asset retirement obligationsAsset retirement obligations related to property, plant andequipment and intangible assets are recognised at the presentvalue of expected future cash flows when the obligation todismantle or restore the site arises. The increase in the relatedasset’s carrying value is depreciated over its estimated usefullife. The unwinding of the discount is included in financecharges and fair value movements. Changes in themeasurement of an existing liability that result from changes inthe estimated timing or amount of the outflow of resourcesrequired to settle the liability, or a change in the discount rateare accounted for as increases or decreases to the original costof the recognised assets. If the amount deducted exceeds thecarrying amount of the asset, the excess is recognisedimmediately in profit or loss.
Non-current assets held for saleNon-current assets and disposal groups are classified as heldfor sale if their carrying amount will be recovered through a saletransaction rather than through continuing use. This condition isregarded as met only when the sale is highly probable and theasset (or disposal group) is available for immediate sale in itspresent condition. Management must be committed to the sale,which should be expected to qualify for recognition as acomplete sale within one year from the date of classification andmarketed at a reasonable value. Assets are no longerdepreciated when they are classified into the category.
If a non-current asset or disposal group is classified as held forsale, but the criteria for classification as held for sale are nolonger met, the disclosure of such non-current asset or disposalgroup as held for sale is ceased. Where the disposal groupwas also classified as a discontinued operation, the subsequentclassification as held for use also requires that the discontinuedoperation be included in continuing operations.
Non-current assets (and disposal groups) classified as held forsale are measured at the lower of the assets’ previous carryingamount and fair value less cost to sell.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Impairment of property, plant and equipment and
intangible assets
The Group regularly reviews its non-financial assets and cash-
generating units for any indication of impairment. When
indicators, including changes in technology, market, economic,
legal and operating environments occur and could result in
changes of the asset’s or cash-generating unit’s estimated
recoverable amount, an impairment test is performed.
The recoverable amount of assets or cash-generating units is
measured using the higher of the fair value less costs to sell and
its value in use, which is the present value of projected cash
flows covering the remaining useful lives of the assets.
Impairment losses are recognised when the asset’s carrying
value exceeds its estimated recoverable amount. Where
applicable, the recoverable amount is determined for the cash-
generating unit to which the asset belongs.
Previously recognised impairment losses, other than goodwill, are
reviewed annually for any indication that it may no longer exist or
may have decreased. If any such indication exists, the recoverable
amount of the asset is estimated. Such impairment losses are
reversed through the income statement if the recoverable amount
has increased as a result of a change in the estimates used to
determine the recoverable amount, but not to an amount higher
than the carrying amount that would have been determined (net of
depreciation or amortisation) had no impairment loss been
recognised in prior years. Impairment on goodwill is not reversed.
Repairs and maintenance
The Group expenses all costs associated with repairs and
maintenance, unless it is probable that such costs would result in
increased future economic benefits flowing to the Group, and
the costs can be reliably measured.
Borrowing costs
Financing costs directly associated with the acquisition or
construction of assets that require more than three months to
complete and place in service are capitalised at interest rates
relating to loans specifically raised for that purpose, or at the
weighted average borrowing rate where the general pool of
Group borrowings was utilised. Other borrowing costs are
expensed as incurred.
Deferred revenue and expenses
Activation revenue and costs are recognised in accordance with
the principles contained in Emerging Issues Task Force Issue
No 00-21, Revenue Arrangements with Multiple Deliverables
(EITF 00-21), issued in the United States. This results in activation
revenue and costs up to the amount of the deferred revenue
being deferred and recognised systematically over the expected
duration of the customer relationship because it is considered to
be part of the customers’ ongoing rights to telecommunication
services and the operator’s continuing involvement. Any excess
of the costs over revenues is expensed immediately.
Inventories
Installation material, maintenance and network equipment
inventories are stated at the lower of cost, determined on a
weighted average basis, or estimated net realisable value.
Merchandise inventories are stated at the lower of cost,
determined on a first-in first-out (FIFO) basis, or estimated net
realisable value. Write-down of inventories arises when, for
example, goods are damaged or when net realisable value is
lower than carrying value.
Financial instruments
Recognition and initial measurement
All financial instruments are initially recognised at fair value, plus,
in the case of financial assets and liabilities not at fair value through
profit or loss, transaction costs that are directly attributable to the
acquisition or issue. Financial instruments are recognised when the
Group becomes a party to their contractual arrangements. All
regular way transactions are accounted for on settlement date.
Regular way purchases or sales are purchases or sales of financial
assets that require delivery of assets within the period generally
established by regulation or convention in the marketplace.
Subsequent measurement
Subsequent to initial recognition, the Group classifies financial
assets as ’at fair value through profit or loss’, ’held-to-maturity
investments’, ’loans and receivables’, or ’available-for-sale’.
Financial liabilities are classified ’at fair value through profit or
loss’ or ’other financial liabilities’. The measurement of each is
set out below and presented in a table in note 13.
The fair value of financial assets and liabilities that are actively
traded in financial markets is determined by reference to quoted
market prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using
valuation techniques such as discounted cash flow analysis.
Financial assets at fair value through profit or loss
The Group classifies financial assets that are held for trading in the
category ’financial assets at fair value through profit or loss’.
Financial assets are classified as held for trading if they are
acquired for the purpose of selling in the future. Derivatives not
designated as hedges are also classified as held for trading. On
remeasurement to fair value the gains or losses on held for trading
financial assets are recognised in net finance charges and fair
value movements for the year.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Financial instruments (continued)Financial assets at fair value through profit or loss(continued)Gains and losses arising from changes in the fair value of the’financial assets at fair value through profit or loss’ category arepresented in the income statement within ’finance charges andfair value movements’ in the period which they arise.
Held-to-maturity financial assetsThe Group classifies non-derivative financial assets with fixed ordeterminable payments and fixed maturity dates as held-to-maturity when the Group has the positive intention and ability tohold to maturity. These assets are subsequently measured atamortised cost. Amortised cost is computed as the amountinitially recognised minus principal repayments, plus or minusthe cumulative amortisation using the effective interest ratemethod. This calculation includes all fees paid or receivedbetween parties to the contract. For investments carried atamortised cost, gains and losses are recognised in net profit orloss when the investments are sold or impaired.
Loans and receivablesLoans and receivables are non-derivative financial assets withfixed or determinable payments that are not quoted in an activemarket. Such assets are carried at amortised cost using theeffective interest rate method. Trade receivables aresubsequently measured at the original invoice amount where theeffect of discounting is not material.
Available-for-sale financial assetsAvailable-for-sale financial assets are those non-derivative assetsthat are designated as available-for-sale, or are not classified inany of the three preceding categories. Equity instruments are alltreated as available-for-sale financial instruments. After initialrecognition, available-for-sale financial assets are measured atfair value, with gains and losses being recognised as aseparate component of equity, net of taxation. Dividend incomeis recognised in the income statement as part of other incomewhen the Group’s right to receive payment is established.
Changes in the fair value of monetary items denominated in aforeign currency and classified as available-for-sale areanalysed between translation differences resulting from changesin amortised cost of the security and other changes in carryingamount of the item. The translation differences on monetaryitems are recognised in profit or loss, while translationdifferences on non-monetary securities are recognised in equity.Changes in the fair value of monetary and non-monetary itemsclassified as available-for-sale are recognised directly in equity.When an investment is derecognised or determined to beimpaired, the cumulative gain or loss previously recorded inequity is recognised in profit or loss.
Financial liabilities at fair value through profit or loss
Financial liabilities are classified as ‘at fair value through profit
or loss’ (FVTPL) where the financial liability is held for trading.
A financial liability is classified as held for trading:
• if it is acquired for the purpose of settling in the near term; or
• if it is a derivative that is not designated and effective as a
hedging instrument.
Financial liabilities at a FVTPL are stated at fair value, with any
resultant gains or losses recognised in profit or loss. The net
gain or loss recognised in profit or loss incorporates any interest
paid on the financial liability.
Other financial liabilities
Other financial liabilities are subsequently measured at
amortised cost using the effective interest rate method, with
interest expense recognised in finance charges and fair value
movements, on an effective interest rate basis.
The effective interest rate is the rate that accurately discounts
estimated future cash payments through the expected life of the
financial liability or, where appropriate, a shorter period.
Financial guarantee contracts
Financial guarantee contracts are subsequently measured at the
higher of the amount determined in accordance with IAS37
Provisions, Contingent Liabilities and Contingent Assets or the
amount initially recognised less, when appropriate, cumulative
amortisation, recognised in accordance with IAS18 Revenue.
Cash and cash equivalents
Cash and cash equivalents are measured at amortised cost. This
comprises cash on hand, deposits held on call and term
deposits with an initial maturity of less than three months when
entered into.
For the purpose of the cash flow statement, cash and cash
equivalents consist of cash and cash equivalents defined above,
net of credit facilities utilised.
Capital and money market transactions
New bonds and commercial paper bills issued are subsequently
measured at amortised cost using the effective interest rate
method.
Bonds issued where Telkom is a buyer and seller of last resort
are carried at fair value. The Group does not actively trade in
bonds.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Financial instruments (continued)DerecognitionA financial instrument or a portion of a financial instrument will
be derecognised and a gain or loss recognised when the
Group’s contractual rights expire, financial assets are transferred
or financial liabilities are extinguished. On derecognition of a
financial asset or liability, the difference between the
consideration and the carrying amount on the settlement date is
included in finance charges and fair value movements for the
year. For available-for-sale assets, the fair value adjustment
relating to prior revaluations of assets is transferred from equity
and recognised in finance charges and fair value movements for
the year.
Bonds and commercial paper bills are derecognised when the
obligation specified in the contract is discharged. The difference
between the carrying value of the bond and the amount paid to
extinguish the obligation is included in finance charges and fair
value movements for the year.
Impairment of financial assetsAt each balance sheet date an assessment is made of whether
there are any indicators of impairment of a financial asset or
a group of financial assets based on observable data about
one or more loss events that occurred after the initial recognition
of the asset or the group of assets. For loans and receivables
carried at amortised costs, if there is objective evidence that an
impairment loss has been incurred, the amount of the loss is
measured at the difference between the asset’s carrying amount
and the present value of estimated future cashflows. The
carrying amount of the assets is reduced through the use of an
allowance account and the amount of the loss is recognised in
the income statement. In the case of equity securities classified
as available-for-sale, a significant or prolonged decline in the
fair value of the security below its cost is considered as an
indicator that the securities are impaired.
If any such evidence exists for available-for-sale assets, the
cumulative loss – measured as the difference between the
acquisition cost and the current fair value, less any impairment
loss on that financial asset previously recognised in profit or loss
– is removed from equity and recognised in the income
statement. Impairment losses recognised in the income statement
on equity instruments are not reversed through the income
statement. The recoverable amount of financial assets carried at
amortised cost is calculated as the present value of expected
future cash flows discounted at the original effective interest rate
of the asset.
If, in a subsequent period, the amount of the impairment loss for
financial assets decreases and the decrease can be related
objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is
reversed except for those financial assets classified as available-
for-sale and carried at cost that are not reversed. Any
subsequent reversal of an impairment loss is recognised in the
income statement, to the extent that the carrying value of the
asset does not exceed its amortised cost at the reversal date.
Reversals in respect of equity instruments classified as available-
for-sale are not recognised in profit or loss. Reversals of
impairment losses on debt instruments classified as available-for-
sale are reversed through the income statement, if the increase
in fair value of the instrument is objectively related to an event
occurring after the impairment loss was recognised through the
income statement.
Remeasurement of embedded derivatives
The Group assesses whether an embedded derivative is
required to be separated from the host contract and accounted
for as a derivative when it first becomes party to the contract.
The Group reassesses the contract when there is a change in the
terms of the contract which significantly modifies the cash flows
that would otherwise be required under the contract.
Financial instruments: Disclosures
The Group groups its financial instruments into classes of similar
instruments and where disclosure is required, it discloses them
by class. It also discloses information about the nature and
extent of risks arising from its financial instruments as indicated
in note 13.
Foreign currencies
Each entity within the Group determines its functional currency.
The Group’s presentation currency is the South African rand
(ZAR).
Transactions denominated in foreign currencies are measured at
the rate of exchange at transaction date. Monetary items
denominated in foreign currencies are remeasured at the rate of
exchange at settlement date or balance sheet date, whichever
occurs first. Exchange differences on the settlement or translation
of monetary assets and liabilities are included in finance
charges and fair value movements in the period in which they
arise. Non-monetary items that are measured in terms of
historical cost in a foreign country are translated using the
exchange rates as at the dates of the initial transactions. Non-
monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair
value is determined.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Foreign currencies (continued)The annual financial statements of foreign operations aretranslated into South African rand, the Group’s presentationcurrency, for incorporation into the consolidated annualfinancial statements. Assets and liabilities are translated at theforeign exchange rates ruling at the balance sheet date.Income, expenditure and cash flow items are measured at theactual foreign exchange rate or average foreign exchange ratesfor the period. All resulting unrealised exchange differences areclassified as equity. On disposal, the cumulative amounts ofunrealised exchange differences that have been deferred arerecognised in the consolidated income statement as part of thegain or loss on disposal.
All gains and losses on the translation of equity loans to foreignoperations that are intended to be permanent, whether they aredenominated in one of the entities’ functional currencies or in athird currency, are recognised in equity.
Goodwill and intangible assets arising on the acquisition of aforeign operation are treated as assets of the foreign operationand translated at the foreign exchange rates ruling at balancesheet date.
Treasury sharesWhere the Group acquires, or in substance acquires, Telkomshares, such shares are measured at cost and disclosed as areduction of equity. No gain or loss is recognised in profit or losson the purchase, sale, issue or cancellation of the Group’s ownequity instruments. Such shares are not remeasured for changesin fair value.
Where the Group chooses or is required to buy equity instrumentsfrom another party to satisfy its obligations to its employees underthe share-based payment arrangement by delivery of its ownshares, the transaction is accounted for as equity-settled. Thisapplies regardless of whether the employees’ rights to the equityinstruments were granted by the Group itself or by its shareholdersor was settled by the Group itself or its shareholders.
LeasesA lease is classified as a finance lease if it transfers substantiallyall the risks and rewards incidental to ownership. All otherleases are classified as operating leases.
Where the Group enters into a service agreement as a supplier ora customer that depends on the use of a specific asset, and conveysthe right to control the use of the specific asset, the arrangement isassessed to determine whether it contains a lease. Once it has beenconcluded that an arrangement contains a lease, it is assessedagainst the criteria in IAS17 to determine if the arrangement shouldbe recognised as a finance lease or operating lease.
The land and buildings elements of a lease of land and
buildings are considered separately for the purposes of lease
classification unless it is impracticable to do so.
Lessee
Operating lease payments are recognised in the income
statement on a straight-line basis over the lease term.
Assets acquired in terms of finance leases are capitalised at the
lower of fair value or the present value of the minimum lease
payments at inception of the lease and depreciated over the
lesser of the useful life of the asset or the lease term. The capital
element of future obligations under the leases is included as a
liability in the balance sheet. Lease finance costs are amortised
in the income statement over the lease term using the interest rate
implicit in the lease. Where a sale and leaseback transaction
results in a finance lease, any excess of sale proceeds over the
carrying amount is deferred and recognised in the income
statement over the term of the lease.
Lessor
Operating lease revenue is recognised in the income statement
on a straight-line basis over the lease term.
Assets held under a finance lease are recognised in the balance
sheet and presented as a receivable at an amount equal to the
net investment in the lease. The recognition of finance income is
based on a pattern reflecting a constant periodic rate of return
on the net investment in the finance lease.
Employee benefits
Post-employment benefits
The Group provides defined benefit and defined contribution
plans for the benefit of employees. These plans are funded by
the employees and the Group, taking into account
recommendations of the independent actuaries. The post-
retirement telephone rebate liability is unfunded.
Defined contribution plans
The Group’s funding of the defined contribution plans is charged
to employee expenses in the same year as the related service is
provided.
Defined benefit plans
The Group provides defined benefit plans for pension,
retirement, post-retirement medical aid benefits and telephone
rebates to qualifying employees. The Group’s net obligation in
respect of defined benefits is calculated separately for each
plan by estimating the amount of future benefits earned in return
for services rendered.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Employee benefits (continued)
Defined benefit plans (continued)
The amount recognised in the balance sheet represents the present
value of the defined benefit obligations, calculated by using the
projected unit credit method, as adjusted for unrecognised
actuarial gains and losses, unrecognised past service costs and
reduced by the fair value of the related plan assets. The amount
of any surplus recognised and reflected as deferred expenses is
limited to unrecognised actuarial losses and past service costs plus
the present value of available refunds and reductions in future
contributions to the plan. To the extent that there is uncertainty as
to the entitlement to the surplus, no asset is recognised. No gain
is recognised solely as a result of an actuarial loss or past service
cost in the current period and no loss is recognised solely as a
result of an actuarial gain or past service cost in the current period.
Actuarial gains and losses are recognised as employee
expenses when the cumulative unrecognised gains and losses
for each individual plan exceed 10% of the greater of the
present value of the Group’s obligation and the fair value of
plan assets at the beginning of the year. These gains or losses
are amortised on a straight-line basis over 10 years for all the
defined benefit plans, except gains or losses related to the
pensioners in the Telkom Retirement Fund or unless the standard
requires faster recognition. For the Telkom Retirement Fund
pensioners, the cumulative unrecognised actuarial gains and
losses in excess of the 10% corridor at the beginning of the year
are recognised immediately.
Past service costs are recognised immediately to the extent that
the benefits are vested, otherwise they are recognised on a
straight-line basis over the average period the benefits become
vested.
Leave benefits
Annual leave entitlement is provided for over the period that the
leave accrues and is subject to a cap of 22 days.
Workforce reduction
Workforce reduction expenses are payable when employment
is terminated before the normal retirement age or when an
employee accepts voluntary redundancy in exchange for
benefits. Workforce reduction benefits are recognised when the
entity is demonstrably committed and it is probable that the
expenses will be incurred. In the case of an offer made to
encourage voluntary redundancy, the measurement of
termination benefits is based on the number of employees
expected to accept the offer.
Deferred bonus incentives
Employees of the wholly owned subsidiaries of Vodacom,
including executive directors, are eligible for compensation
benefits in the form of a Deferred Bonus Incentive Scheme. The
benefit is recorded at the present value of the expected future
cash outflows.
Share-based compensation
The grants of equity instruments, made to employees in terms of
the Telkom Conditional Share Plan, are classified as equity-
settled share-based payment transactions. The expense relating
to the services rendered by the employees, and the
corresponding increase in equity, is measured at the fair value
of the equity instruments at their date of grant based on the
market price at grant date, adjusted for the lack of entitlement to
dividends during the vesting period. This compensation cost is
recognised over the vesting period, based on the best available
estimate at each balance sheet date of the number of equity
instruments that are expected to vest.
Short-term employee benefits
The cost of all short-term employee benefits is recognised during
the year the employees render services, unless the Group uses
the services of employees in the construction of an asset and the
benefits received meet the recognition criteria of an asset, at
which stage it is included as part of the related property, plant
and equipment or intangible asset item.
Long-term incentive provision
The Vodacom Group provides long-term incentives to eligible
employees payable on termination or retirement. The Group’s
liability is based on an actuarial valuation. Actuarial gains and
losses are recognised as employee expenses.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources will be required to settle
the obligation, and a reliable estimate can be made of the
amount of the obligation. Provisions are reviewed at each
balance sheet date and adjusted to reflect the current best
estimate. Where the effect of the time value of money is
material, the amount of the provision is the present value of the
expenditures expected to be required to settle the obligation.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
3. REVENUE3.1 Total revenue 32,919 34,084 36,433
Operating revenue 32,441 33,611 35,940
Other income (excluding profit on disposal of property, plant and
equipment, intangible assets and investments, refer to note 4) 279 305 312
Investment income (refer to note 6) 199 168 181
3.2 Operating revenue 32,441 33,611 35,940
Fixed-line 32,345 32,572 33,659
Multi-Links – 845 1,900
Other 873 1,040 1,214
Eliminations (777) (846) (833)
Fixed-line 32,345 32,572 33,659
Subscriptions, connections and other usage 6,286 6,330 6,614
Traffic 16,740 15,950 15,323
Domestic (local and long distance) 7,563 6,328 5,670
Fixed-to-mobile 7,646 7,557 7,420
International (outgoing) 988 986 933
Subscription based calling plans 543 1,079 1,300
Interconnection 1,639 1,757 2,084
Data 7,489 8,308 9,310
Sundry revenue 191 227 328
4. OTHER INCOME 338 472 343
Other income (included in Total revenue, refer to note 3) 279 305 312
Interest received from trade receivables 188 254 270
Sundry income 91 51 42
Profit on disposal of property, plant and equipment and intangible assets 16 167 31
Profit on disposal of investment 43 – –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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5. OPERATING EXPENSESOperating expenses comprise:
5.1 Employee expenses 7,254 7,629 8,345
Salaries and wages 5,215 5,710 6,050
Medical aid contributions 384 415 410
Retirement contributions 446 470 472
Post-retirement pension and retirement fund (refer to note 30) 33 5 29
Current service cost 5 5 4
Interest cost 329 509 633
Expected return on plan assets (508) (713) (825)
Actuarial gain (136) (16) –
Settlement loss/(gain) 21 (2) (3)
Asset limitation 322 222 220
Post-retirement medical aid (refer to notes 29 and 30) 330 278 457
Current service cost 83 84 95
Interest cost 286 322 428
Expected return on plan asset (188) (257) (223)
Actuarial loss 149 129 157
Telephone rebates (refer to notes 29 and 30) 104 27 61
Current service cost 4 3 6
Interest cost 19 22 39
Past service cost 76 2 2
Actuarial loss 5 – 14
Share-based compensation expense (refer to note 24) 141 522 554
Other benefits* 1,297 988 1,048
Employee expenses capitalised (696) (786) (736)
* Other benefits include annual leave, performance incentive,
service bonuses, skills development and workforce reduction expenses.
5.2 Payments to other operators 5,005 6,098 6,919
Payments to other network operators consist of expenses in respect of interconnection with other network operators.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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5. OPERATING EXPENSES (continued)5.3 Selling, general and administrative expenses 4,184 4,045 5,772
Selling and administrative expenses 1,533 1,220 2,374 Maintenance 1,870 1,966 2,319 Marketing 640 614 711 Bad debts 141 245 368
The increase in the current year’s selling and administrative expenses is attributable to the focus on expanding the customer base in Nigeria.
5.4 Service fees 2,209 2,437 2,756
Facilities and property management 1,142 1,228 1,275 Consultancy services 192 169 295 Security and other 821 982 1,121 Auditors’ remuneration 54 58 65
Audit services 53 57 58
Company auditors 48 46 47
Current year 47 43 47 Prior year underprovision 1 3 –
Other auditors – current year 5 11 11
Audit related services – 1 –
Other auditors – 1 –
Other services 1 – 7
Included in the current year’s consultancy services is an amount of R177 million relating to services rendered in respect of the transaction to dispose of Telkom’s shareholding in Vodacom Group (Proprietary) Limited.
The increase in the current year’s security and other costs is mainly attributable to the new contract negotiated to secure the copper network in Telkom’s drive to cut down on cable thefts.
5.5 Operating leases 775 671 823
Land and buildings 135 160 244 Transmission and data lines 8 35 118 Equipment 80 48 72 Vehicles 552 428 389
5.6 Depreciation, amortisation, impairment and write-offs 3,601 4,134 5,280
Depreciation of property, plant and equipment 3,011 3,151 3,733 Amortisation of intangible assets 306 469 724 Impairment of property, plant and equipment and intangible assets – 229 501 Write-offs of property, plant and equipment and intangible assets 284 285 322
Included in the current year’s amortisation of intangible assets is an amount of R134 million relating to the FIFA brand intangible asset.The impairment charge for the 2009 financial year consists of R462 million and R39 million relating to Multi-Links and Africa Onlinerespectively.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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6. INVESTMENT INCOME 199 168 181
Interest income 196 168 181
Dividend income from investments 3 – –
Included in investment income is an amount of R160 million (2008:
R142 million; 2007: R196 million) which relates to interest earned from
financial assets not measured at fair value through profit or loss.
7. FINANCE CHARGES AND FAIR VALUE MOVEMENTS 857 1,556 2,843
Finance charges on interest-bearing debt 1,142 1,543 1,732
Local debt 1,303 1,700 1,895
Foreign debt – 18 –
Finance charges capitalised (161) (175) (163)
Foreign exchange gains and losses and fair value movement (285) 13 1,111
Foreign exchange losses 59 93 843
Fair value adjustments on derivative instruments (344) (80) 268
Capitalisation rate 14.77% 12.60% 12.40%
Included in finance charges is an amount of R1,655 million (2008: R1,499 million; 2007: R1,142 million) which relates to interest paid
on financial liabilities not measured at fair value through profit or loss.
Included in foreign exchange losses and fair value adjustments are forex losses of R961 million in respect of the loan that Multi-Links
received from Telkom and R409 million loss in respect of the Multi-Links put option, offset by the R318 million gain in Telkom.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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8. TAXATION 2,803 2,647 1,660
South African normal company taxation 1,989 2,018 1,658
Current taxation 2,023 2,018 1,686
Overprovision for prior year (34) – (28)
Deferred taxation 490 254 (164)
Temporary differences – normal company taxation 534 121 241
Temporary difference – secondary taxation on companies
(STC) taxation credits (raised)/utilised (45) 190 (89)
Change in taxation rate – (54) –
Capital gains taxation (CGT) asset – – (454)
Underprovision/(overprovision) for prior year 1 (3) 138
Secondary taxation on companies 324 381 164
Foreign taxation – (6) 2
Included in the current year’s deferred taxation expense is a credit of
R454 million relating to the deferred taxation on temporary differences
associated with the disposal groups which are classified as held for sale.
The decrease in the deferred taxation expense is mainly due to the
temporary difference associated with the disposal groups which are
classified as held for sale.
The STC expense was provided for at a rate of 10% (12.5% before
October 1, 2007) on the amount by which dividends declared exceeded
dividends received. Deferred taxation expense relating to STC credits is
provided for at a rate of 10% (2008: 10%; 2007: 12.5%).
Reconciliation of taxation rate % % %
Effective rate 30.8 34.5 44.5
South African normal rate of taxation 29.0 29.0 28.0
Adjusted for: 1.8 5.5 16.5
Change in taxation rate – (0.5) –
Exempt income (2.2) (2.5) (26.8)
Disallowable expenditure 0.7 2.9 47.7
Taxation losses not utilised – (0.7) 1.6
STC credits (raised)/utilised (0.3) 1.5 (2.4)
STC charge 3.1 5.3 4.4
CGT asset 1.1 – (11.0)
Net (overprovision)/underprovision for prior year (0.5) (0.5) 3.0
Utilisation of assessed loss (0.1) – –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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9. DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE9.1 Discontinued operations
Telkom Media (Proprietary) Limited
Telkom Media was classified as held for sale in the September 2008 interim
financials. At year end March 31, 2009, the subsidiary did not meet
the held for sale criteria as management were unable to sell the disposal
group for its expected price and therefore decided to abandon it.
The results and cash flows of the subsidiary are disclosed as a
discontinued operation in accordance with IFRS.
Analysis of the results of discontinued operations:
Revenue* 14 26
Expenses* 157 305
Loss before taxation of discontinued operations 143 279
Taxation (1) 2
Loss after taxation of discontinued operations 142 281
The net cash flows attributable to the operating, investing and
financing activities of discontinued operations:
Operating cash flows (95) (140)
Investing cash flows (218) (39)
Financing cash flows 319 149
Total cash inflow/(outflow) 6 (30)
9.2 Disposal groups held for sale
9.2.1 Vodacom Group (Proprietary) Limited
In the current year, the Group announced a decision to dispose of its entire
interest in Vodacom through selling 15% of its shareholding to Vodafone, a
wholly owned subsidiary of Vodafone Group Plc (Vodafones) and unbundling
its remaining 35% shareholding to its shareholders pursuant to a listing of
Vodacom on the main board of the JSE Limited. This decision was taken in
line with the Group’s strategy to unlock shareholder value; consequently, all
assets and liabilities of Vodacom and its subsidiaries were classified as a
discontinued operation.
Analysis of the results of discontinued operations:
Revenue* 19,157 22,653 26,215
Expenses* 14,709 17,334 21,749
Profit before taxation of discontinued operations 4,448 5,319 4,466
Taxation 1,918 2,055 2,023
Profit after taxation of discontinued operations 2,530 3,264 2,443
* Revenue comprises operating revenue, other income and investment income. Expenses comprises operating expenses and finance charges.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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9. DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE (continued)
9.2 Disposal groups held for sale (continued)9.2.1 Vodacom Group (Proprietary) Limited (continued)
The major classes of assets and liabilities of the business classified as a disposal group:Assets 23,410
Property, plant and equipment 10,922 Intangible assets 5,897 Trade and other receivables 4,283 Other non-current and current assets 2,308
Liabilities 15,858
Interest-bearing debt 4,170 Trade and other payables 4,679 Current portion of interest-bearing debt 2,882 Current portion of deferred revenue 1,260 Credit facilities utilised 1,102 Other non-current and current liabilities 1,765
Reserve of disposal group held for sale 876
Reconciliation of carrying value transferred to disposal groups at year end: Property,plant and
equipment
Carrying value at beginning of year 9,585Additions 2,979Disposals (28)Foreign currency translation reserve 340 Business combinations 143Impairments and write-offs (53)Depreciation (1,974) Transfers (33)Other transfers (37)
Carrying value at end of year 10,922
Intangibleassets
Carrying value at beginning of year 2,111Additions 590Foreign currency translation reserve 26Business combinations 3,503Amortisation (366) Transfers (33)
Carrying value at end of year 5,897
The net cash flows attributable to the operating, investing and financing activities of the disposal group:
Operating cash flows 2,429 2,563 2,092 Investing cash flows (3,292) (3,751) (6,375)Financing cash flows (100) 1,617 4,436
Total cash (outflow)/inflow (963) 429 153
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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9. DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE (continued)
9.2 Disposal groups held for sale (continued)
9.2.2 Swiftnet (Proprietary) Limited
In February 2009, Telkom’s Board of directors took a decision to
dispose of its 100% investment in Swiftnet (Proprietary) Limited.
The investment is classified as held for sale.
Analysis of the results of discontinued operations:
Revenue* 103 98 97
Expenses* 64 79 82
Profit before taxation of discontinued operations 39 19 15
Taxation 10 3 (4)
Profit after taxation of discontinued operations 29 16 19
The major classes of assets and liabilities of the business
classified as a disposal group:
Assets 72
Property, plant and equipment and intangible assets 24
Income taxation receivable 2
Trade and other receivables 18
Cash and cash equivalents 28
Liabilities 15
Provisions 1
Trade and other payables 10
Current portion of provisions 4
The net cash flows attributable to the operating, investing and financing
activities of the disposal group:
Operating cash flows 43 22 31
Investing cash flows (15) (11) (33)
Financing cash flows (23) – 10
Total cash inflow 5 11 8
* Revenue comprises operating revenue, other income and investment income. Expenses comprises operating expenses and finance charges.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009
10. EARNINGS PER SHARETotal operations
Basic earnings per share (cents) 1,681.0 1,565.0 832.8
The calculation of earnings per share is based on profit attributable to equity
holders of Telkom for the year of R4,170 million (2008: R7,975 million;
2007: R8,646 million) and 500,700,538 (2008: 509,595,092;
2007: 514,341,284) weighted average number of ordinary shares in issue.
Diluted earnings per share (cents) 1,676.3 1,546.9 819.6
The calculation of diluted earnings per share is based on earnings for the
year of R4,170 million (2008: R7,975 million; 2007: R8,646 million) and
508,782,641 (2008: 515,541,968; 2007: 515,763,581) diluted
weighted average number of ordinary shares. The adjustment in the
weighted average number of shares is as a result of the expected future
vesting of shares already allocated to employees under the Telkom
Conditional Share Plan.
Headline earnings per share (cents)* 1,710.7 1,634.8 994.6
The calculation of headline earnings per share is based on headline
earnings of R4,980 million (2008: R8,331 million; 2007:
R8,799 million) and 500,700,538 (2008: 509,595,092;
2007: 514,341,284) weighted average number of ordinary shares in issue.
Diluted headline earnings per share (cents)* 1,706.0 1,616.0 978.8
The calculation of diluted headline earnings per share is based on headline
earnings of R4,980 million (2008: R8,331 million; 2007: R8,799 million)
and 508,782,641 (2008: 515,541,968; 2007: 515,763,581)
diluted weighted average number of ordinary shares in issue. The
adjustment in the weighted average number of shares is as a result
of the expected future vesting of shares already allocated to
employees under the Telkom Conditional Share Plan.
Continuing operations
Basic earnings per share (cents) 1,204.7 963.7 407.4
The calculation of earnings per share is based on profit attributable to
equity holders of Telkom for the year of R2,040 million (2008: R4,911 million;
2007: R6,196 million) and 500,700,538 (2008: 509,595,092;
2007: 514,341,284) weighted average number of ordinary shares
in issue.
Diluted earnings per share (cents) 1,201.3 952.6 401.0
The calculation of diluted earnings per share is based on earnings for
the year of R2,040 million (2008: R4,911 million; 2007: R6,196 million)
and 508,782,641 (2008: 515,541,968; 2007: 515,763,581) diluted
weighted average number of ordinary shares. The adjustment in the
weighted average number of shares is as a result of the expected future
vesting of shares already allocated to employees under the Telkom
Conditional Share Plan.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009
10. EARNINGS PER SHARE (continued)Continuing operations (continued)
Headline earnings per share (cents)* 1,235.5 1,028.9 557.0
The calculation of headline earnings per share is based on headline
earnings of R2,789 million (2008: R5,243 million; 2007: R6,355 million)
and 500,700,538 (2008: 509,595,092; 2007: 514,341,284)
weighted average number of ordinary shares in issue.
Diluted headline earnings per share (cents)* 1,232.2 1,017.0 548.2
The calculation of diluted headline earnings per share is based on headline
earnings of R2,789 million (2008: R5,243 million; 2007: R6,355 million)
and 508,782,641 (2008: 515,541,968; 2007: 515,763,581) diluted
weighted average number of ordinary shares in issue. The adjustment in the
weighted average number of shares is as a result of the expected future
vesting of shares already allocated to employees under the Telkom
Conditional Share Plan.
Discontinuing operations
Basic earnings per share (cents) 476.3 601.3 425.4
The calculation of earnings per share is based on profit attributable to
equity holders of Telkom for the year of R2,130 million (2008:
R3,064 million; 2007: R2,450 million) and 500,700,538
(2008: 509,595,092; 2007: 514,341,284) weighted average
number of ordinary shares in issue.
Diluted earnings per share (cents) 475.0 594.3 418.6
The calculation of diluted earnings per share is based on earnings for the
year of R2,130 million (2008: R3,064 million; 2007: R2,450 million)
and 508,782,641 diluted weighted average number of ordinary shares
(2008: 515,541,968; 2007: 515,763,581). The adjustment in the
weighted average number of shares is as a result of the expected future
vesting of shares already allocated to employees under the Telkom
Conditional Share Plan.
Headline earnings per share (cents)* 475.2 606.0 437.6
The calculation of headline earnings per share is based on headline
earnings of R2,191 million (2008: R3,088 million; 2007: R2,444 million)
and 500,700,538 (2008: 509,595,092; 2007: 514,341,284)
weighted average number of ordinary shares in issue.
Diluted headline earnings per share (cents)* 473.9 599.0 430.6
The calculation of diluted headline earnings per share is based on
headline earnings of R2,191 million (2008: R3,088 million; 2007:
R2,444 million) and 508,782,641 (2008: 515,541,968;
2007: 515,763,581) diluted weighted average number of ordinary
shares in issue. The adjustment in the weighted average number of
shares is as a result of the expected future vesting of shares already
allocated to employees under the Telkom Conditional Share Plan.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009
10. EARNINGS PER SHARE (continued)Reconciliation of weighted average number of ordinary shares:
Ordinary shares in issue (refer to note 22) 544,944,901 532,855,530 520,784,186
Weighted average number of shares bought back (7,442,253) (1,594,241) (27)
Weighted average number of treasury shares (23,161,364) (21,666,197) (20,083,621)
Weighted average number of shares outstanding 514,341,284 509,595,092 500,700,538
Reconciliation of diluted weighted average number of ordinary shares
Weighted average number of shares outstanding 514,341,284 509,595,092 500,700,538
Expected future vesting of shares 1,422,297 5,946,876 8,082,103
Diluted weighted average number of shares outstanding 515,763,581 515,541,968 508,782,641
Gross** Net
Total operations Rm Rm
2009
Reconciliation between earnings and headline earnings:
Earnings as reported 4,170
Profit on disposal of property, plant and equipment and intangible assets (25) (21)
Impairment loss on property, plant and equipment and intangible assets 557 557
Write-offs of property, plant and equipment and intangible assets 322 274
Headline earnings 4,980
2008
Reconciliation between earnings and headline earnings:
Earnings as reported 7,975
Profit on disposal of investments (available-for-sale) (4) (3)
Profit on disposal of property, plant and equipment and intangible assets (147) (104)
Impairment loss on property, plant and equipment and intangible assets 248 244
Write-offs of property, plant and equipment and intangible assets 285 219
Headline earnings 8,331
2007
Reconciliation between earnings and headline earnings:
Earnings as reported 8,646
Profit on disposal of investments (available-for-sale) (52) (37)
Profit on disposal of property, plant and equipment and intangible assets (29) (21)
Reversal of impairment loss on property, plant and equipment and intangible assets 12 9
Write-offs of property, plant and equipment and intangible assets 284 202
Headline earnings 8,799
* The disclosure of headline earnings is a requirement of the JSE Limited and is not a recognised measure under IFRS. It has been calculated in accordance
with the South African Institute of Chartered Accountants’ circular issued in this regard.
** These are the gross amounts, before deducting taxation and minority interests.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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10. EARNINGS PER SHARE (continued)Gross* Net
Continuing operations Rm Rm
2009
Reconciliation between earnings and headline earnings:
Profit from continuing operations 2,066
Minority interest 26
Earnings from continuing operations attributable to equity holders of Telkom 2,040
Profit on disposal of property, plant and equipment and intangible assets (32) (26)
Impairment loss on property, plant and equipment and intangible assets 501 499
Write-offs of property, plant and equipment and intangible assets 322 276
Headline earnings 2,789
2008
Reconciliation between earnings and headline earnings:
Profit from continuing operations 5,034
Minority interest 123
Earnings from continuing operations attributable to equity holders of Telkom 4,911
Profit on disposal of property, plant and equipment and intangible assets (166) (118)
Impairment loss on property, plant and equipment and intangible assets 233 233
Write-offs of property, plant and equipment and intangible assets 285 217
Headline earnings 5,244
2007
Reconciliation between earnings and headline earnings:
Profit from continuing operations 6,290
Minority interest 94
Earnings from continuing operations attributable to equity holders of Telkom 6,196
Profit on disposal of investments (available-for-sale) (43) (31)
Profit on disposal of property, plant and equipment and intangible assets (16) (11)
Write-offs of property, plant and equipment and intangible assets 284 201
Headline earnings 6,355
* These are the gross amounts, before deducting taxation and minority interests.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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10. EARNINGS PER SHARE (continued)Gross* Net
Discontinuing operations Rm Rm
2009
Reconciliation between earnings and headline earnings:
Profit from discontinued operations 2,181
Minority interest 51
Earnings from discontinued operations attributable to equity holders of Telkom 2,130
Profit on disposal of property, plant and equipment and intangible assets 7 5
Impairment loss on property, plant and equipment and intangible assets 56 56
Headline earnings 2,191
2008
Reconciliation between earnings and headline earnings:
Profit from discontinued operations 3,138
Minority interest 74
Earnings as reported 3,064
Profit on disposal of investments (available-for-sale) (4) (4)
Profit on disposal of property, plant and equipment and intangible assets 19 13
Impairment loss on property, plant and equipment and intangible assets 15 15
Headline earnings 3,088
2007
Reconciliation between earnings and headline earnings:
Profit from discontinued operations 2,559
Minority interest 109
Earnings as reported 2,450
Profit on disposal of investments (available-for-sale) (9) (6)
Profit on disposal of property, plant and equipment and intangible assets (13) (9)
Reversal of impairment loss on property, plant and equipment and intangible assets 12 9
Headline earnings 2,444
2007 2008 2009
Dividend per share (cents) 900.0 1,100.0 660.0
The calculation of dividend per share is based on dividends of R3,306 million (2008: R5,627 million; 2007: R4,678 million) declared
on June 6, 2008 and 500,941,027 (2008: 511,513,237; 2007: 519,711,236) number of ordinary shares outstanding on the date
of dividend declaration. The reduction in the number of shares represents the number of treasury shares held on date of payment.
* These are the gross amounts, before deducting taxation and minority interests.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009*Accumu- Accumu- Accumu-
lated lated lated depre- depre- depre-
ciation and ciation and ciation andimpair- Carrying impair- Carrying impair- Carrying
Cost ment value Cost ment value Cost ment valueRm Rm Rm Rm Rm Rm Rm Rm Rm
11. PROPERTY, PLANT AND EQUIPMENTFreehold land and
buildings 4,594 (1,837) 2,757 4,931 (2,010) 2,921 4,950 (2,136) 2,814
Leasehold buildings 926 (362) 564 1,052 (418) 634 805 (477) 328
Network equipment 63,003 (31,820) 31,183 69,572 (35,214) 34,358 59,765 (29,982) 29,783
Support equipment 4,045 (2,436) 1,609 4,355 (2,635) 1,720 3,921 (2,482) 1,439
Furniture and office
equipment 536 (366) 170 568 (377) 191 453 (328) 125
Data processing
equipment and
software 5,836 (3,707) 2,129 6,279 (3,904) 2,375 5,543 (3,518) 2,025
Under
construction 2,536 – 2,536 4,200 – 4,200 4,612 – 4,612
Other 860 (554) 306 1,046 (630) 416 721 (429) 292
82,336 (41,082) 41,254 92,003 (45,188) 46,815 80,770 (39,352) 41,418
Fully depreciated assets with a cost of R155 million (2008: R498 million; 2007: R1,225 million) were derecognised in the 2009 financial
year. This has reduced both the cost price and accumulated depreciation of property, plant and equipment.
Property, plant and equipment with a carrying value of R158 million (2008: R681 million; 2007: R574 million) are pledged as security.
Details of the loans are disclosed in note 28.
* Net of assets of disposal groups classified as held for sale.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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11. PROPERTY, PLANT AND EQUIPMENT (continued)The carrying amounts of property, plant and equipment can be reconciled as follows:**
Carrying Transfers Impairment, Carrying value at to Business Foreign write-offs value at
beginning disposal combi- currency and Depre- end of of year groups Additions nations Transfers* translation reversals Disposals ciation year
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
2009Freehold land and buildings 2,921 (293) 283 – 82 (4) (5) (2) (168) 2,814 Leasehold buildings 634 (360) 119 – 24 (64) – – (25) 328 Network equipment 34,358 (7,951) 2,913 – 3,378 30 (141) (71) (2,733) 29,783 Support equipment 1,720 (235) 137 – 112 1 (12) – (284) 1,439 Furniture and office equipment 191 (72) 19 – 13 1 – – (27) 125 Data processing equipment and software 2,375 (370) 154 – 310 (1) (5) (1) (437) 2,025 Under construction 4,200 – 4,872 – (4,120) (238) (102) – – 4,612 Other 416 (304) 228 – 13 (1) (1) – (59) 292
46,815 (9,585) 8,725 – (188) (276) (266) (74) (3,733) 41,418
2008Freehold land and buildings 2,757 – 300 22 27 2 (3) (8) (176) 2,921 Leasehold buildings 564 – 136 26 32 1 (67) (1) (57) 634 Network equipment 31,183 – 5,167 404 1,301 272 (136) (107) (3,726) 34,358 Support equipment 1,609 – 316 1 116 3 (8) – (317) 1,720 Furniture and office equipment 170 – 78 3 1 1 (8) (1) (53) 191 Data processing equipment and software 2,129 – 525 31 150 6 (19) (2) (445) 2,375 Under construction 2,536 – 3,416 135 (1,737) 2 (152) – – 4,200 Other 306 – 170 8 11 7 (2) (3) (81) 416
41,254 – 10,108 630 (99) 294 (395) (122) (4,855) 46,815
2007Freehold land and buildings 2,699 – 209 – – 2 17 (1) (169) 2,757 Leasehold buildings 618 – – – 1 – – (14) (41) 564 Network equipment 28,941 – 5,154 1 849 240 (199) (270) (3,533) 31,183 Support equipment 1,321 – 442 – 109 2 (15) – (250) 1,609 Furniture and office equipment 134 – 51 3 8 1 – – (27) 170 Data processing equipment and software 2,082 – 466 12 (36) 8 (10) (2) (391) 2,129 Under construction 1,320 – 2,165 – (912) – (37) – – 2,536 Other 159 – 161 – 58 4 (1) (3) (72) 306
37,274 – 8,648 16 77 257 (245) (290) (4,483) 41,254
Full details of land and buildings are available for inspection at the registered offices of the Group.
The Group does not have temporarily idle property, plant and equipment.
A major portion of this capital expenditure relates to the expansion of existing networks and services. An extensive build programme that provides capacityfor growth in services, with focus on Next Generation Network technologies, roll-out of the W-CDMA network and Multi-Links’s expansion of networkequipment, has resulted in an increase in property, plant and equipment additions.
During the 2008 financial year, the Group recognised an impairment loss relating to Telkom Media assets. The recoverable amount for certain items ofproperty, plant and equipment was estimated, and an impairment loss of R217 million was recognised in order to reduce the carrying amount of thoseassets to their recoverable amount. The impairment has been included in impairment, write-offs and reversals.
Included in the current year’s additions in the other category, is an amount of R179 million (2008: R31 million; 2007: RNil) that relates to finance leases.
An amount of R71 million (2008: R88 million; 2007: R240 million) under property, plant and equipment disposals relates to the reclassification ofCustomer Premises Equipment at the start of the lease. These disposals are as a result of the Group entering into a leasing arrangement.
* An amount of R21 million was transferred from network equipment to cash and cash equivalents for Telkom Media.** The 2009 reconciliation excludes assets held in the disposal groups held for sale, refer to note 9.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009* Accumulated Accumulated Accumulated amortisation amortisation amortisationand impair- Carrying and impair- Carrying and impair- Carrying
Cost ment value Cost ment value Cost ment valueRm Rm Rm Rm Rm Rm Rm Rm Rm
12. INTANGIBLE ASSETSGoodwill 673 – 673 3,267 (12) 3,255 3,461 (501) 2,960 Trademarks, copyrights and other 761 (521) 240 1,127 (633) 494 677 (332) 345 Licences 222 (116) 106 311 (140) 171 228 (35) 193 Software 6,720 (3,737) 2,983 8,106 (4,298) 3,808 7,045 (3,799) 3,246 Under construction 1,109 – 1,109 740 – 740 488 – 488
9,485 (4,374) 5,111 13,551 (5,083) 8,468 11,899 (4,667) 7,232
* Net of assets of disposal groups classified as held for sale.
The carrying amounts of intangible assets can be reconciled as follows:**Carrying Transfers Impair- Carrying value at to Business Foreign ment value at
beginning disposal combi- currency and Amor- end of of year groups Additions nations Transfers translation write-offs tisation year
Rm Rm Rm Rm Rm Rm Rm Rm Rm
2009Goodwill 3,255 (947) – 1,309 – (156) (501) – 2,960 Trademarks, copyrights and other 494 (178) 300 – (28) (22) – (221) 345 Licences 171 (104) 41 – 137 (42) – (10) 193 Software 3,808 (882) 209 – 613 (8) (1) (493) 3,246 Under construction 740 – 356 – (555) 2 (55) – 488
8,468 (2,111) 906 1,309 167 (226) (557) (724) 7,232
2008Goodwill 673 – 492 1,727 – 375 (12) – 3,255 Trademarks, copyrights and other 240 – 174 165 – 20 – (105) 494 Licences 106 – 32 36 – 15 (3) (15) 171 Software 2,983 – 739 – 713 9 (10) (626) 3,808 Under construction 1,109 – 354 – (614) – (109) – 740
5,111 – 1,791 1,928 99 419 (134) (746) 8,468
2007Goodwill 305 – 186 173 – 9 – – 673 Trademarks, copyrights and other 213 – 8 69 – – – (50) 240 Licences 60 – 47 1 – 8 – (10) 106 Software 2,269 – 628 – 559 7 (4) (476) 2,983 Under construction 1,063 – 729 – (636) – (47) – 1,109
3,910 – 1,598 243 (77) 24 (51) (536) 5,111
Intangible assets that are material to the Group consist of Software and Goodwill. The average remaining amortisation period for Softwareis between 2 and 10 years.
** The 2009 reconciliation excludes assets held in the disposal groups held for sale, refer to note 9.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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12. INTANGIBLE ASSETS (continued)Impairment testing of goodwillFor the purposes of impairment testing, goodwill is allocated to the smallest cash-generating unit. A cash-generating unit is the smallestidentifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups ofassets. The Group reviews goodwill for impairment annually by comparing the recoverable amounts of cash-generating units to the carryingamounts.
Goodwill acquired through business combinations has been allocated to two cash-generating units for impairment testing as follows:
Africa Online Limited (Kenya)Multi-Links Telecommunications Limited (Nigeria)
KenyaThe carrying amount of goodwill is R144 million.
For the period ending March 31, 2009, Africa Online was treated as one cash-generating unit for impairment testing purposes. Thisrepresents the lowest level within the Group at which the goodwill is monitored for internal management purposes.
Goodwill relating to Africa Online was tested for impairment on March 31, 2009. The recoverable amount of goodwill relating to AfricaOnline was determined on the basis of value in use calculations.
Key assumptions used to determine the value in use include the discount rate and cash flows. Cash flows are based on a five year forecastof future cash flows, extrapolated in perpetuity to reflect the long-term plans for the entity, using a weighted average cost of capital of 15.4%(2008: 11.59%) and a terminal growth rate of 3%.
An impairment loss of R39 million (2008: R12 million) was recognised.
NigeriaThe carrying amount of goodwill is R2,749 million.
Multi-Links has been identified as a single cash-generating unit within the Group. The recoverable amount of goodwill relating to Multi-Linkswas determined using the discounted cash flow method.
The key assumptions in determining cash flows are a five year forecast of future cash flows, extrapolated in perpetuity to reflect the long-term plans for the entity, using a weighted average cost of capital of 18.8%. The calculated perpetuity value for Multi-Links assumes thatthe company will continue to grow at 3% p.a. (nominal).
Key assumptions used in the testing of goodwill for impairment:Applicable to all cash-generating unitsExpected customer base: The basis for determining value(s) assigned to key assumptions is based on the closing customer base in the periodimmediately preceding the budget period and increased for expected growth. The value assigned to key assumptions reflects pastexperience, and has an element of potential growth. The growth is based on market assumptions.
Gross margin: The basis for determining value(s) assigned to key assumptions is based on the average gross margin achieved in the periodimmediately before the budget period and increased for expected efficiences. The value assigned reflects past experience and efficiencyimprovements.
Capital expenditure: The basis for determining value(s) assigned to key assumptions is based on the total capital expenditure achieved inthe period immediately before the budget period and adjusted for expected network coverage roll-out. The value assigned is based onmanagement’s expected network coverage roll-out.
Applicable to all cash-generating units except for the Africa Online cash-generating unitsARPU: The basis for determining value(s) assigned to key assumptions is based on past experience and expected growth which is basedon market forces and external sources of information.
Applicable to all non-South African cash-generating unitsExchange rates: The basis for determining value(s) assigned to key assumptions is based on the average market forward exchange rateover the budget period in respect of the ZAR/US$. The value assigned to the key assumption is consistent with external sources ofinformation.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENTRisk management
Exposure to continuously changing market conditions has made management of financial risk critical for the Group. As a result of the
financial instruments held, the Group is exposed to market risk (comprising interest rate risk and currency risk), credit risk and liquidity risk.
Treasury policies, risk limits and control procedures are continuously monitored by the Board of directors through its audit and risk
management committee.
The Group holds or issues financial instruments to finance its operations, for the temporary investment of short-term funds and to manage
currency and interest rate risks. In addition, financial instruments, for example trade receivables and payables, arise directly from the
Group’s operations.
The Group finances its operations primarily by a mixture of issued share capital, retained earnings, long-term and short-term loans. The
Group uses derivative financial instruments to manage its exposure to market risks from changes in interest and foreign exchange rates. The
derivatives used for this purpose are principally interest rate swaps and forward exchange contracts. The Group does not speculate in
derivative instruments.
The table below sets out the Group’s classification of financial assets and liabilities:
At fair
value
through
profit or Financial
loss liabilities at Total
held for amortised Held-to- Available- Loans and carrying
trading cost maturity for-sale receivables value Fair value
Note Rm Rm Rm Rm Rm Rm Rm
2009
Classes of financial
instruments per balance sheet
Assets 1,442 – 1,046 – 7,976 10,464 10,464
Investments 14 1,286 – – – 97 1,383 1,383
Trade and other receivables* 19 – – – – 5,673 5,673 5,673
Other financial assets 20 156 – 1,046 – – 1,202 1,202
Interest rate swaps 4 – – – – 4 4
Forward exchange contracts 152 – – – – 152 152
Repurchase agreements – – 1,046 – – 1,046 1,046
Finance lease receivables 16 – – – – 275 275 275
Cash and cash equivalents 21 – – – – 1,931 1,931 1,931
Liabilities (228) (23,963) – – – (24,191) (25,265)
Interest-bearing debt 28 – (18,275) – – – (18,275) (19,349)
Trade and other payables 31 – (5,538) – – – (5,538) (5,538)
Other financial liabilities 20 (228) – – – – (228) (228)
Interest rate swaps (72) – – – – (72) (72)
Forward exchange contracts (156) – – – – (156) (156)
Credit facilities utilised 21 – (127) – – – (127) (127)
Shareholders for dividends 35 – (23) – – – (23) (23)
* Trade and other receivables are disclosed net of prepayments of R307 million (2008: R404 million; 2007: R256 million).
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)Risk management (continued)
At fair
value
through
profit or Financial
loss liabilities at Total
held for amortised Held-to- Available- Loans and carrying
trading cost maturity for-sale receivables value Fair value
Note Rm Rm Rm Rm Rm Rm Rm
2008
Classes of financial
instruments per balance sheet
Assets 1,991 – – 55 10,155 12,201 12,201
Investments 14 1,377 – – 55 67 1,499 1,499
Trade and other receivables* 19 – – – – 8,582 8,582 8,582
Other financial assets 20 614 – – – – 614 614
Interest rate swaps 9 – – – – 9 9
Forward exchange
contracts 589 – – – – 589 589
Other financial assets 16 – – – – 16 16
Finance lease receivables 16 – – – – 372 372 372
Cash and cash equivalents 21 – – – – 1,134 1,134 1,134
Liabilities (1,290) (25,866) – – – (27,156) (27,692)
Interest-bearing debt 28 – (15,733) – – – (15,733) (16,269)
Trade and other payables 31 – (8,771) – – – (8,771) (8,771)
Other financial liabilities 20 (1,290) – – – – (1,290) (1,290)
Put option (Multi-Links) (919) – – – – (919) (919)
Put option (Vodacom DRC) (198) – – – – (198) (198)
Forward exchange contracts (173) – – – – (173) (173)
Credit facilities utilised 21 – (1,342) – – – (1,342) (1,342)
Shareholders for dividend 35 – (20) – – – (20) (20)
* Trade and other receivables are disclosed net of prepayments of R307 million (2008: R404 million; 2007: R256 million).
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 179
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)Risk management (continued)
At fair
value
through
profit or Financial
loss liabilities at Total
held for amortised Held-to- Available- Loans and carrying
trading cost maturity for-sale receivables value Fair value
Note Rm Rm Rm Rm Rm Rm Rm
2007
Classes of financial
instruments per balance sheet
Assets 1,608 – 246 47 7,861 9,762 9,762
Investments 14 1,349 – – 47 65 1,461 1,461
Trade and other receivables* 19 – – – – 7,047 7,047 7,047
Other financial assets 20 259 – – – – 259 259
Bills of exchange 98 – – – – 98 98
Interest rate swaps 16 – – – – 16 16
Forward exchange contracts 145 – – – – 145 145
Finance lease receivables 16 – – 246 – – 246 246
Cash and cash equivalents 21 – – – – 749 749 749
Liabilities (327) (17,959) – – – (18,286) (19,676)
Interest-bearing debt 28 (98) (10,266) – – – (10,364) (11,754)
Trade and other payables 31 – (7,237) – – – (7,237) (7,237)
Other financial liabilities 20 (229) – – – – (229) (229)
Put option (Vodacom DRC) (125) – – – – (125) (125)
Interest rate swaps (26) – – – – (26) (26)
Forward exchange contracts (42) – – – – (42) (42)
Other financial liabilities (36) – – – – (36) (36)
Credit facilities utilised 21 – (441) – – – (441) (441)
Shareholders for dividend 35 – (15) – – – (15) (15)
* Trade and other receivables are disclosed net of prepayments of R307 million (2008: R404 million; 2007: R256 million).
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.1 Fair value of financial instruments
Carrying value of all financial instruments noted in the balance sheet approximates fair value except as disclosed below.
The estimated net fair values as at March 31, 2009, have been determined using available market information and appropriate valuation
methodologies as outlined below.
Derivatives are recognised at fair value.
The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cash flow analysis is
used. These amounts reflect the approximate values of the net derivative position at the balance sheet date.
The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their fair
amount due to the short-term maturities of these instruments.
The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future
payments discounted at market interest rates, as a result they differ from carrying values.
The fair values of listed investments are based on quoted market prices.
13.2 Interest rate risk management
Interest rate risk arises from the repricing of the Group’s forward cover and floating rate debt as well as incremental funding or new
borrowings and the refinancing of existing borrowings.
The Group’s policy is to manage interest cost through the utilisation of a mix of fixed and floating rate debt. In order to manage this mix in
a cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated peak
additional borrowings, the Group makes use of interest rate derivatives as approved in terms of the Group policy limits. Fixed rate debt
represents approximately 64.86% (2008: 51.88%; 2007: 90.37%) of the total debt, after taking the instruments listed below into
consideration. There were no changes in the policies and processes for managing and measuring the risk from the previous period.
The table below summarises the interest rate swaps outstanding as at March 31:
Notional Weighted
Average amount average
maturity Currency Rm coupon rate
2009
Interest rate swaps outstanding
Pay fixed 2-5 years ZAR 2,000 10.84%
2008
Interest rate swaps outstanding
Pay fixed < 1 year ZAR 27 13.62%
Receive fixed 1-5 years ZAR 58 13.30%
2007
Interest rate swaps outstanding
Pay fixed < 1 year ZAR 1,000 14.67%
Receive fixed 1-5 years ZAR 38 11.45%
>5 years ZAR 61 11.44%
Pay fixed
The floating rate is based on the three month JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage interest
rate risk on debt instruments.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.3 Credit risk management
Credit risk is the risk due to uncertainty in a counterparty’s ability to meet its obligations as they fall due.
Credit risk arises from derivative contracts entered into with financial institutions with a rating of A1 or better. The Group is not exposed to
significant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Group from counterparties
is a net favourable position of R29 million (2008: R438 million; 2007: R144 million). No collateral is required when entering into
derivative contracts. Credit limits are reviewed on an annual basis or when information becomes available in the market. The Group limits
the exposure to any counterparty and exposures are monitored daily. The Group expects that all counterparties will meet their obligations.
With regard to credit risk arising from other financial assets of the Group, which comprises held-to-maturity investments, financial assets held
at fair value through profit or loss, loans and receivables and available-for-sale assets, the Group’s exposure to credit risk arises from a
potential default by a counterparty, with a maximum exposure equal to the carrying amount of these instruments.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management reduces
the risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counterparty failure,
limits are set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large
widespread customer base, covering residential, business, government, wholesale, global and corporate customer profiles.
Credit checks are performed on all customers, other than prepaid customers, on application for new services on an ongoing basis where
appropriate.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.
The collective loss allowance is determined based on historical data of payment statistics for similar financial assets as well as expected
future cash flows. Refer to note 19.
The Group has provided a financial guarantee to Africa Online Limited for bank loans to the value of R26 million as at March 31, 2009
(2008: R23 million; 2007: RNil).
Telkom guarantees a certain portion of employees’ housing loans. The amount guaranteed differs depending on facts such as employment
period and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before
any pension payout can be made to the employee. There is no provision outstanding in respect of these contingencies. The maximum
amount of the guarantee in the event of a default is R12 million. The fair value of the guarantee at March 31, 2009 was RNil (2008:
RNil; 2007: RNil).
Given the deterioration of credit markets, stricter objectives, policies and processes were applied for managing and measuring the risk than
in the previous period.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009182
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.3 Credit risk management (continued)
The maximum exposure to credit risk for financial assets at the reporting date by type of customer was:
Carrying amount
2007 2008 2009
Rm Rm Rm
Trade receivables
Fixed-line 3,926 4,401 4,231
Business and residential 1,924 1,824 1,870
Global, corporate and wholesale 1,643 1,875 1,708
Government 318 368 444
Other customers 41 334 209
Mobile 2,299 2,880 –
Multi-Links – 38 72
Other 567 666 720
Impairment of trade receivables (235) (290) (324)
Subtotal for trade receivables 6,557 7,695 4,699
Other receivables* 490 887 974
Other financial assets 259 614 1,202
7,306 9,196 6,875
* Excluding prepayments.
The ageing of trade receivables at the reporting date was:
Not past due/current 5,829 6,840 3,582
Ageing of past due but not impaired
21 to 60 days 331 384 441
61 to 90 days 80 110 135
91 to 120 days 59 71 84
120+ days 258 290 457
6,557 7,695 4,699
The ageing in the allowance for the impairment of trade receivables
at reporting date was:
Fixed-line and other
Current defaulted trade 24 53 70
21 to 60 days 21 25 30
61 to 90 days 19 31 19
91 to 120 days 15 19 74
120+ days 118 121 131
197 249 324
Mobile 38 41 –
235 290 324
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.3 Credit risk management (continued)
The movement in the allowance for impairment in respect of trade receivables during the year is disclosed in note 19.
Included in the allowance for doubtful debts are individually impaired receivables with a balance of R49 million (2008: R32 million; 2007:
R49 million) which have been identified as being unable to service their debt obligation. The impairment recognised represents the
difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group
does not hold any collateral over these balances.
During the 2009 year end the Group renegotiated the terms of trade receivables amounting to R1,9 million from a long outstanding
customer. No impairment losses were recognised.
13.4 Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is exposed to liquidity
risk as a result of uncertain cash flows as well as capital commitments. Liquidity risk is managed by the Group’s various Corporate Finance
divisions in accordance with policies and guidelines formulated by the Group’s executive committees. 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 Group maintains
a reasonable balance between the period over which assets generate funds and the period over which the respective assets are funded.
Short-term liquidity gaps may be funded through repurchase agreements and commercial paper bills.
There were no material changes in the exposure to liquidity risk and its objectives, policies and processes for managing and measuring
the risk from the previous period.
The table below summarises the maturity profile of the Group’s financial liabilities based on undiscounted contractual cash flow at the
balance sheet date:
Carrying Contractual 0 – 12 1 – 2 2 – 5 > 5
amount cash flows months years years years
Note Rm Rm Rm Rm Rm Rm
2009
Non-derivative financial liabilities
Finance lease liabilities 38 986 1,848 165 172 516 995
Interest-bearing debt (excluding
finance leases) 28 17,291 18,866 7,670 1,817 5,621 3,758
Trade and other payables 31 5,538 5,778 5,778 – – –
Credit facilities utilised 21 127 127 127 – – –
Derivative financial liabilities
Other financial liabilities 20 228 228 156 72 – –
Interest rate swaps 72 72 – 72 – –
Forward exchange contracts 156 156 156 – – –
24,170 26,847 13,896 2,061 6,137 4,753
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009184
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.4 Liquidity risk management (continued)
Carrying Contractual 0 – 12 1 – 2 2 – 5 > 5
amount cash flows months years years years
Note Rm Rm Rm Rm Rm Rm
2008
Non-derivative financial liabilities
Finance lease liabilities 38 1,167 2,198 257 202 589 1,150
Interest-bearing debt (excluding finance
leases) 28 14,566 16,672 6,350 4,835 2,733 2,754
Trade and other payables 31 8,771 8,771 8,771 – – –
Credit facilities utilised 21 1,342 1,342 1,342 – – –
Derivative financial liabilities
Other financial liabilities 20 1,290 1,290 371 919 – –
Put option (Multi-Links) 919 919 – 919 – –
Put option (Vodacom DRC) 198 198 198 – – –
Forward exchange contracts 173 173 173 – – –
27,136 30,273 17,091 5,956 3,322 3,904
2007
Non-derivative financial liabilities
Finance lease liabilities 38 1,220 2,424 231 276 585 1,332
Interest-bearing debt (excluding
finance leases) 28 9,144 11,329 6,133 1 2,551 2,644
Trade and other payables 31 7,237 7,237 7,237 – – –
Credit facilities utilised 21 441 441 441 – – –
Derivative financial liabilities
Other financial liabilities 20 229 229 229 – – –
Put option (Vodacom DRC) 125 125 125 – – –
Interest rate swaps 26 26 26 – – –
Forward exchange contracts 42 42 42 – – –
Other financial liability 36 36 36 – – –
18,271 21,660 14,271 277 3,136 3,976
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.5 Foreign currency exchange rate risk management
The Group manages its foreign currency exchange rate risk by economically hedging all identifiable exposures via various financial
instruments suitable to the Group’s risk exposure.
Forward exchange contracts have been entered into to reduce the foreign currency exposure on the Group’s operations and liabilities. The
Group also enters into foreign forward exchange contracts to economically hedge interest expense and purchase and sale commitments
denominated in foreign currencies (primarily United States dollars and euros). The purpose of the Group’s foreign currency hedging activities
is to protect the Group from the risk that the eventual net cash flows will be adversely affected by changes in exchange rates.
There were no changes in the exposure to foreign currency exchange rate risk and its objectives, policies and processes for managing and
measuring the risk from the previous period.
The following table details the foreign forward exchange contracts outstanding at year end:
Foreign
contract Forward
amount amount Fair value
To buy m Rm Rm
2009
Currency
US$ 155 1,477 14
Euro 92 1,205 (24)
Other 36 69 (3)
2,751
2008
Currency
US$ 139 1,042 109
Euro 252 2,826 444
Pound Sterling 19 281 30
Other 31 32 6
4,181
2007
Currency
US$ 181 1,329 (1)
Euro 196 1,899 23
Pound Sterling 19 261 6
Other 66 49 (1)
3,538
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009186
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.5 Foreign currency exchange rate risk management (continued)
Foreign
contract Forward
amount amount Fair value
To sell m Rm Rm
2009
Currency
US$ 99 947 (22)
Euro 35 485 28
Other 21 43 4
1,475
2008
Currency
US$ 78 596 (68)
Euro 73 848 (103)
Pound Sterling 5 89 (1)
Other 17 22 (1)
1,555
2007
Currency
US$ 122 994 88
Euro 52 505 (5)
Pound Sterling 4 51 1
Other 29 17 –
1,567
The Group has various monetary assets and liabilities in currencies other than the Group’s functional currency. The following table represents
the net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Group according to the
different foreign currencies.
South United
African Pound States
Rand Euro Sterling Dollar Other
Rm Rm Rm Rm Rm
2009
Net foreign currency monetary assets/(liabilities)
Functional currency of company operation
South African rand – 204 – 650 19
Naira – – – (1,611) –
2008
Net foreign currency monetary assets/(liabilities)
Functional currency of company operation
South African Rand – 481 (133) 224 (13)
United States Dollar – 8 – – (17)
Naira – – – (446) –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 187
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.5 Foreign currency exchange rate risk management (continued)
South United African Pound States
Rand Euro Sterling Dollar OtherRm Rm Rm Rm Rm
2007Net foreign currency monetary assets/(liabilities)Functional currency of company operationSouth African rand – 475 (166) 159 32 United States dollar 26 (25) – – (17)
Currency swapsThere were no currency swaps in place at March 31, 2009, 2008 and 2007.
13.6 Sensitivity analysisInterest rate riskThe following table illustrates the sensitivity to a reasonably possible change in the interest rates, with all other variables held constant:
+1% movement –1% movementOther Other
movements movements Profit in equity Profit in equity
Rm Rm Rm Rm
2009Classes of financial instruments per balance sheetAssets
Trade and other receivables 5 – (5) –Other financial assets 28 – (28) –
Interest rate swaps 18 – (18) –Repurchase agreements 10 – (10) –
LiabilitiesInterest-bearing debt (67) – 67 –Other financial liabilities 15 – (15) –
Interest rate swaps 15 – (15) –
(19) – 19 –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.6 Sensitivity analysis (continued)
Interest rate risk (continued)+1% movement –1% movement
Other Other movements movements
Profit in equity Profit in equityRm Rm Rm Rm
2008Classes of financial instruments per balance sheetAssets
Trade and other receivables 5 – (5) –Liabilities
Interest-bearing debt (62) – 62 –
(57) – 57 –
2007Classes of financial instruments per balance sheetAssets
Trade and other receivables 4 – (4) –Liabilities
Interest-bearing debt (1) – 1 –Other financial liabilities 2 – (2) –
Forward exchange contract 2 – (2)
5 – (5) –
Foreign exchange currency riskThe following table illustrates the sensitivity to a reasonably possible change in the exchange rates, with all other variables held constant.
+10% movement –10% movement(depreciation) (appreciation)
Other Other movements movements
Profit in equity Profit in equityRm Rm Rm Rm
2009Classes of financial instruments per balance sheetAssets
Trade and other receivables 40 – (40)Other financial assets 1 – (1) –
Forward exchange contract 1 – (1) –
Liabilities Interest-bearing debt (70) – 70 –Trade and other payables (173) – 173 –Other financial liabilities 128 – (128) –
Forward exchange contract 128 – (128) –
(74) – 74 –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 189
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.6 Sensitivity analysis (continued)
Foreign exchange currency sensitivity (continued)
+10% movement –10% movement
(depreciation) (appreciation)
Other Other
movements movements
Profit in equity Profit in equity
Rm Rm Rm Rm
2008Classes of financial instruments per balance sheetAssets
Trade and other receivables 10 – (10) –
Other financial assets 331 – (331) –
Forward exchange contract 331 – (331) –
Liabilities
Interest-bearing debt 68 – (68) –
Trade and other payables (95) – 95 –
Other financial liabilities (153) – 153 –
Forward exchange contract (153) – 153 –
161 – (161) –
2007Classes of financial instruments per balance sheetAssets
Trade and other receivables 10 – (10) –
Other financial assets 74 – (74) –
Forward exchange contract 74 – (74) –
Liabilities
Interest-bearing debt 10 – (10) –
Trade and other payables (40) – 40 –
Other financial liabilities 11 – (11) –
Forward exchange contract 11 – (11) –
45 – (45) –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009190
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.7 Exchange rate table (closing rate)
2007 2008 2009
R R R
United States Dollar 7.248 8.132 9.484
Euro 9.649 12.854 12.617
Pound Sterling 14.189 16.166 13.555
Swedish Krona 1.033 1.370 1.153
Japanese Yen 0.061 0.082 0.097
13.8 Capital management
The Group’s policy is to maintain a strong capital base so as to sustain investor, creditor and market confidence and to sustain future
development of the business. Capital comprises equity attributable to equity holders of Telkom. The Group monitors capital using net debt
to EBITDA ratio. Telkom’s policy is to keep the net debt to EBITDA ratio between 1 and 2 times. Included in net debt are interest-bearing
loans and borrowings, credit facilities and other financial liabilities, less cash and cash equivalents and other financial assets.
Telkom plans on continuing its share buy-back strategy based on certain criteria, including market conditions, availability of cash and other
investment opportunities and needs.
All of Telkom’s issued and outstanding ordinary shares, including the class A ordinary share and the class B ordinary share, rank equal for
dividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is
declared to holders of all ordinary shares. Telkom’s current dividend policy aims to provide shareholders with a competitive return on their
investment, while assuring sufficient reinvestment of profits to enable the Group to achieve its strategy. Telkom may revise its dividend policy
from time to time. The determination to pay dividends and the amount of the dividends, will depend upon, among other things, the earnings,
financial position, capital requirements, general business conditions, cash flows, net debt levels and share buy-back plans.
The Group has access to financing facilities; the total unused amount is R6,237 million (2008: R7,565 million; 2007: R8,658 million) at
the balance sheet date.
There were no changes in the Group’s approach to capital management during the year.
Neither the Group nor any of its subsidiaries are subject to externally imposed capital requirements.
The net debt to EBITDA ratio is as follows: 2007 2008 2009
Rm Rm Rm
Non-current portion of interest-bearing debt 4,338 9,403 10,653 Current portion of interest -bearing debt 6,026 6,330 7,622 Credit facilities utilised 441 1,342 127 Non-current portion of other financial liabilities 36 919 –Current portion of other financial liabilities 193 371 228 Less: Cash and cash equivalents (749) (1,134) (1,931)Less: Other financial assets (259) (614) (1,202)
Net debt 10,026 16,617 15,497
EBITDA 13,352 13,203 11,668
Net debt to EBITDA ratio 0.75 1.26 1.33
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
14. INVESTMENTS 1,384 1,444 1,383
Available-for-sale 47 55 –
Unlisted investments
Rascom – – –
WBS Holdings (Proprietary) Limited 40 23 –
2 500 ordinary shares at R0.01 each
Other investments 7 32 –
Loans and receivables 65 63 97
Mirambo Limited – 60 –
Planetel Communications Limited 25 – –
Caspian Limited 29 – –
Number Portability Company (Proprietary) Limited 3 3 –
Sekha-Metsi Investment Consortium Limited 8 – –
Empresa Mocambicana de Telecommunicacoes S.A.R.L. (’Emotel’) – 4 –
Other unlisted investments – – 97
At fair value through profit or loss 1,349 1,377 1,286
Linked insurance policies – Coronation 1,280 1,291 1,286
Other money market investments 69 51 –
Other unlisted investments – 35 –
Less: Short-term investments (77) (51) –
Sekha-Metsi Investment Consortium Limited (8) – –
WBS Holdings (Proprietary) Limited (included in other unlisted investments) – (13) –
Other money market investments (69) (38) –
Included in held-for-trading investments is R1,286 million (2008: R1,290 million, 2007: R1,279 million) that will be used to fund the post-
retirement medical aid liability. These investments are made through a cell captive, in which Telkom holds 100% of the preference shares of the
cell captive, and represent the fair value of the underlying investments of the cell captive. The initial cost of the investment amounts to R535 million
(2008: R535 million; 2007: R535 million). Telkom bears all the risks and rewards of the investment, as the returns/losses on the preference
shares are dependent on the performance of the underlying investments made by the cell captive. On this basis Telkom as the preference
shareholder receives any residual gains or losses made by the cell captive. The ordinary shareholders of the cell captive do not bear any of the
risks and rewards. The cell captive has been consolidated in full.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
15. DEFERRED REVENUE AND DEFERRED EXPENSESDeferred revenue 3,004 3,721 2,711
Non-current deferred revenue 1,021 1,128 997
Current portion of deferred revenue 1,983 2,593 1,714
Deferred expenses 557 583 55
Non-current deferred expenses 270 221 55
Current portion of deferred expenses 287 362 –
Included in non-current deferred expenses and revenue for the financial
year end March 31, 2008 and 2007 is Vodacom unactivated starter packs.
16. FINANCE LEASE RECEIVABLESThe Group provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated to
specific customers. The disclosed information relates to those arrangements which were assessed to be finance leases in terms of IAS17.
Total < 1 year 1 – 5 years > 5 years
Rm Rm Rm Rm
2009
Minimum lease payments
Lease payments receivable 360 142 219 –
Unearned finance income (85) (33) (53) –
Present value of minimum lease payments 275 109 166 –
Lease receivables 275 109 166 –
2008
Minimum lease payments
Lease payments receivable 452 196 256 –
Unearned finance income (80) (30) (50) –
Present value of minimum lease payments 372 166 206 –
Lease receivables 372 166 206 –
2007
Minimum lease payments
Lease payments receivable 312 110 202 –
Unearned finance income (66) (22) (44) –
Present value of minimum lease payments 246 88 158 –
Lease receivables 246 88 158 –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
17. DEFERRED TAXATION (1,123) (1,374) (1,068)
Opening balance (587) (1,123) (1,374)Transferred to disposal group – – 281 Income statement movements (516) (219) 164
Temporary differences (515) (331) (152)(Underprovision)/overprovision prior year (1) 53 (138)Capital gains taxation asset – – 454 Change in taxation rate – 59 –
Business combinations (16) (65) (137)Foreign currency translation reserve and foreign equity revaluation (4) 33 (2)
The balance comprises: (1,123) (1,374) (1,067)
Capital allowances (3,325) (3,841) 3,210)Provisions and other allowances 1,719 2,008 1,416 Taxation losses 113 276 –Capital gains taxation asset – – 454 STC taxation credits 370 183 273
Deferred taxation balance is made up as follows: (1,123) (1,374) (1,067)
Deferred taxation assets 593 605 756 Deferred taxation liabilities (1,716) (1,979) (1,823)
Unutilised STC credits 2,958 1,830 2,730
Secondary taxation on companies (STC) is provided for a rate of10% on the amount by which dividends declared by Telkomexceeds dividends received. The deferred taxation asset is raised as it is probable that it will be utilised in future. The asset will be released as ataxation expense when dividends are declared.
The deferred taxation asset represents STC credits on past dividendsreceived that are available to be utilised against dividends declared.The deferred taxation asset also includes deferred taxation on temporarydifferences arising on investments that were classified as held for sale inthe period as well as STC credits on past dividends received.
18. INVENTORIES 1,093 1,287 1,974
Gross inventories 1,275 1,535 2,165 Write-down of inventories to net realisable value (182) (248) (191)
Inventories consist of the following categories: 1,093 1,287 1,974
Installation material, maintenance material and network equipment 811 895 1,051 Merchandise 282 392 923
Write-down of inventories to net realisable value 182 248 191
Opening balance 102 182 248 Transferred to disposal group – – (50)Charged to selling, general and administrative expenses 154 164 167 Inventories written-off (74) (98) (174)
Inventory levels as at March 31, 2009, 2008 and 2007 have increased due to the accelerated roll-out of the Next Generation Networkrequired to improve customer service, and the acquisition of merchandise for the W-CDMA roll-out.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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19. TRADE AND OTHER RECEIVABLES 7,303 8,986 5,980
Trade receivables 6,557 7,695 4,698
Gross trade receivables 6,792 7,985 5,022
Impairment of receivables (235) (290) (324)
Prepayments and other receivables 746 1,291 1,282
Impairment allowance account for receivables 235 290 324
Opening balance 290 235 290
Charged to selling, general and administrative expenses 153 300 368
Receivables written-off (208) (245) (334)
Refer to note 13 for detailed credit risk analysis.
20. OTHER FINANCIAL ASSETS AND LIABILITIESOther financial assets consist of: 259 614 1,202
Held-to-maturity
Repurchase agreements – – 1,046
At fair value through profit or loss 259 614 156
Bills of exchange 98 – –
Interest rate swaps 16 9 4
Forward exchange contracts 145 589 152
Other financial assets – 16 –
Repurchase agreements
Telkom manages a portfolio of repurchase agreements in the South
African capital and money markets, with a view to generating additional
investment income on the favourable interest rates provided on these
transactions. Interest received from the borrower is based on the current
market related yield. There were no repurchase agreements held at
March 31, 2008 and 2007.
Bills of exchange
The fair value of bills of exchange has been calculated at with reference
to the Bond Exchange of South Africa quoted prices.
Other financial liabilities consist of: (229) (1,290) (228)
Non-current portion of other financial liabilities
Other (36) – –
Put option at fair value through profit or loss – (919) –
Current portion of other financial liabilities
At fair value through profit or loss (193) (371) (228)
Put option at fair value through profit or loss (125) (198) –
Interest rate swaps (26) – (72)
Forward exchange contracts (42) (173) (156)
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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21. NET CASH AND CASH EQUIVALENTS 308 (208) 1,282
Net cash and cash equivalents attributable to continuing operations 308 (208) 1,804
Cash shown as current assets 749 1,134 1,931
Cash and bank balances 649 664 1,361
Short-term deposits 100 470 570
Credit facilities utilised (441) (1,342) (127)
Net cash and cash equivalents attributable to disposal groups – – (522)
Cash at banks and short-term deposits attributable to disposal groups – – 580
Credit facilities utilised – – (1,102)
Undrawn borrowing facilities 8,658 7,565 6,237
The undrawn borrowing facilities are unsecured, when drawn bear interest at a rate that will be mutually agreed between the borrower
and lender at the time of drawdown, have no specific maturity date and are subject to annual review. The facilities are in place to ensure
liquidity. At March 31, 2009, R3,000 million of these undrawn facilities were committed by Telkom.
Borrowing powers
To borrow money, Telkom’s directors may mortgage or encumber Telkom’s property or any part thereof and issue debentures, whether
secured or unsecured, whether outright or as security for debt, liability or obligation of Telkom or any third party. For this purpose the
borrowing powers of Telkom are unlimited, but are subject to the restrictive financial covenants of the loan facilities indicated on note 28.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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22. SHARE CAPITAL Authorised and issued share capital is made up as follows:
Authorised 10,000 10,000 10,000
999,999,998 ordinary shares of R10 each 10,000 10,000 10,000
1 class A ordinary share of R10 – – –
1 class B ordinary share of R10 – – –
Issued and fully paid 5,329 5,208 5,208
520,783,898 (2008: 520,784,184; 2007: 532,855,528)
ordinary shares of R10 each 5,329 5,208 5,208
1 (2008: 1; 2007: 1) class A ordinary share of R10 – – –
1 (2008: 1; 2007: 1) class B ordinary share of R10 – – –
The following table illustrates the movement within the number of shares issued:
Number of Number of Number of
shares shares shares
Shares in issue at beginning of year 544,944,901 532,855,530 520,784,186
Shares bought back and cancelled (12,089,371) (12,071,344) (286)
Shares in issue at end of year 532,855,530 520,784,186 520,783,900
Full details of the voting rights of ordinary, class A and class B shares are documented in the articles of association of Telkom.
Share buy-back
During the financial year Telkom bought back 286 ordinary shares at a total consideration of R30,425. The shares were bought back and
cancelled in order to allow Telkom shareholders to participate in the proposed unbundling of Vodacom Group on a one to one basis. This
reduced share capital by R2,860 and retained earnings by R27,565.
During the financial year ended March 31, 2008, Telkom bought back 12,071,344 ordinary shares at a total consideration of
R1,647 million. This reduced share capital by R121 million and retained earnings by R1,526 million.
During the financial year ended March 31, 2007, Telkom bought back 12,089,371 ordinary shares at a total consideration of
R1,596 million. This reduced share capital by R120 million, share premium by R1,342 million and retained earnings by R134 million.
Capital management
Refer to note 13 for detailed capital management disclosure.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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23. TREASURY SHARE RESERVE (1,774) (1,638) (1,517)
This reserve represents amounts paid by Telkom to Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited, subsidiaries, for the acquisition of Telkom’s shares to be utilised in termsof the Telkom Conditional Share Plan (’TCSP’).
At March 31, 2009, 11,646,680 (2008: 10,493,141; 2007: 12,237,016) and 8,143,556 (2008: 10,849,058; 2007: 10,849,058) ordinary shares in Telkom, with a fair value of R1,229 million (2008: R1,377 million; 2007: R2,031 million) and R859 million (2008: R1,423 million; 2007: R1,801 million) are held as treasury shares by its subsidiaries Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited, respectively.
The shares held by Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited are reserved for issue in terms of the Telkom Conditional Share Plan (’TCSP’).
The reduction in the number of treasury shares is due to 1,552,029 (2008: 1,743,785; 2007: 450,505) shares that vested in terms of the TCSP during the year.
The fair value of these shares at the date of vesting was R228 million (2008: R301 million; 2007: R63 million).
24. SHARE-BASED COMPENSATION RESERVEThis reserve represents the cumulative grant date fair value of the equity-settled share-based payment transactions recognised in employee expenses during the vesting period of the equity instruments granted to employees in terms of the Telkom Conditional Share Plan (refer to note 30).
No consideration is payable on the shares issued to employees, but performance criteria will have to be met in order for the granted shares to vest. The ultimate number of shares that will vest may differ based on certain individual and Telkom performance conditions being met. The related compensation expense is recognised over the vesting period of shares granted, commencing on the grant date.
The following table illustrates the movement within the share-based compensation reserve:Balance at beginning of year 151 257 643 Net increase in equity 106 386 433
Employee cost 141 522 554 Vesting and transfer of shares (35) (136) (121)
Balance at end of year 257 643 1,076
At March 31, 2009 the estimated total compensation expense to be recognised over the vesting period was R1,824 million (2008:R2,151 million; 2007: R580 million), of which R554 million (2008: R522 million; 2007: R141 million) was recognised in employeeexpenses for the year.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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25. NON-DISTRIBUTABLE RESERVES 1,413 1,292 1,758
Opening balance 1,128 1,413 1,292
Transferred to disposal groups (4)
Movement during the year 285 (121) 470
Foreign currency translation reserve (net of taxation of R6 million
(2008: R6 million; 2007: R4 million) 46 521 (181)
Minority put option – (661) 661
Revaluation of an available-for-sale investment (net of taxation of R1 million) – 8 –
Available-for-sale financial asset
Life fund reserve (cell captive) 239 11 (10)
The balance comprises: 1,413 1,292 1,758
Foreign currency translation reserve (58) 463 286
Cell captive reserve 1,471 1,482 1,472
Available-for-sale investment – 8 –
Minority put option – (661) –
The Group has a consolidated cell captive, used as an investment to fund
Telkom’s post-retirement medical aid liability.
The earnings from the cell captive are recognised in the income statement
and then transferred to non-distributable reserves.
Gains and losses from changes in the fair value of available-for-sale
investments are recognised directly in equity until the financial asset
is disposed of.
26. RETAINED EARNINGS 26,499 27,310 28,852
Opening balance 22,904 26,499 27,310
Movement during year 3,729 2,337 1,542
Net profit for the year 8,646 7,975 4,171
Transfer to non-distributable reserves (refer to note 25) (239) (11) 10
Premium on acquisition of minority interest in Multi-Links – – 667
Dividend declared (refer to note 35) (4,678) (5,627) (3,306)
Shares bought back (refer to note 22) (134) (1,526) –
The balance comprises: 26,499 27,310 28,852
Company 21,906 22,484 24,323
Joint venture 4,762 5,697 6,132
Subsidiaries 786 428 223
Eliminations (955) (1,299) (1,826)
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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27. MINORITY INTEREST 284 522 853
Opening balance 301 284 522
Movement during the year (17) 238 331
Reconciliation: 284 522 853
Balance at beginning of year 301 284 522
Share of earnings 203 197 77
Acquisition of subsidiaries and minority interests (68) 77 –
Foreign currency translation reserves 14 29 16
Dividend declared (166) (65) (33)
Broad-based black economic empowerment transaction in Vodacom – – 271
28. INTEREST-BEARING DEBTNon-current interest-bearing debt 4,338 9,403 10,653
Total interest-bearing debt (refer to note 13) 10,364 15,733 18,275
Gross interest-bearing debt 12,549 17,839 19,851
Discount on debt instruments issued (2,185) (2,106) (1,576)
Less: Current portion of interest-bearing debt (6,026) (6,330) (7,622)
Local debt (5,772) (6,001) (7,546)
Locally registered Telkom debt instruments (4,432) – (2,000)
Commercial paper bills (1,339) (3,401) (5,546)
Short-term interest-free loans (1) – –
Call borrowings – (2,600) –
Foreign debt (193) (202) (40)
Finance leases (61) (124) (36)
Licence obligation – (3) –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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28. INTEREST-BEARING DEBT (continued)Total interest-bearing debt is made up as follows: 10,364 15,733 18,275
(a) Local debt 8,131 12,923 16,660
Locally registered Telkom debt instruments 6,786 8,164 11,106
Name, maturity, rate p.a., nominal valueTK01, 2009, 10%, RNil (2008: RNil;
2007: R4,680 million) 4,432 – –TL12, 2012, 12.45%, R1,060 million (2008: RNil;
2007: RNil) – – 1,059 TL15, 2015, 11.9%, R1,160 million (2008: RNil;
2007: RNil) – – 1,159 TL20, 2020, 6%, R2,500 million (2008: R2,500 million;
2007: R2,500 million) 1,246 1,283 1,325 PP02, 2010, 0%, R430 million (2008: R430 million;
2007: R430 million) 264 304 349 PP03, 2010, 0%, R1,350 million (2008: R1,350 million;
2007: R1,350 million) 844 977 1,131 Call borrowings, 2009, 11.58%, RNil (2008: R2,600 million;
2007: RNil) – 2,600 –Term loans, 2010, 9.67%, R2,000 million (2008: R3,000 million;
2007: RNil) – 3,000 2,000 Syndicated loans, 2014, 11.46%, R4,100 million (2008: RNil;
2007: RNil) – – 4,083
Total interest-bearing debt is made up of R18,275 million debt at amortised cost (2008: R15,733 million debt at amortised cost; 2007: R10,266 million debt at amortised cost and R98 million debt at fair value through profit and loss).
Local bondsThe local Telkom bonds are unsecured, but a Side letter to the Subscription Agreement (as amended) of the TL20 bond contains a number of restrictive covenants, which, if not met, could result in the early redemption of the loan. The local bonds limit Telkom’s ability to create encumbrances on revenue or assets, and secure any indebtedness without securing the outstanding bonds equally and rateably with such indebtedness. The Term loan agreements limit Telkom’s ability to encumber, cede, assign, sell or otherwise dispose of a material portion of its assets without prior written consent of the Lenders, which will not be unreasonably withheld. The syndicated loan agreement contains restrictive covenants as well as restrictions on encumbrances, disposals, Group guarantees and Group loans.
Commercial paper bills 1,339 4,202 5,546 Rate p.a., nominal value2009, 11.44% (2008: 11.71%; 2007: 9.04%), R5,559 million (2008: R4,383 million; 2007: R1,350 million)
Asset Backed Arbitraged Securities (Proprietary) Limited – 500 –Licence obligation – 47 –Other debt 6 10 8
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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28. INTEREST-BEARING DEBT (continued)(b) Foreign debt 1,013 1,643 629
Maturity, rate p.a., nominal value 106 141 138
Euro: 2010 – 2025, 0.10% – 0.14% (2008: 0.10% – 0.14%;
2007: 0.10% – 0.14%), e11 million (2008: e11 million;
2007: e11 million)
Interest-bearing debt held in Vodacom disposal group 907 957 –
The local and foreign debt, for both the non-current and current portion,
is disclosed in note 9.2 in the disposal group.
Zenith Bank – 45 –
Multi-Links Telecommunications Limited took out a loan with Zenith Bank.
The original loan amounted to US$14 million against which full repayments
were made in 2009. The loan bore interest at LIBOR plus 3.5%.
FCMB loan – 87 –
Multi-Links Telecommunications Limited took out a FCMB loan.The original
loan amounted to naira 1,500 million against which full repayments were
made in 2009. The loan bore interest at 13%.
Export Development Bank of Canada – 82 157
Multi-Links Telecommunications Limited has a long-term funding facility in
place with Export Development Bank of Canada (EDC), through First Bank
of Nigeria plc. The original funding amounted to US$18 million against
which US$1,6 million repayments were made.The loan bears interest
at LIBOR plus 1.25%, and will be fully repaid during 2013.
Huawei Vendor Financing Facility (‘VFF’) – 319 323
Multi-Links Telecommunications Limited entered into a Bridge Financing
Agreement with Huawei Tech Investment Co. Limited for the supply of
telecommunications equipment and services. The original funding amounted
to US$41.6 million against which repayments of US$5 million have
already been made. The loan bears interest at LIBOR plus 2% and will
be repaid by 2012. The above arrangement is temporary until financing
facilities are obtained from China Development Bank.
PTA Bank and Barclays Bank – 12 11
Africa Online Group has taken out a loan with PTA Bank and Barclays
Bank to the value of US$1.5 million in total. Of this amount US$0.8 million
bears interest at LIBOR plus 6% and the remaining US$0.4 million bears
interest at 11.5%.
(c) Finance leases 1,220 1,167 986
The finance leases are secured by buildings with a carrying value of
R152 million (2008: R174 million; 2007: R197 million) and office
equipment with a book value of R6 million (2008: R14 million;
2007: R6 million) (refer to note 11). These amounts are repayable within
periods ranging from 1 to 12 years. Interest rates vary between 13.43%
and 37.78%.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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28. INTEREST-BEARING DEBT (continued)Included in non-current and current debt is:Debt guaranteed by the South African Government 4,537 141 138 Telkom may issue or re-issue locally registered debt instruments in terms of the Post Office Amendment Act 85 of 1991. The borrowing powers of Telkom are set out as per note 21.
Repayments/refinancing of current portion of interest-bearing debtTelkom issued new local bonds, the TL12 and TL15 with a nominal value of R1,060 million and R1,160 million respectively and entered into Syndicated loan agreements with a nominal value of R4,100 million during the current year. Commercial Paper Bills with a nominal value of R11,025 million were issued and Commercial Paper debt with a nominal value of R9,849 million was repaid during the current year.
The repayment/refinancing of R7,622 million of the current portion of interest-bearing debt will depend on the market circumstances at the time of repayment.
Management believes that sufficient funding facilities will be available at the date of repayment/refinancing.
29. PROVISIONS 1,443 1,675 1,875
Employee related 3,005 3,186 3,169
Annual leave 413 438 428
Balance at beginning of year 356 413 438 Transferred to disposal groups – – (67)Charged to employee expenses 66 44 72 Leave paid (9) (19) (15)
Post-retirement medical aid (refer to note 30) 1,139 1,356 1,745
Balance at beginning of year 2,607 1,139 1,356 Interest cost 286 322 428 Current service cost 83 84 95 Expected return on plan asset (188) (257) (223)Actuarial loss 149 129 157 Termination settlement – – (5)Plan asset – initial recognition (1,720) – –Contributions paid (78) (61) (63)
Telephone rebates (refer to note 30) 282 287 325
Balance at beginning of year 198 282 287 Interest cost 19 22 39 Current service cost 4 3 6 Past service cost 76 2 2 Actuarial loss 5 – 14 Benefits paid (20) (22) (23)
Bonus 1,090 992 671
Balance at beginning of year 1,071 1,090 992 Transferred to disposal groups – – (397)Charged to employee expenses 965 797 577 Payment (946) (895) (501)
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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29. PROVISIONS (continued)Long-term incentive provision 81 113 –
Balance at beginning of year 61 81 113 Transferred to disposal groups – – (113)Charged to employee expenses 21 41 –Payment (1) (9) –
Non-employee related 533 670 856
Supplier dispute (refer to note 39) 527 569 664
Balance at beginning of year – 527 569
Charged to expenses 527 42 95
Warranty provision – – –
Balance at beginning of year 16 – –
Provision utilised (16) – –
Other 6 101 192
Less: Current portion of provisions (2,095) (2,181) (2,150)
Annual leave (402) (417) (425)
Post-retirement medical aid (186) (186) (227)
Telephone rebates (26) (26) (29)
Bonus (911) (921) (654)
Supplier dispute (527) (569) (664)
Other (43) (62) (151)
Annual leave
In terms of Telkom’s policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle, to a cap of 22 days
which must be taken within an 18 month leave cycle. The leave cycle is reviewed annually and is in accordance with legislation.
Bonus
The Telkom bonus scheme consists of performance bonuses which are dependent on achievement of certain financial and non-financial
targets. The bonus is to all qualifying employees payable bi-annually after Telkom’s results have been made public.
Supplier dispute
Telkom provided R664 million (2008: R569 million; 2007: R527 million) for its estimate of the probable liability as discussed in note 39.
The net movement in the provision of R95 million consists of finance charges and fair value movements.
Other
Included in other provisions is an amount provided for asset retirement obligations and the onerous lease obligation recognised in Telkom
Media.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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30. EMPLOYEE BENEFITSThe Group provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund. Membership
of one of the funds is compulsory. In addition, certain retired employees receive medical aid benefits and a telephone rebate. The liabilities
for all of the benefits are actuarially determined in accordance with accounting requirements each year. In addition, statutory funding
valuations for the retirement and pension funds are performed at intervals not exceeding three years.
At March 31, 2009, the Group employed 25,445 employees (2008: 33,616; 2007: 33,047).
Actuarial valuations were performed by qualified actuaries to determine the benefit obligation, plan asset and service costs for the pension
and retirement funds for each of the financial periods presented.
The Telkom Pension Fund
The Telkom Pension Fund is a defined benefit fund that was created in terms of the Post Office Amendment Act 85 of 1991.
The latest actuarial valuation performed at March 31, 2009 indicates that the pension fund is in a surplus position of R94 million after
unrecognised losses. The recognition of the surplus is limited due to the application of the asset limitation criteria in IAS19 (revised).
With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the year ended March 31, 2007, a settlement
event occurred in the Telkom Pension Fund whereby 106 members were transferred to the Telkom Retirement Fund.
The funded status of the Telkom Pension Fund is disclosed below:
2007 2008 2009Rm Rm Rm
The Telkom Pension Fund
The net periodic pension costs includes the following components:
Interest and service cost on projected benefit obligations 22 21 21
Expected return on plan assets (19) (27) (28)
Recognised actuarial loss/(gain) 9 (16) –
Settlement loss/(gain) 21 (2) (3)
Asset limitation – 29 39
Net periodic pension expense recognised 33 5 29
Pension fund contributions (refer to note 5.1) 8 5 (1)
The status of the pension plan obligation is as follows:
At beginning of year 281 205 204
Interest and service cost 22 21 21
Employee contributions 2 2 2
Benefits paid (2) (3) (5)
Settlements (70) (15) (22)
Actuarial gain (28) (6) (1)
Benefit obligation at end of year 205 204 199
Plan assets at fair value:
At beginning of year 243 284 311
Expected return on plan assets 19 27 28
Benefits paid (2) (3) (5)
Contributions 10 8 2
Settlements (61) (15) (22)
Actuarial gain/(loss) 75 10 (67)
Plan assets at end of year 284 311 247
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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30. EMPLOYEE BENEFITS (continued)The Telkom Pension Fund (continued)
Present value of funded obligation 205 204 199
Fair value of plan assets (284) (311) (247)
Fund surplus (79) (107) (48)
Unrecognised net actuarial gain/(loss) 25 23 (46)
Fund surplus (54) (84) (94)
Asset limitation – 29 39
Recognised net asset (54) (55) (55)
Expected return on plan assets 19 27 28
Actuarial return/(loss) on plan assets 75 10 (67)
Actual return/(loss) on plan assets 94 37 (39)
Principal actuarial assumptions were as follows:
Discount rate (%) 7.5 9.0 8.7
Yield on government bonds (%) 7.5 9.0 8.7
Long-term return on equities (%) 10.5 11.0 12.0
Long-term return on cash (%) 5.5 7.0 7.5
Expected return on plan assets (%) 9.7 9.8 10.5
Salary inflation rate (%) 6.0 7.5 7.2
Pension increase allowance (%) 2.9 4.3 4.0
The overall long-term expected rate of return on assets is 10.5%. This is
based on the portfolio as a whole and not the sum of the returns of
individual asset categories. The expected return takes into account the
asset allocation of the Telkom Pension Fund and expected long-term
return of these assets, of which South African equities and bonds
are the largest contributors.
The assumed rates of mortality are determined by reference to the
SA85-90 (Light) Ultimate table, as published by the Actuarial Society
of South Africa, for pre-retirement purposes and the PA(90) Ultimate
table, minus one year age rating as published by the Institute and
Faculty of Actuaries in London and Scotland, for retirement purposes.
Funding level per statutory actuarial valuation (%) 100.0 100.0 100.0
The number of employees registered under the Telkom Pension Fund 153 146 123
The fund portfolio consists of the following:
Equities (%) 74 54 57
Bonds (%) 5 5 25
Cash (%) 3 23 3
Foreign investments (%) 16 18 15
Insurance policies (%) 2 – –
The total expected contributions payable to the pension fund for the next financial year are R1 million.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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30. EMPLOYEE BENEFITS (continued)The Telkom Retirement Fund
The Telkom Retirement Fund was established on July 1, 1995 as a hybrid defined benefit and defined contribution plan. Existing employees
were given the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the
Telkom Pension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the
government ceased to guarantee the deficit in the Telkom Retirement Fund. Subsequent to July 1, 1995 further transfers of existing employees
occurred.
The Telkom Retirement Fund is a defined contribution fund with regard to in-service members. On retirement, an employee is transferred
from the defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom
Retirement Fund. Moreover, all of the assets in the fund, including any potential excess, belong to the participants of the scheme. Telkom
is unable to benefit from the excess in the form of future reduced contributions or refunds.
Telkom guarantees any actuarial shortfall of the pensioner pool in the retirement fund. This liability is initially funded through assets of the
retirement fund. The latest actuarial valuation performed at March 31, 2009 indicates that the retirement fund is in a surplus funding position
of R1,549 million after unrecognised losses.
The Telkom Retirement Fund is governed by the Pension Funds Act 24 of 1956. In terms of section 37A of this Act, the pension benefits
payable to the pensioners cannot be reduced. If therefore the present value of the funded obligation were to exceed the fair value of plan
assets. Telkom would be required to fund the statutory deficit.
The information presented below is intended only to comply with the disclosure requirements of IAS19 (revised) and not to suggest that
Telkom has a potential asset with regard to this fund.
The funded status of the Telkom Retirement Fund is disclosed below:
2007 2008 2009Rm Rm Rm
The Telkom Retirement Fund
The net periodic retirement costs include the following components:
Interest and service cost on projected benefit obligations 312 493 616
Expected return on plan assets (489) (686) (796)
Recognised actuarial gain (145) – –
Net periodic pension expense not recognised (asset limitation) (322) (193) (180)
Retirement fund contributions (refer to note 5.1) 439 460 460
Benefit obligation:
At beginning of year 4,377 6,581 7,101
Interest 312 493 616
Benefits paid (486) (488) (520)
Liability for new pensioners 44 14 143
Actuarial loss/(gain) 2,334 501 (636)
Benefit obligation at end of year 6,581 7,101 6,704
Plan assets at fair value:
At beginning of year 5,973 7,661 7,991
Expected return on plan assets 489 686 796
Benefits paid (486) (488) (520)
Asset backing new pensioners’ liabilities 44 14 143
Actuarial gain/(loss) 1,641 118 (1,735)
Plan assets at end of year 7,661 7,991 6,675
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
30. EMPLOYEE BENEFITS (continued)The Telkom Retirement Fund (continued)
Present value of funded obligation 6,581 7,101 6,704
Fair value of plan assets (7,661) (7,991) (6,675)
Fund (surplus)/deficit (1,080) (890) 29
Unrecognised net actuarial loss (96) (478) (1,578)
Unrecognised net asset (1,176) (1,368) (1,549)
Expected return on plan assets 489 686 796
Actuarial gain/(loss) on plan assets 1,641 118 (1,735)
Actual gain/(loss) on plan assets 2,130 804 (939)
Included in the fair value of plan assets is:
Office buildings occupied by Telkom 371 596 619
Telkom bonds 21 10 –
Telkom shares 284 141 132
The Telkom Retirement Fund invests its funds in South Africa and internationally.
Twelve fund managers invest in South Africa and five of these managers
specialise in trades with bonds on behalf of the Retirement Fund. The
international investment portfolio consists of global equity and hedged funds.
2007 2008 2009
Principal actuarial assumptions were as follows:
Discount rate (%) 7.5 9.0 8.7
Yield on government bonds (%) 7.5 9.0 8.7
Long-term return on equities (%) 10.5 11.0 12.0
Long-term return on cash (%) 5.5 7.0 7.5
Expected return on plan assets (%) 9.3 10.3 10.7
Pension increase allowance (%) 4.5 6.0 4.0
The overall long-term expected rate of return on assets is 10.7%. This is based on the portfolio as a whole and not the sum of the returns
of individual asset categories. The expected return takes into account the asset allocation of the Retirement Fund and expected long-term
return on these assets, of which South African equities, foreign investments and South African index-linked bonds are the largest contributors.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009
30. EMPLOYEE BENEFITS (continued)The Telkom Retirement Fund (continued)
The assumed rates of mortality are determined by reference to the
SA85-90 (Light) Ultimate table, as published by the Actuarial Society
of South Africa, for pre-retirement purposes and the PA(90) Ultimate
table, minus one year age rating as published by the Institute and
Faculty of Actuaries in London and Scotland, for retirement purposes.
Funding level per statutory actuarial valuation (%) 100 100 100
The number of pensioners registered under the Telkom Retirement Fund 14,451 14,255 13,617
The number of in-service employees registered under the Telkom
Retirement Fund 25,766 24,939 23,389
The fund portfolio consists of the following:
Equities (%) 59 70 55
Property (%) 2 2 –
Bonds (%) 19 11 5
Cash (%) 7 1 5
Foreign investments (%) 13 16 20
Index linked (%) – – 15
The total expected pension benefit payments for the year ending March 31, 2010 are R541,000.
Medical benefits
Telkom makes certain contributions to medical funds in respect of current and retired employees. The scheme is a defined benefit plan. The
expense in respect of current employees’ medical aid is disclosed in note 5.1. The amounts due in respect of post-retirement medical
benefits to current and retired employees have been actuarially determined and provided for as set out in note 29. Telkom has terminated
future post-retirement medical benefits in respect of employees joining after July 1, 2000.
There are three major categories of members entitled to the post-retirement medical aid: pensioners who retired before 1994 (Pre-94); those
who retired after 1994 (Post-94); and the in-service members. The Post-94 and the in-service members’ liability is subject to a Rand cap,
which increases annually with the average salary increase.
Eligible employees must be employed by Telkom until retirement age to qualify for the post-retirement medical aid benefit. The most recent
actuarial valuation of the benefit was performed as at March 31, 2009.
Telkom has allocated certain investments to fund this liability as set out in note 14.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
30. EMPLOYEE BENEFITS (continued)Medical benefits (continued)
Medical aid
Benefit obligation:
At beginning of year 3,904 4,384 4,850
Interest cost 286 322 428
Current service cost 83 84 95
Actuarial loss 283 246 246
Termination settlement – – (5)
Benefits paid from plan assets (94) (125) (141)
Contributions paid by Telkom (78) (61) (63)
Benefit obligation at end of year 4,384 4,850 5,410
Plan assets at fair value:
At beginning of year – 1,961 1,929
Plan asset – initial recognition 1,720 – –
Expected return on plan assets 188 257 223
Benefits paid from plan assets (94) (125) (141)
Actuarial gain/(loss) 147 (164) (393)
Plan assets at end of year 1,961 1,929 1,618
Present value of funded obligation 4,384 4,850 5,410
Fair value of plan assets (1,961) (1,929) (1,618)
Funded status 2,423 2,921 3,792
Unrecognised net actuarial loss (1,284) (1,565) (2,047)
Liability as disclosed in the balance sheet (refer to note 29) 1,139 1,356 1,745
Expected return on plan assets 188 257 223
Actuarial return on plan assets 147 (164) (393)
Actual return on plan assets 335 93 (170)
2007 2008 2009
Principal actuarial assumptions were as follows:Discount rate (%) 7.5 9.0 8.7
Expected return on plan assets (%) 13.5 12.0 11.0
Salary inflation rate (%) 6.0 7.5 7.2
Medical inflation rate (%) 6.5 8.0 7.7
The assumed rates of mortality are determined by reference to the SA85-90
(Light) Ultimate table, as published by the Actuarial Society of South Africa,
for pre-retirement purposes and the PA(90) Ultimate table, minus one year
age rating as published by the Institute and Faculty of Actuaries in London
and Scotland, for retirement purposes.
Contractual retirement age 65 65 65
Average retirement age 60 60 60
Number of members 17,119 15,526 13,883
Number of pensioners 8,494 8,430 8,397
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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30. EMPLOYEE BENEFITS (continued)Medical benefits (continued)The valuation results are extremely sensitive to changes in the underlying assumptions. The following table provides an indication of theimpact of changing some of the valuation assumptions above:
The Trudon benefit obligation of R21 million has been excluded from the sensitivity analysis below.
Current assumption Decrease IncreaseRm Rm Rm
Medical cost inflation rate 7.7% -1.0% +1.0%
Benefit obligation 5,389 (736) 921 Percentage change (13.7)% 17.1%
Service cost and interest cost 2009/2010 555 (84) 108 Percentage change (15.1)% 19.5 %
Discount rate 8.7% -1.0% +1.0%
Benefit obligation 5,389 933 (734)Percentage change 17.3% (13.6)%
Service cost and interest cost 2009/2010 555 46 (37)Percentage change 8.3% (6.7)%
Post-retirement mortality rate PA(90) Ultimate-1 -10.0% +10.0%
Benefit obligation 5,389 221 (197)Percentage change 4.1% (3.7)%
Service cost and interest cost 2009/2010 555 23 (20)Percentage change 4.1% (3.6)%
2007 2008 2009
The fund portfolio consists of the following:Equities (%) 59 56 30Bonds (%) 3 2 2Cash and money market investments (%) 21 33 10Foreign investments (%) 9 9 9Insurance policies (%) 8 – 49
Telephone rebatesTelkom provides telephone rebates to its pensioners. The most recent actuarial valuation was performed as at March 31, 2009. Eligible employees must be employed by Telkom until retirement age to qualify for the telephone rebates. The scheme is a defined benefit plan.
2007 2008 2009Rm Rm Rm
The status of the telephone rebate liability is disclosed below:Benefit obligation opening balance 251 307 443 Service cost 4 3 6 Interest cost 19 22 39 Actuarial (gain)/loss (39) 133 19 Amendments 93 – –Benefits paid (21) (22) (23)
Present value of unfunded obligation 307 443 484 Unrecognised net actuarial loss and service cost* (25) (156) (159)
Liability as disclosed in the balance sheet (refer to note 29) 282 287 325
* The major increase in 2008 is attributable to the change in the rebate inflation rate.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009
30. EMPLOYEE BENEFITS (continued)Telephone rebates (continued)
Principal actuarial assumptions were as follows:
Discount rate (%) 7.5 9.0 8.7
Rebate inflation rate (%) 0.0 4.0 4.0
Contractual retirement age 65 65 65
Average retirement age 60 60 60
The assumed rates of mortality are determined by reference
to the PA(90) Ultimate table, minus one year age rating as
published by the Institute and Faculty of Actuaries
in London and Scotland.
Number of members 19,515 18,766 17,034
Number of pensioners 10,918 10,680 10,499
Telkom Conditional Share Plan
Telkom’s shareholders approved the Telkom Conditional Share Plan at the January 2004 Annual General Meeting. The scheme covers both
operational and management employees and is aimed at giving shares to Telkom employees, at a RNil exercise price, at the end of the
vesting period. The vesting period for the operational employees shares awarded in 2004 and 2005 is 0% in year one, 33% in each of
the three years thereafter, while the shares allocated in 2006 and 2007 together with management shares vest fully after three years.
Although the number of shares awarded to employees will be communicated at the grant date, the ultimate number of shares that vest may
differ based on certain performance conditions being met (refer to note 24).
The Telkom Board approved the fourth enhanced allocation of shares to employees as at September 24, 2007, with a grant date of
September 27, 2007, the day that the employees and Telkom shared a common understanding of the terms and conditions of the grant.
A total number of 6,089,810 shares were granted.
The Board has also approved an enhanced allocation for the November 2006 grant on September 4, 2007 with a grant date of
September 27, 2007. The number of additional shares granted with regard to the 2006 allocation is 4,966,860 shares.
The weighted average remaining vesting period for the shares outstanding as at March 31, 2009 is 0.71 years (2008: 1.25 years;
2007: 1.75 years).
2007 2008 2009
The following table illustrates the movement of the maximum number of
shares that will vest to employees for the August 2004 grant:
Outstanding at beginning of the year 2,414,207 1,883,991 420,590
Granted during the year 1,212 252 –
Forfeited during the year (80,923) (43,790) (3,985)
Vested during the year (450,505) (1,419,863) (416,605)
Outstanding at end of the year 1,883,991 420,590 –
The following table illustrates the movement of the maximum number of
shares that will vest to employees for the June 2005 grant:
Outstanding at beginning of the year 1,930,687 1,864,041 1,435,387
Granted during the year 1,005 3,469 52,954
Forfeited during the year (67,651) (108,177) (45,188)
Vested during the year – (323,946) (1,135,424)
Outstanding at end of the year 1,864,041 1,435,387 307,729
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009
30. EMPLOYEE BENEFITS (continued)Telkom Conditional Share Plan (continued)
The following table illustrates the movement of the maximum
number of shares that will vest to employees for the
November 2006 grant:
Outstanding at beginning of the year – 1,773,361 1,640,980
Granted during the year 1,825,488 833 –
Forfeited during the year (52,127) (133,214) (132,614)
Outstanding at end of the year 1,773,361 1,640,980 1,508,366
The following table illustrates the movement of the maximum
number of shares that will vest to employees relating to
the additional November 2006 grant:
Outstanding at beginning of the year – – 4,812,305
Granted during the year – 4,984,693 25,775
Forfeited during the year – (172,388) (389,357)
Outstanding at end of the year – 4,812,305 4,448,723
The following table illustrates the movement of the maximum
number of shares that will vest to employees for the
September 2007 grant:
Outstanding at beginning of the year – – 5,846,636
Granted during the year – 6,117,163 23,650
Forfeited during the year – (270,527) (509,185)
Outstanding at end of the year – 5,846,636 5,361,101
The fair value of the shares granted have been calculated by an actuary using Black-Scholes-Merton model and the following values at
grant date:
August 8, June 23, November 2, September 4,
2004 2005 2006 2007
Grant Grant Grant Grant
Market share price (R) 77.50 111.00 141.25 173.00
Dividend yield (%) 2.60 3.60 3.50 3.50
2007 2008 2009
The principal assumptions used in calculating the
expected number of shares that will vest
are as follows:
Employee turnover (%) 5 5 9
Meeting specified performance criteria (%) 100 100 75
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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30. EMPLOYEE BENEFITS (continued)The amounts for the current and previous four years are as follows:
2005 2006 2007 2008 2009Rm Rm Rm Rm Rm
Telkom Pension FundDefined benefit obligation (186) (281) (205) (204) (199)Plan assets 231 243 284 311 247
Surplus/(deficit) 45 (38) 79 107 48 Asset limitation – – – (29) (39)Unrecognised actuarial loss/(gain) 89 118 (25) (23) 46
Unrecognised/recognised net asset 134 80 54 55 55
Experience adjustment on assets – – 75 10 (67)Experience adjustment on liabilities – – 25 (6) 1
Telkom Retirement FundDefined benefit obligation (4,020) (4,377) (6,581) (7,101) (6,704)Plan assets 4,477 5,973 7,661 7,991 6,675
Surplus/(deficit) 457 1,596 1,080 890 (29)Unrecognised actuarial gain/(loss) 312 (742) 96 478 1,578
Unrecognised net asset 769 854 1,176 1,368 1,549
Experience adjustment on assets* – – 1,641 118 (1,735)Experience adjustment on liabilities* – – 1,234 485 (645)
Medical benefitsDefined benefit obligation (3,079) (3,904) (4,384) (4,850) (5,410)Plan assets – – 1,961 1,929 1,618
Deficit (3,079) (3,904) (2,423) (2,921) (3,792)Unrecognised actuarial loss 649 1,297 1,284 1,565 2,047
Liability recognised (2,430) (2,607) (1,139) (1,356) (1,745)
Experience adjustment on assets – – 147 (164) (393)Experience adjustment on liabilities – – 28 193 246
Telephone rebatesDefined benefit obligation (177) (251) (307) (443) (484)Unrecognised actuarial (gain)/loss (2) 53 25 156 159
Liability recognised (179) (198) (282) (287) (325)
Experience adjustment on liabilities – – (25) 2 2
The experience adjustments on asset and liabilities for each of the financial periods ended March 31, 2005 and 2006 have not beendisclosed due to the fact that it was impractical to determine the information.
* During the March 31, 2007 year end Telkom actuaries performed a full valuation while for the March 31, 2006 year end a roll forward method was
used, as permitted under IAS19, to determine the present value of the benefit obligation and the fair value of the plan assets using the March 31, 2005
statutory valuation as a base applying the relevant assumptions determined by management to arrive at the present value of the benefit obligation, and
the fair value of the plan assets.
This change in estimate resulted in a movement to the actuarial loss of R700 million and the fair value of the plan assets of R350 million in respect of the
March 31, 2007 estimates. The remaining R1,291 million is a result of the actual investment returns exceeding the expected return for the March 31, 2007
year end.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009214
2007 2008 2009Rm Rm Rm
31. TRADE AND OTHER PAYABLES 7,237 8,771 5,538
Trade payables 5,511 6,768 2,955
Finance cost accrued 22 39 156
Accruals and other payables 1,704 1,964 2,427
Accruals and other payables mainly represent amounts payable for
goods received, net of Value Added Taxation obligations.
32. RECONCILIATION OF PROFIT FOR THE YEAR TO CASH GENERATED FROM OPERATIONS*
Cash generated from operations 20,520 21,256 20,394
Profit for the year 8,849 8,172 4,247
Finance charges and fair value movements 1,125 1,803 3,765
Taxation 4,731 4,704 3,681
Investment income (235) (197) (216)
Interest received from debtors (190) (257) (273)
Non-cash items 6,582 6,930 10,292
Depreciation, amortisation, impairment and write-offs 5,315 6,130 8,155
Cost of equipment disposed when recognising finance leases 240 88 71
Increase in provisions 1,107 857 1,387
Profit on disposal of property, plant and equipment and intangible assets (29) (147) (29)
Vodacom broad-based black economic empowerment charge – – 691
Profit on disposal of investment and subsidiaries (52) – –
Loss on disposal of property, plant and equipment and intangible assets 1 2 17
(Increase)/decrease in working capital (342) 101 (1,102)
Inventories (393) (354) (1,130)
Accounts receivable (758) (784) (812)
Accounts payable 809 1,239 840
33. FINANCE CHARGES PAID* (1,115) (1,077) (2,164)
Finance charges per income statement (1,125) (1,803) (3,765)
Non-cash items 10 726 1,601
Movements in interest accruals (119) 101 105
Net discount amortised 409 568 698
Capitalised finance leases – – 178
Capitalised foreign exchange – – 38
Fair value adjustment (338) (243) 183
Unrealised gain 58 300 399
* Cash flows includes the cash flows related to assets held for sale and disposal groups.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
34. TAXATION PAID* (5,690) (4,277) (3,947)
Taxation payable at beginning of year (1,549) (74) (314)
Current taxation (excluding deferred taxation) (3,545) (3,807) (3,412)
Foreign currency translation reserve – (32) 2
Business combinations – – 2
Secondary taxation on companies (670) (678) (425)
Taxation payable at end of year 74 314 200
Reconciliation of net taxation liability at end of year** (74) (314) (200)
Income taxation receivable 520 9 125
Continuing operations 520 9 91
Disposal groups – – 34
Income taxation payable (594) (323) (325)
Continuing operations (594) (323) (50)
Disposal groups – – (275)
* Cash flows includes the cash flows related to assets held for sale and disposal groups.
** The split income taxation receivable and income taxation payable was split in 2009 to disclose the effect of the discontinued operations.
35. DIVIDEND PAID (4,784) (5,732) (3,336)
Dividend payable at beginning of year (4) (15) (20)
Declared during the year – Dividend on ordinary shares: (4,678) (5,627) (3,306)
Final dividend for 2006: 500 cents (2,599) – –
Special dividend for 2006: 400 cents (2,079) – –
Final dividend for 2007: 600 cents – (3,069) –
Special dividend for 2007: 500 cents – (2,558) –
Final dividend for 2008: 660 cents – – (3,306)
Dividends paid to minority interest (117) (110) (33)
Dividend payable at end of year 15 20 23
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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36. ACQUISITION AND DISPOSALS OF SUBSIDIARIES, JOINT VENTURES AND MINORITY INTERESTS36.1 Acquisitions
By Telkom 2007 2008 2009
Rm Rm Rm
Multi-Links Telecommunications Limited (Multi-Links Telecommunications) (25%)
Telkom International (Proprietary) Limited acquired 75% of the issued
share capital of Multi-Links Telecommunications Limited from Kenston
Investment Limited on May 1, 2007. Telkom also granted Kenston the
irrevocable right and option (put option) to require Telkom to acquire all
of the shares held by Kenston (25% shareholding) in Multi-Links, at any
time during the 90 day period following the second anniversary of the
effective date. On initial recognition, a liability of R661 million,
representing the higher of the transaction share price and the fair value,
was recognised under non-current other financial liabilities.
A corresponding debit was recognised in non-distributable reserves.
The put option was exercised on January 21, 2009 for R1,328 million
(US$130 million at US$1 = R10.2188). The liability was derecognised
and a corresponding credit consisting of R661 million reversal of equity
and R667 million relating to changes in the fair value of the put option
subsequent to initial recognition, was recognised directly in equity.
Put option – – 1,328
Africa Online Limited (Africa Online)
On February 23, 2007 Telkom acquired a 100% shareholding of Africa
Online from African Lakes Corporation for a total cost of R150 million,
with a resulting goodwill of R145 million.
Africa Online is an internet service provider active in Cote d’Ivoire, Ghana,
Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.
Africa Online is incorporated in the Republic of Mauritius.
At acquisition date the company was not IFRS compliant and thus no fair
value information based on IFRS was available.
The process of calculating a fair value of the identified assets, liabilities
and contingent liabilities has been finalised.
The fair value of the assets and liabilities acquired were determined as follows:
Fair value of intangible assets (licences R1 million, brand R42 million) 43 – –
Less: Deferred taxation raised on intangible assets (12) – –
Less: Net liabilities acquired (excluding fair value of intangible assets) (26) – –
Fair value of net assets acquired 5 – –
Goodwill 145 – –
Purchase price 150 – –
The goodwill has been allocated to the various cash-generating units (’CGU’) representative of the countries in which Africa Online Limited
operates.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
36. ACQUISITION AND DISPOSALS OF SUBSIDIARIES, JOINT VENTURES AND MINORITY INTERESTS (continued)
36.1 Acquisitions (continued)By the Group’s subsidiariesMulti-Links Telecommunications Limited (’Multi-Links Telecommunications’) (75%)On May 1, 2007 Telkom acquired a 75% shareholding in Multi-Links Telecommunications through Telkom International, a wholly owned South African subsidiary, for a total cost of R1,985 million.
Multi-Links Telecommunications is a Nigerian Private Telecommunications Operator with a Unified Access Licence providing fixed, mobile, data, long distance and international telecommunications services throughout Nigeria. Multi-Links is domiciled and incorporated in Nigeria.
The purchase price allocation was completed during the 2008 financial year, and has resulted in goodwill being adjusted.
The following intangible assets were identified and valued at the end of the year:
Customer relationship – 61 –Licence – 36 –Brand – 105 –
Fair value of intangible assets – 202 –
The fair value of the assets and liabilities acquired were determined as follows:Net assets acquired (excluding fair value of intangible assets) – 236 –Fair value of intangible assets – 202 –Less: Contingencies recognised – (35) –Less: Deferred taxation raised on intangible assets – (65) –
Fair value of net assets acquired – 338 –Less: Minority interest – (80) –Goodwill – 1,727 –
Purchase price* – 1,985 –
* The purchase price was settled in cash.
Disposal group By the Group’s 50% joint venture, VodacomStorage Technology Services (Proprietary) Limited – – 69 Gateway – – 2,846 Smartphone SP (Proprietary) Limited and subsidiaries 168 468 –Smartcom (Proprietary) Limited 4 9 –Africell Cellular Services (Proprietary) Limited 40 – –InterConnect s.p.r.l 10 – –Cointel VAS (Proprietary) Limited 73 – –
DisposalsBy the Group’s 50% joint venture, VodacomIthuba Smartcall (Proprietary) Limited – – –Stand 13 Eastwood Road Dunkeld (Proprietary) Limited – 8 –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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37. UNDRAWN BORROWING FACILITIES AND GUARANTEES37.1 Rand denominated facilities and guarantees
Telkom has general banking facilities of R6,226 million. The facilities are unsecured, when drawn bear interest at a rate linked to prime,
have no specific maturity date and are subject to annual review. R3,000 million of these undrawn facilities were committed.
37.2 Foreign denominated facilities and guarantees
2007 2008 2009
Guarantor Details Beneficiary Rm Rm Rm
Telkom SA Limited Punctual payment and performance by Various US$3 million – 23 26
Africa Online under the Trade Finance (2008:
Facility Agreement to various banks US$3 million)
First Bank of Nigeria plc Guarantee on lending facility from Export Nortel Networks US$18 million – 147 171
(on behalf of Multi-links Bank of Canada to Nortel Networks for Canada (2008:
Telecommunications the purchase of Telecommunications US$18 million)
Limited) equipment phases – 9a, 9b, 9c and 9d
Zenith Bank plc (on Guarantee payment to Gilat Satcom Gilat Satcom US$0.1 million – 1 1
behalf of Multi-links Limited in respect of interconnect Limited (2008:
Telecommunications service (standby letter of credit) US$0.1 million)
Limited)
Zenith Bank plc (on Support the bid award of the contract NCC US$0.1 million – 1 1
behalf of Multi-links for the submission of the proposal to (2008:
Telecommunications provide wire to Nigerian Telecommuni- US$0.1 million)
Limited) cations Services
Zenith Bank plc (on Issued in favour of Huawei Technology Huawei US$31 million – 250 294
behalf of Multi-links Investment Company Limited for the Technology (2008:
Telecommunications supply of core telecommunications Investment US$31 million)
Limited) services Company
Limited
Zenith Bank plc (on Issued in favour of Huawei Technology Huawei US$11 million – 88 104
behalf of Multi-links Investment Company Limited for the Technology (2008:
Telecommunications supply of core telecommunications Investment US$11 million)
Limited) services Company
Limited
– 510 597
Disposal group
Rand denominated facilities and guarantees
The Group exposure is 50% of the following items:
Vodacom has Rand denominated credit facilities totalling R15,675 million with R12,335 million utilised as at March 31, 2009. The
facilities that are uncommitted can also be utilised for loans to foreign entities and are subject to review at various dates (usually on an
annual basis). Certain of the facilities are still subject to the Group’s final acceptance.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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37. UNDRAWN BORROWING FACILITIES AND GUARANTEES (continued)37.2 Foreign denominated facilities and guarantees
Rand denominated facilities and guarantees (continued)2007 2008 2009
Guarantor Details Beneficiary Rm Rm Rm
Vodacom (Proprietary) All guarantees individually less than Various 3 2 2 Limited R2 million
Vodacom Service All guarantees individually less than Various 3 3 2 Provider Company R2 million(Proprietary) Limited
Vodacom Service Guarantee in respect of receipt of SA Insurance 27 32 35 Provider Company independent intermediaries of premiums Association (Proprietary) Limited on behalf of short-term insurers and for benefit
Lloyd’s underwriters, and relating to of insurersshort-term insurance business carried on in RSA. Renewable annually
Smartcom (Proprietary) Guarantees for salary bank account Various 3 – –Limited and debit orders
Cointel VAS (Proprietary) Guarantees for operating lease Various 1 – –Limited and debit orders
Vodacom (Proprietary) Letter of undertaking in respect of land Attorneys 7 17 33 Limited
Vodacom Properties Lease guarantees Various – – 3 No.2 (Proprietary) Limited
44 54 75
The Group exposure is 50% of the following items:Vodacom Congo (RDC) s.p.r.l. has various facilities of US$31 million which was fully utilised as at March 31, 2009. VodacomInternational Limited has a revolving term loan of US$180 million which was fully utilised at March 31, 2009. Vodacom Lesotho(Proprietary) Limited has overdraft facilities with various banks of M25 million of which M13 million was utilised at March 31, 2009.Vodacom Tanzania Limited has medium-term loans for US$47 million and TZS54,000 million of which US$40 million and TZSNil wasutilised at March 31, 2009. Foreign currency term facilities are predominantly US Dollar based, at various maturities and are utilised forbridging and short-term working capital needs.
2007 2008 2009Guarantor Details Beneficiary Rm Rm Rm
Vodacom Group Guarantees issued for the obligation of Standard Bank US$180 million 1,312 1,463 1,735 (Proprietary) Limited Vodacom International Limited’s term plc and RMB (2008:
loan facility*# International US$180 million;(Dublin) Limited 2007:
US$180 million)
1,312 1,463 1,735
* Foreign denominated guarantees amounting to R1,735 million (2008: R1,463 million; 2007: R1,312 million) issued in support of Vodacom Congo (RDC)
s.p.r.l. are included as liabilities in the disposal group held for sale.
# The Group is in compliance with the covenants attached to the term loan facility.
Companies within the Group have provided the following guarantees:Vodacom (Proprietary) Limited provides an unlimited guarantee for borrowings entered into by Vodacom Group (Proprietary) Limited.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
38. COMMITMENTSCapital commitments
Capital commitments authorised 11,167 15,198 7,928
Fixed-line 7,000 7,000 6,991
Mobile 4,159 5,211 –
Multi-Links – 355 847
Other 8 2,632 90
Commitments against authorised capital expenditure 1,099 3,504 1,393
Fixed-line 506 652 539
Mobile 591 800 –
Multi-Links – 355 847
Other 2 1,697 7
Authorised capital expenditure not yet contracted 10,068 11,694 6,535
Fixed-line 6,494 6,348 6,452
Mobile 3,568 4,411 –
Multi-Links – – –
Other 6 935 83
Capital commitments comprise commitments for property, plant and
equipment and software included in Intangible assets.
Management expects these commitments to be financed from
proceeds of the Vodacom sale.
2010 FIFA World Cup commitments
The FIFA World Cup commitment is an executory contract which requires Telkom to develop the fixed-line components of the necessary
telecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of the fixed-line
telecommunications related products and services and, where applicable, the services of qualified personnel necessary for the planning,
management, delivery, installation and de-installation, operation, maintenance and satisfactory functioning of these products and services.
Furthermore as a National Supporter. Telkom owns a tier 3 sponsorship that grants Telkom a package of advertising, promotional and
marketing rights that are exercisable within the borders of South Africa. Telkom entered into a barter transaction in return for which it has
an outstanding commitment to FIFA of R243 million (2008: R260 million) as at March 31, 2009. This has been recognised in intangible
assets (note 12) and has been included in the disclosure note.
Total <1 year 1 – 5 years >5 years
Rm Rm Rm Rm
Operating lease commitments and receivables
2009
Land and buildings 583 290 281 12
Rental receivable on buildings (271) (99) (170) (2)
Vehicles 1,137 261 876 –
Equipment 15 6 9 –
Customer premises equipment receivables (87) (48) (39) –
Total 1,377 410 957 10
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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38. COMMITMENTS (continued)Total <1 year 1 - 5 years >5 years
Rm Rm Rm Rm
Operating lease commitments and receivables (continued)2008Land and buildings 2,061 341 913 807 Rental receivable on buildings (266) (94) (169) (3)Transmission and data lines 709 134 490 85 Vehicles 1,444 233 1,211 –Equipment 13 10 3 –Sport and marketing contracts 680 282 395 3 Customer premises equipment receivables (84) (45) (39) –
Total 4,557 861 2,804 892
2007Land and buildings 1,465 289 771 405 Rental receivable on buildings (269) (91) (174) (4)Transmission and data lines 262 68 159 35 Vehicles 573 568 5 –Equipment 23 6 17 –Sport and marketing contracts 441 164 275 2 Customer premises equipment receivables (57) (30) (27) –
Total 2,438 974 1,026 438
Customer premises equipment receivableThe disclosed information relates to those arrangements which were assessed to be operating leases in terms of IAS17.
Operating leasesThe Group leases certain buildings, vehicles and equipment. The majority of the lease terms negotiated for equipment-related premises are10 years with other leases signed for five and three years. The majority of the leases contain an option clause entitling Telkom to renewthe lease agreements for a period usually equal to the main lease term.
The minimum lease payments under these agreements are subject to annual escalations, which range from 6% to 15%.
Penalties in terms of the lease agreements are only payable should Telkom vacate a premises and negotiate to terminate the leaseagreement prior to the expiry date, in which case the settlement payment will be negotiated in accordance with the market conditions ofthe premises. Future minimum lease payments under operating leases are included in the above note. Onerous leases for buildings, ofwhich Telkom has no further use, no possibility of sub-lease and no option to cancel, are provided for in full and included in other provisions(refer to note 29).
The master lease agreement for vehicles was for a period of five years and then extended for an additional three years which resulted inthe lease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operatinglease commitments for vehicles are based on the new agreement which expires on March 31, 2013.
In accordance with this agreement Telkom is not allowed to lease any similar vehicle as specified in the contract from any other serviceprovider during the five year period except for the rentals at airport which are utilised in cases of subsistence and travel as well as vehicleswhich are not part of the agreement.
The agreement is structured to have no lease increases on vehicles that are continually leased from the lessor. If a vehicle is, however,replaced by a new similar vehicle, the lease costs of the newest vehicle will increase by the Consumer Price Index. All leased vehicles are,however, subject to any variance in the interest rate fluctuations and are adjusted as and when the adjustments are announced by the SouthAfrican Reserve Bank. The leases of individual vehicles are renewed annually.
The master lease agreements for office equipment are with two suppliers with initial periods of 36 months effective from November 25,2005. Upon expiry of the initial lease agreement on November 25, 2008, an extension of the lease was negotiated until November 24,2009. In terms of these agreements the leases of individual equipment shall be valid for 36 months at a fixed fee for the entire period.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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38. COMMITMENTS (continued)Total <1 year 1 – 5 years >5 years
Rm Rm Rm Rm
Finance lease commitments2009BuildingMinimum lease payments 1,654 113 546 995 Finance charges (822) (112) (426) (284)
Finance lease obligation 832 1 120 711
EquipmentMinimum lease payments 7 5 2 –Finance charges (2) (1) (1) –
Finance lease obligation 5 4 1 –
VehiclesMinimum lease payments 187 47 140 –Finance charges (38) (15) (23) –
Finance lease obligation 149 32 117 –
2008BuildingMinimum lease payments 2,198 257 791 1,150 Finance charges (1,031) (152) (496) (383)
Finance lease obligation 1,167 105 295 767
EquipmentMinimum lease payments 16 4 12 –Finance charges (2) – (2) –
Finance lease obligation 14 4 10 –
VehiclesMinimum lease payments 242 48 194 –Finance charges (59) (20) (39) –
Finance lease obligation 183 28 155 –
2007BuildingMinimum lease payments 2,412 227 853 1,332 Finance charges (1,198) (166) (540) (492)
Finance lease obligation 1,214 61 313 840
EquipmentMinimum lease payments 6 – 6 –Finance charges – – – –
Finance lease obligation 6 – 6 –
Finance leasesFinance leases on vehicles relates to the lease of Swap bodies. The lease term for the Swap bodies is April 2008 to April 2013.
A major portion of the finance leases relates to the sale and lease-back of the Group’s office buildings. The lease term negotiated for thebuildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation of 10% p.a. Telkomhas the right to sublet part of the buildings. In case of breach of contract, the lessor is entitled to cancel the lease agreement and claimdamages.
Finance leases on equipment mainly relates to office equipment. The lease term negotiated for the finance leases is for a period of threeyears ending in 2011.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
39. CONTINGENCIESThird parties 28 27 18
Fixed-line 19 18 18
Mobile 4 4 –
Multi-Links – – –
Other 5 5 –
Third parties
These amounts represent sundry disputes with suppliers that are not individually significant and that the Group does not intend to settle.
Supplier dispute
Telcordia instituted arbitration proceedings against Telkom in March 2001 before a single arbitrator of the International Court of Arbitration,
operating under the auspices of the International Chamber of Commerce. Telcordia is seeking to recover approximately US$130 million
for monies outstanding and damages, plus costs and interest at a rate of 15.5% per year which was increased by Telcordia to
US$172 million in the 2007 financial year and subsequently decreased to US$128 million in the 2008 financial year. The arbitration
proceeding relates to the cancellation of an agreement entered into between Telkom and Telcordia during June 1999 for the development
and supply of an integrated end-to-end customer assurance and activation system by Telcordia.
In September 2002, the arbitrator found that Telkom had wrongfully repudiated the contract and a partial award was issued by the
arbitrator in favour of Telcordia. Telkom subsequently filed an application in the South African High Court to review and set aside the partial
award. On November 27, 2003, the South African High Court set aside the partial award and issued a cost order in favour of Telkom.
On May 3, 2004, the South African High Court dismissed an application by Telcordia for leave to appeal and ordered Telcordia to pay
the legal costs of Telkom.
On November 29, 2004 the Supreme Court of Appeals granted Telcordia leave to appeal. Telcordia filed a notice of appeal and also
petitioned the United States District Court for the District of Columbia to confirm the partial award, which petition was dismissed, along
with a subsequent appeal. Following the dismissal of the appeal, Telcordia filed a similar petition in the United States District Court of New
Jersey. The United States District Court of New Jersey also dismissed Telcordia’s petition, reaffirming the decision of the United States District
Court of Columbia. Telcordia appealed this dismissal, which was later dismissed by the Appeals Court of New Jersey.
The appeal by Telcordia in the Supreme Court of Appeals was set down for and heard on October 30 and October 31, 2006. Following
the successful upholding of the appeal, Telkom filed an application for leave to appeal to the Constitutional Court on only the issue revolving
around the Supreme Court of Appeals’ failure to recognise Telkom’s rights of access to the courts under the South African Arbitration Act.
The Constitutional Court has since dismissed Telkom’s appeal with costs. The Constitutional Court judgment brought finality to the dispute
over the merits of Telcordia’s claim against Telkom and the parties reconvened the arbitration in May 2007 to deal with the amount of
damages to which Telcordia is entitled.
Two hearings were held at the International Dispute Resolutions Centre (IDRC). The first hearing was held in London on May 21, 2007
and was a ’directions hearing’, in terms of which the parties consented to a ruling by the arbitrator setting out a consolidated list of
proposals and issues to form part of the damages hearing.
The second hearing was held in London at the IDRC on June 25 and 26, 2007 and dealt with the application by Telcordia for the striking
out of part of Telkom’s defence on the basis that Telkom had raised issues in its defence that had already been heard by the arbitrator prior
to his partial award. This application was dismissed by the arbitrator. The arbitrator also made a ruling compelling Telcordia to provide
certain particulars requested by Telkom with regard to the claims by Telcordia. In his ruling, the arbitrator also set out a list of issues for
determination of the damages.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009224
39. CONTINGENCIES (continued)Supplier dispute (continued)The mediation took place in London in February and April of 2008 without success. In the interim the parties agreed to the appointmentby the arbitrator of a third party expert to deal with the technical issues in relation to the software that was required to be provided byTelcordia, who will make a recommendation to the arbitrator in dealing with the amount of the claims. A further hearing was held beforethe arbitrator in October 2008 during which the arbitrator permitted Telkom to amend its statement of defence. Further hearings were heldbefore the software expert in November 2008 and he has made his report available.
The parties have now agreed that the whole question of “integration” of the software will be done at an experts only hearing (no lawyers)before Mr P Burns, a software expert in Johannesburg during October 2009. The hearings before the software expert will have an impacton the quantum of the other claims. The arbitrator has confirmed that the final hearing will be from January 25 to February 10, 2010, inJohannesburg.
Although Telkom is currently unable to predict the exact amount that it may eventually be required to pay Telcordia, it has made provisionsfor estimated liabilities in respect of the Telcordia claim in the sum of US$70 million (R664 million), including interest and legal fees. Telkomwill be required to fund any payments to Telcordia from cash flows or the incurrence of debt and the amount of any damages aboveTelkom’s provision would increase Telkom’s liabilities and decrease its net profit, which could have a material adverse effect on its financialcondition, cash flows and results of operations.
A provision has been raised based on management’s best estimate of the probable payments in this regard.
2007 2008 2009Rm Rm Rm
Supplier dispute liability included in current portion of provisions 527 569 664*
The provision has not increased from March 31, 2007, except for foreign exchange movements.* US$70 million (2008: US$70 million; 2007: US$70 million).
Competition CommissionTelkom is party to a number of legal and arbitration proceedings filed by parties with the South African Competition Commission alleginganti-competitive practices described below. If Telkom were found to have committed prohibited practices as contained in the CompetitionAct, 1998, as amended. Telkom could be required to cease these practices, divest these businesses and be fined a penalty of up to 10%of Telkom’s annual turnover, excluding the turnover of subsidiaries and joint ventures, for each complaint for the financial years prior to thedates of the complaints. The Competition Commission has to date not imposed the maximum penalty on any offender.
On July 31, 2008, Telkom received a summons issued by the Competition Commission requesting information in connection withinvestigations being conducted by the Competition Commission into five complaints against Telkom described in greater detail below by theInternet Service Association, MWEB, Internet Solutions and Verizon SA Limited. The summons was subsequently withdrawn by the CompetitionCommission following an agreement with Telkom in a co-operative process with the Competition Commission as part of the CompetitionCommission’s ongoing investigations into these complaints. The investigation is expected to be finalised in the 2009 calendar year.
As competition continues to increase, Telkom expects that we will become involved in an increasing number of disputes regarding thelegality of services and products provided by Telkom and third parties. These disputes may range from court lawsuits to complaints lodgedby or against Telkom with various regulatory bodies. Telkom is currently unable to predict the amount that it may eventually be required topay in these proceedings. However, Telkom has not included provisions for any of these claims in our financial statements. In addition,Telkom might need to spend substantial amounts defending or prosecuting these claims even if it is ultimately successful. If Telkom is requiredto cease these practices, divest from the relevant businesses or pay significant fines, Telkom’s business and financial condition could bematerially and adversely affected and its revenue and net profit could decline. Telkom may be required to fund any penalties or damagesfrom cash flows or drawings on our credit facilities, which could cause its indebtedness to increase.
Independent Cellular Services Provider Association of South Africa (ICSPA)In 2002, the ICSPA filed a complaint against Telkom at the Competition Commission in terms of the Competition Act, alleging that Telkomhad entered into contracts with large corporations, providing large discounts with the effect of discouraging the corporates from using the’premicell’ device installed by their members. ICSPA also alleged various contraventions of the Competition Act by Telkom. Telkom providedthe Competition Commission with certain information requested. Telkom also referred the Competition Commission to its High Courtapplication in respect of utilisation of the ’premicell’ device. The Competition Commission declined to refer the matter to the CompetitionTribunal. ICSPA then referred the matter to the Competition Tribunal on September 18, 2003. Telkom filed its answering affidavit onNovember 28, 2003. ICSPA has taken no further action since then.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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39. CONTINGENCIES (continued)Competition Commission (continued)
The South African Value Added Network Services (SAVA)
On May 7, 2002, the South African Value Added Network Services Providers’ Association, an association of VANS providers, filed
complaints against Telkom at the Competition Commission of the Republic of South Africa under the South African Competition Act, 89 of
1998, alleging, among other things, that Telkom was abusing its dominant position in contravention of the Competition Act, 89 of 1998,
and that it was engaged in price discrimination. The Competition Commission determined, among other things, that several aspects of
Telkom’s conduct contravened the Competition Act, 89 of 1998, and referred certain of the relevant complaints to the Competition Tribunal
for adjudication. The referred complaints deal with Telkom’s alleged refusal to provide telecommunications facilities to certain VANS
providers to construct their networks, refusal to lease access facilities to VANS providers, provision of bundled and cross subsidised
competitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged refusal to peer with
certain VANS providers.
Telkom brought an application for review against the Competition Commission and the Competition Tribunal in the South African High
Court, in respect of the decision by the Competition Commission to refer the matters to the Competition Tribunal. Telkom is of the view that
the Competition Tribunal does not have jurisdiction to adjudicate these matters and argued that ICASA has the requisite jurisdiction. In the
review application, Telkom also sought to set aside the decision by the Competition Commission to refer the complaints to the Competition
Tribunal on the basis that the Competition Commission was biased, that the referral was out of time and that the Competition Commission
had not adhered to the memorandum of understanding between it and ICASA. Only the Competition Commission opposed the application
and filed an answering affidavit.
The main complaint at the Competition Commission was held over pending the outcome of the review application.
The application for review was heard on April 24 and 25, 2008. The South African High Court judge set aside the decision of the
Competition Commission to refer the SAVA complaints and the Omnilink complaint against Telkom discussed below to the Competition
Tribunal. The decision was made based on three grounds, namely that:
• the Competition Commission failed to comply with the peremptory provisions of the memorandum of understanding between the
Competition Commission and ICASA;
• the referral was out of time, on the basis that the agreements with the complainants to extend the time which the Competition Commission
was allowed to investigate the complaints were invalid; and
• the Competition Commission’s reliance on a report by the Link Centre created reasonable apprehension of bias, since some of the
complainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complainants in
the SAVA complaints.
The judge did not make a decision on the question of jurisdiction (ie, whether ICASA or the Competition Tribunal has the jurisdiction to
deal with competition matters in the electronic communications industry).
On July 3, 2008 the Competition Commission filed an application for leave to appeal the decision of the High Court on the basis that the
judge erred on the issue of bias as well as his finding that issues surrounding the extension of time to investigate the issues constitutes a
ground for review. Telkom then filed an application for leave to cross-appeal on July 11, 2008. The main basis of Telkom’s cross-appeal
is that Telkom believes that the judge erred in failing to make a decision as to whether ICASA or the Competition Commission and
Competition Tribunal should deal with this type of complaint. The application for leave to appeal as well as the application for leave to
cross-appeal were granted by the Pretoria High Court on October 9, 2008. The parties are attending to the filing of the record of
proceedings before the High Court as well as the parties’ heads of argument, after which the Registrar of the Supreme Court of Appeal
will inform the parties of the date for the hearing. The main complaint before the Competition Tribunal will continue to be held over pending
the outcome of the appeal and cross-appeal.
This matter is not expected to be finalised within the 2010 financial year.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009226
39. CONTINGENCIES (continued)Competition Commission (continued)
Omnilink
On August 22, 2002 Omnilink filed a complaint against Telkom at the Competition Commission alleging that Telkom was abusing its
dominance by discriminating in its price for Diginet services as against those charged to VANS and the price charged to customers who
apply for a Telkom VPN solution. The Competition Commission conducted an enquiry and subsequently referred the complaint, together
with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt with together with the SAVA matter
discussed previously.
Orion/Telkom (Standard Bank and Edcon): Competition Tribunal
In April 2003, Orion filed a complaint against Telkom, Standard Bank and Edcon at the Competition Commission concerning Telkom’s
discounts offered on public switched telecommunication services to corporate customers. In terms of the rules of the Competition
Commission, the Competition Commission, who acts as an investigator, had one year to investigate the complaint. Orion, simultaneously
with the filing of the complaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an
interim order interdicting and restraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s Cellsaver
discount plan.
The Competition Commission completed its investigation and decided that there was no prima facie evidence of any contravention of the
Competition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allows
for parties to refer matters to the Competition Tribunal themselves. Telkom has not yet filed its answering affidavit in the main complaint
before the Competition Tribunal. To date there have been no further developments on this matter.
The Internet Service Providers Association (ISPA)
In December 2005, the ISPA, an association of ISPs, filed complaints against Telkom at the Competition Commission regarding alleged
anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to SAIX, the prices offered by TelkomInternet,
the alleged delay in provision of facilities to ISPs and the alleged favourable installation timelines offered to TelkomInternet customers. The
Competition Commission has formally requested Telkom to provide it with certain records of orders placed for certain services, in an attempt
to first investigate the latter aspects of the complaint. Telkom provided the Competition Commission with the information.
MWEB and Internet Solutions (IS)
On June 29, 2005, MWEB and Internet Solutions, or IS, jointly lodged a complaint with the Competition Commission against Telkom and
also requested interim relief at the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing
for ADSL retail products and its IP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of
SAIX bandwidth for ADSL users of other internet service providers, the architecture of Telkom’s ADSL access route and the manner in which
internet service providers can only connect to Telkom’s edge service router via IP Connect as well as alleged excessive pricing for bandwidth
on Telkom’s international undersea cable. The application for interim relief at the Competition Tribunal dealt with allegations that Telkom
should maintain the peering link between IS and Telkom in terms of its current peering agreement, and demanded that Telkom treat the
traffic generated by ADSL customers of MWEB as traffic destined for the peering link and that Telkom upgrade its peering link to
accommodate the increased ADSL traffic emanating from MWEB and maintain a maximum of 65% utilisation. Telkom filed its answering
affidavit, and is awaiting IS and MWEB’s replying affidavit.
Since then, Telkom has entered into a new peering agreement with IS and has responded to numerous documentation and information
requests from the Competition Commission. To date neither MWEB nor IS has filed a replying affidavit in the interim relief application.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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39. CONTINGENCIES (continued)Competition Commission (continued)
MWEB
On June 5, 2007, MWEB brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner
in which Telkom provides wholesale ADSL internet connections. MWEB requested the Competition Tribunal to grant an order of interim
relief against Telkom to charge MWEB a wholesale price for the provision of ADSL internet connections which is not higher than the lowest
retail price. MWEB further applied for an order that Telkom implement the migration of end customers from Telkom PSTS ADSL access to
MWEB without interruption of the service. Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the
matter in its answering affidavit filed at the Competition Tribunal. Telkom still had to “plead over” as to the merits of the matter. Telkom also
filed an application in the Transvaal Provincial Division of the South African High Court on July 3, 2007 for an order declaring that the
Competition Tribunal does not have jurisdiction to hear the application for interim relief made to it by MWEB.
The application before the High Court was set down for hearing during the first quarter of the 2009 financial year. The parties however
entered into settlement negotiations, which resulted in the withdrawal of the interim relief application at the Competition Tribunal by MWEB
as well as a withdrawal of the jurisdictional challenge filed at the South African High Court by Telkom. The parties are in further
negotiations.
Verizon SA Limited (Verizon)
Verizon filed a complaint against Telkom on March 22, 2007 alleging that Telkom charges an excessive price on services rendered to
Verizon thereby inducing Verizon’s customers not to deal with Verizon, engages in exclusionary conduct through “margin squeeze” in
offering prices to end-users which are lower than the prices at which it sells rights of access to its infrastructure on a wholesale basis to
Verizon, and that Telkom engages in price discrimination against Verizon.
Internet Solutions (IS)
IS filed a complaint against Telkom at the Competition Commission during December 2007. The complaint alleges abusive conduct by
Telkom. IS specifically alleges that Telkom is charging excessive prices that bear no reasonable relation to the economic value of the goods
or services, that Telkom has raised the wholesale cost to downstream competitors, while also reducing the downstream retail price to clients;
engaging in margin squeeze, that Telkom has introduced a series of bundled products (namely Telkom Closer Products) that limit the ability
of rivals in particular markets to compete effectively, and Telkom is offering discriminatory prices in relation to a number of infrastructural
and service items that IS is compelled to purchase from Telkom.
While that complaint was being investigated by the Competition Commission IS brought an application to the Competition Commission
for interim relief requesting: that Telkom be ordered to charge IS a wholesale price for telecommunication facilities to provide virtual private
network services to its customers no higher than the lowest retail price for such connection charged to Telkom’s VPN Supreme customers
and ordering that the costs of the application be paid by Telkom.
Telkom opposed the application of by IS at the Competition Tribunal although it is unable to finalise its opposing papers due to difficulties
associated with the manner in which IS claimed confidentiality over the application. No further activity has taken place with regard to the
interim relief application to date.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009228
39. CONTINGENCIES (continued)Competition Commission (continued)
Telecom and Broadcasting (Proprietary) Limited (Maredi)
Maredi
Maredi served a notice of motion on Telkom, Ericsson SA and Telsaf Data (Pty) Ltd on January 8, 2009. The matter relates to a tender
published by Telkom for the supply of point-to-point split mount microwave equipment. Maredi, Telsaf, Ericsson and a fourth company,
Mobax, were shortlisted. The tender was awarded by Telkom to Telsaf and Ericsson.
Maredi applied for a court order, with a court hearing date set for February 3, 2009, requesting that the court prevent Telkom from entering
into a contract with Ericsson and Telsaf or either party, and from ordering goods or services from Ericsson and Telsaf pursuant to the tender.
Maredi also requested an order that the court review and set aside the award of the tender to Telsaf and Ericsson or either of the
aforementioned parties, and refer the tender back to Telkom in order for Telkom to reconsider its award. Maredi alleged that there were
certain irregularities in the tender process in that Telkom did not follow fair procedures by failing to comply with its own mandatory
procedural requirements, that Telkom acted arbitrarily and in bad faith, that Telkom was biased in favour of Ericsson and that Ericsson should
have been disqualified as it failed to meet Telkom’s critical criteria as set out in the tender.
Numerous allegations in the application, including accusations against certain members of the Procurement Review Council and allegations
by Maredi of compliance by them to the technical critical criteria, were refuted by Telkom. Telkom and Ericsson opposed the application
and filed their respective opposing affidavits. Telsaf did not oppose the application. The matter was ultimately set down for hearing on
February 20, 2009 and Maredi’s application was dismissed with costs. However, Maredi is proceeding with a review application in the
ordinary course and Telkom is opposing the application.
Telkom is not currently able to predict when these disputes may be resolved or the amount that Telkom may eventually be required to pay,
however, Telkom has not included provisions for all of these claims in our consolidated financial statements. In addition, Telkom may need
to spend substantial amounts defending or prosecuting these claims even if Telkom is ultimately successful. If Telkom were to lose these or
future legal and arbitration proceedings, Telkom could be prohibited from engaging in certain business activities and could be required to
pay substantial penalties and damages, which could cause Telkom’s revenue and net profit to decline and have a material adverse impact
on the business and financial condition. Telkom may be required to fund any penalties or damages from cash flows or drawings on our
credit facilities, which could cause Telkom’s indebtedness to increase.
Telkom is party to various additional proceedings and lawsuits in the ordinary course of our business, which management does not believe
will have a material adverse impact.
Negative working capital ratio
At each of the financial years ended March 31, 2009, 2008 and 2007 the Group had a negative working capital ratio. A negative
working capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from
operating cash flows, new borrowings and borrowings available under existing credit facilities.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 229
40. DIRECTORS’ INTERESTSST Arnold, RJ Huntley, E Spio-Garbrah, KST Matthews and VB Lawrence, five of Telkom’s Board members, are the South African
Government’s representatives on Telkom’s Board of directors. At March 31, 2009, the Government held 39.76% (2008: 39.42%; 2007:
38.83%) of Telkom’s shares.
B Molefe is a Public Investment Corporation (PIC) representative on Telkom’s Board of directors. As at March 31, 2009 the PIC held
15.63% (2008: 15.23%, 2007: 15.27%) of Telkom’s shares.
Beneficial Non-beneficial
Direct Indirect Direct Indirect
Directors’ shareholding (Number of shares)
2009
Executive
RJ September 90,815 1,820 – –
PG Nelson 19,182 –
Total 109,997 1,820 – –
Non-executive
PG Joubert – 15,000 – –
D Barber – 1,200 – –
– 16,200 – –
2008
Executive
RJ September 7,155 – – –
Total 7,155 – – –
Non-executive
At March 31, 2008 there were no non-executive directors’ shareholdings.
2007
Non-executive
TF Mosololi 455 – – –
Total 455 – – –
The directors’ shareholding changed between the balance sheet date and the date of issue of the financial statements and this has been
reflected in the above information.
2007 2008 2009
Rm Rm Rm
Directors’ emoluments 7 36 20
Executive
For services as directors 4 31 15
Non-executive
For services as directors 3 5 5
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009230
40. DIRECTORS’ INTEREST (continued)Directors’ emoluments (continued)
Performance Fringe andFees Remuneration bonus other benefits Total
R R R R R
2009Emoluments per director:Non-executive 5,028,084 – – – 5,028,084
ST Arnold 1,030,000 – – – 1,030,000 B du Plessis 498,000 – – – 498,000 PSC Luthuli 642,000 – – – 642,000 KST Matthews 441,000 – – – 441,000 B Molefe 159,551 – – – 159,551 AG Rhoda 124,001 – – – 124,001 RJ Huntley 533,000 – – – 533,000 Dr E Spio-Garbrah** 622,750 – – – 622,750 Dr VB Lawrence** 359,000 – – – 359,000 DD Barber 293,667 – – – 293,667 PG Joubert 302,778 – – – 302,778
Executive – 4,530,912 2,289,947 7,848,357 14,669,216
RJ September CEO* – 3,555,800 1,841,396 7,430,452 12,827,648 PG Nelson CFO* – 975,112 448,551 417,905 1,841,568
Total emoluments – paid by Telkom 5,005,747 4,530,912 2,289,947 7,848,357 19,674,963
2008Emoluments per director:Non-executive 4,633,933 – – – 4,633,933
ST Arnold 1,124,373 – – – 1,124,373 B du Plessis 393,967 – – – 393,967 MJ Lamberti – – – – – PSC Luthuli 502,117 – – – 502,117 TD Mahloele 357,684 – – – 357,684 KST Matthews 501,217 – – – 501,217 TF Mosololi 174,960 – – – 174,960 M Mostert*** 229,433 – – – 229,433 DD Tabata 250,583 – – – 250,583 YR Tenza 305,633 – – – 305,633 PL Zim 5,333 – – – 5,333 B Molefe 20,497 – – – 20,497 A Rhoda 14,286 – – – 14,286 RJ Huntley 193,833 – – – 193,833 Dr E Spio-Garbrah** 273,841 – – – 273,841 Dr VB Lawrence** 286,176 – – – 286,176
Executive – 14,489,833 3,436,308 13,244,896 31,171,037
R September* – 2,453,757 3,436,308 13,218,772 19,108,837
CEO – 1,016,524 3,436,308 10,438,538 14,891,370 Acting CEO – 1,437,233 – 2,780,234 4,217,467
LRR Molotsane* – 12,036,076 – 26,124 12,062,200
Total emoluments – paid by Telkom 4,633,933 14,489,833 3,436,308 13,244,896 35,804,970
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 231
40. DIRECTORS’ INTEREST (continued)Directors’ emoluments (continued)
Performance Fringe andFees Remuneration bonus other benefits Total
R R R R R
2007
Emoluments per director:
Non-executive 2,641,168 – – – 2,641,168
NE Mtshotshisa 463,050 – – – 463,050
ST Arnold 353,719 – – – 353,719
TCP Chikane 32,670 – – – 32,670
B du Plessis 213,367 – – – 213,367
PSC Luthuli 205,417 – – – 205,417
TD Mahloele 166,667 – – – 166,667
KST Matthews 109,643 – – – 109,643
TF Mosololi 214,417 – – – 214,417
M Mostert 232,417 – – – 232,417
DD Tabata 175,367 – – – 175,367
YR Tenza 321,767 – – – 321,767
PL Zim 152,667 – – – 152,667
Executive – 2,272,785 – 1,653,202 3,925,987
LRR Molotsane* – 2,272,785 – 1,653,202 3,925,987
Total emoluments – paid by Telkom 2,641,168 2,272,785 – 1,653,202 6,567,155
*Included in fringe and other benefits is a pension contribution for LRR Molotsane of RNil (2008: R4,690; 2007: R295,462), RJ September of R462,254(2008: R280,261; 2007: RNil) and PG Nelson of R125,765 (2008: RNil; 2007: RNil) at March 31, 2009 paid to the Telkom Retirement Fund.
** Foreign directors.
*** In the absence of an internal corporate finance division, and pending the structuring and staffing thereof, the Telkom Board resolved that it was in the
best interest of the Company and shareholders to deploy the highest quality skills currently resident in Telkom, to evaluate, structure and make
recommendations to the Board on major transactions. During 2008, Dr Mostert led all efforts in this regard and was remunerated accordingly. Moreover,
in compliance with the principles of good governance, the Board took legal advice and established that there was no conflict of interest arising out of
this involvement in the transaction evaluated.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009232
2007 2008 2009Rm Rm Rm
41. SEGMENT INFORMATIONEliminations represent the inter-segmental transactions that have been
eliminated against segment results. The mobile segment represents the
Group’s joint venture Vodacom.
Business segment
Consolidated operating revenue 32,441 33,611 35,940
Fixed-line 32,345 32,572 33,659
Elimination (772) (830) (817)
Multi-Links – 845 1,900
Other 873 1,040 1,214
Elimination (5) (16) (16)
Discontinued operations 19,178 22,674 26,174
Mobile 20,573 24,089 27,594
Elimination (1,494) (1,519) (1,531)
Other 106 108 123
Elimination (7) (4) (12)
Consolidated other income 338 472 343
Fixed-line 334 497 524
Elimination (46) (86) (245)
Other 50 61 64
Discontinued operations 46 62 129
Mobile 42 56 119
Other 4 6 10
Consolidated operating expenses 23,028 25,014 29,895
Fixed-line 24,083 24,962 29,849
Elimination (1,505) (1,709) (3,624)
Multi-Links – 942 2,422
Elimination – 56 469
Other 512 928 801
Elimination (62) (165) (22)
Discontinued operations 14,505 17,323 21,214
Mobile 15,185 17,898 21,704
Elimination (745) (805) (876)
Other 77 245 607
Elimination (12) (15) (221)
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
41. SEGMENT INFORMATION (continued)Consolidated operating profit 9,751 9,069 6,388
Fixed-line 8,596 8,107 4,334
Elimination 687 793 2,562
Multi-Links – (97) (522)
Elimination – (56) (469)
Other 411 173 477
Elimination 57 149 6
Discontinued operations 4,719 5,413 5,089
Mobile 5,430 6,247 6,009
Elimination (749) (714) (655)
Other 33 (131) (474)
Elimination 5 11 209
Consolidated investment income 199 168 181
Fixed-line 3,041 3,975 2,807
Elimination (2,850) (3,832) (2,646)
Multi-Links – 7 5
Other 8 18 15
Discontinued operations 37 29 35
Mobile 37 27 33
Other – 2 2
Consolidated finance charges 857 1,556 2,843
Fixed-line 857 1,277 1,464
Multi-Links – (4) 1,201
Elimination – (33) (164)
Other – 318 353
Elimination – (2) (11)
Discontinued operations 269 247 922
Mobile 269 240 921
Other – 7 1
Consolidated taxation 2,803 2,647 1,660
Fixed-line 2,652 2,630 560
Elimination – – 825
Multi-Links – (131) 141
Elimination – – (24)
Other 151 148 158
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
41. SEGMENT INFORMATION (continued)Discontinued operations 1,928 2,057 2,021
Mobile 1,918 2,055 2,023
Other 10 2 (2)
Minority interests 94 123 26
Multi-Links – 12 (96)
Other 94 111 122
Discontinued operations 109 74 51
Mobile 109 73 51
Other – 1 –
Profit attributable to equity holders of Telkom 6,196 4,911 2,040
Fixed-line 8,128 8,175 5,117
Elimination (2,163) (3,039) (909)
Multi-Links – 33 (1,763)
Elimination – (23) (281)
Other 174 (386) (141)
Elimination 57 151 17
Discontinued operations 2,450 3,064 2,130
Mobile 3,171 3,906 3,047
Elimination (749) (714) (655)
Other 23 (139) (471)
Elimination 5 11 209
Consolidated assets 57,426 68,259 59,712
Fixed-line 44,224 47,829 54,593
Elimination (1,547) (1,604) (1,167)
Mobile 14,026 16,743 –
Elimination (353) (278) –
Multi-Links – 2,451 5,834
Elimination – – (860)
Other 1,188 3,283 1,285
Elimination (112) (165) 27
Disposal group – – 23,215
Mobile 23,412
Elimination (269)
Other 94
Elimination (22)
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 235
2007 2008 2009Rm Rm Rm
41. SEGMENT INFORMATION (continued)Investments 1,461 1,499 1,383
Fixed-line 1,621 4,917 10,910
Elimination (341) (3,607) (9,540)
Mobile 181 176 –
Other – 13 13
Disposal group – –
Mobile 194
Other financial assets 259 614 1,202
Fixed-line 230 445 1,200
Mobile 28 169 –
Other 1 – 2
Disposal group
Mobile – – 73
Total assets 59,146 70,372 85,779
Consolidated liabilities 15,951 19,689 14,247
Fixed-line 10,154 11,892 13,002
Elimination (458) (495) (514)
Multi-Links – 639 1,564
Elimination – – (265)
Mobile 7,416 8,871 –
Elimination (1,468) (1,542) –
Other 374 332 165
Elimination (67) (8) 295
Disposal group – – 8,498
Mobile 9,611
Elimination (1,128)
Other 15
Interest-bearing debt 10,364 15,733 18,275
Fixed-line 9,082 13,362 17,704
Mobile 1,278 1,815 –
Multi-Links – 532 550
Other 4 24 21
Disposal group – – 7,052
Mobile 7,052
Other –
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009236
2007 2008 2009Rm Rm Rm
41. SEGMENT INFORMATION (continued)Other financial liabilities 229 1,290 228
Fixed-line 58 167 226
Mobile 158 204 –
Other 13 919 2
Disposal group
Mobile – – 48
Taxation liabilities 594 323 50
Fixed-line – 7 12
Mobile 556 290 –
Other 38 26 38
Disposal group – – 275
Mobile 275
Other –
Total liabilities 27,138 37,035 48,673
Other segment information
Capital expenditure for property, plant and equipment 8,648 10,108 8,725
Fixed-line 5,545 6,044 5,866
Mobile 3,069 2,475 –
Multi-Links – 1,312 2,754
Other 34 277 105
Disposal group – – 3,013
Mobile 2,979
Other 34
Capital expenditure for intangible assets 1,598 1,791 906
Fixed-line 1,049 749 824
Mobile 539 985 –
Multi-Links – – 37
Other 10 57 45
Disposal group – – 590
Mobile 590
Other –
Depreciation and amortisation 3,316 3,621 4,458
Fixed-line 3,298 3,470 4,037
Multi-Links – 119 296
Elimination – – 69
Other 18 32 50
Elimination – – 6
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 237
2007 2008 2009Rm Rm Rm
41. SEGMENT INFORMATION (continued)Discontinued operations 1,703 1,980 2,373
Mobile 1,681 1,955 2,341
Other 22 25 32
Impairment and asset write-offs 284 514 822
Fixed-line 284 262 321
Multi-Links – 23 462
Other – 229 39
Discontinued operations 12 15 57
Mobile 12 15 57
Other – – –
Workforce reduction expense – Fixed-line 24 3 8
Geographical segment
Consolidated operating revenue 32,441 33,611 35,940
South Africa 32,428 32,671 33,847
Other African countries 29 956 2,093
Elimination (16) (16) –
Disposal group 19,178 22,674 26,174
South Africa 17,130 19,997 22,298
Other African countries 2,070 2,697 3,932
Elimination (22) (20) (56)
Consolidated operating profit 9,751 9,069 6,388
South Africa 9,744 9,254 7,435
Other African countries 18 (169) (533)
Elimination (11) (16) (514)
Disposal group 4,719 5,413 5,089
South Africa 4,622 5,089 4,726
Other African countries 276 414 400
Elimination (179) (90) (37)
Consolidated assets 59,146 70,372 62,297
South Africa 56,797 63,772 57,056
Other African countries 3,489 8,785 6,101
Eliminations (1,140) (2,185) (860)
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009Rm Rm Rm
41. SEGMENT INFORMATION (continued)Disposal group – – 23,482
South Africa 20,693
Other African countries 9,597
Elimination (6,808)
Capital expenditure for property, plant and equipment and intangible assets 10,246 11,899 9,631
South Africa 9,459 9,780 6,735
Other African countries 787 2,119 2,896
Disposal group – – 3,603
South Africa 2,443
Other African countries 1,213
Elimination (53)
’South Africa’, which is also the country of domicile for Telkom, comprises the segment information relating to Telkom and its South African
subsidiaries as well as Vodacom’s South African-based mobile communications network, the segment information of its service providers is
included in the disposal group.
‘Other African countries’ comprises Telkom’s subsidiaries Africa Online Limited and Multi-Links Telecommunications Limited as well as
Vodacom’s mobile communications network in Tanzania, Lesotho, the Democratic Republic of the Congo and Mozambique.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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42. RELATED PARTIESDetails of material transactions and balances with related parties not disclosed separately in the consolidated annual financial statementswere as follows:
2007 2008 2009Rm Rm Rm
With joint venture:Vodacom Group (Proprietary) LimitedRelated party balancesTrade receivables 61 51 61 Trade payables (353) (346) (325)
Related party transactionsRevenue (755) (816) (891)Expenses 1,494 1,525 1,533 Audit fees 3 3 2 Revenue includes interconnect fees and lease and installation of transmission lines.Expenses mostly represent interconnect expenses.
With shareholders:Public Investment CorporationThere were no material transactions between Telkom and thePublic Investment Corporation.
GovernmentRelated party balancesTrade receivables 271 326 386
Related party transactionsRevenue (2,458) (2,623) (2,767)
With entities under common control:Major public entitiesRelated party balancesTrade receivables 59 28 52 Trade payables (6) (25) (3)
The outstanding balances are unsecured and will be settled in cash in the ordinary course of business.
Related party transactionsRevenue (435) (486) (446)Expenses 238 243 212 Rent received (29) (21) (20)Rent paid 27 22 19
Key management personnel compensation:(Including directors’ emoluments)Related party transactionsShort-term employee benefits 116 155 62 Post-employment benefits 4 4 6 Termination benefits – 27 –Equity compensation benefits 8 29 39 Other long-term benefits 17 – –
The fair value of the shares that vested in the current year is R11 million (2008: R12 million; 2007: RNil).
Terms and conditions of transactions with related partiesThe sales to and purchases from related parties of telecommunication services are made at arm’s length prices. Except as indicated above,outstanding balances at the year end are unsecured, interest-free and settlement occurs in cash. Apart from the bank guarantee to theamount not exceeding R23 million provided to Africa Online Limited, there have been no guarantees provided or received for related partyreceivables or payables.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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43. INTEREST IN MATERIAL SUBSIDIARIESCountry of incorporation: RSA – Republic of South Africa; TZN – Tanzania; LES – Lesotho; MZ – Mozambique; DRC – Democratic Republicof Congo; MAU – Mauritius; NIG – Nigeria; GUE – Guernsey.
Nature of business: C – Cellular; S – Satellite; MSC – Management services company; PROP – Property company; OTH – Other.
* Dormant at March 31, 2008.
Interest in issued
Issued share capital ordinary share capital
Country of 2007 2008 2009 2007 2008 2009
incorporation % % %
Directory advertising
Trudon (Proprietary) Limited (formerly trading as TDS Directory
Operations (Proprietary) Limited) RSA R100,000 R100,000 R100,000 64.9 64.9 64.9
Other group entities
Rossal No 65 (Proprietary) Limited RSA R100 R100 R100 100 100 100
Acajou Investments (Proprietary) Limited RSA R100 R100 R100 100 100 100
Africa Online Limited MAU US$1,000 US$1,000 US$1,000 100 100 100
Multi-Links Telecommunications Limited NIG – NGN300,000,000 NGN300,000,000 – 75 100
Telkom Management Services (Proprietary) Limited RSA – – R100 – – 100
Intekom (Proprietary) Limited RSA R10,001,000 R10,001,000 R10,001,000 100 100 100
Q-Trunk (Proprietary) Limited RSA R10,001,000 R10,001,000 R10,001,000 100 100 100
Telkom International (Proprietary) Limited RSA R100 R100 R100 100 100 100
The aggregate net loss of the nine subsidiaries is
R2,168 million (2008: R186 million) and profit of
(2007: R564 million)
Disposal group
Telkom Media (Proprietary) Limited RSA R100 R100 R100 100 100 100
Swiftnet (Proprietary) Limited RSA R25,000,000 R5,000,000 R5,000,000 100 100 100
Vodacom has an interest in the following companies
(Group share: 50% of the interest in ordinary share
capital as indicated):
Cellular network operators
Vodacom (Proprietary) Limited (C) RSA R100 R100 R100 100 100 100
Vodacom Lesotho (Proprietary) Limited (C) LES M4,180 M4,180 M4,180 88.3 88.3 88.3
Vodacom Tanzania Limited (C) TZN TZS10,000 TZS10,000 TZS10,000 65 65 65
VM, S.A.R.L. (C) MZ US$60,000,000 US$60,000,000 US$60,000,000 98 90 90
Vodacom Congo (RDC) s.p.r.l. (C) DRC US$1,000,000 US$1,000,000 US$1,000,000 51 51 51
Service providers
Vodacom Service Provider Company (Proprietary) Limited (C) RSA R20 R20 R20 100 100 100
Smartphone SP (Proprietary) Limited (C)* RSA R20,000 R20,000 R20,000 70 100 100
Smartcom (Proprietary) Limited (C)* RSA R1,000 R1,000 R1,000 61.7 100 100
Cointel VAS (Proprietary) Limited (C)* RSA R10,204 R10,204 R10,204 70 100 100
Other significant subsidiaries of the Group’s Joint Venture
Vodacom Service Provider Holdings Company (Proprietary)
Limited (MSC)* RSA R1,020 R1,023 R1,023 100 100 100
Vodacom Satellite Services (Proprietary) Limited (OTH)* RSA R100 R100 R100 100 100 100
GSM Cellular (Proprietary) Limited (OTH)* RSA R1,200 R1,200 R1,200 100 100 100
Vodacom Venture No.1 (Proprietary) Limited (OTH)* RSA R810 R810 R810 100 100 100
Vodacom Equipment Company (Proprietary) Limited (OTH)* RSA R100 R100 R100 100 100 100
Vodacare (Proprietary) Limited* (OTH) RSA R100 R100 R100 100 100 100
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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43. INTEREST IN MATERIAL SUBSIDIARIES (continued)Interest in issued
Issued share capital ordinary share capital
Country of 2007 2008 2009 2007 2008 2009
incorporation % % %
Vodacom International Holdings (Proprietary) Limited (MSC) RSA R100 R100 R100 100 100 100
Vodacom International Limited (MSC) MAU US$100 US$100 US$100 100 100 100
Vodacom Properties No.1 (Proprietary) Limited (PROP) RSA R100 R100 R100 100 100 100
Vodacom Properties No.2 (Proprietary) Limited (PROP) RSA R1,000 R1,000 R1,000 100 100 100
Stand 13 Eastwood Road Dunkeld West (Proprietary)
Limited (PROP) RSA R100 – – 70 – –
Ithuba Smartcall (Proprietary) Limited (OTH) RSA R100 – – 36.4 – –
Smartcall Smartlife (Proprietary) Limited (OTH) RSA R100 – – 63 – –
Vodacom Tanzania Limited (Zanzibar) (OTH)* TZN TZS10,000 TZS10,000 TZS10,000 99 99 99
Joycell Shops (Proprietary) Limited (OTH)* RSA R100 R100 R100 100 100 100
Marble Gold Investments (Proprietary) Limited (OTH) * RSA R100 R100 R100 100 100 100
Vodacom Ventures (Proprietary) Limited (OTH) RSA R120 R120 R120 100 100 100
Skyprops 134 (Proprietary) Limited (PROP) RSA R100 R100 R100 100 100 100
Storage Technology Services (Proprietary) Limited RSA – – R136 – – 51
Gateway Telecommunications Plc UK – – £49,567,569 – – 100
Gateway Communications Africa (UK) Limited UK – – £1 – – 100
Gateway Communications SA BLG – – e62,000 – – 100
Gateway Telecoms Integrated Services Limited NIG – – NGN1,250,000 – – 100
GS Telecom Limited GUE – – US$193 – – 100
Indebtedness of Telkom subsidiary companies Rm Rm Rm
Intekom (Proprietary) Limited RSA – – – – – (23)
Q-Trunk (Proprietary) Limited RSA – – – 30 26 22
Rossal No 65 (Proprietary) Limited RSA – – – – 30 (342)
Acajou Investments (Proprietary) Limited RSA – – – – – 285
Africa Online Limited MAU – – – – 74 236
Multi-Links Telecommunications Limited NIG – – – – 841 5,225
Telkom International (Proprietary) Limited RSA – – – – 1,985 1,985
Disposal group
Swiftnet (Proprietary) Limited RSA – – – – – 10
Telkom Media (Proprietary) Limited RSA – – – – 326 470
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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44. SIGNIFICANT EVENTSTelkom RenaissanceOn November 14, 2008, Telkom’s Board of directors approved the new organisation structure which is designed to fit Telkom’s defendand growth strategy. The new structure is effective April 1, 2009 and is being managed through a project called Telkom Renaissance.
The Group has been restructured into three operating Business Units namely Telkom South Africa, Telkom International and Telkom DataCentre Operations. The Telkom Renaissance initiative will occur over the next 24 months to ensure that all the necessary remodelling,reorganising, revitalising and re-engineering happens in order to make the new structure function optimally.
This initiative is a complete transformation of the way Telkom focuses on servicing its customers and creating value for its stakeholders. It isa positive, purposeful change towards a more accountable and competitive company. This change is a necessary part of Telkom’s strategyto maintain and grow market share in South Africa whilst building a strong footprint on the African continent.
Capability ManagementTelkom will seek to manage costs and address service delivery constraints by realigning its structure and resources to better match itstransforming information, communications and technology business.
The transformation of the communications industry and increasing market and competitive pressure has put communication companies suchas Telkom under increasing revenue and expense constraints while being required to improve customer service. As a result CapabilityManagement is designed to ensure that the capabilities needed to succeed in a converged communications market are established throughthe optimal utilisation of external as well as internal capabilities, extracting efficiencies, where possible, through scale of a rapidly maturingretail and wholesale market and better organised functional areas in a more deregulated and liberalised communications market.Capability Management includes the internal consolidation of certain functional areas and the optimisation of strategic supplier and serviceprovider relationships improving performance in other functional areas.
Capability Management will be concerned with assisting in addressing the margin and service delivery pressures by reassessing theoperational service delivery methodology currently deployed with a view of increasing flexibility, reducing expense while improving servicedelivery across the Telkom Group.
Given the challenges Telkom faces in rolling out broadband, converged and data services, maintaining our legacy network and expandingour operations across the African continent, employees’ skills and performance must be aligned with our strategy to ensure financial,operational and transformational targets, customer expectations and shareholder expectations are met.
The immediate objective therefore is to remodel service delivery. This is one of the strategic initiatives under Project Renaissance and willfocus on the following:
• Identify and assess existing capabilities;
• Establish a Telkom Group Capability Inventory;
• Determine future capability requirements;
• Identify and develop a set of optimal service delivery options for achieving current and future strategic objectives; and
• Enable Telkom South Africa, Telkom International and Telkom Data Centre Operations to:– Improve resource efficiency;– Improve capital productivity; and– Improve service delivery.
A memorandum of understanding was entered into between Telkom and organised labour which included issues such as the deferment ofthe Managed Services Partner outsourcing project implementation post April 2009 and the establishment of a Restructuring Forum whereall restructuring initiatives will be debated between the parties concerned.
Telkom Management Services (Proprietary) Limited (TMS)TMS was registered as a company during August 2008. Telkom’s Board approved the establishment of TMS as a part of Telkom’s strategicplan to grow revenue and expand geographic reach.
Appointment of directorOn November 10, 2008 Telkom announced the appointment of Mr Peter Nelson as Chief Financial Officer and director in Telkom witheffect from December 8, 2008.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 243
45. SUBSEQUENT EVENTSDividendsThe Telkom Board declared an ordinary dividend of 115 cents (2008: 660 cents, 2007: 600 cents) per share and a special dividendof 260 cents (2008: Nil cents, 2007: 500 cents) per share on June 19, 2009, payable on July 20, 2009 to shareholders registered onJuly 17, 2009.
Acquisition of MWEB Africa Limited and majority equity stake in MWEB Namibia (Proprietary) LimitedOn November 10, 2008, Telkom International (Proprietary) Limited, a wholly owned subsidiary of Telkom, announced it has entered intoagreements to acquire 100% of MWEB Africa Limited ("MWEB Africa") and 75% of MWEB Namibia (Proprietary) Limited (“MWEB Namibia”). The purchase price for the MWEB Africa Group including AFSAT and MWEB Namibia is US$55 million(approximately R498 million) with a deferred payment of US$14.18 million due when the profits of MWEB Group for the year endedMarch 31, 2009 are finalised. These shareholdings will be acquired from Multichoice Africa Limited and MIH Holdings Limitedrespectively, which are members of the Naspers Limited Group.
MWEB Africa is an internet services provider in sub-Saharan Africa (excluding South Africa) which also provides network access servicesin some countries and is headquartered in Mauritius with operations in Namibia, Nigeria, Kenya, Tanzania, Uganda and Zimbabwe, anagency arrangement in Botswana and distributors in 26 sub-Saharan African countries.
The acquisition of MWEB is part of the Group’s strategy of growing its broadband and solidifying its market position through acquisitions.
Based on an independent valuation, the MWEB Africa Group does not have any significant contingent liabilities at acquisition date.
The only possible contingent liability, the AFSAT bonus scheme, is reasonably quantified and included in the balance sheet of MWEB AfricaGroup at March 31, 2009.
The purchase price of US$69.168 million was determined as follows:
• Namibian cash-generating unit for US$1.5 million;
• Mauritian cash-generating unit for US$53.5 million; and
• US$14.18 million deferred until the profits of the MWEB Group for the year ended March 31, 2009 are finalised.
The successful conclusion of the agreements being entered into is subject to conditions precedent, including regulatory approvals beingobtained in certain African jurisdictions.
Subsequent to year end, on April 21, 2009, the conditions precedent to the sale were fulfilled.
The acquisition will have the following effect on the Group’s assets and liabilities on acquisition:Carrying amounts Fair values
Rm Rm
Fixed assets 43 43Intangible assets 138 209Deferred taxation asset 2 2Cash and cash equivalents 75 75Trade and other receivables 26 26Inventory 16 16Deferred taxation liability (18) (19)Taxation (4) (4)Trade and other payables (69) (69)
Fair value of net assets acquired 209 279Minority interests (2) (2)
Net asset value 207 277Goodwill on acquisition – 352
Purchase price* – 629Capitalised transaction costs – 3
Total cash consideration – 632
* Of the R629 million purchase price, R498 million has been settled. The outstanding amount of US$14.18 million (approximately R105 million) is deferred
payment.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009244
45. SUBSEQUENT EVENTS (continued)The goodwill from the acquisition is partially attributable to the following:
• Certain licences that could not be valued separately from the MWEB Group as no secondary licensing market exists, but contribute
significantly to goodwill as the MWEB business’s would cease to exist without the licence rights.
• The skills and technical talent of the acquired business’s workforce, and the synergies expected to be achieved from integrating the
acquiree into the Group’s existing internet service provision.
• The goodwill is also attributable to the MWEB Group’s position as Africa’s largest satellite-based internet service provider in Sub-Saharan
Africa.
There was RNil revenue in the consolidated annual financial statements.
AT&T strategic agreement
On April 16, 2009, Telkom and AT&T, the global communications leader, entered into a strategic agreement which aims to extend AT&T’s
global networking reach to sub-Saharan Africa and boost Telkom’s strategy to grow a strong ICT footprint on the African continent. The
agreement will allow both companies to explore ways to provide global seamless communication and technology solutions and services
to multinational customers, either based in or seeking to extend their operations in sub-Saharan Africa.
Under the terms of the memorandum of understanding, the two companies will begin work towards definitive agreements that would:
• directly connect the Telkom regional network and the AT&T global network;
• deliver a wider geographic footprint of telecommunication services, in both sub-Saharan Africa and other global points;
• enhance mobile service capabilities for corporate customers in sub-Saharan Africa;
• extend global VPN (Virtual Private Network) services to support the state of art network requirements of customers either headquarteredin or seeking to expand sites in sub-Saharan Africa;
• explore other potential opportunities in areas such as Telepresence, hosting and professional services; and
• expand the existing global wholesale voice services relationship between Telkom Group and AT&T.
Telkom Media (Proprietary) Limited (Telkom Media)
On August 31, 2006 Telkom created a new subsidiary, Telkom Media (Proprietary) Limited, with a black economic empowerment (’BEE’)
shareholding. ICASA awarded Telkom Media a commercial satellite and cable subscription broadcast licence on September 12, 2007.
On March 31, 2008, the Telkom Board took a decision to substantially reduce its investment in Telkom Media and as such Telkom Media
reduced its operational expenses and commitments to a minimum. Telkom Media did not meet the held for sale criteria at year end as
management were unable to sell the disposal group for its expected price and therefore decided to abandon it.
Subsequent to year end Telkom was approached by potential buyers of Telkom’s interest in Telkom Media and negotiations with the potential
buyer were concluded. On May 4, 2009, Telkom sold its 75% interest in Telkom Media to Shenzhen Media South Africa (Proprietary)
Limited for a nominal amount.
Disposal and unbundling of stake in Vodacom
In 2008 Telkom announced a decision to dispose of its entire shareholding in Vodacom through selling 15% of its shareholding to
Vodafone, a wholly owned subsidiary of Vodafone Group plc, and unbundling its remaining 35% shareholding to its shareholders pursuant
to a listing of Vodacom on the main board of JSE Limited.
On May 18, 2009 Vodacom was successfully listed on the main board of JSE Limited and a special divided of R19 was distributed to all
Telkom shareholders. Telkom successfully completed the unbundling of Vodacom shares to its shareholders on May 25, 2009.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 245
45. SUBSEQUENT EVENTS (continued)Bookbuilding of Vodacom Group (Proprietary) Limited shares
On June 2, 2009 Telkom announced the successful completion of the accelerated bookbuilding of Vodacom shares, raising R1,540 million
for "ineligible shareholders". The directors of Telkom, in consultation with Vodafone, determined that Telkom shareholders in the United States
of America would be regarded as "ineligible shareholders" for the unbundling of Vodacom shares to shareholders of Telkom, which was
completed on May 25, 2009, and would therefore not receive Vodacom shares in such distributions.
The proceeds from the offering, net of applicable fees, expenses, taxes and charges, will be distributed to the "ineligible shareholders" in
proportion to their entitlement to Vodacom shares.
New York Stock Exchange listing
Given the current global economic climate and the absolute necessity for Telkom to reduce its cost profile, the Board has decided to delist
from the New York Stock Exchange. Maintaining a listing in the United States of America is expensive and takes considerable management
time. The methodology employed and discipline gained from Sarbanes-Oxley reporting requirements will be retained to ensure strict
governance compliance and transparent financial reporting.
Telkom is comfortable that the Johannesburg Stock Exchange provides sufficient access to capital for both South African and global
investors. Telkom intends to maintain a level 1 American Depository Receipt programme to facilitate over-the-counter- trading in the United
States of America.
Telkom Communications International (Proprietary) Limited
The Abacus Financial Services (Mauritius) Limited issued a notice under section 265 (5) of the Companies Act 1984 that Telkom
Communications International (Proprietary) Limited has been dissolved with effect from May 12, 2009.
Other matters
The directors are not aware of any other matter or circumstance since the financial year ended March 31, 2009 and the date of this
report, or otherwise dealt with in the financial statements, which significantly affects the financial position of the Group and the results of
its operations.
46. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTEDThe Group has not early adopted the following standards, interpretations and amendments that have been issued and are not yet effective:
IFRS1 First-time Adoption of International Financial Reporting Standards: Cost of an Investment in a Subsidiary, Jointly Controlled Entity
or Associate (amended)
This amendment is effective for annual periods beginning on or after January 1, 2009. This standard is amended to allow an entity, in its
separate financial statements, to determine the cost of investments in subsidiaries, jointly controlled entities or associates (in its opening IFRS
financial statements) as one of the following amounts:
• Cost determined in accordance with IAS27
• At the fair value of the investment at the date of the transition to IFRS, determined in accordance with IAS39 Financial Instruments:
Recognition and Measurement
• The previous GAAP carrying amount of the investment at the date of transition to IFRS
This determination is made for each investment, rather than being a policy decision.
The amendment does not have an impact on the annual financial statements.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009246
46. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)IFRS2 Share-Based Payment: Vesting Conditions and Cancellations (amended)
This amendment is effective for annual periods beginning on or after January 1, 2009. The amendments to IFRS2 Share-Based Payment
clarifies the definition of vesting conditions and the accounting treatment of cancellations by the counterparty to a share-based arrangement.
The amendment will not have a material impact on the consolidated financial statements.
IFRS2 Share-Based Payment: Group Cash-Settled Share-Based Payment Arrangements (amended)
This amendment is effective for annual periods beginning on or after January 1, 2010. The amendment clarifies how an individual
subsidiary in a group should account for some share-based payment arrangements in its own financial statements. The amendment will not
have a material impact on the Company’s/Group’s financial statements.
IFRS3 Business Combinations (revised)
The revisions are effective for annual periods beginning on or after 1 July 2009 .The revised standard still applies the acquisition method
of accounting for business combinations, with some significant changes. For example, all payments to purchase a business are to be
recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income
statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair
value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed.
The impact of the revised standard is being evaluated.
IFRS7 Financial Instruments: Disclosures (amended)
The interpretation is applicable for annual periods beginning on or after January 1, 2009. The amendment requires enhanced disclosures
about fair value measurements and liquidity risk. The impact of the amendment is being evaluated.
IFRS8 Operating Segments
This standard is effective for annual periods beginning on or after January 1, 2009. The standard requires operating segments to be
identified on the basis of internal reports about components of the entity that are regularly reviewed by the chief operating decision maker
in order to allocate resources to the segment and to assess its performance. The impact of this standard is currently being evaluated.
IFRIC9 Reassessment of Embedded Derivatives (amended)
The amendment is effective for annual periods ending on or after June 30, 2009. The amendment clarifies that on reclassification of a
financial asset out of the ’fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary,
separately accounted for in financial statements. The amendment will not have an impact on the consolidated financial statements as the
Group does not have material embedded derivatives.
IFRIC13 Customer Loyalty Programmes
The interpretation is effective for annual periods beginning on or after July 1, 2008. The interpretation requires loyalty award credits granted
to customers in connection with a sales transaction to be accounted for as a separate component of the sales transaction. The consideration
received in the sales transaction would, therefore, be allocated between the loyalty award credits and the other components of the sale.
The interpretation is not relevant to the Group’s operations because none of the Group entities operate any loyalty programmes.
Where the cost of fulfilling the awards is expected to exceed the consideration received, the Group will have to recognise an onerous
contract liability. The impact of this interpretation is being evaluated.
IFRIC15 Agreements for the Construction of Real Estate
The interpretation is effective for annual periods beginning on or after January 1, 2009. The aim of this interpretation is to determine
whether an agreement for the construction of real estate is within the scope of IAS11 Construction Contracts or IAS18 Revenue.
This interpretation is not relevant to the Group’s operations as the Group does not construct real estates.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 247
46. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)IFRIC16 Hedges of a Net Investment in a Foreign Operation
The interpretation is effective for annual periods beginning on or after October 1, 2008. The interpretation provides guidance in respect
of hedges of foreign currency gains and losses on a net investment in a foreign operation. This includes the fact that net investment hedging
relates to differences in functional currency and not presentation currency, and hedging instruments may be held anywhere in the Group.
The interpretation will not have an impact on the consolidated annual financial statements.
IFRIC17 Distributions of Non-Cash Assets to Owners
The interpretation is effective for annual periods beginning on or after July 1, 2009. The interpretation provides guidance on how an entity
should account for non-cash distributions to its owners and/or distributions that give owners a choice of receiving either non-cash assets or
a cash alternative. The impact of this interpretation is being evaluated.
IFRIC18 Transfer of Assets from Customers
The interpretation is effective for annual periods beginning on or after July 1, 2009. The interpretation clarifies the requirements of IFRSs
for agreements in which an entity receives from a customer an item of property, plant and equipment (’PPE’) that the entity must then use
either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services. The
interpretation also provides guidance where an entity receives cash from a customer that must be used only to acquire or construct an item
of PPE in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services. The
impact of this interpretation is currently being evaluated.
IAS1 Presentation of Financial Statements (revised)
The revised standard is effective for annual periods beginning on or after January 1, 2009.
IAS1R introduces a statement of comprehensive income with two optional formats and refers to the balance sheet and cash flow statement
by different names: the ’statement of financial position’ and ’statement of cash flows’, respectively. The revision to the standard will result in
changes in the way the consolidated annual financial statements are presented.
IAS7 Cash Flow Statement: Consequential Amendments Arising from Amendments to IAS16
The amendment is effective for annual periods beginning on or after January 1, 2009. IAS7 as amended requires cash receipts and
payments relating to purchase, rental and sale of property, plant and equipment held for rental to be treated as cash flows from operating
activities. The impact of this amendment is being evaluated.
IAS23 Borrowing Costs (revised)
The revised standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or
after January 1, 2009. The revised standard requires all borrowing costs that are directly attributable to the acquisition, construction or
production of qualifying assets to be capitalised. The Group does not expect the adoption of the standard to have a material impact.
IAS27 Consolidated and Separate Financial Statements (revised)The revisions are effective for annual periods beginning on or after July 1, 2009. The revised standard requires the effects of all transactionswith non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwillor gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured tofair value, and a gain or loss is recognised in profit or loss. The impact of the revised standard is being evaluated.
IAS27 Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
(amended)
The amended standard is effective for annual periods beginning on or after January 1, 2009. The amended standard is for the following
changes in respect of the holding company’s separate financial statements:
• The deletion of the ’cost method’. Making the distinction between pre- and post- acquisition profits is no longer required. All dividends
will be recognised in profit or loss. However, the payment of such dividends requires the entity to consider whether there is an indicator
of impairment; and
• In cases of reorganisations where a new parent is inserted above an existing parent of the group (subject to meeting specific
requirements), the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary rather than its fair
value. The impact of this amended standard is currently being evaluated.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009248
46. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)Amendment to IAS32 Financial Instruments Presentation and IAS1 Presentation of Financial Statements, Puttable Financial Instruments
The amendment is effective for periods beginning January 1, 2009. The amendments classify puttable financial instruments, or components
of instruments, that impose on the entity an obligation to deliver to another party a pro-rata share of the net assets of the entity only on
liquidation, as equity, provided they have particular features and meet specific conditions. The impact of this amendment is being
evaluated.
IAS39 Financial Instruments: Recognition and Measurement (amended)
The amendment is effective for annual periods ending on or after June 30, 2009. The amendment clarifies that on reclassification of a
financial asset out of the ’fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary,
separately accounted for in financial statements. The amendment will not have an impact on the financial statements as Telkom does not
have material embedded derivatives.
IAS39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items (amended)
The amendment to the standard is effective for annual periods beginning on or after July 1, 2009. The amendment clarifies that an entity
is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. The
amendment will not have an impact on the financial statements as Telkom does not apply hedge accounting.
Changes as a result of the annual improvements project
A number of standards were amended as a result of the annual improvements project of the IASB in May 2008 effective for annual periods
beginning on or after January 1, 2009, with the exception of IFRS5 which is effective for annual periods beginning on or after July 1,
2009. These standards were as follows:
IFRS5 Non-Current Assets Held for Sale and Discontinued Operations
IAS1 Presentation of Financial Statements – Non-Current/Current Classification of Derivatives
IAS16 Property, Plant and Equipment
IAS19 Employee Benefits
IAS20 Government Grants
IAS23 Borrowing Costs – Components of Borrowing Costs
IAS27 Consolidated and Separate Financial Statements
IAS28 Investments in Associates
IAS29 Financial Reporting in Hyperinflationary Economies
IAS31 Interests in Joint Ventures
IAS36 Impairment of Assets
IAS38 Intangible Assets
IAS39 Financial Instruments: Recognition and Measurement
IAS40 Investment Property
IAS41 Agriculture
The Group will adopt the changes to these standards during the 2010 financial year with the exception of IFRS5, which will be adopted
during the 2011 financial year. The Group is currently evaluating the effects of the improvements.
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (group) NEW 8/12/09 6:29 PM Page 248
business showsresilience
Company financial statementsCompany income statement 250Company balance sheet 251Company statement of changes in equity 252Company cash flow statement 253Notes to the Company annual financial statements 254
CompanyFinancial
Information6
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Telkom Annual Report 2009250
2007 2008 2009
Notes Rm Rm Rm
Total revenue 3.1 35,818 36,641 37,058
Operating revenue 3.2 32,340 32,571 33,659
Other income 4 655 498 524
Operating expenses 24,089 24,953 29,837
Employee expenses 5.1 7,077 7,386 7,990
Payments to other operators 5.2 6,461 6,902 7,536
Selling, general and administrative expenses 5.3 3,970 3,904 6,580
Service fees 5.4 2,236 2,410 2,760
Operating leases 5.5 762 619 613
Depreciation, amortisation, impairment and write-offs 5.6 3,583 3,732 4,358
Operating profit 8,906 8,116 4,346
Investment income 6 3,202 3,739 2,907
Finance charges and fair value movements 7 1,027 1,289 1,460
Interest 1,142 1,499 1,655
Foreign exchange and fair value movement gain (115) (210) (195)
Profit before taxation 11,081 10,566 5,793
Taxation 8 2,690 2,599 516
Profit for the year 8,391 7,967 5,277
Company income statementfor the three years ended March 31, 2009
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Telkom Annual Report 2009 251
2007 2008 2009
Notes Rm Rm Rm
ASSETSNon-current assets 37,533 43,360 50,796
Property, plant and equipment 9 32,614 35,273 37,345
Intangible assets 10 3,502 3,806 3,988
Investments 11 887 3,883 7,693
Finance lease receivables 13 136 160 166
Deferred taxation 14 340 183 1,549
Deferred expenses 25 54 55 55
Current assets 7,754 8,763 10,090
Inventories 15 839 873 1,331
Income tax receivable 31 519 – 91
Current portion of finance lease receivables 13 71 105 109
Trade and other receivables 17 5,920 6,859 6,420
Other financial assets 18 229 443 1,198
Cash and cash equivalents 19 176 483 941
Assets held for sale and discontinued operations 16 – – 34
Total assets 45,287 52,123 60,920
EQUITY AND LIABILITIESCapital and reserves 25,714 26,693 29,086
Share capital 20 5,329 5,208 5,208
Treasury share reserve 21 (1,778) (1,642) (1,521)
Share-based compensation reserve 22 257 643 1,076
Retained earnings 21,906 22,484 24,323
Non-current liabilities 6,580 11,181 14,766
Interest-bearing debt 23 3,308 7,336 10,193
Provisions 24 1,203 1,445 1,830
Deferred revenue 26 739 870 996
Deferred taxation 14 1,330 1,530 1,747
Current liabilities 12,993 14,249 17,068
Trade and other payables 27 4,333 4,923 5,424
Shareholders for dividend 32 15 20 23
Current portion of interest-bearing debt 23 5,775 6,026 7,511
Current portion of provisions 24 1,706 1,640 1,953
Current portion of deferred revenue 26 1,107 1,424 1,826
Income tax payable 31 – 7 –
Other financial liabilities 18 57 168 225
Credit facilities utilised 19 – 41 106
Total liabilities 19,573 25,430 31,834
Total equity and liabilities 45,287 52,123 60,920
Company balance sheetat March 31, 2009
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Telkom Annual Report 2009252
Treasury Share-based
Share Share share compensation Retained
capital premium reserve reserve earnings Total
Rm Rm Rm Rm Rm Rm
Balance at April 1, 2006 5,449 1,342 (1,786) 151 18,534 23,690
Total income and expense for the year – – – – 8,391 8,391
Dividend declared (refer to note 32) – – – – (4,885) (4,885)
Payment made for treasury shares – – (27) – – (27)
Increase in share-based compensation
reserve (refer to note 22) – – – 141 – 141
Shares vested and re-issued (refer to
note 22) – – 35 (35) – –
Shares bought back and cancelled
(refer to note 20) (120) (1,342) – – (134) (1,596)
Balance at March 31, 2007 5,329 – (1,778) 257 21,906 25,714
Total income and expense for the year – – – – 7,967 7,967
Dividend declared (refer to note 32) – – – – (5,863) (5,863)
Increase in share-based compensation
reserve (refer to note 22) – – – 522 – 522
Shares vested and re-issued (refer to
note 22) – – 136 (136) – –
Shares bought back and cancelled
(refer to note 20) (121) – – – (1,526) (1,647)
Balance at March 31, 2008 5,208 – (1,642) 643 22,484 26,693
Total income and expense for the year – – – – 5,277 5,277
Dividend declared (refer to note 32) – – – – (3,438) (3,438)
Increase in share-based compensation
reserve (refer to note 22) – – – 554 – 554
Shares vested and re-issued (refer to
note 22) – – 121 (121) – –
Balance at March 31, 2009 5,208 – (1,521) 1,076 24,323 29,086
Company statement of changes in equityfor the three years ended March 31, 2009
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Telkom Annual Report 2009 253
Restated Restated
2007 2008 2009
Notes Rm Rm Rm
Cash flows from operating activities 6,383 8,172 9,948
Cash receipts from customers 32,109 32,375 34,239
Cash paid to suppliers and employees (19,449) (19,713) (22,212)
Cash generated from operations 28 12,660 12,662 12,027
Interest received 385 390 343
Dividends received 29 2,950 3,536 3,242
Finance charges paid 30 (886) (842) (466)
Taxation paid 31 (3,852) (1,716) (1,764)
Cash generated from operations before dividend paid 11,257 14,030 13,382
Dividend paid 32 (4,874) (5,858) (3,434)
Cash flows from investing activities (6,662) (9,994) (12,129)
Proceeds on disposal of property, plant and equipment and
intangible assets 4 164 21
Additions to property, plant and equipment and intangible
assets (6,598) (6,763) (6,428)
Expansions to property, plant and equipment and intangible
assets (2,409) (4,142) (3,344)
Maintenance to property, plant and equipment and
intangible assets (3,189) (2,621) (3,084)
Acquisition of subsidiary and minority interest in subsidiary 11 (150) – (1,339)
Loans to subsidiaries – (3,395) (4,383)
Loans repaid by subsidiaries 82 – –
Cash flows from financing activities (2,777) 2,088 2,574
Loans raised 5,624 23,878 18,168
Loans repaid (6,843) (20,204) (14,649)
Shares bought back and cancelled (1,596) (1,647) –
Decrease/(increase) in net financial assets 38 61 (945)
Net (decrease)/increase in cash and cash equivalents (3,056) 266 393
Net cash and cash equivalents at beginning of the year 3,232 176 442
Net cash and cash equivalents at end of the year 19 176 442 835
Company cash flow statementfor the three years ended March 31, 2009
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Telkom Annual Report 2009254
1. CORPORATE INFORMATIONTelkom SA Limited (the Company) is a company incorporated
and domiciled in the Republic of South Africa (’South Africa’)
whose shares are publicly traded. The Company’s main
objective and main business is to supply telecommunication,
broadcasting, multimedia, technology, information and other
related information technology services to the general public.
The principal activities of the Company’s services and products
include:
• fixed-line subscription and connection services to post-paid,
prepaid and private payphone customers using PSTN (Public
Switched Telephone Network) lines, including ISDN
(Integrated Service Digital Network) lines, and the sale of
subscription based value-added voice services and customer
premises equipment rental and sales;
• fixed-line traffic services to post-paid, prepaid and payphone
customers, including local, long distance, fixed-to-mobile,
international outgoing and international voice-over-internet
protocol traffic services;
• interconnection services, including terminating and transiting
traffic from South African mobile operators, as well as from
international operators and transiting traffic from mobile to
international destinations;
• fixed-line data and internet services, including domestic and
international data transmission services, such as point-to-point
leased lines, ADSL (Asymmetrical Digital Subscriber Line)
services, packet-based services, managed data networking
services and internet access and related information
technology services; and
• W-CDMA (Wideband Code Division Multiple Access), a
3G next generation network, including fixed voice services,
data services and nomadic voice services.
These separate annual financial statements are prepared in
compliance with the South African Companies Act, 1973. In
addition, the Group presents consolidated financial statements
which include all subsidiaries, special purpose entities and joint
ventures, which are included in these financial statements as
investments.
2. SIGNIFICANT ACCOUNTING POLICIESBasis of preparation
The financial statements comply with the International Financial
Reporting Standards (IFRS) of the International Accounting
Standards Board (IASB) and the Companies Act of South Africa,
1973.
The financial statements are prepared on the historical cost
basis, with the exception of certain financial instruments which
are measured at fair value and share-based payments which are
measured at grant date fair value. Details of the Company’s
significant accounting policies are set out below, and are
consistent with those applied in the previous financial year
except for the following:
• The Company has adopted certain amendments to IAS39
and IFRS7, and adopted IFRIC12 and IFRIC14, which
are applicable for annual periods beginning on or after
January 1, 2008.
The principal effects of these changes are discussed below.
Adoption of amendments to standards and new
interpretations
IAS39 Financial Instruments: Recognition and Measurement
and IFRS7 Financial Instruments: Disclosures –
Reclassification of Financial Assets (amended)
The amendments which are effective on or after July 1, 2008,
permit an entity to reclassify non-derivative financial assets (other
than those designated at fair value through profit or loss by the
entity upon initial recognition) out of the fair value through profit
or loss category in particular circumstances. The amendments
also permit an entity to transfer from the available-for-sale
category to the loans and receivables category a financial asset
that would have met the definition of loans and receivables (if
the financial asset had not been designated as available-for-
sale), if the entity has the intention and ability to hold that
financial asset for the foreseeable future. The amendments do
not have an impact on the annual financial statements.
IFRIC12 Service Concession Arrangements
The interpretation which is effective for annual periods
beginning on or after January 1, 2008, sets out general
principles on recognising and measuring the obligations and
related rights in service concession arrangements from an
operator’s perspective. This interpretation does not have an
impact on the annual financial statements.
IFRIC14 The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction
The interpretation which is effective for annual periods
beginning on or after January 1, 2008, provides guidance on
assessing the limit in IAS19 on the amount of the surplus that can
be recognised as an asset. It also explains how the pension
asset or liability may be affected by a statutory or contractual
minimum funding requirement. This interpretation does not have
any impact on the annual financial statements, as the Company
is not subject to minimum funding requirements.
Notes to the annual financial statements for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Significant accounting judgements, estimates and
assumptions
The preparation of financial statements requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods.
Although these estimates and assumptions are based on
management’s best knowledge of current events and actions that
the Company may undertake in the future, actual results may
ultimately differ from those estimates and assumptions.
The presentation of the results of operations, financial position
and cash flows in the financial statements of the Company is
dependent upon and sensitive to the accounting policies,
assumptions and estimates that are used as a basis for the
preparation of these financial statements. Management has
made certain judgements in the process of applying the
Company’s accounting policies. These, together with the key
estimates and assumptions concerning the future, and other key
sources of estimation uncertainty at the balance sheet date, are
as follows:
Revenue recognition
To reflect the substance of each transaction, revenue recognition
criteria are applied to each separately identifiable component
of a transaction. In order to account for multiple-element revenue
arrangements in developing its accounting policies, the
Company considered the guidance contained in the United
States Financial Accounting Standards Board (FASB) Emerging
Issues Task Force No 00-21 Revenue Arrangements with
Multiple Deliverables. Judgement is required to separate those
revenue arrangements that contain the delivery of bundled
products or services into individual units of accounting, each
with its own earnings process, when the delivered item has
stand-alone value and the undelivered item has fair value.
Further judgement is required to determine the relative fair values
of each separate unit of accounting to be allocated to the total
arrangement consideration. Changes in the relative fair values
could affect the allocation of arrangement consideration
between the various revenue streams.
Judgement is also required to determine the expected customer
relationship period. Any changes in these assessments may
have a significant impact on revenue and deferred revenue.
Property, plant and equipment and intangible assets
The useful lives of assets are based on management’s
estimation. Management considers the impact of changes in
technology, customer service requirements, availability of
capital funding and required return on assets and equity to
determine the optimum useful life expectation for each of the
individual categories of property, plant, equipment and
intangible assets. Due to the rapid technological advancement
in the telecommunications industry as well as the Company’s
plan to migrate to a next generation network over the next few
years, the estimation of useful lives could differ significantly on
an annual basis due to unexpected changes in the roll-out
strategy. The impact of the change in the expected useful life of
property, plant and equipment is described more fully in note
5.6. The estimation of residual values of assets is also based on
management’s judgement whether the assets will be sold or
used to the end of their useful lives and what their condition will
be like at that time.
For intangible assets that incorporate both a tangible and
intangible portion, management uses judgement to assess which
element is more significant to determine whether it should be
treated as property, plant and equipment or intangible assets.
Asset retirement obligations
Management judgement is exercised when determining whether
an asset retirement obligation exists, and in determining the
present value of expected future cash flows and discount rate
when the obligation to dismantle or restore the site arises, as
well as the estimated useful life of the related asset.
Impairments of property, plant and equipment and
intangible assets
Management is required to make judgements concerning the
cause, timing and amount of impairment as indicated on notes
9 and 10. In the identification of impairment indicators,
management considers the impact of changes in current
competitive conditions, cost of capital, availability of funding,
technological obsolescence, discontinuance of services and
other circumstances that could indicate that an impairment
exists. The Company applies the impairment assessment to its
separate cash-generating units. This requires management to
make significant judgements concerning the existence of
impairment indicators, identification of separate cash-generating
units, remaining useful lives of assets and estimates of projected
cash flows and fair value less costs to sell. Management
judgement is also required when assessing whether a previously
recognised impairment loss should be reversed.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Significant accounting judgements, estimates and
assumptions (continued)
Impairments of property, plant and equipment and
intangible assets (continued)
Where impairment indicators exist, the determination of the
recoverable amount of a cash-generating unit requires
management to make assumptions to determine the fair value
less costs to sell and value in use. Key assumptions on which
management has based its determination of fair value less costs
to sell include the existence of binding sale agreements, and for
the determination of value in use include the weighted average
cost of capital, projected revenues, gross margins, average
revenue per customer, capital expenditure, expected customer
bases and market share. The judgements, assumptions and
methodologies used can have a material impact on the fair
value and ultimately the amount of any impairment.
Impairment of other financial assets
At each balance sheet date management assesses whether
there are indicators of impairment of financial assets, including
equity investments. If such evidence exists, the estimated present
value of the future cash flows of that asset is determined.
Management judgement is required when determining the
expected future cash flows. To determine whether any decline in
fair value of available-for-sale investments is prolonged, reliance
is placed on an assessment by management regarding the
future prospects of the investee. In measuring impairments,
quoted market prices are used, if available, or projected
business plan information from the investee is used for those
financial assets not carried at fair value.
Impairment of receivables
An impairment is recognised on trade receivables that are
assessed to be impaired (refer to notes 12 and 17). The
impairment is based on an assessment of the extent to which
customers have defaulted on payments already due and an
assessment on their ability to make payments based on their
credit worthiness and historical write-offs experience. Should the
assumptions regarding the financial condition of the customer
change, actual write-offs could differ significantly from the
impaired amount.
Leases
The determination of whether an arrangement is, or contains a
lease is based on whether, at the date of inception, the fulfilment
of the arrangement is dependent on the use of a specific asset
or assets or the arrangement conveys a right to use the asset.
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
A lease is classified as a finance lease if it transfers substantially
all the risks and rewards incidental to ownership.
Deferred taxation assetManagement judgement is exercised when determining theprobability of future taxable profits which will determine whetherdeferred tax assets should be recognised or derecognised. Therealisation of deferred tax assets will depend on whether it ispossible to generate sufficient taxable income, taking intoaccount any legal restrictions on the length and nature of thetaxation asset. When deciding whether to recognise unutilisedtaxation credits, management needs to determine the extent thatthe future obligation is likely to be available for set-off. In theevent that the assessment of future payments and future utilisationchanges, the change in the recognised deferred tax asset mustbe recognised in profit or loss.
TaxationThe taxation rules and regulations in South Africa within whichthe Company operates are highly complex and subject tointerpretation. Additionally, for the foreseeable future,management expects South African taxation laws to furtherdevelop through changes in South Africa’s existing taxationstructure as well as clarification of the existing taxation lawsthrough published interpretations and the resolution of actual taxcases (refer to notes 8 and 14).
Management has made a judgement that all outstandingtaxation credits relating to secondary taxation on companies(STC) will be available for utilisation before the taxation regimechange, from STC to withholding taxation, is effective.
The Company is regularly subject to evaluation by the SouthAfrican taxation authorities of its historical income taxation filingsand in connection with such reviews disputes can arise with thetaxing authorities over the interpretation or application of certaintaxation rules to the business of the Company. These disputesmay not necessarily be resolved in a manner that is favourablefor the Company. Additionally the resolution of the disputescould result in an obligation for the Company that exceedsmanagement’s estimate. The Company has historically filed,and continues to file, all required income taxation returns.Management believes that the principles applied in determiningthe Company’s taxation obligations are consistent with theprinciples and interpretations of the South African taxation laws.
Deferred taxation rateManagement makes judgements on the taxation rate applicablebased on the Company’s expectations at balance sheet date onhow the asset is expected to be recovered or the liability isexpected to be settled.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Significant accounting judgements, estimates and
assumptions (continued)Employee benefitsThe Company provides defined benefit plans for certain post-employment benefits. The Company’s net obligation in respectof defined benefits is calculated separately for each plan byestimating the amount of future benefits earned in return forservices rendered. The obligation and assets related to each ofthe post-retirement benefits are determined through an actuarialvaluation. The actuarial valuation relies heavily on assumptionsas disclosed in note 25. The assumptions determined bymanagement make use of information obtained from theCompany’s employment agreements with staff and pensioners,market related returns on similar investments, market relateddiscount rates and other available information. The assumptionsconcerning the expected return on assets and expected changein liabilities are determined on a uniform basis, consideringlong-term historical returns and future estimates of returns andmedical inflation expectations. In the event that further changesin assumptions are required, the future amounts of post-employment benefits may be affected materially.
The discount rate reflects the average timing of the estimateddefined benefit payments. The discount rate is based on long-term South African government bonds with the longest maturityperiod as reported by the Bond Exchange of South Africa. Thediscount rate is expected to follow the trend of inflation.
The overall expected rate of return on assets is determinedbased on the market prices prevailing at that date, applicableto the period over which the obligation is to be settled.
Telkom provides equity compensation to its employees in theform of the Telkom Conditional Share Plan. The related expenseand reserve are determined through an actuarial valuationwhich relies heavily on assumptions. The assumptions includeemployee turnover percentages and whether specifiedperformance criteria will be met. Changes to these assumptionscould affect the amount of expense ultimately recognised in thefinancial statements. An actuarial valuation relies heavily on theactual plan experience assumptions as disclosed in note 25.
Provisions and contingent liabilitiesManagement judgement is required when recognising andmeasuring provisions and when measuring contingent liabilitiesas set out in notes 24 and 35 respectively. The probability thatan outflow of economic resources will be required to settle theobligation must be assessed and a reliable estimate must bemade of the amount of the obligation. Provisions are discountedwhere the effect of discounting is material based onmanagement’s judgement. The discount rate used is the rate thatreflects current market assessments of the time value of money
and, where appropriate, the risks specific to the liability, all ofwhich requires management judgement. The Company isrequired to recognise provisions for claims arising from litigationwhen the occurrence of the claim is probable and the amountof the loss can be reasonably estimated. Liabilities provided forlegal matters require judgements regarding projected outcomesand ranges of losses based on historical experience andrecommendations of legal counsel. Litigation is howeverunpredictable and actual costs incurred could differ materiallyfrom those estimated at the balance sheet date.
Held-to-maturity financial assetsManagement has reviewed the Company’s held-to-maturityfinancial assets in the light of its capital management andliquidity requirements and has confirmed the Company’s positiveintention and ability to hold those assets to maturity.
Summary of significant accounting policiesOperating revenueThe Company provides fixed-line and data communicationservices and communication-related products. The Companyprovides such services to business, residential and payphonecustomers. Revenue represents the fair value of fixed ordeterminable consideration that has been received or is receivable.
Revenue for services is measured at amounts invoiced tocustomers and excludes Value Added Tax.
Revenue is recognised when there is evidence of an arrangement,collectability is probable, and the delivery of the product orservice has occurred. In certain circumstances, revenue is split intoseparately identifiable components and recognised when therelated components are delivered in order to reflect the substanceof the transaction. The value of components is determined usingverifiable objective evidence. The Company does not providecustomers with the right to a refund.
Dealer incentivesThe Company provides incentives to its retail payphone carddistributors as trade discounts. Incentives are based on salesvolume and value. Revenue for retail payphone cards is recordedas traffic revenue, net of these discounts as the cards are used.
Subscriptions, connections and other usageThe Company provides telephone and data communicationservices under post-paid and prepaid payment arrangements.Revenue includes fees for installation and activation, which aredeferred and recognised over the expected customerrelationship period. Costs incurred on first time installations thatform an integral part of the network are capitalised anddepreciated over the expected average customer relationshipperiod. All other installation and activation costs are expensedas incurred.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)Operating revenue (continued)Subscriptions, connections and other usage (continued)Post-paid and prepaid service arrangements includesubscription fees, typically monthly fees, which are recognisedover the subscription period.
Revenue related to sale of communication equipment, productsand value-added services is recognised upon delivery andacceptance of the product or service by the customer.
Traffic (domestic, fixed-to-mobile and international)PrepaidPrepaid traffic service revenue collected in advance is deferredand recognised based on actual usage or upon expiration ofthe usage period, whichever comes first. The terms andconditions of certain prepaid products allow the carry over ofunused minutes. Revenue related to the carry over of unusedminutes is deferred until usage or expiration.
PayphonesPayphone service coin revenue is recognised when the serviceis provided.
Payphone service card revenue collected in advance is deferredand recognised based on actual usage or upon expiration ofthe usage period, whichever comes first.
Post-paidRevenue related to local, long distance, network-to-network,roaming and international call connection services is recognisedwhen the call is placed or the connection provided.
InterconnectionInterconnection revenue for call termination, call transit andnetwork usage is recognised as the traffic flow occurs.
DataThe Company provides data communication services underpost-paid and prepaid payment arrangements. Revenueincludes fees for installation and activation, which are deferredover the expected average customer relationship period. Costsincurred on first time installations that form an integral part of thenetwork are capitalised and depreciated over the life of theexpected average customer relationship period. All otherinstallation and activation costs are expensed as incurred. Post-paid and prepaid service arrangements include subscriptionfees, typically monthly fees, which are recognised over thesubscription period.
Directory services
Included in other revenue are directory services. Revenue is
recognised when printed directories are released for
distribution, as the significant risks and rewards of ownership
have been transferred to the buyer. Electronic directories’
revenue is recognised on a monthly basis, as earned.
Sundry revenue
Sundry revenue is recognised when the economic benefit flows
to the Company and the earnings process is complete.
Interest on debtors’ accounts
Interest is raised on overdue accounts by using the effective
interest rate method and recognised in the income statement.
Marketing
Marketing costs are recognised as an expense as incurred.
Incentives
Incentives paid to service providers and dealers for products
delivered to the customer are expensed as incurred. Incentives
paid to service providers and dealers for services delivered are
expensed in the period that the related revenue is recognised.
Distribution incentives paid to service providers and dealers for
exclusivity are deferred and expensed over the contractual
relationship period.
Investment income
Dividends from investments are recognised on the date that the
Company is entitled to the dividend. Interest is recognised on a
time proportionate basis taking into account the principal
amount outstanding and the effective interest rate.
Taxation
Current taxation
The charge for current taxation is based on the results for the
year and is adjusted for non-taxable income and non-deductible
expenditure. Current taxation is measured at the amount
expected to be paid to the taxation authorities, using taxation
rates and laws that have been enacted or substantively enacted
by the balance sheet date.
Deferred taxation
Deferred taxation is accounted for using the balance sheet
liability method on all temporary differences at the balance
sheet date between taxation bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Taxation (continued)
Deferred taxation (continued)
Deferred taxation is not provided on the initial recognition of
goodwill or initial recognition of assets or liabilities which is not
a business combination and at the time of the transaction affects
neither accounting nor taxable profit or loss.
A deferred taxation asset is recognised to the extent that it is
probable that future taxable profits will be available against
which the associated unused taxation losses, unused taxation
credits and deductible temporary differences can be utilised.
The carrying amount of deferred taxation assets is reviewed at
each balance sheet date and is reduced to the extent that it is
no longer probable that the related taxation benefit will be
realised. In respect of deductible temporary differences
associated with investments in subsidiaries, associates and
interest in joint ventures, deferred income tax assets are
recognised only to the extent that it is probable that temporary
differences will reverse in the foreseeable future and taxable
profit will be available against which temporary differences can
be utilised.
Deferred taxation relating to items recognised directly in equity
is recognised in equity and not in the income statement.
Deferred taxation assets and liabilities are measured at the
taxation rates that are expected to apply to the period when the
asset is realised or the liability is settled, based on taxation rates
(and taxation laws) that have been enacted or substantively
enacted by the balance sheet date.
Deferred taxation assets and deferred taxation liabilities are
offset, if a legally enforceable right exists to set off current
taxation assets against current taxation liabilities and the
deferred taxes relate to the same taxable entity and the same
taxation authority.
Secondary taxation on companies
Secondary taxation on companies (’STC’) is provided for at a
rate of 10% (12.5% before October 1, 2007) on the amount
by which dividends declared by the Company exceed
dividends received. Deferred taxation on unutilised STC credits
is recognised to the extent that STC payable on future dividend
payments is likely to be available for set-off.
Property, plant and equipment
At initial recognition acquired property, plant and equipment
are recognised at their purchase price, including import duties
and non-refundable purchase taxes, after deducting trade
discounts and rebates. The recognised cost includes any directly
attributable costs for preparing the asset for its intended use.
The cost of an item of property, plant and equipment is
recognised as an asset if it is probable that the future economic
benefits associated with the item will flow to the Company and
the cost of the item can be measured reliably.
Property, plant and equipment is stated at historical cost less
accumulated depreciation and any accumulated impairment
losses. Each component of an item of property, plant and
equipment with a cost that is significant in relation to the total
cost of the item is depreciated separately. Depreciation is
charged from the date the asset is available for use on a
straight-line basis over the estimated useful life and ceases at the
earlier of the date that the asset is classified as held for sale or
the date the asset is derecognised. Idle assets continue to attract
depreciation.
The estimated useful life of individual assets and the
depreciation method thereof are reviewed on an annual basis
at balance sheet date. The depreciable amount is determined
after taking into account the residual value of the asset. The
residual value is the estimated amount that the Company would
currently obtain from the disposal of the asset, after deducting
the estimated cost of disposal, if the asset were already of the
age and in the condition expected at the end of its useful life.
The residual values of assets are reviewed on an annual basis
at balance sheet date.
Assets under construction represents freehold buildings,
operating software, network and support equipment and
includes all direct expenditure as well as related borrowing
costs capitalised, but excludes the costs of abnormal amounts of
waste material, labour or other resources incurred in the
production of self-constructed assets.
Freehold land is stated at cost and is not depreciated. Amounts
paid by the Company on improvements to assets which are held
in terms of operating lease agreements are depreciated on a
straight-line basis over the shorter of the remaining useful life of
the applicable asset or the remainder of the lease period.
Where it is reasonably certain that the lease agreement will be
renewed, the lease period equals the period of the initial
agreement plus the renewal periods.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Property, plant and equipment (continued)The estimated useful lives assigned to groups of property, plantand equipment are:
Years
Freehold buildings 15 to 40Leasehold buildings 7 to 25Network equipment:
Cables 20 to 40Switching equipment 2 to 18Transmission equipment 5 to 18Other 1 to 20
Support equipment 5 to 13Furniture and office equipment 2 to 15Data processing equipment and software 3 to 10
Other 2 to 20
An item of property, plant and equipment is derecognised upondisposal or when no future economic benefits are expected fromits use or disposal. Any gain or loss arising on derecognition ofthe asset (calculated as the difference between the net disposalproceeds and the carrying amount of the asset) is included inthe income statement in the year the asset is derecognised.
Assets held under finance leases are depreciated over theirexpected useful lives on the same basis as owned assets or,where shorter, the term of the relevant lease if there is noreasonable certainty that the Company will obtain ownership bythe end of the lease term.
Intangible assetsAt initial recognition acquired intangible assets are recognised attheir purchase price, including import duties and non-refundablepurchase taxes, after deducting trade discounts and rebates. Therecognised cost includes any directly attributable costs for preparingthe asset for its intended use. Internally generated intangible assetsare recognised at cost comprising all directly attributable costsnecessary to create and prepare the asset to be capable ofoperating in the manner intended by management. Licences,software, trademarks, copyrights and other intangible assets arecarried at cost less accumulated amortisation and any accumulatedimpairment losses. Amortisation commences when the intangibleassets are available for their intended use and is recognised on astraight-line basis over the assets’ expected useful lives. Amortisationceases at the earlier of the date that the asset is classified as heldfor sale and the date that the asset is derecognised.
The residual value of intangible assets is the estimated amountthat the Company would currently obtain from the disposal ofthe asset, after deducting the estimated cost of disposal, if theasset were already of the age and in the condition expected at
the end of its useful life. Due to the nature of the asset theresidual value is assumed to be zero unless there is acommitment by a third party to purchase the asset at the end ofits useful life or when there is an active market that is likely toexist at the end of the asset’s useful life, which can be used toestimate the residual values. The residual values of intangibleassets and their useful lives are reviewed on an annual basis atbalance sheet date.
Intangible assets with indefinite useful lives and intangible assetsnot yet available for use are tested for impairment annuallyeither individually or at the cash-generating unit level. Suchintangibles are not amortised. The useful life of an intangibleasset with an indefinite life is reviewed annually to determinewhether indefinite life assessment continues to be supportable. Ifnot, the change in the useful life assessment from indefinite tofinite is made on a prospective basis.
Assets under construction represent application and other non-integral software and includes all direct expenditure as well asrelated borrowing costs capitalised, but excludes the costs ofabnormal amounts of waste material, labour or other resourcesincurred in the production of self-constructed assets.
Intangible assets are derecognised when they have beendisposed of or when the asset is permanently withdrawn from useand no future economic benefit is expected from its disposal. Anygains or losses on the retirement or disposal of assets arerecognised in the income statement in the year in which they arise.
The expected useful lives assigned to intangible assets are:
Years
Licences 5 to 30Software 2 to 10Trademarks, copyrights and other including FIFA brand 1 to 15
Asset retirement obligationsAsset retirement obligations related to property, plant andequipment and intangible assets are recognised at the presentvalue of expected future cash flows when the obligation todismantle or restore the site arises. The increase in the relatedasset’s carrying value is depreciated over its estimated usefullife. The unwinding of the discount is included in financecharges and fair value movements. Changes in themeasurement of an existing liability that result from changes inthe estimated timing or amount of the outflow of resourcesrequired to settle the liability, or a change in the discount rate,are accounted for as increases or decreases to the original costof the recognised assets. If the amount deducted exceeds thecarrying amount of the asset, the excess is recognisedimmediately in profit and loss.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Non-current assets held for sale
Non-current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the
asset (or disposal group) is available for immediate sale in its
present condition. Management must be committed to the sale,
which should be expected to qualify for recognition as a
complete sale within one year from the date of classification.
Assets are no longer depreciated when they are classified into
this category.
Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of the assets’ previous carrying
amount and fair value less costs to sell.
Impairment of property, plant and equipment and
intangible assets
The Company regularly reviews its non-financial assets and
cash-generating units for any indication of impairment. When
indicators, including changes in technology, market, economic,
legal and operating environments occur and could result in
changes of the asset’s or cash-generating unit’s estimated
recoverable amount, an impairment test is performed.
The recoverable amount of assets or cash-generating units is
measured using the higher of the fair value less costs to sell and
its value in use, which is the present value of projected cash
flows covering the remaining useful lives of the assets.
Impairment losses are recognised when the asset’s carrying
value exceeds its estimated recoverable amount. Where
applicable, the recoverable amount is determined for the cash-
generating unit to which the asset belongs.
Previously recognised impairment losses are reviewed annually
for any indication that it may no longer exist or may have
decreased. If any such indication exists, the recoverable amount
of the asset is estimated. Such impairment losses are reversed
through the income statement if the recoverable amount has
increased as a result of a change in the estimates used to
determine the recoverable amount, but not to an amount higher
than the carrying amount that would have been determined (net
of depreciation or amortisation) had no impairment loss been
recognised in prior years.
Repairs and maintenance
The Company expenses all costs associated with repairs and
maintenance, unless it is probable that such costs would result in
increased future economic benefits flowing to the Company,
and the costs can be reliably measured.
Borrowing costs
Financing costs directly associated with the acquisition or
construction of assets that require more than three months to
complete and place in service are capitalised at interest rates
relating to loans specifically raised for that purpose, or at the
weighted average borrowing rate where the general pool of
Company borrowings was utilised. Other borrowing costs are
expensed as incurred.
Deferred revenue and expenses
Activation revenue and costs are recognised in accordance with
the principles contained in Emerging Issues Task Force Issue
No 00-21, Revenue Arrangements with Multiple Deliverables
(’EITF 00-21’), issued in the United States. This results in
activation revenue and costs up to the amount of the deferred
revenue being deferred and recognised systematically over the
expected duration of the customer relationship because it is
considered to be part of the customers’ ongoing rights to
telecommunication services and the operator’s continuing
involvement. Any excess of the costs over revenues is expensed
immediately.
Subsidiaries and joint venture
Investments in subsidiaries, special purpose entities and joint
ventures are carried at cost and adjusted for any impairment
losses.
Inventories
Installation material, maintenance and network equipment
inventories are stated at the lower of cost, determined on a
weighted average basis and estimated net realisable value.
Merchandise inventories are stated at the lower of cost,
determined on a first-in first-out (’FIFO’) basis and estimated net
realisable value. Write-down of inventories arises when, for
example, goods are damaged or when net realisable value is
lower than carrying value.
Financial instruments
Recognition and initial measurement
All financial instruments are initially recognised at fair value,
plus, in the case of financial assets and liabilities not at fair
value through profit or loss, transaction costs that are directly
attributable to the acquisition or issue. Financial instruments are
recognised when the Company becomes a party to their
contractual arrangements. All regular way transactions are
accounted for on settlement date. Regular way purchases or
sales are purchases or sales of financial assets that require
delivery of assets within the period generally established by
regulation or convention in the marketplace.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Financial instruments (continued)
Subsequent measurement
Subsequent to initial recognition, the Company classifies
financial assets as ’at fair value through profit or loss’, ’held-to-
maturity investments’, ’loans and receivables’, or ’available-for-
sale'. Financial liabilities are classified ’at fair value through
profit or loss’ or ’other financial liabilities’. The measurement of
each is set out below and presented in a table in note 12.
The fair value of financial assets and liabilities that are actively
traded in financial markets is determined by reference to quoted
market prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using
valuation techniques such as discounted cash flow analysis.
Financial assets at fair value through profit or loss
The Company classifies financial assets that are held for trading
in the category ’financial assets at fair value through profit or
loss’. Financial assets are classified as held for trading if they
are acquired for the purpose of selling in the future. Derivatives
not designated as hedges are also classified as held for trading.
On remeasurement to fair value the gains or losses on held for
trading financial assets are recognised in net finance charges
and fair value movements for the year.
Gains and losses arising from changes in the fair value of the
’financial assets at fair value through profit or loss’ category are
presented in the income statement within ’finance charges and
fair value movements’ in the period which they arise.
Held-to-maturity financial assets
The Company classifies non-derivative financial assets with fixed
or determinable payments and fixed maturity dates as held-to-
maturity when the Company has the positive intention and
ability to hold to maturity. These assets are subsequently
measured at amortised cost. Amortised cost is computed as the
amount initially recognised minus principal repayments, plus or
minus the cumulative amortisation using the effective interest
method. This calculation includes all fees paid or received
between parties to the contract. For investments carried at
amortised cost, gains and losses are recognised in net profit or
loss when the investments are sold or impaired.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Such assets are carried at amortised cost using the
effective interest method. Trade receivables are subsequently
measured at the original invoice amount where the effect of
discounting is not material.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative assets
that are designated as available-for-sale, or are not classified in
any of the three preceding categories. Equity instruments are all
treated as available-for-sale financial instruments. After initial
recognition, available-for-sale financial assets are measured at
fair value, with gains and losses being recognised as a
separate component of equity, net of taxation. Dividend income
is recognised in the income statement as part of other income
when the Company’s right to receive payment is established.
Changes in the fair value of monetary items denominated in a
foreign currency and classified as available-for-sale are
analysed between translation differences resulting from changes
in amortised cost of the security and other changes in carrying
amount of the item. The translation differences on monetary
items are recognised in profit or loss, while translation
differences on non-monetary securities are recognised in equity.
Changes in the fair value of monetary and non-monetary items
classified as available-for-sale are recognised directly in equity.
When an investment is derecognised or determined to be
impaired, the cumulative gain or loss previously recorded in
equity is recognised in profit or loss.
Financial liabilities at fair value through profit or loss
Financial liabilities are classified as ‘at fair value through profit
or loss’ (’FVTPL’) where the financial liability is held for trading.
A financial liability is classified as held for trading:
• if it is acquired for the purpose of settling in the near term; or
• if it is a derivative that is not designated and effective as a
hedging instrument.
Financial liabilities at a FVTPL are stated at fair value, with any
resultant gains or losses recognised in profit or loss. The net gain
or loss recognised in profit or loss incorporates any interest paid
on the financial liability.
Other financial liabilities
Other financial liabilities are subsequently measured at
amortised cost using the effective interest rate method, with
interest expense recognised in finance charges and fair value
movements, on an effective interest rate basis.
The effective interest rate is the rate that accurately discounts
estimated future cash payments through the expected life of the
financial liability or, where appropriate, a shorter period.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 263
2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Financial instruments (continued)
Financial guarantee contracts
Financial guarantee contracts are subsequently measured at the
higher of the amount determined in accordance with IAS37
Provisions, Contingent Liabilities and Contingent Assets or the
amount initially recognised less, when appropriate, cumulative
amortisation, recognised in accordance with IAS18 Revenue.
Cash and cash equivalents
Cash and cash equivalents are measured at amortised cost. This
comprises cash on hand, deposits held on call and term
deposits with an initial maturity of less than three months when
entered into.
For the purpose of the cash flow statement, cash and cash
equivalents consist of cash and cash equivalents defined above,
net of credit facilities utilised.
Capital and money market transactions
New bonds and commercial paper bills issued are subsequently
measured at amortised cost using the effective interest rate
method.
Bonds issued where the Company is a buyer and seller of last
resort are carried at fair value. The Company does not actively
trade in bonds.
Derecognition
A financial instrument or a portion of a financial instrument will
be derecognised and a gain or loss recognised when the
Company’s contractual rights expire, financial assets are
transferred or financial liabilities are extinguished. On
derecognition of a financial asset or liability, the difference
between the consideration and the carrying amount on the
settlement date is included in finance charges and fair value
movements for the year. For available-for-sale assets, the fair
value adjustment relating to prior revaluations of assets is
transferred from equity and recognised in finance charges and
fair value movements for the year.
Bonds and commercial paper bills are derecognised when the
obligation specified in the contract is discharged. The difference
between the carrying value of the bond and the amount paid to
extinguish the obligation is included in finance charges and fair
value movements for the year.
Impairment of financial assets
At each balance sheet date an assessment is made of whether
there are any indicators of impairment of a financial asset or a
group of financial assets based on observable data about one
or more loss events that occurred after the initial recognition of
the asset or the group of assets. In the case of equity securities
classified as available-for-sale, a significant or prolonged
decline in the fair value of the security below its cost is
considered as an indicator that the securities are impaired. For
loans and receivables carried at amortised cost, if there is
objective evidence that an impairment loss has been incurred,
the amount of the loss is measured at the difference between the
asset’s carrying amount and the present value of estimated future
cashflows. The carrying amount of the asset is reduced through
the use of an allowance account and the amount of the loss is
recognised in the income statement.
If any such evidence exists for available-for-sale assets, the
cumulative loss – measured as the difference between the
acquisition cost and the current fair value, less any impairment
loss on that financial asset previously recognised in profit or loss
– is removed from equity and recognised in the income
statement. Impairment losses recognised in the income statement
on equity instruments are not reversed through the income
statement. The recoverable amount of financial assets carried at
amortised cost is calculated as the present value of expected
future cash flows discounted at the original effective interest rate
of the asset.
If, in a subsequent period, the amount of the impairment loss for
financial assets decreases and the decrease can be related
objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is
reversed except for those financial assets classified as available-
for-sale and carried at cost that are not reversed. Any
subsequent reversal of an impairment loss is recognised in the
income statement, to the extent that the carrying value of the
asset does not exceed its amortised cost at the reversal date.
Reversals in respect of equity instruments classified as available-
for-sale are not recognised in profit and loss. Reversals of
impairment losses on debt instruments classified as available-for-
sale are reversed through the income statement, if the increase
in fair value of the instrument can be objectively related to an
event occurring after the impairment loss was recognised
through the income statement.
Embedded derivatives
The Company assesses whether an embedded derivative is
required to be separated from the host contract and accounted
for as a derivative when it first becomes party to the contract.
The Company reassesses the contract when there is a change
in the terms of the contract which significantly modifies the cash
flows that would otherwise be required under the contract.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009264
2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Financial instruments (continued)
Financial instruments: Disclosures
The Company groups its financial instruments into classes of
similar instruments and where disclosure is required, it discloses
them by class. It also discloses information about the nature and
extent of risks arising from its financial instruments (refer to
note 12).
Foreign currencies
The functional and presentation currency of the Company is the
South African Rand (ZAR).
Transactions denominated in foreign currencies are measured at
the rate of exchange at transaction date. Monetary items
denominated in foreign currencies are remeasured at the rate of
exchange at settlement date or balance sheet date, whichever
occurs first. Exchange differences on the settlement or translation
of monetary assets and liabilities are included in finance
charges and fair value movements in the period in which they
arise. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions. Non-
monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair
value is determined.
Treasury shares
Where the Company acquires, or in substance acquires, its
own shares, such shares are measured at cost and disclosed as
a reduction of equity. No gain or loss is recognised in profit or
loss on the purchase, sale, issue or cancellation of the
Company’s own equity instruments. Such shares are not
remeasured for changes in fair value.
Where the Company chooses or is required to buy equity
instruments from another party to satisfy its obligations to its
employees under the share-based payment arrangement by
delivery of its own shares, the transaction is accounted for as
equity-settled. This applies regardless of whether the employee’s
rights to the equity instruments were granted by the Company
itself or by its shareholders or was settled by the Company itself
or its shareholders.
Leases
A lease is classified as a finance lease if it transfers substantially
all the risks and rewards incidental to ownership. All other
leases are classified as operating leases.
Where the Company enters into a service agreement as a
supplier or a customer that depends on the use of a specific
asset, and conveys the right to control the use of the specific
asset, the arrangement is assessed to determine whether it
contains a lease. Once it has been concluded that an
arrangement contains a lease, it is assessed against the criteria
in IAS17 to determine if the arrangement should be recognised
as a finance lease or operating lease.
The land and buildings elements of a lease of land and
buildings are considered separately for the purposes of lease
classification unless it is impractical to do so.
LesseeOperating lease payments are recognised in the income
statement on a straight-line basis over the lease term.
Assets acquired in terms of finance leases are capitalised at the
lower of fair value and the present value of the minimum lease
payments at inception of the lease and depreciated over the
lesser of the useful life of the asset and the lease term. The
capital element of future obligations under the leases is included
as a liability in the balance sheet. Lease finance costs are
amortised in the income statement over the lease term using the
interest rate implicit in the lease. Where a sale and leaseback
transaction results in a finance lease, any excess of sale
proceeds over the carrying amount is deferred and recognised
in the income statement over the term of the lease.
LessorOperating lease revenue is recognised in the income statement
on a straight-line basis over the lease term.
Assets held under a finance lease are recognised in the balance
sheet and presented as a receivable at an amount equal to the
net investment in the lease. The recognition of finance income
is based on a pattern reflecting a constant periodic rate of return
on the net investment in the finance lease.
Employee benefitsPost-employment benefitsThe Company provides defined benefit and defined contribution
plans for the benefit of employees. These plans are funded by
the employees and the Company, taking into account
recommendations of the independent actuaries. The post-
retirement telephone rebate liability is unfunded.
Defined contribution plansThe Company’s funding of the defined contribution plans is
charged to employee expenses in the same year as the related
service is provided.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)
Employee benefits (continued)
Defined benefit plans
The Company provides defined benefit plans for pension,
retirement, post-retirement medical aid benefits and telephone
rebates to qualifying employees. The Company’s net obligation
in respect of defined benefits is calculated separately for each
plan by estimating the amount of future benefits earned in return
for services rendered.
The amount recognised in the balance sheet represents the
present value of the defined benefit obligations, calculated by
using the projected unit credit method, as adjusted for
unrecognised actuarial gains and losses, unrecognised past
service costs and reduced by the fair value of the related plan
assets. The amount of any surplus recognised and reflected as
a defined benefit asset is limited to unrecognised actuarial
losses and past service costs plus the present value of available
refunds and reductions in future contributions to the plan. To the
extent that there is uncertainty as to the entitlement to the surplus,
no asset is recognised. No gain is recognised solely as a result
of an actuarial loss or past service cost in the current period and
no loss is recognised solely as a result of an actuarial gain or
past service cost in the current period.
Actuarial gains and losses are recognised as employee
expenses when the cumulative unrecognised gains and losses
for each individual plan exceed 10% of the greater of the
present value of the Company’s obligation and the fair value of
plan assets at the beginning of the year. These gains or losses
are amortised on a straight-line basis over 10 years for all the
defined benefit plans, except gains or losses related to the
pensioners in the Telkom Retirement Fund or unless the standard
requires faster recognition. For the Telkom Retirement Fund
pensioners, the cumulative unrecognised actuarial gains and
losses in excess of the 10% corridor at the beginning of the year
are recognised immediately.
Past service costs are recognised immediately to the extent that
the benefits are vested, otherwise they are recognised on a
straight-line basis over the average period the benefits become
vested.
Leave benefits
Annual leave entitlement is provided for over the period that the
leave accrues and is subject to a cap of 22 days.
Workforce reduction
Workforce reduction expenses are payable when employment
is terminated before the normal retirement age or when an
employee accepts voluntary redundancy in exchange for
benefits. Workforce reduction benefits are recognised when the
entity is demonstrably committed and it is probable that the
expenses will be incurred. In the case of an offer made to
encourage voluntary redundancy, the measurement of
termination benefits is based on the number of employees
expected to accept the offer.
Share-based compensation
The grants of equity instruments, made to employees in terms of
the Telkom Conditional Share Plan, are classified as equity-
settled share-based payment transactions. The expense relating
to the services rendered by the employees, and the
corresponding increase in equity, is measured at the fair value
of the equity instruments at their date of grant based on the
market price at grant date, adjusted for the lack of entitlement to
dividends during the vesting period. This compensation cost is
recognised over the vesting period, based on the best available
estimate at each balance sheet date of the number of equity
instruments that are expected to vest.
Short-term employee benefits
The cost of all short-term employee benefits is recognised during
the year the employees render services, unless the Company
uses the services of employees in the construction of an asset
and the benefits received meet the recognition criteria of an
asset, at which stage it is included as part of the related
property, plant and equipment or intangible asset item.
Provisions
Provisions are recognised when the Company has a present
obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources will be required to settle
the obligation, and a reliable estimate can be made of the
amount of the obligation. Provisions are reviewed at each
balance sheet date and adjusted to reflect the current best
estimate. Where the effect of the time value of money is
material, the amount of the provision is the present value of the
expenditures expected to be required to settle the obligation.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009266
2007 2008 2009
Rm Rm Rm
3. REVENUE3.1 Total revenue 35,818 36,641 37,058
Operating revenue 32,340 32,571 33,659
Other income (excluding profit on disposal of property, plant and
equipment, intangible assets and investments, refer to note 4) 276 331 492
Investment income (refer to note 6) 3,202 3,739 2,907
3.2 Operating revenue 32,340 32,571 33,659
Subscriptions, connections and other usage 6,286 6,330 6,614
Traffic 16,740 15,949 15,323
Domestic (local and long distance) 7,563 6,327 5,670
Fixed-to-mobile 7,646 7,557 7,420
International (outgoing) 988 986 933
Subscription based calling plans 543 1,079 1,300
Interconnection 1,639 1,757 2,084
Data 7,489 8,308 9,310
Sundry revenue 186 227 328
4. OTHER INCOME 655 498 524
Other income (included in Total revenue, refer to note 3) 276 331 492
Interest received from trade receivables 181 211 214
Other interest 8 37 189
Sundry income 87 83 89
Profit on disposal of property, plant and equipment and intangible
assets 15 167 32
Profit on disposal of investment 364 – –
The increase in the current year’s other interest is a result of the
increase in loans to subsidiaries (refer to note 11).
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 267
2007 2008 2009
Rm Rm Rm
5. OPERATING EXPENSESOperating expenses comprise:
5.1 Employee expenses 7,077 7,386 7,990
Salaries and wages 5,076 5,519 5,742
Medical aid contributions 377 407 404
Retirement contributions 439 460 460
Post-retirement pension and retirement fund (refer to note 25) 33 5 29
Current service cost 5 5 4
Interest cost 329 509 633
Expected return on plan assets (508) (713) (825)
Actuarial gain (136) (16) –
Settlement loss/(gain) 21 (2) (3)
Asset limitation 322 222 220
Post-retirement medical aid (refer to note 25) 329 277 455
Current service cost 83 84 95
Interest cost 285 321 426
Expected return on plan asset (188) (257) (223)
Actuarial loss 149 129 157
Telephone rebates (refer to note 25) 104 27 61
Current service cost 4 3 6
Interest cost 19 22 39
Past service cost 76 2 2
Actuarial loss 5 – 14
Share-based compensation expense (refer to note 22 and 25) 141 522 554
Other benefits* 1,274 969 1,021
Employee expenses capitalised (696) (800) (736)
* Other benefits include annual leave, performance incentive, service bonuses, skills development and workforce reduction expenses.
5.2 Payments to other operators 6,461 6,902 7,536
Payments to other network operators consist of expenses in
respect of interconnection with other network operators.
5.3 Selling, general and administrative expenses 3,970 3,904 6,580
Selling and administrative expenses 1,329 1,108 3,428
Maintenance 1,900 1,996 2,293
Marketing 604 583 574
Bad debts (refer to note 17) 137 217 285
Included in the current year’s selling and administrative expenses, a total impairment loss of R2,178 million (2008: R229 million;
2007: RNil) has been recognised on investments.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009268
2007 2008 2009
Rm Rm Rm
5. OPERATING EXPENSES (continued)5.4 Service fees 2,236 2,410 2,760
Facilities and property management 1,140 1,221 1,261 Consultancy services 209 160 324 Security and other 833 978 1,122 Auditors’ remuneration 54 51 53
Audit services 53 51 50
Company auditors 47 46 46
Current year 47 43 46 Prior year underprovision – 3 –
Other auditors – current year 6 5 4
Other services 1 – 3
Included in the current year’s consultancy services is an amount of R177 million relating to services rendered in respect of the transaction to dispose of the Company’s stake in Vodacom Group (Proprietary) Limited.
The increase in the current year’s security and other costs is mainly attributable to the new contract negotiated to secure the copper network in the Company’s drive to cutting down on cable thefts.
5.5 Operating leases 762 619 613
Land and buildings 131 142 166 Equipment 79 49 58 Vehicles 552 428 389
5.6 Depreciation, amortisation and write-offs 3,583 3,732 4,358
Depreciation of property, plant and equipment (refer to note 9) 2,994 3,062 3,398 Amortisation of intangible assets (refer to note 10) 305 408 638 Write-offs of property, plant and equipment and intangible assets 284 262 322
Included in the current year’s amortisation of intangible assets is an amount of R134 million relating to the FIFA brand intangible asset.
In recognition of the changed usage patterns of certain items of property, plant and equipment and intangible assets, the Company revised their remaining useful lives as at March 31. The assets affected were individual items of Network equipment, Data processing equipment, Support equipment, Freehold land and buildings and Intangible assets. The revised estimated useful lives of these assets as set out below, resulted in a decrease of the current year depreciation and amortisation charges of R11,4 million (2008: R196 million; 2007: R942 million).
Previous life Revised lifeYears Years
Property, plant and equipmentOther 2 – 15 2 – 20
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 269
2007 2008 2009
Rm Rm Rm
6. INVESTMENT INCOME 3,202 3,739 2,907
Interest income 196 142 160
Dividend income from joint venture 2,700 2,970 2,600
Dividend income from subsidiaries 306 627 147
Included in investment income is an amount of R160 million
(2008: R142 million; 2007: R196 million) which relates to
interest earned from financial assets not measured at fair value
through profit or loss.
7. FINANCE CHARGES AND FAIR VALUE MOVEMENTS 1,027 1,289 1,460
Finance charges on interest-bearing debt 1,142 1,499 1,655
Local debt 1,303 1,675 1,818
Finance charges capitalised (161) (176) (163)
Foreign exchange gains and losses and fair value movements (115) (210) (195)
Foreign exchange losses/(gains) 58 116 (318)
Fair value adjustments on derivative instruments (173) (326) 123
Capitalisation rate 14.8% 12.6% 12.4%
Included in finance charges is an amount of R1,655 million (2008: R1,499 million; 2007: R1,142 million) which relates to interest paid
on financial liabilities not measured at fair value through profit or loss.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009
Rm Rm Rm
8. TAXATION 2,690 2,599 516
South African normal company taxation 1,874 1,879 1,510
Current taxation 1,907 1,879 1,540
Overprovision for prior year (33) – (30)
Deferred taxation 521 357 (1,150)
Temporary differences – normal company taxation 561 255 111
Temporary difference – secondary taxation on companies
(’STC’) taxation credits (raised)/utilised (41) 157 (87)
Capital gains taxation (’CGT’) – – (1,280)
Change in taxation rate – (55) –
Underprovision in prior year 1 – 106
Secondary taxation on companies 295 363 156
Reconciliation of taxation rate % % %
Effective rate 24.2 24.6 8.9
South African normal rate of taxation 29.0 29.0 28.0
Adjusted for: (4.8) (4.4) (19.1)
Change in taxation rate – (0.5) –
Exempt income (8.3) (10.6) (13.9)
Disallowable expenditure 1.5 1.8 13.8
STC taxation credits (raised)/utilised (0.4) 1.5 (1.5)
STC taxation charge 2.7 3.4 2.7
CGT asset – – (22.1)
Other – – 0.6
Net (overprovision)/underprovision for prior year (0.3) – 1.3
The Company has historically filed, and continues to file, all required income taxation returns. Management believes that the principles
applied in determining the Company’s taxation obligations are consistent with the principles and interpretations of South African taxation
laws.
Included in the current year’s deferred taxation expense is an amount of R1,280 million relating to the deferred taxation on the CGT
base cost of the investments which are held for sale.
The decrease in the deferred taxation expense is mainly due to the temporary difference on CGT as well as the decrease in STC
taxation credits.
South African normal rate of taxation has decreased from 29% to 28% effective from the March 31, 2009 financial year.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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2007 2008 2009
Accumulated Carrying Accumulated Carrying Accumulated Carrying
Cost depreciation value Cost depreciation value Cost depreciation value
Rm Rm Rm Rm Rm Rm Rm Rm Rm
9. PROPERTY, PLANT AND EQUIPMENTFreehold land
and buildings 4,381 (1,829) 2,552 4,581 (1,988) 2,593 4,886 (2,128) 2,758
Leasehold
buildings 496 (299) 197 534 (348) 186 519 (355) 164
Network
equipment 49,780 (25,774) 24,006 52,952 (27,366) 25,586 57,438 (29,470) 27,968
Support
equipment 3,584 (2,209) 1,375 3,863 (2,377) 1,486 3,916 (2,479) 1,437
Furniture and
office
equipment 345 (236) 109 372 (265) 107 387 (286) 101
Data processing
equipment and
software 4,758 (3,022) 1,736 4,951 (3,103) 1,848 5,041 (3,309) 1,732
Under
construction 2,530 – 2,530 3,362 – 3,362 2,907 – 2,907
Other 456 (347) 109 476 (371) 105 694 (416) 278
66,330 (33,716) 32,614 71,091 (35,818) 35,273 75,788 (38,443) 37,345
Fully depreciated assets with a cost of R155 million (2008: R498 million; 2007: R1,225 million) were derecognised in the 2009 financial
year. This has reduced both the cost and accumulated depreciation of property, plant and equipment.
Property, plant and equipment with a carrying value of R158 million (2008: R188 million; 2007: R203 million) are pledged as security.
Details of the loans are disclosed in note 23.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009272
9. PROPERTY, PLANT AND EQUIPMENT (continued)The carrying amounts of property, plant and equipment can be reconciled as follows:
Carrying Carrying value at Write-offs value at
beginning and end of year Additions Transfers reversals Disposals Depreciation of year
Rm Rm Rm Rm Rm Rm Rm
2009Freehold land and buildings 2,593 258 81 (5) (2) (167) 2,758 Leasehold buildings 186 2 – – – (24) 164 Network equipment 25,586 2,830 2,292 (141) (71) (2,528) 27,968 Support equipment 1,486 127 118 (12) – (282) 1,437Furniture and office equipment 107 7 8 – – (21) 101 Data processing equipment and software 1,848 145 63 (4) – (320) 1,732Under construction 3,362 2,281 (2,627) (109) – – 2,907Other 105 216 14 (1) – (56) 278
35,273 5,866 (51) (272) (73) (3,398) 37,345
2008Freehold land and buildings 2,552 198 22 (3) (8) (168) 2,593 Leasehold buildings 197 7 30 – – (48) 186 Network equipment 24,006 2,693 1,308 (96) (88) (2,237) 25,586 Support equipment 1,375 257 117 (7) – (256) 1,486 Furniture and office equipment 109 26 1 – – (29) 107 Data processing equipment and software 1,736 268 161 (14) – (303) 1,848 Under construction 2,530 2,588 (1,725) (31) – – 3,362 Other 109 7 10 – – (21) 105
32,614 6,044 (76) (151) (96) (3,062) 35,273
2007Freehold land and buildings 2,610 102 (8) 17 – (169) 2,552 Leasehold buildings 240 – – – (14) (29) 197 Network equipment 23,253 2,599 847 (190) (240) (2,263) 24,006 Support equipment 1,134 352 105 (13) – (203) 1,375 Furniture and office equipment 104 11 5 – – (11) 109 Data processing equipment and software 1,779 303 (48) (9) – (289) 1,736 Under construction 1,316 2,163 (912) (37) – – 2,530 Other 52 16 72 (1) – (30) 109
30,488 5,546 61 (233) (254) (2,994) 32,614
Full details of land and buildings are available for inspection at the registered offices of the Company.
The Company does not have temporarily idle property, plant and equipment.
A major portion of this capital expenditure relates to the expansion of existing networks and services. An extensive build programme thatprovides capacity for growth in services, with focus on the Next Generation Network technologies, has resulted in an increase in property,plant and equipment additions which is expected to continue over the next few years.
Included in the current year’s additions in the other category is an amount of R179 million (2008: R31 million; 2007: RNil) that relatesto finance leases.
An amount of R71 million (2008: R88 million; 2007: R240 million) under property, plant and equipment disposals relates to thereclassification of Customer Premises Equipment at the start of the lease. These disposals are as a result of the Company entering into aleasing arrangement.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 273
2007 2008 2009
Accumulated Carrying Accumulated Carrying Accumulated Carrying
Cost amortisation value Cost amortisation value Cost amortisation value
Rm Rm Rm Rm Rm Rm Rm Rm Rm
10. INTANGIBLE ASSETSTrademarks, copyrightsand FIFA brand 52 (52) – 197 (59) 138 457 (203) 254 Software 5,306 (2,913) 2,393 6,239 (3,312) 2,927 7,031 (3,785) 3,246 Under construction 1,109 – 1,109 741 – 741 488 – 488
6,467 (2,965) 3,502 7,177 (3,371) 3,806 7,976 (3,988) 3,988
The carrying amounts of intangible assets can be reconciled as follows:Carrying Carrying value at value at
beginning end of year Additions Transfers Write-offs Disposals Amortisation of year
Rm Rm Rm Rm Rm Rm Rm
2009Trademarks, copyrights and FIFA brand 138 260 – – – (144) 254Software 2,927 207 607 (1) – (494) 3,246Under construction 741 357 (555) (55) – – 488
3,806 824 52 (56) – (638) 3,988
2008Trademarks and copyrights – 144 – – – (6) 138 Software 2,393 250 688 (2) – (402) 2,927 Under construction 1,109 353 (612) (109) – – 741
3,502 747 76 (111) – (408) 3,806
2007Software 1,804 323 575 (4) – (305) 2,393 Under construction 1,063 729 (636) (47) – – 1,109
2,867 1,052 (61) (51) – (305) 3,502
There are no intangible assets whose title is restricted, or that have been pledged as security for liabilities at March 31, 2009.
Intangible assets that are material to the Company consist of Software, Copyrights and Trademarks whose average remaining amortisationperiod is 5.6 years (2008: 5.9 years; 2007: 6.58 years).
No intangible asset has been assessed as having an indefinite useful life.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009274
2007 2008 2009
Rm Rm Rm
11. INVESTMENTS 887 3,883 7,693
Special purpose entity – cell captiveCost 535 535 535 Subsidiaries 352 3,348 7,158
Trudon (formerly TDS Directory Operations) (Proprietary) Limited64.90% shareholding at cost 167 167 167 Swiftnet (Proprietary) Limited**100% shareholding at cost 25 25 – Rossal No 65 (Proprietary) Limited – – – 100% shareholding at cost (R100) – – – Acajou Investments (Proprietary) Limited100% shareholding at cost (R100) – – – Intekom (Proprietary) Limited100% shareholding at cost 10 10 10 Q-Trunk (Proprietary) Limited – – –
100% shareholding at cost 10 10 10 Loan 30 26 22 Impairment (40) (36) (32)
Telkom Media (Proprietary) Limited** – 109 –
75% shareholding at cost (R2,868) – – – Loan – 326 – Impairment of loan – (217) –
Africa Online Limited 150 212 275
100% shareholding at cost 150 150 150 Impairment of investment – (12) (97)Loan – 74 222
Multi-Links Telecommunications Limited* – 840 5,595
25% shareholding at cost – – 1,339 Impairment of investment – – (969)Loan – 840 5,225
Telkom Communications International (Proprietary) Limited 100% shareholding at cost (R12) – – – Telkom International (Proprietary) Limited* – 1,985 1,111
100% shareholding at cost (R100) – – – Loan – 1,985 1,985 Impairment of loan – – (874)Available-for-saleUnlisted investmentRascom0.69% (2008: 0.69%; 2007: 0.69%) interest in Regional African Satellite Communications Organisation, headquartered in Abidjan, Ivory Coast, at cost – – –
Cost 1 1 1 Impairment (1) (1) (1)IncorporationThe subsidiaries and joint venture are all incorporated in the Republic of South Africa, with the exception of Telkom CommunicationsInternational (Proprietary) Limited and Africa Online Limited that are incorporated in the Republic of Mauritius, and Multi-LinksTelecommunications (Proprietary) Limited, which is incorporated in Nigeria.
* The 75% shareholding in Multi-Links Telecommunications Limited is an indirect investment through Telkom International (Proprietary) Limited.** The investments Swiftnet (Proprietary) Limited and Telkom Media (Proprietary) Limited are both classified as assets held for sale in the 2009 financial year
in terms of IFRS5. (Refer to note 16.)
The aggregate directors’ valuation of the above investments is R321 million (2008: R7,658 million; 2007: R6,690 million) based on netasset values.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Risk management
Exposure to continuously changing market conditions has made management of financial risk critical for the Company. Treasury policies,
risk limits and control procedures are continuously monitored by the Board of Directors through its audit and risk committee.
The Company holds or issues financial instruments to finance its operations, for the temporary investment of short-term funds and to manage
currency and interest rate risks. In addition, financial instruments such as trade receivables and payables arise directly from the Company’s
operations.
The Company finances its operations primarily by a mixture of issued share capital, retained earnings, long-term and short-term loans. The
Company uses derivative financial instruments to manage its exposure to market risks from changes in interest and foreign exchange rates.
The derivatives used for this purpose are principally interest rate swaps and forward exchange contracts. The Company does not speculate
in derivative instruments.
The table below sets out the classification of financial assets and liabilities:
At fair
value
through Financial
profit liabilities
or loss at Loans Available Total
held for amortised Held-to- and for carrying Fair
trading cost maturity receivables sale value value
Notes Rm Rm Rm Rm Rm Rm Rm
Classes of financial instruments
per balance sheet
2009
Assets 154 – 1,044 15,062 34 16,294 16,460
Trade and other receivables* 17 – – – 6,153 – 6,153 6,153
Investments 11 – – – 7,693 – 7,693 7,693
Finance lease receivable 13 – – – 275 – 275 275
Assets held for sale and
discontinued operations 16 – – – – 34 34 200
Other financial assets 154 – 1,044 – – 1,198 1,198
Repurchase agreements 18 – – 1,044 – – 1,044 1,044
Interest rate swaps 18 4 – – – – 4 4
Forward exchange contracts 18 150 – – – – 150 150
Cash and cash equivalents 19 – – – 941 – 941 941
Liabilities (225) (23,257) – – – (23,482) (24,555)
Interest-bearing debt 23 – (17,704) – – – (17,704) (18,777)
Trade and other payables 27 – (5,424) – – – (5,424) (5,424)
Shareholders for dividend 32 – (23) – – – (23) (23)
Credit facilities utilised 19 – (106) – – – (106) (106)
Other financial liabilities (225) – – – – (225) (225)
Interest rate swaps 18 (72) – – – – (72) (72)
Forward exchange contracts 18 (153) – – – – (153) (153)
(71) (23,257) 1,044 15,062 34 (7,188) (8,095)
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)At fair value
through Financial profit or liabilities at Total
loss held amortised Held-to- Loans and Available carrying Fair for trading cost maturity receivables for sale value value
Notes Rm Rm Rm Rm Rm Rm Rm
Classes of financial instruments per balance sheet2008Assets 443 – – 11,224 – 11,667 11,667
Trade and other receivables* 17 – – – 6,593 – 6,593 6,593 Investments 11 – – – 3,883 – 3,883 3,883 Finance lease receivable 13 – – – 265 – 265 265 Other financial assets 443 – – – – 443 443
Forward exchange contracts 18 443 – – – – 443 443
Cash and cash equivalents 19 – – – 483 – 483 483
Liabilities (168) (18,346) – – – (18,514) (19,029)
Interest bearing debt 23 – (13,362) – – – (13,362) (13,877)Trade and other payables 27 – (4,923) – – – (4,923) (4,923)Shareholders for dividend 32 – (20) – – – (20) (20)Credit facilities utilised 19 – (41) – – – (41) (41)Other financial liabilities (168) – – – – (168) (168)
Forward exchange contracts 18 (168) – – – – (168) (168)
275 (18,346) – 11,224 – (6,847) (7,362)
Classes of financial instruments per balance sheet2007Assets 229 – – 7,025 – 7,254 7,254
Trade and other receivables* 17 – – – 5,755 – 5,755 5,755 Investments 11 – – – 887 – 887 887 Finance lease receivable 13 – – – 207 – 207 207 Other financial assets 229 – – – – 229 229
Bills of exchange 18 98 – – – – 98 98 Forward exchange contracts 18 131 – – – – 131 131
Cash and cash equivalents 19 – – – 176 – 176 176
Liabilities (155) (13,333) – – – (13,488) (14,849)
Interest bearing debt 23 (98) (8,985) – – – (9,083) (10,444)Trade and other payables 27 – (4,333) – – – (4,333) (4,333)Shareholders for dividend 32 – (15) – – – (15) (15)Credit facilities utilised 19 – – – – – – –Other financial liabilities (57) – – – – (57) (57)
Interest rate swaps 18 (26) – – – – (26) (26)Forward exchange contracts 18 (31) – – – – (31) (31)
74 (13,333) – 7,025 – (6,234) (7,595)
* Trade and other receivables are disclosed net of prepayments of R267 million (2008: R266 million; 2007: R165 million).
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
12.1. Fair value of financial instruments
Carrying value of all financial instruments noted in the balance sheet approximates fair value except as disclosed below.
The estimated net fair values as at March 31, 2009, have been determined using available market information and appropriate valuation
methodologies as outlined below. This value is not necessarily indicative of the amounts that the Company could realise in the normal course
of business.
Derivatives are recognised at fair value.
The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cash flow analysis is
used. These amounts reflect the approximate values of the net derivative position at the balance sheet date.
The carrying value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate
their fair value due to the short-term maturities of these instruments.
The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future
payments discounted at market interest rates, as a result they differ from carrying values.
The fair values of listed investments are based on quoted market prices.
12.2 Interest rate risk management
Interest rate risk arises from the repricing of the Company’s forward cover and floating rate debt as well as incremental funding or new
borrowings and the refinancing of existing borrowings.
The Company’s policy is to manage interest cost through the utilisation of a mix of fixed and floating rate debt. In order to manage this mix
in a cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated
peak additional borrowings, the Company makes use of interest rate derivatives as approved in terms of the Company policy limits. Fixed
rate debt represents approximately 64.86% (2008: 57.03%; 2007: 98.83%) of the total debt. The debt profile of mainly fixed rate debt
has been maintained to limit the Company’s exposure to interest rate increases given the size of the Company’s debt portfolio. There were
no changes in the policies and processes for managing and measuring the risk from the previous period.
The table below summarises the interest rate swaps outstanding as at March 31:
Weighted
average
Notional coupon
Average amount rate
maturity Currency Rm %
2009
Interest rate swaps outstanding
Pay fixed 2-5 years ZAR 2,000 10.84
2008
Interest rate swaps outstanding
Pay fixed – – – –
2007
Interest rate swaps outstanding
Pay fixed < 1 year ZAR 1,000 14.67
Pay fixed
The floating rate is based on the three months JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage
interest rate risk on debt instruments.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.3. Credit risk management
Credit risk is the risk due to uncertainty in a counterparty’s ability to meet its obligations as they fall due.
Credit risk arises from derivative contracts entered into with financial institutions with a rating of A1 or better. The Company is not exposed
to significant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Company from
counterparties in respect of derivative contracts is a net favourable position of R29 million (2008: R289 million; 2007: R103 million). No
collateral is required when entering into derivative contracts. Credit limits are reviewed on an annual basis or when information becomes
available in the market. The Company limits the exposure to any counterparty and exposures are monitored daily. The Company expects
that all counterparties will meet their obligations.
With regard to credit risk arising from other financial assets of the Company, which comprises held-to-maturity investments, financial assets
held at fair value through profit or loss, loans and receivables and available-for-sale assets (other than equity investments), the Company’s
exposure to credit risk arises from a potential default by a counterparty, with a maximum exposure equal to the carrying amount of these
instruments.
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management reduces
the risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counterparty failure,
limits are set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large
widespread customer base, covering residential, business, government, wholesale, global and corporate customer profiles.
Credit checks are performed on all customers, other than prepaid customers, on application for new services on an ongoing basis where
appropriate.
The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other
receivables. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets as well
as expected future cash flows. Refer to note 17.
The Company has provided a financial guarantee to Africa Online Limited for bank loans. At March 31, 2009 there was R26 million
(2008: R23 million; 2007: RNil) outstanding.
Telkom guarantees a certain portion of employees’ housing loans. The amount guaranteed differs depending on facts such as employment
period and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before
any pension payout can be made to the employee. The Company recognises a provision when it becomes probable that a guarantee will
be called. There is no provision outstanding in respect of these contingencies. The maximum amount of the guarantee in the event of the
default is R12 million. The fair value of the guarantee at March 31, 2009 was RNil (2008: RNil; 2007: RNil).
Given the deterioration of credit markets, stricter objectives, policies and processes were applied for managing and measuring the risk than
in the previous period.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.3 Credit risk management (continued)
The maximum exposure to credit risk for financial assets at the reporting date by type of customer was:
Carrying amount
2007 2008 2009
Rm Rm Rm
Trade receivables 3,831 4,316 4,239
Business and residential 1,924 1,824 1,870
Global, corporate and wholesale 1,701 1,950 1,921
Government 318 368 444
Other 41 334 209
Impairment of trade receivables (153) (160) (205)
Derivatives 229 443 154
Loans receivable – 3,008 6,558
Other receivables* 1,924 2,277 1,914
5,984 10,044 12,865
* Excluding prepayments.
The ageing of trade receivables at the reporting date was:
2007 2008 2009
Rm Rm Rm
Not past due/current 3,250 3,654 3,361
Ageing of past due but not impaired
21 to 60 days 290 320 379
61 to 90 days 70 83 92
91 to 120 days 41 55 62
120+ days 180 204 345
3,831 4,316 4,239
The ageing in the allowance for the impairment of trade
receivables at reporting date was:
Ageing of impaired trade receivables:
Current defaulted 24 26 23
21 to 60 days 21 25 29
61 to 90 days 14 23 18
91 to 120 days 13 16 28
120+ days 81 70 107
153 160 205
The movement in the allowance for impairment in respect of trade receivables during the year is disclosed in note 17.
Included in the allowance for doubtful debts are individually impaired receivables with a balance of R49 million (2008: R32 million; 2007:
R49 million) which have been identified as being unable to service their debt obligation. The impairment recognised represents the
difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The
Company does not hold any collateral over these balances.
During the 2009 year end the Company renegotiated the terms of trade receivables amounting to R1.9 million from a long outstanding
customer. No impairment losses were recognised.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009280
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.4. Liquidity risk management
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to
liquidity risk as a result of uncertain cash flows as well as capital commitments of the Company. Liquidity risk is managed by Telkom’s
Corporate Finance division in accordance with policies and guidelines formulated by Telkom’s executive committee. In terms of its borrowing
requirements the Company ensures that sufficient facilities exist to meet its immediate obligations. In terms of its long-term liquidity risk, the
Company maintains a reasonable balance between the period over which assets generate funds and the period over which the respective
assets are funded. Short-term liquidity gaps may be funded through repurchase agreements and commercial paper bills.
There were no material changes in the exposure to liquidity risk and its objectives, policies and processes for managing and measuring
the risk during the 2009 financial year.
The table below summarises the maturity profile of the Company’s financial liabilities based on undiscounted contractual cash flow at the
balance sheet date:
Contractual
Carrying cash < 6 6 – 12 1 – 2 2 – 5
amount flows months months years years > 5 years
Notes Rm Rm Rm Rm Rm Rm Rm
2009
Non-derivative financial liabilities
Interest-bearing debt (excluding
finance leases) 23 16,720 18,297 5,059 2,500 1,815 5,167 3,756
Credit facilities utilised 19 106 106 106 – – – –
Trade and other payables 27 5,424 5,528 5,399 129 – – –
Finance lease liabilities 34 984 1,846 82 82 171 516 995
Derivative financial liabilities
Other financial liabilities 18 225 235 147 6 82 – –
Interest rate swaps 72 82 – – 82 – –
Forward exchange contracts 153 153 147 6 – – –
23,459 26,012 10,793 2,717 2,068 5,683 4,751
2008
Non-derivative financial liabilities
Interest-bearing debt (excluding
finance leases) 23 12,505 14,403 4,882 1,200 3,900 1,823 2,598
Credit facilities utilised 19 41 41 41 – – – –
Trade and other payables 27 4,923 4,923 4,609 314 – – –
Finance lease liabilities 34 857 1,794 64 62 123 395 1,150
Derivative financial liabilities
Other financial liabilities
Forward exchange contracts 18 168 168 83 85 – – –
18,494 21,329 9,679 1,661 4,023 2,218 3,748
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.4. Liquidity risk management (continued)
Contractual
Carrying cash < 6 6 – 12 1 – 2 2 – 5
amount flows months months years years > 5 years
Notes Rm Rm Rm Rm Rm Rm Rm
2007
Non-derivative financial liabilities
Interest-bearing debt (excluding
finance leases) 23 8,231 10,416 1,350 4,680 – 1,806 2,580
Trade and other payables 27 4,333 4,333 3,887 446 – – –
Finance lease liabilities 34 852 1,903 59 61 137 356 1,290
Derivative financial liabilities
Other financial liabilities 18 57 57 51 6 – – –
Interest rate swaps 26 26 26 – – – –
Forward exchange contracts 31 31 25 6 – – –
13,473 16,709 5,347 5,193 137 2,162 3,870
12.5. Foreign currency exchange rate risk management
The Company manages its foreign currency exchange rate risk by economically hedging all identifiable exposures via various financial
instruments suitable to the Company’s risk exposure.
Forward exchange contracts have been entered into to reduce the foreign currency exposure on the Company’s operations and liabilities.
The Company also enters into foreign forward exchange contracts to economically hedge interest expense and purchase and sale
commitments denominated in foreign currencies (primarily United States dollars and euros). The purpose of the Company’s foreign currency
hedging activities is to protect the Company from the risk that the eventual net cash flows will be adversely affected by changes in exchange
rates.
There were no changes in the exposure to foreign currency exchange rate risk and its objectives, policies and processes for managing and
measuring the risk from the previous period.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009282
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.5. Foreign currency exchange rate risk management (continued)
The following table details the foreign forward exchange contracts outstanding at year end:
Foreign
contract Forward
amount amount Fair value
To buy m Rm Rm
2009
Currency
US$ 155 1,477 14
Euro 92 1,205 (24)
Other 36 69 (3)
2,751
2008
Currency
US$ 123 915 107
Euro 173 1,923 319
Other 40 166 17
3,004
2007
Currency
US$ 165 1,209 2
Euro 102 991 12
Other 68 80 2
2,280
To sell
2009
Currency
US$ 99 947 (22)
Euro 35 485 28
Other 21 43 4
1,475
2008
Currency
US$ 78 593 (67)
Euro 69 803 (98)
Other 22 105 (2)
1,501
2007
Currency
US$ 122 994 88
Euro 50 483 (5)
Other 31 40 1
1,517
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 283
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.5. Foreign currency exchange rate risk management (continued)
The Company has various monetary assets and liabilities in currencies other than the Company’s functional currency. The following table
represents the net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Company
according to the different foreign currencies.
United
States
Euro Dollar Other
Rm Rm Rm
2009
Net foreign currency monetary assets/(liabilities)
Functional currency of company operation
South African rand 203 6,097 19
2008
Net foreign currency monetary assets/(liabilities)
Functional currency of company operation
South African rand 219 1,117 51
2007
Net foreign currency monetary assets/(liabilities)
Functional currency of company operation
South African rand 282 90 70
Currency swaps
There were no currency swaps in place at March 31, 2009, 2008 and 2007.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.6 Sensitivity analysis
Interest rate risk
The following table illustrates the sensitivity to a reasonably possible change in the interest rates, with all other variables held constant:
+1% movement –1% movement
Other Other
movements movements
Profit in equity Profit in equity
Rm Rm Rm Rm
Classes of financial instruments per balance sheet
2009
Assets
Trade and other receivables 5 – (5) –
Investments 56 – (56)
Other financial assets 28 – (28) –
Repurchase agreements 10 – (10) –
Interest rate swaps 18 – (18) –
Liabilities
Interest-bearing debt (62) 62
Other financial liabilities 15 – (15) –
Interest rate swaps 15 – (15) –
42 – (42) –
2008
Assets
Trade and other receivables 5 – (5) –
Investments 9 – (9) –
Liabilities
Interest-bearing debt (57) – 57 –
(43) – 43 –
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 285
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.6 Sensitivity analysis (continued)
Interest rate risk (continued)
+1% movement –1% movement
Other Other
movements movements
Profit in equity Profit in equity
Rm Rm Rm Rm
2007
Assets
Trade and other receivables 4 – (4) –
Liabilities
Interest-bearing debt 1 – – –
Other financial liabilities 2 – (2) –
Interest rate swaps 2 – (2) –
7 – (6) –
Foreign exchange currency risk
The following table illustrates the sensitivity to a reasonably possible change in the exchange rates, with all other variables held constant.
+10% movement –10% movement
(depreciation) (appreciation)
Other Other
movements movements
Profit in equity Profit in equity
Rm Rm Rm Rm
Classes of financial instruments per balance sheet
2009
Assets
Trade and other receivables 40 – (40) –
Investments 545 – (545) –
Other financial assets 1 – (1) –
Forward exchange contract 1 – (1)
Liabilities
Interest-bearing debt (14) – 14 –
Trade and other payables (60) – 60 –
Other financial liabilities 128 – (128) –
Forward exchange contract 128 – (128) –
640 – (640) –
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.6 Sensitivity analysis (continued)
Foreign exchange currency risk (continued)
+10% movement –10% movement
(depreciation) (appreciation)
Other Other
movements movements
Profit in equity Profit in equity
Rm Rm Rm Rm
2008
Assets
Trade and other receivables 10 – (10) –
Investments 91 – (91) –
Other financial assets 331 – (331) –
Forward exchange contract 331 – (331) –
Liabilities
Interest-bearing debt (10) – 10 –
Trade and other payables (95) – 95 –
Other financial liabilities
Forward exchange contract (153) – 153 –
174 – (174) –
2007
Assets
Trade and other receivables 10 – (10) –
Other financial assets 74 – (74) –
Forward exchange contract 74 – (74) –
Liabilities
Interest-bearing debt (10) – 10 –
Trade and other payables (40) – 40 –
Other financial liabilities 11 – (11) –
Forward exchange contract 11 – (11) –
45 – (45) –
2007 2008 2009
R R R
12.7. Exchange rate table (closing rate)
United States dollar 7.248 8.132 9.484
Euro 9.649 12.854 12.617
Pound Sterling 14.189 16.166 13.555
Swedish krona 1.033 1.370 1.153
Japanese yen 0.061 0.082 0.097
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.8. Capital management
The Board’s policy is to maintain a strong capital base so as to sustain investor, creditor, market confidence and future development of the
business. Capital comprises equity attributable to equity holders of the Company. The Company monitors capital using net debt to EBITDA
ratio. The Company’s policy is to keep the net debt to EBITDA ratio of between 1 and 2 times. Included in net debt are interest-bearing
debts, credit facilities and other financial liabilities, less cash and cash equivalents and other financial assets.
Telkom plans on continuing its share buy-back strategy based on certain criteria, including market conditions, availability of cash and other
investment opportunities and needs.
All of Telkom’s issued and outstanding ordinary shares, including the class A ordinary share and the class B ordinary share, rank equal for
dividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is
declared to holders of all ordinary shares. Telkom’s current dividend policy aims to provide shareholders with a competitive return on their
investment, while assuring sufficient reinvestment of profits to enable us to achieve our strategy. Telkom may revise its dividend policy from
time to time. The determination to pay dividends, and the amount of the dividends, will depend upon, among other things, the earnings,
financial position, capital requirements, general business conditions, cash flows, net debt levels and share buy-back plans.
The Company has access to financing facilities, the total unused amount of which is R6,226 million at the balance sheet date.
There were no changes in the Company’s approach to capital management during the year.
The Company is not subject to externally imposed capital requirements.
The net debt to EBITDA ratio is as follows:
2007 2008 2009
Rm Rm Rm
Non-current portion of interest-bearing debt 3,308 7,336 10,193
Current portion of interest -bearing debt 5,775 6,026 7,511
Other financial liabilities 57 168 225
Less: Cash and cash equivalents (176) (483) (941)
Plus: Credit facilities utilised – 41 106
Less: Other financial assets (229) (443) (1,198)
Net debt 8,735 12,645 15,896
EBITDA 12,489 11,848 8,704
Net debt to EBITDA ratio 0.70 1.07 1.83
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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13. FINANCE LEASE RECEIVABLESThe Company provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated to
specific customers. The disclosed information relates to certain customer arrangements which were assessed to be finance leases in terms
of IAS17.
Total < 1 year 1 – 5 years > 5 years
Rm Rm Rm Rm
2009
Minimum lease payments
Lease payments receivable 360 142 219 –
Unearned finance income (85) (33) (53) –
Present value of minimum lease payments 275 109 166 –
Lease receivables 275 109 166 –
2008
Minimum lease payments
Lease payments receivable 345 135 210 –
Unearned finance income (80) (30) (50) –
Present value of minimum lease payments 265 105 160 –
Lease receivables 265 105 160 –
2007
Minimum lease payments
Lease payments receivable 273 92 181 –
Unearned finance income (66) (21) (45) –
Present value of minimum lease payments 207 71 136 –
Lease receivables 207 71 136 –
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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14. DEFERRED TAXATION (990) (1,347) (198)
Opening balance (469) (990) (1,347)
Income statement movements (521) (357) 1,149
Temporary differences (520) (412) 1,255
Capital allowances (467) (446) (310)
Provisions and other allowances (94) 191 199
Capital gains taxation asset – – 1,279
Secondary taxation credits raised/(utilised) 41 (157) 87
Underprovision prior year (1) – (106)
Change in taxation rate – 55 –
The balance comprises: (990) (1,347) (198)
Capital allowances (2,527) (2,870) (3,181)
Provisions and other allowances 1,197 1,340 1,434
Capital gains taxation asset – – 1,279
STC taxation credits 340 183 270
Deferred taxation balance is made up as follows: (990) (1,347) (198)
Deferred taxation assets 340 183 1,549
Deferred taxation liabilities (1,330) (1,530) (1,747)
Unutilised STC credits 2,718 1,830 2,700
Secondary taxation on companies (STC) is provided for at a rate of 10% on the amount by which dividends declared by the Company
exceeds dividends received. The deferred taxation asset is raised as it is probable that it will be utilised in future. The asset will be released
as a taxation expense when dividends are declared.
The deferred taxation asset represents STC credits on past dividends received that are available to be utilised against dividends declared.
The deferred taxation asset also includes deferred tax on capital gains tax (CGT) base cost of the Vodacom Group (Proprietary) Limited
and Swiftnet (Proprietary) Limited (Swiftnet) investments that will be utilised against the future CGT liability on the Vodacom and Swiftnet
transactions. It is considered probable that these credits will be utilised in the future. The asset will be released as a taxation expense when
dividends are declared and when the CGT liability arises.
The deferred taxation liability increased mainly due to the increase in the difference between the carrying value and taxation value of
assets, as a result of the change in the estimate of useful lives of assets.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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15. INVENTORIES 839 873 1,331
Gross inventories 972 1,072 1,522
Write-down of inventories to net realisable value (133) (199) (191)
Inventories consist of the following categories: 839 873 1,331
Installation material, maintenance material and
network equipment 771 827 1,048
Merchandise 68 46 284
Write-down of inventories to net realisable value 133 199 191
Opening balance 63 133 199
Charged to selling, general and administrative expenses 152 164 167
Inventories written-off (82) (98) (174)
Inventory levels as at March 31, 2009, 2008 and 2007 have
increased due to the accelerated roll-out of the Next Generation
Network required to improve customer service, and the
acquisition of merchandise for the W-CDMA roll-out.
16. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS 34
16.1 Assets held for sale 34
Joint venture
Vodacom Group (Proprietary) Limited (Vodacom) –
50% shareholding at cost (R50)
In the current financial year the Company announced a decision
to dispose of its entire shareholding in Vodacom through selling
15% of its shareholding to Vodafone, a wholly owned subsidiary
of Vodafone Group Plc and unbundling its remaining 35% stake
to its shareholders pursuant to a listing of Vodacom on the main
board of the JSE Limited. The decision was taken in line with the
Company’s strategy to unlock shareholder value.
This investment is reclassified as held-for-sale in terms of IFRS5
as all the requirements for being classified as held-for-sale are met.
Subsidiary
Swiftnet (Proprietary) Limited (Swiftnet) 34
100% shareholding at cost 25
Loan 9
In February 2009, Telkom’s management took a decision to dispose of its 100% investment in Swiftnet, trading under the name Fastnet
Wireless Services. Swiftnet has been classified as held for sale as all criteria for this classification have been met.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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16. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (continued)16.2 Discontinued operations
SubsidiaryTelkom Media (Proprietary) Limited
On August 31, 2006, Telkom created a new subsidiary, Telkom Media (Proprietary) Limited with a black economic empowerment (BEE)shareholding. ICASA awarded Telkom Media a commercial satellite and cable subscription broadcast licence on September 12, 2007.
On March 31, 2008, the Telkom Board took a decision to substantially reduce its investment in Telkom Media and as such Telkom Mediareduced its operational expenses and commitments to a minimum.
Telkom Media was classified as held for sale in September 2008 interim financial statements. At year end the investment did not meet theheld for sale criteria as management was unable to sell the investment for its expected price and therefore decided to abandon it.
2007 2008 2009Rm Rm Rm
17. TRADE AND OTHER RECEIVABLES 5,920 6,859 6,420
Trade receivables 3,831 4,316 4,239
Gross trade receivables 3,984 4,476 4,444 Impairment of receivables (153) (160) (205)
Prepayments and other receivables 2,089 2,543 2,181
Impairment allowance account for receivables 153 160 205
Opening balance 184 153 160 Charged to selling, general and administrative expenses 137 217 285 Receivables written-off (168) (210) (240)
Refer to note 12 for detailed credit risk analysis.
18. OTHER FINANCIAL ASSETS AND LIABILITIES 229 443 1,198 Other financial assets consist of:
Held-to-maturityRepurchase agreements – – 1,044 At fair value through profit or loss 229 443 154
Bills of exchange 98 – – Derivative instruments (refer to note 12) 131 443 154
Repurchase agreementsThe Company manages a portfolio of repurchase agreements in the South African capital and money markets, with a view to generating additional investment income on the favourable interest rates provided on these transactions. Interest received from the borrower is based on the current market related yield. There were no repurchase agreements held at March 31, 2008 and 2007.
Bills of exchangeThe fair value of bills of exchange has been calculated with reference to the Bond Exchange of South Africa quoted prices.
Derivative instrumentsDerivative assets at fair value consists of interest rate swaps of R4 million (2008: RNil; 2007: RNil) and forward exchange contracts of R150 million (2008: R443 million; 2007: R131 million).
Other financial liabilities consist of:At fair value through profit or lossDerivative instruments (57) (168) (225)
Derivative liabilities at fair value consists of interest rate swaps of R72 million (2008: RNil; 2007: R26 million) and forward exchangecontracts of R153 million (2008: R168 million; 2007: R31 million).
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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19. CASH AND CASH EQUIVALENTSCash shown as current assets 176 483 941
Cash and bank balances 76 83 601
Short-term deposits 100 400 340
Credit facilities utilised – (41) (106)
Net cash and cash equivalents 176 442 835
Undrawn borrowing facilities 6,566 5,894 6,226
The undrawn borrowing facilities are unsecured when drawn, bear interest at a rate that will be mutually agreed between the borrower
and lender at the time of drawdown, have no specific maturity date, are subject to annual review and are in place to ensure liquidity. At
March 31, 2009, R3,000 million of these undrawn facilities were committed.
Borrowing powers
To borrow money, Telkom’s directors may mortgage or encumber Telkom’s property or any part thereof and issue debentures, whether
secured or unsecured, whether outright or as security for debt, liability or obligation of Telkom or any third party. For this purpose the
borrowing powers of Telkom are unlimited, but are subject to restrictive financial covenants of the loan facility as indicated on note 23.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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20. SHARE CAPITAL Authorised and issued share capital and share premium are
made up as follows:
Authorised 10,000 10,000 10,000
999,999,998 ordinary shares of R10 each 10,000 10,000 10,000
1 class A ordinary share of R10 – – –
1 class B ordinary share of R10 – – –
Issued and fully paid 5,329 5,208 5,208
520,783,898 (2008: 520,784,184; 2007: 532,855,528)
ordinary shares of R10 each 5,329 5,208 5,208
1 (2008: 1; 2007: 1) class A ordinary share of R10 – – –
1 (2008: 1; 2007: 1) class B ordinary share of R10 – – –
The following table illustrates the movement in the number of shares issued:
Number of Number of Number of
shares shares shares
Shares in issue at beginning of year 544,944,901 532,855,530 520,784,186
Shares bought back and cancelled (12,089,371) (12,071,344) (286)
Shares in issue at end of year 532,855,530 520,784,186 520,783,900
Full details of the voting rights of ordinary, class A and class B shares are documented in the articles of association of the Company.
Share buy-back
During the financial year Telkom bought back 286 ordinary shares at a total consideration of R30,425. The shares were bought back and
cancelled in order to allow Telkom shareholders to participate in the proposed unbundling of Vodacom Group on a one to one basis. This
reduced share capital by R2,860 and retained earnings by R27,565.
During the year ended March 31, 2008 Telkom bought back 12,071,344 ordinary shares at a total consideration of R1,647 million.
This reduced share capital by R121 million and retained earnings by R1,526 million.
During the year ended March 31, 2007, Telkom bought back 12,089,371 ordinary shares at a total consideration of R1,596 million.
This reduced share capital by R120 million, share premium by R1,342 million and retained earnings by R134 million.
Capital management
Refer to note 12 for detailed capital management disclosure.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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21. TREASURY SHARE RESERVE (1,778) (1,642) (1,521)
This reserve represents amounts paid by Telkom to Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited, subsidiaries, for the acquisition of the Company’s shares to be utilised in terms of the Telkom Conditional Share Plan (TCSP).
Treasury sharesAt March 31, 2009, 11,646,680 (2008: 10,493,141; 2007: 12,237,016) and 8,143,556 (2008: 10,849,058; 2007: 10,849,058) ordinary shares in Telkom, with a fair value of R1,229 million (2008: R1,377 million; 2007: R2,031 million) and R859 million (2008: R1,423 million; 2007: R1,801 million) are held as treasury shares by its subsidiaries Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited, respectively.
The shares held by Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited are reserved for issue in terms of the TCSP.
The decrease in the number of treasury shares is due to 1,552,029 (2008: 1,743,375; 2007: 450,505) shares that vested in terms of the TCSP during the current financial year.
The fair value of these shares at the date of vesting was R228 million (2008: R301 million; 2007: R59 million).
22. SHARE-BASED COMPENSATION RESERVEThis reserve represents the cumulative grant fair value of the equity-settled share-based payment transactions recognised in employee expenses over the vesting period of the equity instruments granted to employees in terms of the Telkom Conditional Share Plan (refer to note 25).
No consideration is payable on the shares issued to employees, but performance criteria will have to be met in order for the granted shares to vest. The ultimate number of shares that will vest may differ based on certain individual and Telkom performance conditions being met. The related compensation expense is recognised over the vesting period of the shares granted, commencing on the grant date.
The following table illustrates the movement within the share-based compensation reserve:
Balance at beginning of year 151 257 643 Net increase in equity 106 386 433
Employee cost 141 522 554 Vesting and transfer of shares (35) (136) (121)
Balance at end of year 257 643 1,076
At March 31, 2009 the estimated total compensation expense to be recognised over the vesting period was R1,824 million (2008:R2,151 million; 2007: R580 million), of which R554 million (2008: R522 million; 2007: R141 million) was recognised in employeeexpenses for the year.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2007 2008 2009
Rm Rm Rm
23. INTEREST-BEARING DEBTNon-current interest-bearing debt 3,308 7,336 10,193
Total interest-bearing debt (refer to note 12) 9,083 13,362 17,704
Gross interest-bearing debt 10,416 14,403 18,296
Discount on debt instruments issued (2,185) (1,898) (1,576)
Finance leases 852 857 984
Less: Current portion of interest-bearing debt (5,775) (6,026) (7,511)
Local debt (5,771) (6,000) (7,476)
Locally registered Telkom debt instruments (4,432) – –
Call borrowings – (2,600) –
Term loans – – (2,000)
Commercial paper bills (1,339) (3,400) (5,476)
Foreign debt – – –
Finance leases (4) (26) (35)
Total interest-bearing debt is made up as follows: 9,083 13,362 17,704
(a) Local debt 8,125 12,365 16,582
Locally registered Telkom debt instruments 6,786 8,164 11,106
Name, maturity, rate p.a., nominal value
TK01, 2008, 10%, RNil (2008: RNil; 2007: R4,680 million) 4,432 – –
TL12, 2012, 12.45%, R1,060 million (2008: RNil;
2007: RNil) – – 1,059
TL15, 2015, 11.9%, R1,160 million (2008: RNil;
2007: RNil) – – 1,159
TL20, 2020, 6%, R2,500 million (2008: R2,500 million;
2007: R2,500 million) 1,246 1,283 1,325
PP02, 2010, 0%, R430 million (2008: R430 million;
2007: R430 million) 264 304 349
PP03, 2010, 0%, R1,350 million (2008: R1,350 million;
2007: R1,350 million) 844 977 1,131
Call borrowings, 2009, 11.58%, RNil (2008: R2,600 million;
2007: RNil) – 2,600 –
Term loans, 2010, 9.67%, R2,000 million (2008: R3,000 million;
2007: RNil) – 3,000 2,000
Syndicated loans, 2014, 11.46%, R4,100 million (2008: RNil;
2007: RNil) – – 4,083
Total interest-bearing debt is made up of R17,704 million debt at amortised cost (2008: R13,362 million debt at amortised cost; 2007:
R8,985 million debt at amortised cost and R98 million debt at fair value through profit or loss).
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23. INTEREST-BEARING DEBT (continued)Local bondsThe local Telkom bonds are unsecured, but a Side letter to the Subscription Agreement (as amended) of the TL20 bond contains a number of restrictive covenants which, if not met, could result in the early redemption of the loan.The local bonds limit Telkom’s ability to create encumbrances on revenue or assets, and secure any indebtedness without securing the outstanding bonds equally and rateably with such indebtedness. The term loan agreements limit Telkom’s ability to encumber, cede, assign, sell or otherwise dispose of a material portion of its assets without prior written consent of the Lenders, which will not be unreasonably withheld. The syndicated loan agreement contains restrictive covenants as well as restrictions on encumbrances, disposals, Group guarantees and Group loans.
Commercial paper bills 1,339 4,201 5,476 Rate p.a., nominal value2009, 11.44% (2008: 11.71%; 2007: 9.04%), R5,559 million(2008: R4,383 million; 2007: R1,350 million)
(b) Foreign debt 106 140 138 Maturity, rate p.a., nominal valueEuro: 2010 – 2025, 0.10% – 0.14% (2008: 0.10% – 0.14%; 2007: 0.10% – 0.14%), e11 million (2008: e11 million; 2007: e11 million)
(c) Finance leases 852 857 984 The finance leases are secured by buildings with a carrying value of R152 million (2008: R174 million; 2007: R197 million) and office equipment with a book value of R6 million (2008: R14 million;2007: R6 million) (refer to note 9). These amounts are repayable within periods ranging from 1 to 11 years. Interest rates vary between 13.43% and 37.78%.
Included in non-current and current debt is:Debt guaranteed by the South African Government 4,537 140 138
The Company may issue or re-issue locally registered debt instruments in terms of the Post Office Amendment Act 85 of 1991. Theborrowing powers of the Company are set out as per note 19.
Repayments/refinancing of current portion of interest-bearing debtThe Company issued new local bonds, the TL12 and TL15 with a nominal value of R1,060 million and R1,160 million respectively andentered into a syndicated loan agreement with a nominal value of R4,100 million during the current year. Commercial Paper Bills with anominal value of R11,025 million were issued and Commercial Paper debt with a nominal value of R9,849 million was repaid during thecurrent year.
The R7,559 million nominal value of current portion of interest-bearing debt as at March 31, 2009 is expected to be repaid/refinancedfrom proceeds of the Vodacom sale.
Management believes that sufficient funding facilities will be available at the date of repayment/refinancing.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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24. PROVISIONS 1,203 1,445 1,830
Employee related 2,351 2,477 3,079
Annual leave 363 364 415
Balance at beginning of year 316 363 364
Charged to employee expenses 53 10 66
Leave paid (6) (9) (15)
Post-retirement medical aid (refer to note 25) 1,120 1,336 1,723
Balance at beginning of year 2,589 1,120 1,336
Interest cost 285 321 426
Current service cost 83 84 95
Expected return on plan asset (188) (257) (223)
Actuarial loss 149 129 157
Termination settlement – – (5)
Plan asset – initial recognition (1,720) – –
Contributions paid (78) (61) (63)
Telephone rebates (refer to note 25) 282 287 325
Balance at beginning of year 198 282 287
Interest cost 19 22 39
Current service cost 4 3 6
Past service cost 76 2 2
Actuarial loss 5 – 14
Benefits paid (20) (22) (23)
Bonus 586 490 616
Balance at beginning of year 637 586 490
Charged to employee expenses 656 473 577
Payments made (707) (569) (451)
Non-employee related 558 608 704
Supplier dispute (refer to note 35) 527 569 664
Balance at beginning of year – 527 569
Net movements 527 42 95
Other 31 39 40
Less: Current portion of provisions (1,706) (1,640) (1,953)
Annual leave (363) (364) (415)
Post-retirement medical aid (185) (185) (224)
Telephone rebates (26) (26) (29)
Bonus (586) (490) (616)
Supplier dispute (refer to note 35) (527) (569) (664)
Other (19) (6) (5)
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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24. PROVISIONS (continued)Annual leave
In terms of the Company’s policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle, to a cap of
22 days which must be taken within an 18 month leave cycle. The leave cycle is reviewed annually and is in accordance with legislation.
Bonus
The bonus scheme consists of performance bonuses which are dependent on achievement of certain financial and non-financial targets.
The bonus is payable to all qualifying employees bi-annually after the Company’s results have been made public.
Supplier dispute
The Company provided R664 million (2008: R569 million; 2007: R527 million) for its estimate of the probable liability as discussed in
note 35. The net movement in the provision of R95 million consists of finance charges and fair value movements.
Other
Included in other provisions is an amount provided for asset retirement obligations.
25. EMPLOYEE BENEFITSThe Company provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund.
Membership to one of the funds is compulsory. In addition, certain retired employees receive medical aid benefits and a telephone rebate.
The liabilities for all of the benefits are actuarially determined in accordance with accounting requirements each year. In addition, statutory
funding valuations for the retirement and pension funds are performed at intervals not exceeding three years.
At March 31, 2009, the Company employed 23,520 employees (2008: 24,879; 2007: 25,864).
Actuarial valuations were performed by qualified actuaries to determine the benefit obligation, plan asset and service costs for the pension
and retirement funds for each of the financial periods presented.
The Telkom Pension Fund
The Telkom Pension Fund is a defined benefit fund that was established in terms of the Post Office Amendment Act 85, of 1991.
The latest actuarial valuation performed at March 31, 2009 indicates that the pension fund is in a surplus position of R94 million after
unrecognised gains. The recognition of the surplus is limited due to the application of the asset limitation criteria in IAS19 (revised).
With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the year ended March 31, 2007 a settlement
event occurred in the Telkom Pension Fund whereby 106 members were transferred to the Telkom Retirement Fund. The funded status of the
Telkom Pension Fund is disclosed below.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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25. EMPLOYEE BENEFITS (continued)The Telkom Pension Fund
The net periodic retirement costs include the following components:
Interest and service cost on projected benefit obligations 22 21 21
Expected return on plan assets (19) (27) (28)
Recognised actuarial loss/(gain) 9 (16) –
Settlement loss/(gain) 21 (2) (3)
Asset limitation – 29 39
Net periodic pension expense recognised 33 5 29
Pension fund contributions (refer to note 5.1) 8 5 (1)
The status of the pension plan obligation is as follows:
At beginning of year 281 205 204
Interest and service cost 22 21 21
Employee contributions 2 2 2
Benefits paid (2) (3) (5)
Settlements (70) (15) (22)
Actuarial gain (28) (6) (1)
Benefit obligation at end of year 205 204 199
Plan assets at fair value:
At beginning of year 243 284 311
Expected return on plan assets 19 27 28
Benefits paid (2) (3) (5)
Contributions 10 8 2
Settlements (61) (15) (22)
Actuarial gain/(loss) 75 10 (67)
Plan assets at end of year 284 311 247
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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25. EMPLOYEE BENEFITS (continued)The Telkom Pension Fund (continued)
Present value of funded obligation 205 204 199
Fair value of plan assets (284) (311) (247)
Fund surplus (79) (107) (48)
Unrecognised net actuarial gain/(loss) 25 23 (46)
Net surplus (54) (84) (94)
Asset limitation – 29 39
Recognised net asset (54) (55) (55)
Expected return on plan assets 19 27 28
Actuarial return/(loss) on plan assets 75 10 (67)
Actual return/(loss) on plan assets 94 37 (39)
Principal actuarial assumptions were as follows:
Discount rate (%) 7.5 9.0 8.7
Yield on government bonds (%) 7.5 9.0 8.7
Long-term return on equities (%) 10.5 11.0 12.0
Long-term return on cash (%) 5.5 7.0 7.5
Expected return on plan assets (%) 9.7 9.8 10.5
Salary inflation rate (%) 6.0 7.5 7.2
Pension increase allowance (%) 2.9 4.3 4.0
The overall long-term expected rate of return on assets is 10.5%.
This is based on the portfolio as a whole and not the sum of the
returns of individual asset categories. The expected return takes
into account the asset allocation of the Telkom Pension Fund
and expected long-term return of these assets, of which South
African equities and bonds are the largest contributors.
The assumed rates of mortality are determined by reference to
the SA85-90 (Light) Ultimate table, as published by the Actuarial
Society of South Africa, for pre-retirement purposes and the PA(90)
Ultimate table, minus one year age rating as published by the
Institute and Faculty of Actuaries in London and Scotland, for
retirement purposes.
Funding level per statutory actuarial valuation (%) 100.0 100.0 100.0
The number of employees registered under the Telkom Pension Fund 153 146 123
The fund portfolio consists of the following:
Equities (%) 74 54 57
Bonds (%) 5 5 25
Cash (%) 3 23 3
Foreign investments (%) 16 18 15
Insurance policies (%) 2 – –
The total expected contributions payable to the pension fund for the next financial year are R1 million.
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
25. EMPLOYEE BENEFITS (continued)The Telkom Retirement Fund
The Telkom Retirement Fund was established on July 1, 1995 as a hybrid defined benefit and defined contribution plan. Existing employees
were given the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the
Telkom Pension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the
Government ceased to guarantee the deficit in the Telkom Retirement Fund. Subsequent to July 1, 1995 further transfers of existing
employees occurred.
The Telkom Retirement Fund is a defined contribution fund with regard to in-service members. On retirement, an employee is transferred
from the defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom
Retirement Fund. Moreover, all of the assets in the Fund, including any potential excess, belong to the participants of the scheme. The
Company is unable to benefit from the excess in the form of future reduced contributions.
Telkom guarantees any actuarial shortfall of the pensioner pool in the retirement fund. This liability is initially funded through assets of the
retirement fund. The latest actuarial valuation performed at March 31, 2009 indicates that the retirement fund is in a surplus funding position
of R1,549 million after unrecognised losses.
The Telkom Retirement Fund is governed by the Pension Funds Act 24 of 1956. In terms of section 37A of this Act, the pension benefits
payable to the pensioners cannot be reduced. If therefore the present value of the funded obligation were to exceed the fair value of plan
assets, Telkom would be required to fund the statutory deficit.
The information presented below is intended only to comply with the disclosure requirements of IAS19 (revised) and not to suggest that the
Company has a potential asset with regard to this Fund.
The funded status of the Telkom Retirement Fund is disclosed below:
2007 2008 2009
Rm Rm Rm
Telkom Retirement Fund
The net periodic retirement costs include the following components:
Interest and service cost on projected benefit obligations 312 493 616
Expected return on plan assets (489) (686) (796)
Recognised actuarial gain (145) – –
Net periodic pension expense not recognised (asset limitation) (322) (193) (180)
Retirement fund contributions (refer to note 5.1) 439 460 460
Benefit obligation:
At beginning of year 4,377 6,581 7,101
Interest cost 312 493 616
Benefits paid (486) (488) (520)
Liability for new pensioners 44 14 143
Actuarial loss/(gain) 2,334 501 (636)
Benefit obligation at end of year 6,581 7,101 6,704
Plan assets at fair value:
At beginning of year 5,973 7,661 7,991
Expected return on plan assets 489 686 796
Benefits paid (486) (488) (520)
Asset backing new pensioners’ liabilities 44 14 143
Actuarial gain/(loss) 1,641 118 (1,735)
Plan assets at end of year 7,661 7,991 6,675
Telkom fins (company) NEW 8/12/09 6:58 PM Page 301
Telkom Annual Report 2009302
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2007 2008 2009
Rm Rm Rm
25. EMPLOYEE BENEFITS (continued)The Telkom Retirement Fund (continued)
Present value of funded obligation 6,581 7,101 6,704
Fair value of plan assets (7,661) (7,991) (6,675)
Fund (surplus)/deficit (1,080) (890) 29
Unrecognised net actuarial loss (96) (478) (1,578)
Unrecognised net asset (1,176) (1,368) (1,549)
Expected return on plan assets 489 686 796
Actuarial gain/(loss) on plan assets 1,641 118 (1,735)
Actual gain/(loss) on plan assets 2,130 804 (939)
Included in the fair value of plan assets is:
Office buildings occupied by Telkom 371 596 619
Telkom bonds 21 10 –
Telkom shares 284 141 132
The Telkom Retirement Fund invests its funds in South Africa and
internationally. Twelve fund managers invest in South Africa and
five of these managers specialise in trades with bonds on behalf
of the Retirement Fund. The international investment portfolio
consists of global equity and hedged funds.
Principal actuarial assumptions were as follows:
Discount rate (%) 7.5 9.0 8.7
Yield on government bonds (%) 7.5 9.0 8.7
Long-term return on equities (%) 10.5 11.0 12.0
Long-term return on cash (%) 5.5 7.0 7.5
Expected return on plan assets (%) 9.3 10.3 10.7
Pension increase allowance (%) 4.5 6.0 4.0
The overall long-term expected rate of return on assets is 10.7%. This is
based on the portfolio as a whole and not the sum of the returns of
individual asset categories. The expected return takes into account the
asset allocation of the Telkom Retirement Fund and expected long-
term return on these assets, of which South African equities, foreign
investments and South African index-linked bonds are the largest contributors.
The assumed rates of mortality are determined by reference to the
SA85-90 (Light) Ultimate table, as published by the Actuarial Society of
South Africa, for pre-retirement purposes and the PA(90) Ultimate table,
minus one year age rating as published by the Institute and Faculty of
Actuaries in London and Scotland, for retirement purposes.
Funding level per statutory actuarial valuation (%) 100 100 100
The number of pensioners registered under the Telkom Retirement Fund 14,451 14,255 13,617
The number of in-service employees registered under the Telkom
Retirement Fund 25,766 24,939 23,389
Telkom fins (company) NEW 8/12/09 6:58 PM Page 302
Telkom Annual Report 2009 303
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2007 2008 2009
Rm Rm Rm
25. EMPLOYEE BENEFITS (continued)The Telkom Retirement Fund (continued)
The fund portfolio consists of the following:
Equities (%) 59 70 55
Property (%) 2 2 –
Bonds (%) 19 11 5
Cash (%) 7 1 5
Foreign investments (%) 13 16 20
Index linked (%) – – 15
The expected pension benefits payments for the year ending March 31, 2010 are R541,000.
Medical benefits
The Company makes certain contributions to medical funds in respect of current and retired employees. The scheme is a defined benefit
plan. The expense in respect of current employees’ medical aid is disclosed in note 5.1. The amounts due in respect of post-retirement
medical benefits to current and retired employees have been actuarially determined and provided for as set out in note 24. The Company
has terminated future post-retirement medical benefits in respect of employees joining after July 1, 2000.
There are three major categories of members entitled to the post-retirement medical aid: pensioners who retired before 1994 (Pre-94); those
who retired after 1994 (Post-94); and the in-service members. The Post-94 and the in-service members’ liability is subject to a Rand cap,
which increases annually with the average salary increase.
Eligible employees must be employed by Telkom until retirement age to qualify for the post-retirement medical aid benefit. The most recent
actuarial valuation of the benefit was performed as at March 31, 2009.
The Company has allocated certain investments to fund this liability as set out in note 11.
2007 2008 2009
Rm Rm Rm
Medical aid
Benefit obligation:
At beginning of year 3,889 4,366 4,831
Interest cost 285 321 426
Current service cost 83 84 95
Actuarial loss 281 246 246
Termination settlement – – (5)
Benefits paid from plan assets (94) (125) (141)
Contributions paid by the Company (78) (61) (63)
Benefit obligation at end of year 4,366 4,831 5,389
Telkom fins (company) NEW 8/12/09 6:58 PM Page 303
2007 2008 2009
Rm Rm Rm
25. EMPLOYEE BENEFITS (continued)Medical benefits (continued)
Plan assets at fair value:
At beginning of year – 1,961 1,929
Plan asset – initial recognition 1,720 – –
Expected return on plan assets 188 257 223
Benefits paid from plan assets (94) (125) (141)
Actuarial gain/(loss) 147 (164) (393)
Plan assets at end of year 1,961 1,929 1,618
Present value of funded obligation 4,366 4,831 5,389
Fair value of plan assets (1,961) (1,929) (1,618)
Fund deficit 2,405 2,902 3,771
Unrecognised net actuarial loss (1,285) (1,566) (2,048)
Liability as disclosed in the balance sheet (refer to note 24) 1,120 1,336 1,723
Expected return on plan assets 188 257 223
Actuarial return on plan assets 147 (164) (393)
Actual gain/(loss) on plan assets 335 93 (170)
Principal actuarial assumptions were as follows:
Discount rate (%) 7.5 9.0 8.7
Expected return on plan assets (%) 13.5 12.0 11.0
Salary inflation rate (%) 6.0 7.5 7.2
Medical inflation rate (%) 6.5 8.0 7.7
The assumed rates of mortality are determined by reference to the
SA85-90 (Light) Ultimate table, as published by the Actuarial Society
of South Africa, for pre-retirement purposes and the PA(90) Ultimate
table, minus one year age rating as published by the Institute and
Faculty of Actuaries in London and Scotland, for retirement purposes.
Contractual retirement age 65 65 65
Average retirement age 60 60 60
Number of members 17,119 15,526 13,883
Number of pensioners 8,494 8,430 8,397
Telkom Annual Report 2009304
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 304
Telkom Annual Report 2009 305
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
25. EMPLOYEE BENEFITS (continued)Medical benefits (continued)
The valuation results are sensitive to changes in the underlying assumptions. The following table provides an indication of the impact of
changing some of the valuation assumptions:
Current
assumption Decrease Increase
Rm Rm Rm
Medical cost inflation rate 7.7% -1.0% +1.0%
Benefit obligation 5,389 (736) 921
Percentage change (13.7)% 17.1%
Service cost and interest cost 2009/2010 555 (84) 108
Percentage change (15.1)% 19.5%
Discount rate 8.7% -1.0% +1.0%
Benefit obligation 5,389 933 (734)
Percentage change 17.3% (13.6)%
Service cost and interest cost 2009/2010 555 46 (37)
Percentage change 8.3% (6.7)%
Post-retirement mortality rate PA(90) ultimate- 1 -10.0% +10.0%
Benefit obligation 5,389 221 (197)
Percentage change 4.1% (3.7)%
Service cost and interest cost 2009/2010 555 23 (20)
Percentage change 4.1% (3.6)%
2007 2008 2009
The fund portfolio consists of the following:
Equities (%) 59 56 30
Bonds (%) 3 2 2
Cash and money market investments (%) 21 33 10
Foreign investments (%) 9 9 9
Insurance policies (%) 8 – 49
Telkom fins (company) NEW 8/12/09 6:58 PM Page 305
25. EMPLOYEE BENEFITS (continued)Telephone rebates
The Company provides telephone rebates to its pensioners. The most recent actuarial valuation was performed at March 31, 2009.
Eligible employees must be employed by the Company until retirement age to qualify for the telephone rebates. The scheme is a defined
benefit plan.
The status of the telephone rebate liability is disclosed below:
2007 2008 2009
Rm Rm Rm
Benefit obligation opening balance 251 307 443
Service cost 4 3 6
Interest cost 19 22 39
Actuarial (gain)/loss (39) 133 19
Amendments 93 – –
Benefits paid (21) (22) (23)
Present value of unfunded obligation 307 443 484
Unrecognised net actuarial loss and past service cost (25) (156) (159)
Liability as disclosed in the balance sheet (refer to note 24) 282 287 325
Principal actuarial assumptions were as follows:
Discount rate (%) 7.5 9.0 8.7
Rebate inflation rate (%) – 4.0 4.0
Contractual retirement age 65 65 65
Average retirement age 60 60 60
The assumed rates of mortality are determined by reference to the
standard published mortality table PA (90) Ultimate standard tables,
as published by the Institute and Faculty of Actuaries in London
and Scotland, rated down one year to value the pensioners.
Number of members 19,515 18,766 17,034
Number of pensioners 10,918 10,680 10,499
Telkom Conditional Share Plan
Telkom’s shareholders approved the Telkom Conditional Share Plan at the January 2004 Annual General Meeting. The scheme covers both
operational and management employees and is aimed at giving shares to Telkom employees, at a RNil exercise price, at the end of the
vesting period. The vesting period for the operational employees awarded in 2004 and 2005 is 0% in year one and 33% in each of the
three years thereafter, while the shares allocated in 2006 and 2007 together with management shares vest fully after three years.
Although the number of shares awarded to employees will be communicated at the grant date, the ultimate number of shares that vest may
differ based on certain performance conditions being met.
The Telkom Board approved the fourth enhanced allocation of shares to employees as at September 4, 2007, with a grant date of
September 27, 2007, the day that the employees and the Company shared a common understanding of the terms and conditions of the
grant. A total number of 6,089,810 shares were granted.
The Board has also approved an enhanced allocation for the November 2006 grant on September 4, 2007 with a grant date of
September 27, 2007. The number of additional shares granted with regard to the 2006 allocation is 4,966,860 shares.
Telkom Annual Report 2009306
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 306
Telkom Annual Report 2009 307
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
25. EMPLOYEE BENEFITS (continued)Telkom Conditional Share Plan (continued)
The weighted average remaining vesting period for the shares outstanding as at March 31, 2009 is 0.71 years (2008: 1.25 years;
2007: 1.75 years).
2007 2008 2009
The following table illustrates the movement of the maximum number
of shares that will vest to employees for the August 2004 grant:
Outstanding at beginning of the year 2,414,207 1,883,991 420,590
Granted during the year 1,212 252 –
Forfeited during the year (80,923) (43,790) (3,985)
Vested during the year (450,505) (1,419,863) (416,605)
Outstanding at end of the year 1,883,991 420,590 –
The following table illustrates the movement of the maximum number
of shares that will vest to employees for the June 2005 grant:
Outstanding at beginning of the year 1,930,687 1,864,041 1,435,387
Granted during the year 1,005 3,469 52,954
Forfeited during the year (67,651) (108,177) (45,188)
Vested during the year – (323,946) (1,135,424)
Outstanding at end of the year 1,864,041 1,435,387 307,729
The following table illustrates the movement of the maximum number
of shares that will vest to employees for the November 2006 grant:
Outstanding at beginning of the year – 1,773,361 1,640,980
Granted during the year 1,825,488 833 –
Forfeited during the year (52,127) (133,214) (132,614)
Outstanding at end of the year 1,773,361 1,640,980 1,508,366
The following table illustrates the movement of the maximum number
of shares that will vest to employees relating to the additional
November 2006 grant:
Outstanding at beginning of the year – – 4,812,305
Granted during the year – 4,984,693 25,775
Forfeited during the year – (172,388) (389,357)
Outstanding at end of the year – 4,812,305 4,448,723
The following table illustrates the movement of the maximum number
of shares that will vest to employees for the September 2007 grant:
Outstanding at beginning of the year – – 5,846,636
Granted during the year – 6,117,163 23,650
Forfeited during the year – (270,527) (509,185)
Outstanding at end of the year – 5,846,636 5,361,101
Telkom fins (company) NEW 8/12/09 6:58 PM Page 307
25. EMPLOYEE BENEFITS (continued)Telkom Conditional Share Plan (continued)
The fair value of the shares granted have been calculated by an actuary using the Black-Scholes-Merton model and the following values
at grant date:
August 8, June 23, November 2, September 4,
2004 2005 2006 2007
Grant Grant Grant Grant
Market share price (R) 77.50 111.00 141.25 173.00
Dividend yield (%) 2.60 3.60 3.50 3.50
2007 2008 2009
Rm Rm Rm
The principal assumptions used in calculating the expected number
of shares that will vest are as follows:
Employee turnover (%) 5 5 9
Meeting specified performance criteria (%) 100 100 75
The amounts for the current and previous four years are as follows:
2005 2006 2007 2008 2009
Rm Rm Rm Rm Rm
Telkom Pension Fund
Defined benefit obligation (186) (281) (205) (204) (199)
Plan assets 231 243 284 311 247
Surplus/(deficit) 45 (38) 79 107 48
Asset limitation – – – (29) (39)
Unrecognised actuarial loss/(gain) 89 118 (25) (23) 46
Recognised net asset 134 80 54 55 55
Experience adjustment on assets 75 10 (67)
Experience adjustment on liabilities 28 (6) 1
Telkom Retirement Fund
Defined benefit obligation (4,020) (4,377) (6,581) (7,101) (6,704)
Plan assets 4,477 5,973 7,661 7,991 6,675
Surplus/(deficit) 457 1,596 1,080 890 (29)
Unrecognised actuarial gain/(loss) 312 (742) 96 478 1,578
Unrecognised net asset 769 854 1,176 1,368 1,549
Experience adjustment on assets* 1,641 118 (1,735)
Experience adjustment on liabilities* 1,234 485 (645)
Telkom Annual Report 2009308
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 308
Telkom Annual Report 2009 309
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2005 2006 2007 2008 2009
Rm Rm Rm Rm Rm
25. EMPLOYEE BENEFITS (continued)Medical benefits
Defined benefit obligation (3,057) (3,889) (4,366) (4,831) (5,389)
Plan assets – – 1,961 1,929 1,618
Deficit (3,057) (3,889) (2,405) (2,902) (3,771)
Unrecognised actuarial loss 648 1,300 1,285 1,566 2,048
Liability recognised (2,409) (2,589) (1,120) (1,336) (1,723)
Experience adjustment on assets 147 (164) (393)
Experience adjustment on liabilities 28 193 246
Telephone rebates
Defined benefit obligation (177) (251) (307) (443) (484)
Unrecognised actuarial (gain)/loss (2) 53 25 156 159
Liability recognised (179) (198) (282) (287) (325)
Experience adjustment on liabilities (25) 2 2
The experience adjustments on assets and liabilities for each of the financial periods ended March 31, 2005 and 2006 have not been
disclosed due to the fact that it was impractical to determine the information.
* During the March 31, 2007 year end Telkom actuaries performed a full valuation while for the March 31, 2006 year end a roll forward method was used,
as permitted under IAS19, to determine the present value of the benefit obligation and the fair value of the plan assets using the March 31, 2005 statutory
valuation as a base applying the relevant assumptions determined by management to arrive at the present value of the benefit obligation, and the fair value
of plan assets.
This change in estimate resulted in a movement to the actuarial loss of R700 million and the fair value of the plan assets of R350 million in respect of the
March 31, 2007 estimates. The remaining R1,291 million is a result of the actual investment returns exceeding the expected return for the March 31, 2007
year end.
2007 2008 2009
Rm Rm Rm
26. DEFERRED REVENUE 1,846 2,294 2,822
Non-current deferred revenue 739 870 996
Current portion of deferred revenue 1,107 1,424 1,826
Included in deferred revenue is profit on the sale and leaseback of certain Telkom buildings of R107 million, consisting of a non-current
portion of R96 million (2008: R107 million; 2007: R118 million) and a current portion of R11 million (2008: R11 million; 2007:
R11 million). A profit of R11 million per annum is recognised in income on a straight-line basis, over the period of the lease ending 2019
(refer to note 34).
Telkom fins (company) NEW 8/12/09 6:58 PM Page 309
2007 2008 2009
Rm Rm Rm
27. TRADE AND OTHER PAYABLES 4,333 4,923 5,424
Trade payables 2,761 3,267 3,035
Finance cost accrued 22 39 156
Accruals and other payables 1,550 1,617 2,233
Accruals and other payables mainly represent amounts payable
for goods received, net of Value Added Tax obligations and
licence fees.
Included in accruals and other payables are amounts owed
to Rossal No 65 (Proprietary) Limited of R342 million
(2008: RNil; 2007: R148 million) and Intekom (Proprietary) Limited
of R23 million (2008: R13 million; 2007: R5 million).
28. RECONCILIATION OF PROFIT FOR THE YEAR TO CASH GENERATED FROM OPERATIONS
Cash generated from operations 12,660 12,662 12,027
Profit for the year 8,391 7,967 5,277
Finance charges and fair value movements 1,027 1,289 1,459
Taxation 2,690 2,599 516
Investment income (3,202) (3,739) (2,906)
Interest received from debtors (189) (248) (404)
Non-cash items 4,565 4,637 7,981
Depreciation, amortisation and write-offs 3,583 3,732 4,358
Cost of equipment disposed when recognising finance leases 240 88 71
Recognition of the FIFA brand intangible asset from deferred revenue – – (261)
Increase in provisions 1,103 757 1,439
Profit on disposal of property, plant and equipment and intangible
assets (15) (167) (32)
Profit on disposal of investment (364) – –
Interest received from subsidiaries – – 221
Loss on disposal of property, plant and equipment and intangible
assets 1 2 6
Impairment of investments and loans 17 225 2,179
(Increase)/decrease in working capital (622) 157 104
Inventories (459) (202) (627)
Accounts receivable (319) (196) 848
Accounts payable 156 555 (117)
Telkom Annual Report 2009310
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 310
Telkom Annual Report 2009 311
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2007 2008 2009
Rm Rm Rm
29. DIVIDEND RECEIVED 2,950 3,536 3,242
Dividend income per income statement (refer to note 6) 3,006 3,597 2,747
Dividend accrued for the previous year 1,479 1,535 1,595
Dividend accrued for the current year (1,535) (1,596) (1,100)
Dividend received consists of: 2,950 3,536 3,242
Dividend received from joint venture 2,650 2,825 3,095
Dividend received from subsidiaries 300 711 147
30. FINANCE CHARGES PAID (886) (842) (466)
Finance charges per income statement (1,027) (1,289) (1,460)
Non-cash items 141 447 994
Movements in interest accruals (81) 49 255
Net discount amortised 409 568 698
Fair value adjustment (172) (275) (29)
Unrealised (loss)/gain (15) 105 70
31. TAXATION PAID (3,852) (1,716) (1,764)
Taxation (payable)/receivable at beginning of year (1,164) 519 (7)
South African normal company taxation (excluding deferred taxation) (1,874) (1,879) (1,510)
Secondary taxation on companies (295) (363) (156)
Taxation (payable)/receivable at end of year (519) 7 (91)
32. DIVIDEND PAID (4,874) (5,858) (3,435)
Dividend payable at beginning of year (4) (15) (20)
Declared during the year – dividend on ordinary shares: (4,885) (5,863) (3,438)
Final dividend for 2006: 500 cents (2,714) – –
Special dividend for 2006: 400 cents (2,171) – –
Final dividend for 2007: 600 cents – (3,198) –
Special dividend for 2007: 500 cents – (2,665) –
Final dividend for 2008 : 660 cents (3,438)
Dividend payable at end of year 15 20 23
Telkom fins (company) NEW 8/12/09 6:58 PM Page 311
33. ACQUISITION OF MINORITY INTEREST IN SUBSIDIARYMulti-Links Telecommunications (Proprietary) Limited (Multi-Links)
Telkom acquired 75% of the issued share capital of Multi-Links Telecommunications Limited through Telkom International (Proprietary) Limited,
from Kenston Investment Limited on May 1, 2007. Telkom also granted Kenston the irrevocable right and option (put option) to require
Telkom to acquire all of the shares held by Kenston (25% shareholding) in Multi-Links, at any time during the 90 day period following
the second anniversary of the effective date. The put option was exercised on January 21, 2009 for R1,328 million (US$130 million at
US$1 = R10,2188).
2007 2008 2009
Rm Rm Rm
34. COMMITMENTSCapital commitments
Capital commitments authorised 7,000 7,000 6,991
Commitments against authorised capital expenditure 507 652 539
Authorised capital expenditure not yet contracted 6,493 6,348 6,452
Capital commitments comprise commitments for property, plant and equipment and software included in intangible assets.
Management expects these commitments to be financed from proceeds of Vodacom sale.
2010 FIFA World Cup commitments
The FIFA World Cup commitment is an executory contract which requires the Company to develop the fixed-line components of the
necessary telecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of the fixed-
line telecommunications related products and services and, where applicable, the services of qualified personnel necessary for the
planning, management, delivery, installation and de-installation, operation, maintenance and satisfactory functioning of these products and
services. Furthermore as a National Supporter, Telkom owns a tier 3 sponsorship that grants Telkom a package of advertising, promotional
and marketing rights that are exercisable within the borders of South Africa. Telkom entered into a barter transaction in return for which it
has an outstanding commitment to FIFA of R243 million (2008: R260 million). This has been recognised in intangible assets (note 10).
Telkom Annual Report 2009312
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 312
Telkom Annual Report 2009 313
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Total <1 year 1 – 5 years >5 years
Rm Rm Rm Rm
34. COMMITMENTS (continued)Operating lease commitments and receivables
2009
Cash flow
Land and buildings 432 158 262 12
Rental receivable on buildings (271) (99) (170) (2)
Vehicles 1,137 261 876 –
Equipment 15 6 9 –
Customer premises equipment receivable 88 49 39 –
Total cash flow 1,401 375 1,016 10
The above figures represent actual cash flows relating
to operating leases expected during the periods
specified. However, due to the straight-lining effect of
operating leases, the amounts that would be recognised
in the income statement in the periods specified, would
be as follows:
Income statement
Land and buildings 399 152 237 10
Rental receivable on buildings (250) (96) (153) (1)
Vehicles 1,137 261 876 –
Equipment 15 6 9 –
Customer premises equipment receivable 88 49 39 –
Total to be recognised in the income statement 1,389 372 1,008 9
Vehicles, equipment and customer premises equipment
have no fixed annual escalation, therefore the cash
flows and income statement recognition would be
the same.
2008
Cash flow
Land and buildings 366 141 224 1
Rental receivable on buildings (266) (94) (169) (3)
Vehicles 1,430 226 1,204 –
Equipment 13 10 3 –
Customer premises equipment receivable (84) (45) (39) –
Total cash flow 1,459 238 1,223 (2)
Income statement
Land and buildings 330 133 196 1
Rental receivable on buildings (246) (92) (152) (2)
Vehicles 1,430 226 1,204 –
Equipment 13 10 3 –
Customer premises equipment receivable (84) (45) (39) –
Total to be recognised in the income statement 1,443 232 1,212 (1)
Telkom fins (company) NEW 8/12/09 6:58 PM Page 313
Total <1 year 1 – 5 years >5 years
Rm Rm Rm Rm
34. COMMITMENTS (continued)Operating lease commitments and receivables (continued)
2007
Cash flow
Land and buildings 371 134 236 1
Rental receivable on buildings (269) (91) (174) (4)
Vehicles 564 564 – –
Equipment 23 6 17 –
Customer premises equipment receivable (57) (30) (27) –
Total cash flow 632 583 52 (3)
Income statement
Land and buildings 332 128 203 1
Rental receivable on buildings (249) (90) (156) (3)
Vehicles 564 564 – –
Equipment 23 6 17 –
Customer premises equipment receivable (57) (30) (27) –
Total to be recognised in the income statement 613 578 37 (2)
Operating leases
The Company leases certain buildings, vehicles and equipment. The majority of the lease terms negotiated for equipment-related premises
are ten years with other leases signed for five and three years. The majority of the leases normally contain an option clause entitling Telkom
to renew the lease agreements for a period usually equal to the main lease term.
The minimum lease payments under these agreements are subject to annual escalations, which range from 6% to 15%.
Penalties in terms of the lease agreements are only payable should Telkom vacate the premises and negotiate to terminate the lease
agreement prior to the expiry date, in which case the settlement payment will be negotiated in accordance with the market conditions of
the premises. Future minimum lease payments under operating leases are included in the note above. Onerous leases for buildings, of
which the Company has no further use, no possibility of sub-lease and no option to cancel, are provided for in full and included in other
provisions, refer to note 24.
The master lease agreement for vehicles was for a period of five years and then extended for an additional three years which resulted in
the lease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operating
lease commitments for vehicles are based on the new agreement which expires on March 31, 2013.
In accordance with this agreement Telkom is not allowed to lease any similar vehicle as specified in the contract from any other service
provider during the five year period except for the rentals at airports which are utilised in cases of subsistence and travel as well as vehicles
which are not part of the agreement.
The agreement is structured to have no lease increases on vehicles that are continually leased from the lessor. If a vehicle is, however,
replaced by a new similar vehicle, the lease costs of the newest vehicle will increase by the Consumer Price Index. All leased vehicles are,
however, subject to any variance in the interest rate fluctuations and are adjusted as and when the adjustments are announced by the South
African Reserve Bank. The leases of individual vehicles are renewed annually.
Telkom Annual Report 2009314
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 314
Telkom Annual Report 2009 315
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
34. COMMITMENTS (continued)Operating leases (continued)
The master lease agreements for office equipment are with two suppliers with initial periods of 36 months effective from November 25,
2005. Upon expiry of the initial lease agreement on November 25, 2008, an extension of the lease was negotiated until November 24,
2009. In terms of these agreements the leases of individual equipment shall be valid at a fixed fee for the entire period.
Total <1 year 1 – 5 years >5 years
Rm Rm Rm Rm
Finance lease commitments
Vehicles
2009
Minimum lease payments 187 47 140 –
Finance charges (38) (15) (23) –
Finance lease obligation 149 32 117 –
2008
Minimum lease payments 242 48 194 –
Finance charges (59) (20) (39) –
Finance lease obligation 183 28 155 –
Buildings
2009
Minimum lease payments 1,652 111 545 995
Finance charges (822) (111) (426) (284)
Finance lease obligation 830 – 119 711
2008
Minimum lease payments 1,778 126 502 1,150
Finance charges (936) (114) (439) (383)
Finance lease obligation* 842 12 63 767
2007
Minimum lease payments 1,897 120 487 1,290
Finance charges (1,051) (116) (446) (489)
Finance lease obligation 846 4 41 801
Equipment
2009
Minimum lease payments 7 5 2 –
Finance charges (2) (1) (1) –
Finance lease obligation 5 4 1 –
*These prior year figures have been restated to include the finance lease obligation with regard to the Campus property.
Telkom fins (company) NEW 8/12/09 6:58 PM Page 315
Total <1 year 1 - 5 years >5 years
Rm Rm Rm Rm
34. COMMITMENTS (continued)Finance lease commitments (continued)
Equipment (continued)
2008
Minimum lease payments 16 – 16 –
Finance charges (2) – (2) –
Finance lease obligation 14 – 14 –
2007
Minimum lease payments 6 – 6 –
Finance charges – – – –
Finance lease obligation 6 – 6 –
Finance leases
Finance leases on vehicles relates to the lease of Swap bodies. The lease term for the Swap bodies is April 2008 to April 2013.
A major portion of the finance leases on buildings relates to the sale and lease-back of the Company’s office buildings. The lease term
negotiated for the buildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation
of 10% p.a. Telkom has the right to sublet part of the buildings. In case of breach of contract, the lessor is entitled to cancel the lease
agreement and claim damages.
Finance charges accruing on one of the Company’s building leases exceed the lease payments for the next three years. Minimum lease
payments for the next five years do not result in any income accruing to the Company.
Finance leases on equipment mainly relates to office equipment. The lease term negotiated for the finance leases is for the period of three
years ending in 2011.
35. CONTINGENCIESSupplier dispute
Telcordia instituted arbitration proceedings against Telkom in March 2001 before a single arbitrator of the International Court of Arbitration,
operating under the auspices of the International Chamber of Commerce. Telcordia is seeking to recover approximately US$130 million
for monies outstanding and damages, plus costs and interest at a rate of 15.5% per year which was increased by Telcordia to
US$172 million in the 2007 financial year and subsequently decreased to US$128 million in the 2008 financial year. The arbitration
proceeding relates to the cancellation of an agreement entered into between Telkom and Telcordia during June 1999 for the development
and supply of an integrated end-to-end customer assurance and activation system by Telcordia.
In September 2002, the arbitrator found that Telkom had wrongfully repudiated the contract and a partial award was issued by the
arbitrator in favour of Telcordia. Telkom subsequently filed an application in the South African High Court to review and set aside the partial
award.
On November 27, 2003, the South African High Court set aside the partial award and issued a cost order in favour of Telkom. On
May 3, 2004, the South African High Court dismissed an application by Telcordia for leave to appeal and ordered Telcordia to pay the
legal costs of Telkom.
On November 29, 2004, the Supreme Court of Appeals granted Telcordia leave to appeal. Telcordia filed a notice of appeal and also
petitioned the United States District Court for the District of Columbia to confirm the partial award, which petition was dismissed, along
with a subsequent appeal. Following the dismissal of the appeal, Telcordia filed a similar petition in the United States District Court of New
Jersey. The United States District Court of New Jersey also dismissed Telcordia’s petition, reaffirming the decision of the United States District
Court of Columbia. Telcordia appealed this dismissal, which was later dismissed by the Appeals Court of New Jersey.
Telkom Annual Report 2009316
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 316
Telkom Annual Report 2009 317
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
35. CONTINGENCIES (continued)Supplier dispute (continued)
The appeal by Telcordia in the Supreme Court of Appeals was set down for and heard on October 30 and October 31, 2006. Following
the successful upholding of the appeal, Telkom filed an application for leave to appeal to the Constitutional Court on only the issue revolving
around the Supreme Court of Appeals’ failure to recognise Telkom’s rights of access to the courts under the South African Arbitration Act.
The Constitutional Court has since dismissed Telkom’s appeal with costs. The Constitutional Court judgment brought to finality the dispute
over the merits of Telcordia’s claim against Telkom and the parties reconvened the arbitration in May 2007 to deal with the amount of
damages to which Telcordia is entitled.
Two hearings were held at the International Dispute Resolutions Centre, or IDRC. The first hearing was held in London on May 21, 2007
and was a ’directions hearing’, in terms of which the parties consented to a ruling by the arbitrator setting out a consolidated list of
proposals and issues to form part of the damages hearing.
The second hearing was held in London at the IDRC on June 25 and 26, 2007 and dealt with the application by Telcordia for the striking
out of part of Telkom’s defence on the basis that Telkom had raised issues in its defence that had already been heard by the arbitrator prior
to his partial award. This application was dismissed by the arbitrator. The arbitrator also made a ruling compelling Telcordia to provide
certain particulars requested by Telkom with regard to the claims by Telcordia. In his ruling, the arbitrator also set out a list of issues for
determination of the damages.
The mediation took place in London in February and April of 2008 without success. In the interim the parties have agreed to the
appointment by the arbitrator of a third party expert to deal with the technical issues in relation to the software that was required to be
provided by Telcordia, who will make a recommendation to the arbitrator in dealing with the amount of the claims. A further hearing was
held before the arbitrator in October 2008 during which the arbitrator permitted Telkom to amend its statement of defence. Further hearings
were held before the software expert in November 2008 and he has made his report available. Further hearings took place before the
arbitrator in April 2009.
The parties have now agreed that the whole question of “integration” of the software will be done at an experts only hearing (no lawyers)
before Mr P Burns, a software expert in Johannesburg during October 2009. The hearings before the software expert will have an impact
on the quantum of the other claims. The arbitrator has confirmed that the final hearing will be from January 25 to February 10, 2010 in
Johannesburg.
Although Telkom is currently unable to predict the exact amount that it may eventually be required to pay Telcordia, it has made provisions
for estimated liabilities in respect of the Telcordia claim in the sum of US$70 million (R664 million), including interest and legal fees. Telkom
will be required to fund any payments to Telcordia from cash flows or the incurrence of debt and the amount of any damages above
Telkom’s provision would increase Telkom’s liabilities and decrease its net profit, which could have a material adverse effect on its financial
condition, cash flows and results of operations.
A provision has been raised based on management’s best estimate of the probable payments in this regard.
2007 2008 2009
Rm Rm Rm
Supplier dispute liability included in current portion of provisions 527 569 664*
The provision has increased from March 31, 2007 due to exchange rate movements.
* US$70 million (2008: US$70 million; 2007 US$70 million).
Telkom fins (company) NEW 8/12/09 6:58 PM Page 317
35. CONTINGENCIES (continued)Competition Commission
Telkom is a party to a number of legal and arbitration proceedings filed by parties with the South African Competition Commission alleging
anti-competitive practices described below. If Telkom were found to have committed prohibited practices as contained in the Competition
Act, 1998, as amended, Telkom could be required to cease these practices, divest these businesses and be fined a penalty of up to 10%
of Telkom’s annual turnover, excluding the turnover of subsidiaries and joint ventures, for each complaint for the financial years prior to the
dates of the complaints. The Competition Commission has to date not imposed the maximum penalty on any offender.
On July 31, 2008, Telkom received a summons issued by the Competition Commission requesting information in connection with
investigations being conducted by the Competition Commission into five complaints against Telkom described in greater detail below by
the Internet Service Association, MWEB, Internet solutions and Verizon SA Limited. The summons was subsequently withdrawn by the
Competition Commission following on agreement with Telkom in a co-operative process with the Competition Commission as part of the
Competition Commission’s ongoing investigations into these complaints. The investigation is expected to be finalised in the 2009 calendar
year.
As competition continues to increase, we expect that we will become involved in an increasing number of disputes regarding the legality
of services and products provided by us and third parties. These disputes may range from court lawsuits to complaints lodged by or against
us with various regulatory bodies. We are currently unable to predict the amount that we may eventually be required to pay in these
proceedings, however, we have not included provisions for any of these claims in our financial statements. In addition, we may need to
spend substantial amounts defending or prosecuting these claims even if we are ultimately successful. If Telkom is required to cease these
practices, divest itself of the relevant businesses or pay significant fines, Telkom’s business and financial condition could be materially
adversely affected and its revenue and net profit could decline. We may be required to fund any penalties or damages from cash flows
or drawings on our credit facilities, which could cause our indebtedness to increase.
Independent Cellular Services Provider Association of South Africa (ICSPA)
In 2002, the ICSPA filed a complaint against Telkom at the Competition Commission in terms of the Competition Act, alleging that Telkom
had entered into contracts with large corporations, providing large discounts with the effect of discouraging the corporates from using the
‘premicell’ device installed by their members. ICSPA also alleged various contraventions of the Competition Act by Telkom. Telkom provided
the Competition Commission with certain information requested. Telkom also referred the Competition Commission to its High Court
application in respect of utilisation of the ‘premicell’ device. The Competition Commission declined to refer the matter to the Competition
Tribunal. ICSPA then referred the matter to the Competition Tribunal on September 18, 2003. Telkom filed its answering affidavit on
November 28, 2003. ICSPA has taken no further action since then.
The South African Value Added Network Services (SAVA)
On May 7, 2002, the South African Value Added Network Services Providers’ Association, an association of VANS providers, filed
complaints against Telkom at the Competition Commission of the Republic of South Africa under the South African Competition Act, 89 of
1998, alleging, among other things, that Telkom was abusing its dominant position in contravention of the Competition Act, 89 of 1998,
and that it was engaged in price discrimination. The Competition Commission determined, among other things, that several aspects of
Telkom’s conduct contravened the Competition Act, 89 of 1998, and referred certain of the relevant complaints to the Competition Tribunal
for adjudication. The referred complaints deal with Telkom’s alleged refusal to provide telecommunications facilities to certain VANS
providers to construct their networks, refusal to lease access facilities to VANS providers, provision of bundled and cross subsidised
competitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged refusal to peer with
certain VANS providers.
Telkom Annual Report 2009318
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 318
Telkom Annual Report 2009 319
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
35. CONTINGENCIES (continued)Competition Commission (continued)
The South African Value Added Network Services (SAVA) (continued)
Telkom brought an application for review against the Competition Commission and the Competition Tribunal in the South African High
Court, in respect of the decision by the Competition Commission to refer the matters to the Competition Tribunal. Telkom is of the view that
the Competition Tribunal does not have jurisdiction to adjudicate these matters and argued that ICASA has the requisite jurisdiction. In the
review application, Telkom also sought to set aside the decision by the Competition Commission to refer the complaints to the Competition
Tribunal on the basis that the Competition Commission was biased, that the referral was out of time and that the Competition Commission
had not adhered to the memorandum of understanding between it and ICASA. Only the Competition Commission opposed the application
and filed an answering affidavit.
The main complaint at the Competition Commission was held over pending the outcome of the review application.
The application for review was heard on April 24 and 25, 2008. The South African High Court judge set aside the decision of the
Competition Commission to refer the SAVA complaints and the Omnilink complaint against Telkom discussed below to the Competition
Tribunal. The decision was made based on three grounds, namely that:
• the Competition Commission failed to comply with the peremptory provisions of the memorandum of understanding between the
Competition Commission and ICASA;
• the referral was out of time, on the basis that the agreements with the complainants to extend the time which the Competition Commission
was allowed to investigate the complaints were invalid; and
• the Competition Commission’s reliance on a report by the Link Centre created reasonable apprehension of bias, since some of the
complainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complainants in
the SAVA complaints.
The judge did not make a decision on the question of jurisdiction (ie, whether ICASA or the Competition Tribunal has the jurisdiction to
deal with competition matters in the electronic communications industry).
On july 3, 2008, the Competition Commission filed an application for leave to appeal the decision of the High Court on the basis that
the judge erred on the issue of bias as well as his finding that issues surrounding the extension of time to investigate the issues constitutes
a ground for review. Telkom then filed an application for leave to cross-appeal on July 11, 2008. The main basis of Telkom’s cross-appeal
is that Telkom believes that the judge erred in failing to make a decision as to whether ICASA or the Competition Commission and
Competition Tribunal should deal with this type of complaint. The application for leave to appeal as well as the application for leave to
cross-appeal were granted by the Pretoria High Court on October 9, 2008. The parties are attending to the filing of the record of
proceedings before the High Court as well as the parties’ heads of argument, after which the Registrar of the Supreme Court of Appeal
will inform the parties of the date for the hearing. The main complaint before the Competition Tribunal will continue to be held over pending
the outcome of the appeal and cross-appeal.
This matter is not expected to be finalised within the 2010 financial year.
Omnilink
On August 22, 2002, Omnilink filed a complaint against Telkom at the Competition Commission alleging that Telkom was abusing its
dominance by discriminating in its price for Diginet services as against those charged to VANS and the price charged to customers who
apply for a Telkom VPN solution. The Competition Commission conducted an enquiry and subsequently referred the complaint, together
with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt with together with the SAVA matter
discussed above.
Telkom fins (company) NEW 8/12/09 6:58 PM Page 319
35. CONTINGENCIES (continued)Competition Commission (continued)
Orion/Telkom (Standard Bank and Edcon): Competition Tribunal
In April 2003, Orion filed a complaint against Telkom, Standard Bank and Edcon at the Competition Commission concerning Telkom’s
discounts offered on public switched telecommunication services to corporate customers. In terms of the rules of the Competition
Commission, the Competition Commission, who acts as an investigator, had one year to investigate the complaint. Orion simultaneously
with the filing of the complaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an
interim order interdicting and restraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s Cellsaver
discount plan.
The Competition Commission completed its investigation and decided that there was no prima facie evidence of any contravention of the
Competition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allows
for parties to refer matters to the Competition Tribunal themselves. Telkom has not yet filed its answering affidavit in the main complaint
before the Competition Tribunal. To date there have been no further developments on this matter.
The Internet Service Providers Association (ISPA)
In December 2005, the ISPA, an association of ISPs, filed complaints against Telkom at the Competition Commission regarding alleged
anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to SAIX, the prices offered by TelkomInternet,
the alleged delay in provision of facilities to ISPs and the alleged favourable installation timelines offered to TelkomInternet customers. The
Competition Commission has formally requested Telkom to provide it with certain records of orders placed for certain services, in an attempt
to first investigate the latter aspects of the complaint. Telkom provided the Competition Commission with the information.
MWEB and Internet Solutions (IS)
On June 29, 2005, MWEB and Internet Solutions, or IS, jointly lodged a complaint with the Competition Commission against Telkom and
also requested interim relief at the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing
for ADSL retail products and its IP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of
SAIX bandwidth for ADSL users of other internet service providers, the architecture of Telkom’s ADSL access route and the manner in which
internet service providers can only connect to Telkom’s edge service router via IP Connect as well as alleged excessive pricing for bandwidth
on Telkom’s international undersea cable. The application for interim relief at the Competition Tribunal dealt with allegations that Telkom
should maintain the peering link between IS and Telkom in terms of its current peering agreement, and demanded that Telkom treat the
traffic generated by ADSL customers of MWEB as traffic destined for the peering link and that Telkom upgrade its peering link to
accommodate the increased ADSL traffic emanating from MWEB and maintain a maximum of 65% utilisation. Telkom filed its answering
affidavit, and is awaiting IS and MWEB’s replying affidavit.
Since then, Telkom has entered into a new peering agreement with IS and has responded to numerous documentation and information
requests from the Competition Commission. To date neither MWEB nor IS has filed a replying affidavit in the interim relief application.
MWEB
On June 5, 2007, MWEB brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner
in which Telkom provides wholesale ADSL internet connections. MWEB requested the Competition Tribunal to grant an order of interim
relief against Telkom to charge MWEB a wholesale price for the provision of ADSL internet connections which is not higher than the lowest
retail price. MWEB further applied for an order that Telkom implement the migration of end customers from Telkom PSTS ADSL access to
MWEB without interruption of the service. Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the
matter in its answering affidavit filed at the Competition Tribunal. Telkom still had to “plead over” as to the merits of the matter. Telkom also
filed an application in the Transvaal Provincial Division of the South African High Court on July 3, 2007 for an order declaring that the
Competition Tribunal does not have jurisdiction to hear the application for interim relief made to it by MWEB.
Telkom Annual Report 2009320
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 320
Telkom Annual Report 2009 321
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
35. CONTINGENCIES (continued)Competition Commission (continued)
MWEB (continued)
The application before the High Court was set down for hearing during the first quarter of the 2009 financial year. The parties however
entered into settlement negotiations, which resulted in the withdrawal of the interim relief application at the Competition Tribunal by MWEB
as well as a withdrawal of the jurisdictional challenge filed at the South African High Court by Telkom. The parties are in further
negotiations.
Verizon SA Limited (Verizon)
Verizon filed a complaint against Telkom on March 22, 2007 alleging that Telkom charges an excessive price on services rendered to
Verizon, thereby inducing Verizon’s customers not to deal with Verizon, engages in exclusionary conduct through “margin squeeze” in
offering prices to end-users which are lower than the prices at which it sells rights of access to its infrastructure on a wholesale basis to
Verizon, and that Telkom engages in price discrimination against Verizon.
Internet Solutions (IS)
IS filed a complaint against Telkom at the Competition Commission during December 2007. The complaint alleges abusive conduct by
Telkom. IS specifically alleges that Telkom is charging excessive prices that bear no reasonable relation to the economic value of the goods
or services, that Telkom has raised the wholesale cost to downstream competitors, while also reducing the downstream retail price to clients;
engaging in margin squeeze, that Telkom has introduced a series of bundled products (namely Telkom Closer Products) that limit the ability
of rivals in particular markets to compete effectively, and Telkom is offering discriminatory prices in relation to a number of infrastructural
and service items that IS is compelled to purchase from Telkom.
While that complaint was being investigated by the Competition Commission, IS brought an application to the Competition Commission
for interim relief requesting: that Telkom be ordered to charge IS a wholesale price for telecommunication facilities to provide virtual private
network services to its customers no higher than the lowest retail price for such connection charged to Telkom’s VPN Supreme customers
and ordering that the costs of the application be paid by Telkom.
Telkom opposed the application by IS at the Competition Tribunal although it is unable to finalise its opposing papers due to difficulties
associated with the manner in which IS claimed confidentiality over the application. No further activity has taken place with regard to the
interim relief application to date.
Maredi Telecom and Broadcasting (Proprietary) Limited (Maredi)
Maredi served a notice of motion on Telkom, Ericsson SA and Telsaf Data (Pty) Limited on January 8, 2009. The matter relates to a tender
published by Telkom for the supply of point-to-point split mount microwave equipment. Maredi, Telsaf, Ericsson and a fourth company,
Mobax, were shortlisted. The tender was awarded by Telkom to Telsaf and Ericsson.
Telkom fins (company) NEW 8/12/09 6:58 PM Page 321
35. CONTINGENCIES (continued)Competition Commission (continued)
Maredi Telecom and Broadcasting (Proprietary) Limited (Maredi) (continued)
Maredi applied for a court order, with a court hearing date set for February 3, 2009, requesting that the court prevent Telkom from entering
into a contract with Ericsson and Telsaf or either party, and from ordering goods or services from Ericsson and Telsaf pursuant to the tender.
Maredi also requested an order that the court review and set aside the award of the tender to Telsaf and Ericsson or either of the
aforementioned parties, and refer the tender back to Telkom in order for Telkom to reconsider its award. Maredi alleged that there were
certain irregularities in the tender process in that Telkom did not follow fair procedures by failing to comply with its own mandatory
procedural requirements, that Telkom acted arbitrarily and in bad faith, that Telkom was biased in favour of Ericsson and that Ericsson should
have been disqualified as it failed to meet Telkom’s critical criteria as set out in the tender.
Numerous allegations in the application, including accusations against certain members of the Procurement Review Council and allegations
by Maredi of compliance by them to the technical critical criteria, were refuted by Telkom. Telkom and Ericsson opposed the application
and filed their respective opposing affidavits. Telsaf did not oppose the application. The matter was ultimately set down for hearing on
February 20, 2009 and Maredi’s application was dismissed with costs. However, Maredi is proceeding with a review application in the
ordinary course and Telkom is opposing the application.
Telkom is not currently able to predict when these disputes may be resolved or the amount that it may eventually be required to pay,
however, it has not included provisions for all of these claims in its annual financial statements. In addition, Telkom may need to spend
substantial amounts defending or prosecuting these claims even if it was ultimately successful. If Telkom were to lose these or future legal
and arbitration proceedings, it could be prohibited from engaging in certain business activities and could be required to pay substantial
penalties and damages, which could cause its revenue and net profit to decline and have a material adverse impact on its business and
financial condition. Telkom may be required to fund any penalties or damages from cash flows or drawings on its credit facilities, which
could cause its indebtedness to increase.
Telkom is party to various additional proceedings and lawsuits in the ordinary course of its business, which management does not believe
will have a material adverse impact on Telkom.
Negative working capital ratio
At each of the financial periods ended March 31, 2009, 2008 and 2007 the Company had a negative working capital ratio. A negative
working capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from
operating cash flows, new borrowings and borrowings available under existing credit facilities.
Telkom Annual Report 2009322
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 322
Telkom Annual Report 2009 323
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
36. DIRECTORS’ INTERESTSST Arnold, RJ Huntley, E Spio-Garbrah, KST Matthews and VB Lawrence, five of Telkom’s Board members, are the South African
Government’s representative on Telkom’s Board of Directors. At March 31, 2009, the Government held 39.76% (2008: 39.42%, 2007:
38.83%) of Telkom’s shares.
B Molefe is a Public Investment Corporation (‘PIC’) representative on Telkom’s Board of Directors. As at March 31, 2009 the PIC held
15.63% (2008: 15.23%, 2007: 15.27%) of Telkom’s shares.
Beneficial Non-beneficial
Direct Indirect Direct Indirect
Directors’ shareholding (Number of shares)
2009
Executive
RJ September 90,815 1,820 – –
PG Nelson 19,182 – – –
109,997 1,820 – –
Non-executive
PG Joubert – 15,000 – –
D Barber – 1,200 – –
– 16,200 – –
2008
Executive
RJ September 7,155 – – –
Total 7,155 – – –
2007
Non-executive
TF Mosololi 455 – – –
Total 455 – – –
The directors’ shareholding changed between the balance sheet date and the date of issue of the financial statements and this has been
reflected in the above information.
2007 2008 2009
Rm Rm Rm
Directors’ emoluments 7 36 20
Executive
For services as directors 4 31 15
Non-executive
For services as directors 3 5 5
Telkom fins (company) NEW 8/12/09 6:58 PM Page 323
36. DIRECTORS’ INTERESTS (continued)Directors’ emoluments (continued)
Performance Fringe andFees Remuneration bonus other benefits Total
R R R R R2009Emoluments per director:Non-executive 5,028,084 – – – 5,028,084
ST Arnold 1,030,000 – – – 1,030,000 B du Plessis 498,000 – – – 498,000 PSC Luthuli 642,000 – – – 642,000 KST Matthews 441,000 – – – 441,000 B Molefe 159,551 – – – 159,551AG Rhoda 124,001 – – – 124,001 RJ Huntley 533,000 – – – 533,000 Dr E Spio-Garbrah** 622,750 – – – 622,750 Dr VB Lawrence** 359,000 – – – 359,000 DD Barber 293,667 – – – 293,667 PG Joubert 302,778 – – – 302,778
Executive – 4,530,912 2,289,947 7,848,357 14,669,216
RJ September* – 3,555,800 1,841,396 7,430,452 12,827,648 PG Nelson* – 975,112 448,551 417,905 1,841,568
Total emoluments – paid by Telkom 5,005,747 4,530,912 2,289,947 7,848,357 19,674,963
2008Emoluments per director:Non-executive 4,633,933 – – – 4,633,933
ST Arnold 1,124,373 – – – 1,124,373 B du Plessis 393,967 – – – 393,967 MJ Lamberti – – – – – PSC Luthuli 502,117 – – – 502,117 TD Mahloele 357,684 – – – 357,684 KST Matthews 501,217 – – – 501,217 TF Mosololi 174,960 – – – 174,960 M Mostert *** 229,433 – – – 229,433 DD Tabata 250,583 – – – 250,583 YR Tenza 305,633 – – – 305,633 PL Zim 5,333 – – – 5,333 B Molefe 20,497 – – – 20,497 A Rhoda 14,286 – – – 14,286 RJ Huntley 193,833 – – – 193,833 Dr E Spio-Garbrah** 273,841 – – – 273,841 Dr VB Lawrence** 286,176 – – – 286,176
Executive – 14,489,833 3,436,308 13,244,896 31,171,037
RJ September* – 2,453,757 3,436,308 13,218,772 19,108,837
CEO – 1,016,524 3,436,308 10,438,538 14,891,370 Acting CEO – 1,437,233 – 2,780,234 4,217,467
LRR Molotsane* – 12,036,076 – 26,124 12,062,200
Total emoluments – paid by Telkom 4,633,933 14,489,833 3,436,308 13,244,896 35,804,970
Telkom Annual Report 2009324
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 324
Telkom Annual Report 2009 325
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
36. DIRECTORS’ INTERESTS (continued)Directors’ emoluments (continued)
Performance Fringe and
Fees Remuneration bonus other benefits Total
R R R R R
2007
Emoluments per director:
Non-executive 2,641,168 – – – 2,641,168
NE Mtshotshisa 463,050 – – – 463,050
ST Arnold 353,719 – – – 353,719
TCP Chikane 32,670 – – – 32,670
B du Plessis 213,367 – – – 213,367
PSC Luthuli 205,417 – – – 205,417
TD Mahloele 166,667 – – – 166,667
K Matthews 109,643 – – – 109,643
TF Mosololi 214,417 – – – 214,417
M Mostert 232,417 – – – 232,417
DD Tabata 175,367 – – – 175,367
YR Tenza 321,767 – – – 321,767
PL Zim 152,667 – – – 152,667
Executive – 2,272,785 – 1,653,202 3,925,987
LRR Molotsane* – 2,272,785 – 1,653,202 3,925,987
Total emoluments – paid
by Telkom 2,641,168 2,272,785 – 1,653,202 6,567,155
* Included in fringe and other benefits is a pension contribution for LRR Molotsane of RNil (2008: R4,690; 2007: R295,462), RJ September of
R462,254 (2008: R280,261; 2007: RNil) and PG Nelson of R126,765 (2008: RNil; 2007: RNil) at March 31, 2009 paid to the Telkom Retirement
Fund.
** Foreign directors.
*** In the absence of an internal corporate finance division, and pending the structuring and staffing thereof, the Telkom Board resolved that it was in the best
interest of the Company and the shareholders to deploy the highest quality skills currently resident in Telkom, to evaluate, structure and make
recommendations to the Board on major transactions. During 2008 M Mostert led all efforts in this regard and was remunerated accordingly. Moreover
in compliance with the principles of good governance, the Board took legal advice and established that there was no conflict of interest arising out of
his involvement in the transaction evaluated.
Telkom fins (company) NEW 8/12/09 6:58 PM Page 325
37. RELATED PARTIESDetails of material transactions and balances with related parties not disclosed separately in the annual financial statements were as
follows:
2007 2008 2009
Rm Rm Rm
With joint venture:
Vodacom Group (Proprietary) Limited
Related party balances
Trade receivables 122 99 121
Dividend receivable 1,450 1,595 1,100
Trade payables (706) (691) (650)
Related party transactions
Revenue (1,510) (1,632) (1,781)
Expenses 2,974 3,050 3,066
Dividend received (2,700) (2,970) (2,600)
Audit fees 6 5 4
Revenue includes interconnect fees and lease and installation
of transmission lines.
Expenses mostly represent interconnect expenses.
With shareholders:
Public Investment Corporation
There were no material transactions between the Company and
the Public Investment Corporation.
Government
Related party balances
Trade receivables 271 326 386
Related party transactions
Revenue (2,458) (2,623) (2,767)
With subsidiaries:
Trudon Proprietary Limited (formerly trading as TDS Directory
Operations (Proprietary) Limited)
Related party balances
Trade receivables 6 7 10
Trade payables (100) (151) (141)
Dividend receivable 84 – –
Related party transactions
Revenue (57) (59) (62)
Expenses 12 20 15
Dividend received (149) (120) (47)
Telkom Annual Report 2009326
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
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Telkom Annual Report 2009 327
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2007 2008 2009
Rm Rm Rm
37. RELATED PARTIES (continued)With subsidiaries: (continued)
Swiftnet (Proprietary) Limited
Related party balances
Trade receivables – – 1
Trade payables (14) (12) (15)
Loan from subsidiary – – 10
Related party transactions
Revenue (16) (18) (17)
Expenses – – 1
Income includes data calls and billing fees.
Rossal No 65 (Proprietary) Limited
Related party balances
Accruals and other payables (148) – (342)
Loan to subsidiary – 30 –
The loan is unsecured, interest-free and has no fixed repayment
terms. The loan has been subordinated in favour of other creditors.
Related party transactions
Dividend paid 110 115 59
Dividend received (56) (290) (29)
Acajou Investments (Proprietary) Limited
Related party balances
(Accruals and other payables)/receivables (98) – 285
Related party transactions
Dividend paid 98 119 72
Dividend received (100) (217) (71)
Intekom (Proprietary) Limited
Related party balances
Accruals and other payables (5) (13) (23)
Related party transactions
Expenses 7 8 10
Q-Trunk (Proprietary) Limited
Related party balances
Loan to subsidiary 30 26 22
Impairment of loan (30) (26) (22)
The loan is unsecured, interest-free and has
no fixed repayment terms. The loan has been
subordinated in favour of other creditors.
Related party transactions
Expenses 6 6 6
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Telkom Annual Report 2009328
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2007 2008 2009
Rm Rm Rm
37. RELATED PARTIES (continued)With subsidiaries: (continued)
Special purpose entity – cell captive
Related party balances
Investment – sinking fund (refer to note 11) 535 535 535
Related party transactions
Investment income (19) – –
Africa Online Limited (Africa Online)
Related party balances
Loan to subsidiary – 74 236
Trade receivables – – 4
Trade payables – (4) –
Related party transactions
Revenue – (4) –
Investment income – (2) (11)
The loan is unsecured and bears interest at 3 month
US$ LIBOR plus 5%. The loan has no fixed repayment terms.
Multi-Links Telecommunications (Proprietary) Limited (Multi-Links)
Related party balances
Loan to subsidiary – 840 5,225
Trade receivables – – 75
Trade payables – (21) –
Related party transactions
Revenue – (21) (55)
Investment income – (34) (178)
The loan is unsecured and bears interest at 3 month US$ LIBOR
plus 5%. The loan may be prepaid in full or in whole, provided
that each part prepayment may not be less than US$1 million.
The advances must be repaid on May 1, 2009, July 1,
2009 and January 29, 2010.
Telkom International (Proprietary) Limited
Related party transactions
Loan to subsidiary – 1,985 1,985
Impairment of loan – – (874)
The loan has been used to purchase a 75% shareholding in
Multi-Links Telecommunications (Proprietary) Limited. The loan
is unsecured and has no fixed repayment term.
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Telkom Annual Report 2009 329
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2007 2008 2009
Rm Rm Rm
37. RELATED PARTIES (continued)With subsidiaries: (continued)
Telkom Media (Proprietary) Limited
Related party transactions
Loan to subsidiary – 326 471
Impairment of loan – (217) (471)
The loan is interest-free and has no repayment terms.
Telkom Foundation
Related party transactions
Expenses 54 58 54
With entities under common control:
Major public entities
Related party balances
Trade receivables 51 26 50
Trade payables (2) (5) (3)
The outstanding balances are unsecured and will be settled in
cash in the ordinary course of business.
Related party transactions
Revenue (400) (485) (445)
Expenses 206 201 180
Rent received (29) (21) (20)
Rent paid 18 18 19
Income with major public entities for the year ended March 31,
2007 has been restated due to additional BAN numbers being
included in our calculation of income with major public entities.
The effect of this is only on the disclosure of the related party
note and has a RNil effect on the Company’s profit.
Key management personnel compensation:
(Including directors’ emoluments)
Related party transactions
Short-term employee benefits 108 114 54
Post-employment benefits 3 3 5
Termination benefits – 27 –
Equity compensation benefits 8 24 36
The fair value of the shares that vested in the current
year is R11 million (2008: R12 million; 2007: RNil).
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Telkom Annual Report 2009330
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
37. RELATED PARTIES (continued)Terms and conditions of transactions with related parties
The sales to and purchases from related parties of telecommunication services are made at arm’s length prices. Except as indicated above,
outstanding balances at the year end are unsecured, interest-free (except for interest charged on overdue telephone accounts) and settlement
occurs in cash. Apart from the bank guarantee to the amount not exceeding R23 million (US$3 million) provided to Africa Online Limited,
there have been no guarantees provided or received for related party receivables or payables. Except as indicated above for the year
ended March 31, 2009, the Company has not impaired any amounts owed by related parties (2008: RNil; 2007: RNil). This assessment
is undertaken each financial year through examining the financial position of the related party and the market in which the related party
operates.
38. SIGNIFICANT EVENTSTelkom Renaissance
On November 14, 2008, Telkom’s Board of Directors approved the new organisation structure which is designed to fit Telkom’s defend
and growth strategy. The new structure is effective April 1, 2009 and is being managed through a project called Telkom Renaissance.
The Group has been restructured into three operating Business Units namely Telkom South Africa, Telkom International and Telkom Data
Centre Operations. The Telkom Renaissance initiative will occur over the next 24 months to ensure that all the necessary remodelling,
reorganising, revitalising and re-engineering happens in order to make the new structure function optimally.
This initiative is a complete transformation of the way Telkom focuses on servicing its customers and creating value for its stakeholders. It is
a positive, purposeful change towards a more accountable and competitive company. This change is a necessary part of Telkom’s strategy
to maintain and grow market share in South Africa whilst building a strong footprint on the African continent.
Capability Management
Telkom will seek to manage costs and address service delivery constraints by realigning its structure and resources to better match its
transforming information, communications and technology business.
The transformation of the communications industry and increasing market and competitive pressure has put communication companies such
as Telkom under increasing revenue and expense constraints while being required to improve customer service. As a result capability
management is designed to ensure that the capabilities needed to succeed in a converged communications market are established through
the optimal utilisation of external as well as internal capabilities, extracting efficiencies, where possible, through scale of a rapidly maturing
retail and wholesale market and better organised functional areas in a more deregulated and liberalised communications market.
Capability management includes the internal consolidation of certain functional areas and the optimisation of strategic supplier and service
provider relationships improving performance in other functional areas.
Capability Management will be concerned with assisting in addressing the margin and service delivery pressures by reassessing the
operational service delivery methodology currently deployed with a view of increasing flexibility, reducing expense while improving service
delivery across Telkom.
Given the challenges Telkom faces in rolling out broadband, converged and data services, maintaining our legacy network and expanding
our operations across the African continent, employees’ skills and performance must be aligned with our strategy to ensure financial,
operational and transformational targets, customer expectations and shareholder expectations are met.
The immediate objective therefore is to remodel service delivery. This is one of the strategic initiatives under Project Renaissance and will
focus on the following:
• Identify and assess existing capabilities;
• Establish a Telkom Capability Inventory;
• Determine future capability requirements;
• Identify and develop a set of optimal service delivery options for achieving current and future strategic objectives; and
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Telkom Annual Report 2009 331
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
38. SIGNIFICANT EVENTS (continued)Capability Management (continued)• Enable Telkom South Africa, Telkom International and Telkom Data Centre Operations to:
– Improve resource efficiency;– Improve capital productivity; and– Improve service delivery.
A memorandum of understanding was entered into between Telkom and organised labour which included issues such as the deferment ofthe Managed Services Partner outsourcing project implementation post April 2009 and the establishment of a restructuring forum where allrestructuring initiatives will be debated between the parties concerned.
Telkom Management Services (Proprietary) Limited (TMS)TMS was registered as a company during August 2008. Telkom’s Board approved the establishment of TMS as a part of Telkom’s strategicplan to grow revenue and expand geographic reach.
Appointment of directorOn November 10, 2008, Telkom announced the appointment of Mr Peter Nelson as Chief Financial Officer and director of the Companywith effect from December 8, 2008.
39. SUBSEQUENT EVENTSDividendsThe Telkom Board declared an ordinary dividend of 115 cents (2008: 660 cents, 2007: 600 cents) per share and a special dividendof 260 cents (2008: Nil cents, 2007: 500 cents) per share on June 19, 2009, payable on July 20, 2009 to shareholders registered onJuly 17, 2009.
Acquisition of MWEB Africa Limited and majority equity stake in MWEB Namibia (Proprietary) LimitedOn November 10, 2008, Telkom International (Proprietary) Limited, a wholly owned subsidiary of Telkom, announced it had entered intoagreements to acquire 100% of MWEB Africa Limited (‘MWEB Africa’) and 75% of MWEB Namibia (Proprietary) Limited (’MWEBNamibia‘) . The purchase price for the MWEB Africa Group including AFSAT and MWEB Namibia is US$55 million (approximately R498million) with a deferred payment of US$14,18 million due when the profits of MWEB Group for the year ended March 31, 2009 arefinalised. These shareholdings will be acquired from Multichoice Africa Limited and MIH Holdings Limited respectively, which are membersof the Naspers Limited Group.
MWEB Africa is an internet services provider in sub-Saharan Africa (excluding South Africa) which also provides network access servicesin some countries and is headquartered in Mauritius with operations in Namibia, Nigeria, Kenya, Tanzania, Uganda and Zimbabwe, anagency arrangement in Botswana and distributors in 26 sub-Saharan African countries.
The acquisition of MWEB is part of the Group’s strategy of growing its broadband and solidifying its market position through acquisitions.
The successful conclusion of the agreements being entered into is subject to conditions precedent, including regulatory approvals beingobtained in certain African jurisdictions.
Subsequent to year end, on April 21, 2009, the conditions precedent to the sale were fulfilled.
AT&T strategic agreementOn April 16, 2009, Telkom and AT&T, the global communications leader, entered into a strategic agreement which aims to extend AT&T’sglobal networking reach to sub-Saharan Africa and boost Telkom’s strategy to grow a strong ICT footprint on the African continent. Theagreement will allow both companies to explore ways to provide global seamless communication and technology solutions and servicesto multinational customers, ether based in or seeking to extend their operations in sub-Saharan Africa.
Under the terms of the memorandum of understanding, the two companies will begin work towards definitive agreements that would
• directly connect the Telkom regional network and the AT&T global network;
• deliver a wider geographic footprint of telecommunication services, in both sub-Saharan Africa and other global points;
• enhance mobile service capabilities for corporate customers in sub-Saharan Africa;
• extend global VPN (Virtual Private Network) services to support the state of art network requirements of customers either headquarteredin or seeking to expand sites in sub-Saharan Africa;
• explore other potential opportunities in areas such as Telepresence, hosting and professional services; and
• expand the existing global wholesale voice services relationship between Telkom Group and AT&T.
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Telkom Annual Report 2009332
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
39. SUBSEQUENT EVENTS (continued)Telkom Media (Proprietary) Limited (Telkom Media)
On August 31, 2006, Telkom created a new subsidiary, Telkom Media (Proprietary) Limited, with a black economic empowerment (‘BEE’)
shareholding. ICASA awarded Telkom Media a commercial satellite and cable subscription broadcast licence on September 12, 2007.
On March 31, 2008, the Telkom Board took a decision to substantially reduce its investment in Telkom Media and as such Telkom Media
reduced its operational expenses and commitments to a minimum. Telkom Media did not meet the held for sale criteria at year end as
management were unable to sell the disposal group for its expected price and therefore decided to abandon it.
Subsequent to year end Telkom was approached by potential buyers of Telkom’s interest in Telkom Media and negotiations with the potential
buyer were concluded. On May 4, 2009, Telkom sold its 75% interest in Telkom Media to Shenzhen Media South Africa (Proprietary)
Limited for a nominal amount.
Disposal and unbundling of stake in VodacomIn 2008 Telkom announced a decision to dispose of its entire stake in Vodacom through selling of 15% of its stake to Vodafone, a whollyowned subsidiary of Vodafone Group plc and unbundling its remaining 35% stake to its shareholders pursuant to a listing of Vodacom onthe main board of JSE Limited.
On May 18, 2009 Vodacom was successfully listed on the main board of the JSE Limited and a special dividend of R19 was distributedto all Telkom shareholders. Telkom successfully completed the unbundling of Vodacom shares to its shareholders on May 25, 2009.
Bookbuilding of Vodacom Group (Proprietary) Limited sharesOn June 2, 2009, Telkom announced the successful completion of the accelerated bookbuilding of Vodacom shares, raising R1,540 millionfor "ineligible shareholders". The directors of Telkom, in consultation with Vodafone, determined that Telkom shareholders in the United Statesof America would be regarded as "ineligible shareholders" for the unbundling of Vodacom shares to shareholders of Telkom, which wascompleted on May 25, 2009, and would therefore not receive Vodacom shares in such distributions.
The proceeds from the offering, net of applicable fees, expenses, taxes and charges, will be distributed to the "ineligible shareholders" inproportion to their entitlement to Vodacom shares.
New York Stock Exchange listingGiven the current global economic climate and the absolute necessity for Telkom to reduce its cost profile, the Board has decided to delistfrom the New York Stock Exchange. Maintaining a listing in the United States of America is expensive and takes considerable managementtime. The methodology employed and discipline gained from Sarbanes-Oxley reporting requirements will be retained to ensure strictgovernance compliance and transparent financial reporting.
Telkom is comfortable that the Johannesburg Stock Exchange provides sufficient access to capital for both South African and globalinvestors. Telkom intends to maintain a level 1 American Depository Receipt programme to facilitate over-the-counter- trading in the UnitedStates of America.
Telkom Communications International (Proprietary) LimitedThe Abacus Financial Services (Mauritius) Limited issued a notice under section 265 (5) of the Companies Act 1984 that TelkomCommunications International (Proprietary) Limited has been dissolved with effect from May 12, 2009.
Other mattersThe directors are not aware of any other matter or circumstance since the financial year ended March 31, 2009 and the date of thisreport, or otherwise dealt with in the financial statements, which significantly affects the financial position of the Company and the resultsof its operations.
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Telkom Annual Report 2009 333
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
40. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTEDThe Company has not early adopted the following standards, interpretations and amendments that have been issued and are not yet
effective:
IFRS1 First-time Adoption of International Financial Reporting Standards: Cost of an Investment in a Subsidiary, Jointly Controlled Entity
or Associate (amended)
This amendment is effective for annual periods beginning on or after January 1, 2009. This standard is amended to allow an entity, in its
separate financial statements, to determine the cost of investments in subsidiaries, jointly controlled entities or associates (in its opening IFRS
financial statements) as one of the following amounts:
• Cost determined in accordance with IAS27
• At the fair value of the investment at the date of the transition to IFRS, determined in accordance with IAS39 Financial Instruments:
Recognition and Measurement
• The previous GAAP carrying amount of the investment at the date of transition to IFRS
This determination is made for each investment, rather than being a policy decision.
The amendment does not have an impact on the annual financial statements.
IFRS2 Share-based Payment: Vesting Conditions and Cancellations (amended)
This amendment is effective for annual periods beginning on or after January 1, 2009. The amendments to IFRS2 Share-based Payment
clarifies the definition of vesting conditions and the accounting treatment of cancellations by the counterparty to a share-based arrangement.
The amendment will not have a material impact on the Company’s financial statements.
IFRS2 Share-Based Payment: Group Cash-Settled Share-Based Payment Arrangements (amended)
This amendment is effective for annual periods beginning on or after January 1, 2010. The amendment clarifies how an individual
subsidiary in a group should account for some share-based payment arrangements in its own financial statements. The amendment will not
have a material impact on the Company’s financial statements.
IFRS3 Business Combinations (revised)
The revisions are effective for annual periods beginning on or after July 1, 2009 .The revised standard still applies the acquisition method
of accounting for business combinations, with some significant changes. For example, all payments to purchase a business are to be
recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income
statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value
or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The
revised standard will not have an impact on the annual financial statements.
IFRS7 Financial Instruments: Disclosures (amended)
The interpretation is applicable for annual periods beginning on or after January 1, 2009. The amendment requires enhanced disclosures
about fair value measurements and liquidity risk. The impact of the amendment is being evaluated.
IFRS8 Operating Segments
This standard is effective for annual periods beginning on or after January 1, 2009. The standard requires operating segments to be
identified on the basis of internal reports about components of the entity that are regularly reviewed by the chief operating decision maker
in order to allocate resources to the segment and to assess its performance. The impact of this standard is currently being evaluated.
IFRIC9 Reassessment of Embedded Derivatives (amended)
The amendment is effective for annual periods ending on or after June 30, 2009. The amendment clarifies that on reclassification of a
financial asset out of the ‘fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary,
separately accounted for in financial statements. The amendment will not have an impact on the financial statements as Telkom does not
have material embedded derivatives.
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Telkom Annual Report 2009334
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
40. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)IFRIC13 Customer Loyalty ProgrammesThe interpretation is effective for annual periods beginning on or after July 1, 2008. The interpretation requires loyalty award credits granted
to customers in connection with a sales transaction to be accounted for as a separate component of the sales transaction. The consideration
received in the sales transaction would, therefore, be allocated between the loyalty award credits and the other components of the sale.
IFRIC13 is not relevant to the Company’s operations because none of the Company’s companies operate any loyalty programmes.
Where the cost of fulfilling the awards is expected to exceed the consideration received, the entity will have to recognise an onerous
contract liability. The impact of this amendment is being evaluated.
IFRIC15 Agreements for the Construction of Real Estate
The interpretation is effective for annual periods beginning on or after January 1, 2009. The aim of this interpretation is to determine
whether an agreement for the construction of real estate is within the scope of IAS11 Construction Contracts or IAS18 Revenue.
This interpretation is not relevant to the Company’s operations as the Company does not construct real estates.
IFRIC16 Hedges of a Net Investment in a Foreign Operation
The interpretation is effective for annual periods beginning on or after October 1, 2008. The interpretation provides guidance in respect
of hedges of foreign currency gains and losses on a net investment in a foreign operation. This includes the fact that net investment hedging
relates to differences in functional currency and not presentation currency, and hedging instruments may be held anywhere in the Group.
The interpretation will not have an impact on the Company’s financial statements.
IFRIC17 Distributions of Non-Cash Assets to Owners
The interpretation is effective for annual periods beginning on or after July 1, 2009. The interpretation provides guidance on how an entity
should account for non-cash distributions to its owners and/or distributions that give owners a choice of receiving either non-cash assets or
a cash alternative. The impact of the amendment is being evaluated.
IFRIC 18 Transfer of Assets from Customers
The interpretation is effective for annual periods beginning on or after July 1, 2009.
IFRIC18 clarifies the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant and
equipment (‘PPE’) that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access
to a supply of goods or services. The IFRIC also provides guidance where an entity receives cash from a customer that must be used only
to acquire or construct an item of PPE in order to connect the customer to a network or provide the customer with ongoing access to a
supply of goods or services. The impact of this interpretation is currently being evaluated.
IAS1 Presentation of Financial Statement (revised)
The revised standard is effective for annual periods beginning on or after January 1, 2009.
IAS1R introduces a statement of comprehensive income with two optional formats and refers to the balance sheet and cash flow statement
by different names: the ‘statement of financial position’ and ‘statement of cash flows’, respectively. The revision to the standard will result
in changes in the way the annual financial statements are presented.
IAS7 Cash Flow Statement: Consequential Amendments arising from Amendments to IAS16
The amendment is effective for annual periods beginning on or after January 1, 2009. IAS7 as amended requires cash receipts and
payments relating to purchase, rental and sale of property, plant and equipment held for rental to be treated as cash flows from operating
activities. The impact of this amendment is being evaluated.
IAS23 Borrowing Costs (revised)The revised standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on orafter January 1, 2009. The revised standard requires all borrowing costs that are directly attributable to the acquisition, construction orproduction of qualifying assets to be capitalised. The Company does not expect the adoption of the standard to have a material impact.
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Telkom Annual Report 2009 335
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
40. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)IAS27 Consolidated and Separate Financial Statements (revised)The revisions are effective for annual periods beginning on or after July 1, 2009. The revised standard requires the effects of all transactionswith non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwillor gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured tofair value, and a gain or loss is recognised in profit or loss. The impact of the revised standard is being evaluated.
IAS27 Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate(amended)The amended standard is effective for annual periods beginning on or after January 1, 2009. The amended standard is for the followingchanges in respect of the holding company’s separate financial statements:
• The deletion of the ‘cost method’. Making the distinction between pre- and post-acquisition profits is no longer required. All dividendswill be recognised in profit or loss. However, the payment of such dividends requires the entity to consider whether there is an indicatorof impairment; and
• In cases of reorganisations where a new parent is inserted above an existing parent of the Group (subject to meeting specificrequirements), the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary rather than its fairvalue. The impact of this amended standard is currently being evaluated.
Amendment to IAS32 Financial Instruments Presentation and IAS1 Presentation of Financial Statements, Puttable Financial Instruments
The amendment is effective for periods beginning January 1, 2009. The amendments classify puttable financial instruments, or components
of instruments, that impose on the entity an obligation to deliver to another party a pro-rata share of the net assets of the entity only on
liquidation, as equity, provided they have particular features and meet specific conditions. The impact of this amended standard is being
evaluated.
IAS39: Financial Instruments: Recognition and Measurement (amended)
The amendment is effective for annual periods ending on or after June 30, 2009. The amendment clarifies that on reclassification of a
financial asset out of the ‘fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary,
separately accounted for in financial statements. The amendment will not have an impact on the financial statements as Telkom does not
have material embedded derivatives.
IAS39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items (amended)
The amendment to the standard is effective for annual periods beginning on or after July 1, 2009. The amendment clarifies that an entity
is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. The
amendment will not have an impact on the financial statements as Telkom does not apply hedge accounting.
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Telkom Annual Report 2009336
Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
40. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)Changes as a result of the annual improvements project
A number of standards were amended as a result of the annual improvements project of the IASB in May 2008 effective for annual periods
beginning on or after January 1, 2009, with the exception of IFRS5 which is effective for annual periods beginning on or after July 1,
2009. These standards were as follows:
IFRS5 Non-Current Assets Held for Sale and Discontinued Operations
IAS1 Presentation of Financial Statements
IAS16 Property, Plant and Equipment
IAS19 Employee Benefits
IAS20 Accounting for Government Grants and Disclosure of Government Assistance
IAS23 Borrowing Costs
IAS27 Consolidated and Separate Financial Statements
IAS28 Investments in Associates
IAS29 Financial Reporting in Hyperinflationary Economies
IAS31 Interests in Joint Ventures
IAS36 Impairment of Assets
IAS38 Intangible Assets
IAS39 Financial Instruments: Recognition and Measurement
IAS40 Investment Property
IAS41 Agriculture.
The Company will adopt the changes to these standards during the 2010 financial year with the exception of IFRS5, which will be adopted
during the 2011 financial year. The Company is currently evaluating the effects of the amendments.
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Telkom Annual Report 2009 337
Number of
shareholders % Holdings %
Range of shareholders
1 – 100 shares 68,789 71.69 2,392,802 0.46
101 – 1 000 shares 24,353 25.38 6,839,429 1.31
1 001 – 10 000 shares 2,031 2.12 5,683,371 1.09
10 001 – 50 000 shares 380 0.40 9,281,138 1.78
50 001 – 100 000 shares 157 0.16 11,252,414 2.16
100 001 – 1 000 000 shares 217 0.23 59,384,767 11.40
1 000 001 and more shares 33 0.03 425,949,977 81.80
95,960 100.00 520,783,898 100.00
Type of shareholder
Banks 147 0.15 56,436,518 10.84
Close corporations 163 0.17 236,071 0.05
Empowerment 1 0.00 37,506,809 7.20
Endowment funds 232 0.24 734,227 0.14
Individuals 91,625 95.48 11,570,245 2.22
Insurance companies 78 0.08 26,072,715 5.01
Investment companies 67 0.07 13,538,084 2.60
Medical aid schemes 20 0.02 437,317 0.08
Mutual funds 422 0.44 40,790,503 7.83
Nominees and trusts 2,438 2.54 2,869,011 0.55
Other corporations (including the Government of the
Republic of South Africa) 126 0.13 207,218,515 39.79
Own holdings 2 0.00 19,790,236 3.80
Retirement funds 350 0.36 101,615,937 19.51
Private companies 263 0.27 1,583,493 0.30
Public companies 25 0.03 375,871 0.07
Share trusts 1 0.00 8,346 0.00
95,960 100.00 520,783,898 100.00
Geographical holdings by owner
South Africa 95,522 99.54 447,187,584 85.87
United States 128 0.13 51,178,233 9.83
United Kingdom 99 0.10 15,573,222 2.99
Europe 65 0.07 5,506,841 1.06
Other 146 0.15 1,338,018 0.26
95,960 100.00 520,783,898 100.00
Beneficial shareholders of more than 2%
The government of the Republic of South Africa 207,038,058 39.76
Black Ginger 33 (Proprietary) Limited 46,604,996 8.95
Public Investment Corporation 34,773,817 6.67
Elephant Consortium NewShelf 772 (Proprietary) Limited 37,506,809 7.20
Liberty Group 18,151,712 3.49
Rossal No 65 (Proprietary) Limited Equities 11,646,680 2.24
355,722,072 68.31
Shareholder analysisat March 31, 2009
Telkom fins (company) NEW 8/12/09 6:58 PM Page 337
Holdings %
Public and non-public shareholders
Non-public shareholders 260,388,774 50.78
The Government of the Republic of South Africa 207,038,058 39.76
Empowerment 37,506,809 7.20
Government buffer account 9,461 0.00
Diabo share trust 8,346 0.00
Telkom Treasury Stock 19,790,236 3.80
Executive and non-executive directors* 83,544 0.02
Subsidiaries directors* 24,098 0.00
Public shareholders
Institutional and retail investors 256,323,346 49.22
520,783,898 100.00
* Director holdings consists of direct and indirect holdings.
The information above is based on registered shareholders, except where only beneficial shareholders’ information was available.
Shareholder analysis continued
at March 31, 2009
Telkom Annual Report 2009338
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Telkom Annual Report 2009 339
3GThe generic term, 3G, is used to denote the next generation of mobile
systems designed to support high-speed data transmission (144 Kbps
and higher) and Internet Protocol (IP)-based services in fixed, portable
and mobile environments. As envisaged by the ITU, the 3G system will
integrate different service coverage zones and be a global platform
and the necessary infrastructure for the distribution of converged
service, whether mobile or fixed, voice or data, telecommunications,
content or computing.
ADSL (ASYMMETRICAL DIGITAL SUBSCRIBER LINE)ADSL is a broadband access standard which uses existing copper lines
to offer high-speed digital connections over the local loop. ADSL
transmits data asymmetrically, meaning that the bandwidth usage is
much higher in one direction than the other. ADSL provides greater
bandwidth from the exchange to the customer (ie. downloading) than
from the customer to the exchange (ie. sending).
ARPUVodacom’s average monthly revenue per customer, or ARPU, is
calculated by dividing the average monthly revenue during the period
by the average monthly total reported customer base during the period.
ARPU excludes revenue from equipment sales, other sales and services
and revenue from national and international users roaming on
Vodacom’s networks.
ATM (ASYNCHRONOUS TRANSFER MODE)ATM is a high-speed Wide Area Network (WAN), connection-
oriented, packet-switching data communications protocol that allows
voice, data and video to be delivered across existing local and Wide
Area Networks. ATM divides data into cells and can handle data
traffic in bursts. It is asynchronous, in that the stream of cells from one
particular user is not necessarily continuous.
BANDWIDTHBandwidth is a measure of the quantity of signals that can travel over
a transmission medium such as copper or a glass fibre strand. It is the
available space available to carry a signal. The greater the
bandwidth, the greater the information carrying capacity. Bandwidth is
measured in bits per second.
BROADBANDBroadband is a method of measuring the capacity of different types of
transmission. Digital bandwidth is measured in the rate of bits
transmitted per second (bps). For example, an individual ISDN channel
has a bandwidth of 64 Kbps, meaning that it transmits 64,000 bits
(digital signals) every second.
CAGRCompound Annual Growth Rate.
CARRIER PRE-SELECTIONCarrier pre-selection is usually initiated by the telecoms Regulator.
It enables individuals to choose which telecom will carry their traffic
(mainly long distance) by a signalling contract rather than having to
dial extra digits.
CDMA (CODE DIVISION MULTIPLE ACCESS)CDMA is one of many technologies for digital transmission of radio
signals between, for example, mobile telephones and radio base
stations. In CDMA, which is a spread-spectrum modulation technology,
each call is assigned a unique “pseudorandom” sequence of
frequency shifts that serve as a code to distinguish it. The mobile phone
is then instructed to decipher only a particular code to pluck, as it were,
the right conversation off the air.
CIRCUITA circuit is a connection or line between two points. This connection
can be made through various media, including copper, coaxial cable,
fibre or microwave. A telephone exchange is a circuit switch.
DECT (DIGITAL ENHANCED CORDLESSTELECOMMUNICATIONS)DECT is the standard for cordless telephones. DECT phones
communicate using the PSTN (public switched telephone network)
through a small base station in the home or office and have a working
radius of between 50 and 300 metres.
EBITDAEBITDA represents profit for the year before taxation, finance charges,
investment income and depreciation, amortisation, impairment and
write-offs.
EDGE (ENHANCED DATA FOR GSM EVOLUTION)EDGE is a technology designed to enhance GSM and TDMA systems
with respect to data rates and is widely considered to be the GSM
evolution beyond GPRS. It enhances the data capabilities of GSM and
TDMA systems by altering the RF modulation scheme to allow greater
data rates per time slot. Because it uses a different modulation
technique across the air-interface, EDGE requires different mobile
terminals/ handsets than those designed for the GSM air-interface.
EFFECTIVE TAX RATEThe effective tax rate is the tax charge in the income statement divided
by pre-tax profit.
ETHERNETEthernet is a protocol that defines how data is transmitted to and
received from LANs. It is the most prevalent LAN protocol, with speeds
of up to 10 Mbps.
Definitions
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EVDO (EVOLUTION-DATA OPTIMISED OR EVOLUTION-DATA ONLY)EVDO is a telecommunications standard for the wireless transmission of
data through radio signals, typically for broadband Internet access.
It uses multiplexing techniques including code division multiple access
(CDMA) as well as time division multiple access (TDMA) to maximise
both individual user’s throughput and the overall system throughput.
FIBRE OPTICSFibre optics is where messages or signals are sent via light rather than
electrical signals down a very thin strand of glass. Light transmission
enables much higher data rates than conventional wire, coaxial cable
and many forms of radio. Signals travel at the speed of light and do
not generate nor are subject to interference.
FIBRE RINGSFibre rings have come to be used in many fibre networks as it provides
more network resiliency: if there is a failure along a route and a ring is
broken, the direction of the traffic can be reversed and the traffic will
still reach its final destination.
FIXED ACCESS LINESFixed access lines are comprised of public switched
telecommunications network lines, or PSTN lines, including integrated
services digital network channels, or ISDN channels, and public and
private payphones, but excluding internal lines in service.
FIXED ACCESS LINES PER EMPLOYEETo calculate the number of access lines per employee the total number
of access lines is divided by the number of employees at the end of the
period.
FIXED-LINE PENETRATIONFixed-line penetration or teledensity is based on the total number of
telephone lines in service at the end of the period per 100 persons in
the population of South Africa. Population is the estimated South
African population at the mid-year in the periods indicated as
published by Statistics South Africa, a South African Government
department.
FIXED-LINE TRAFFICFixed-line traffic, other than international outgoing mobile traffic,international interconnection traffic and international Voice over InternetProtocol traffic, is calculated by dividing traffic operating revenue forthe particular category by the weighted average tariff for suchcategory during the relevant period. Fixed-line international outgoingmobile traffic and international interconnection traffic are based on thetraffic registered through the respective exchanges and reflected ininternational interconnection invoices. International Voice over InternetProtocol traffic is based on the traffic reflected in invoices.
FRAME RELAYFrame relay is a widely implemented telecommunications service
designed for cost-efficient data transmission for data traffic between
local area networks and between end-points in a wide area network.
The network effectively provides a permanent circuit, which means that
the customer sees a continuous, dedicated connection, but does not
pay for a full-time leased line.
GPRS (GENERAL PACKET RADIO SERVICE)GPRS is a packet rather than a circuit-based technology. GPRS allows
for faster data transmission speed to both GSM and TDMA (IS-136)
networks. GPRS is a packet-switched technology that overlays the
circuit-switched GSM network. The service can be introduced to
cellular networks by infrastructure.
GSM (GLOBAL SYSTEM FOR MOBILE)GSM is a second generation digital mobile cellular technology using
a combination of frequency division multiple access (FDMA) and time
division multiple access (TDMA). GSM operates in several frequency
bands: 400 MHz, 900 MHz and 1800 MHz. On the TDMA side,
there are eight timeslots or channels carrying calls, which operate on
the same frequency. Unlike other cellular systems, GSM provides a
high degree of security by using subscriber identity module (SIM) cards
and GSM encryption.
HSDPAHigh Speed Downlink Packet Access.
IASInternational Accounting Standards.
IFRSInternational Financial Reporting Standards.
INTERCONNECTIONInterconnection refers to the joining of two or more networks. Networks
need to interconnect to enable traffic to be transmitted to and from
destinations. The amounts paid and received by the operators vary
according to distance, time, the direction of traffic, and the type of
networks involved.
INTEREST COVERInterest cover is calculated by dividing EBIT by the net interest charge
in the income statement. It is a measure of income gearing.
ISDN (INTEGRATED SERVICES DIGITAL NETWORK)ISDN is a data communications standard used to transmit digital
signals over ordinary copper telephone cables. This is one technology
for overcoming the “last mile” of copper cables from the local
exchange to the subscribers premises, which has proved a bottleneck
for Internet access, for example. ISDN allows to carry voice and data
simultaneously, in each of at least two channels capable of carrying
64 Kbps. It provides up to 128 Kbps and a total capacity of 144
Kbps exist.
ITU (INTERNATIONAL TELECOMMUNICATIONS UNION)ITU is the global technical standard-setting body for
telecommunications services.
Definitions continued
Telkom Annual Report 2009340
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Telkom Annual Report 2009 341
LAN (LOCAL AREA NETWORK)A LAN is a group of devices that communicate with each other within
a limited geographic area, such as an office.
LEASED LINEA leased line is a telecommunications transmission circuit that is
reserved by a communications provider for the private use of a
customer.
LIBORLondon Interbank Offer Rate.
LOCAL LOOPThe local loop is the final connection between the exchange and the
home or office. It is also known as the last mile.
MICROWAVEMicrowave is radio transmission using very short wavelengths.
MMS (MULTIMEDIA MESSAGING SERVICES)MMS is a service developed jointly together with 3GPP, allows users
to combine sounds with images and text when sending messages,
much like the text-only SMS.
MOBILE CHURNVodacom’s churn is calculated by dividing the average monthly number
of disconnections during the period by the average monthly total
reported customer base during the period.
MOBILE PENETRATIONVodacom calculates penetration, or teledensity, based on the total
number of customers at the end of the period per 100 persons in the
population of South Africa. Population is the estimated South African
population at the mid-year in the periods indicated as published by
Statistics South Africa, a South African Governmental department.
MOBILE TRAFFICVodacom’s traffic comprises total traffic registered on Vodacom’s
network, including bundled minutes, outgoing international roaming
calls and calls to free services, but excluding national and incoming
international roaming calls.
MOU (MOBILE MINUTES OF USE)Vodacom’s average monthly minutes of use per customer, or average
MOU, is calculated by dividing the average monthly minutes during
the period by the average monthly total reported customer base during
the period. MOU excludes calls to free services, bundled minutes and
data minutes.
NET DEBTNet debt is all interest-bearing debt finance (long-term and short-term)
less cash and marketable securities.
NET DEBT TO TOTAL EQUITYNet debt to total equity is a measure of book leverage (gearing): net
debt in the balance sheet divided by total equity (the sum of
shareholders’ funds plus minority interests).
NGN (NEXT GENERATION NETWORK)A Next Generation Network is a packet-based network able to
provide services including telecommunication services and able to
make use of multiple broadband, QoS-enabled transport technologies.
It offers unrestricted access by users to different service providers.
OPERATING FREE CASH FLOWOperating free cash flow is defined as cash flow from operating
activities, after interest and taxation, before dividends paid, less cash
flow from investing activities.
PACKET SWITCHINGPacket switching is designed specifically for data traffic, as it cuts the
information up into small packets, which are each sent across the
network separately and are then reassembled at the final destination.
This allows more users to share a given amount of bandwidth. X.25,
ATM and frame relay are all packet switching techniques.
POP (POINT OF PRESENCE)A POP is a service provider’s location for connecting to users.
Generally, POPs refer to the location where people can dial into the
provider’s computer. Most providers have several POPs to allow low-
cost local access via telephone lines.
PSTN (PUBLIC SWITCHED TELEPHONE NETWORK)The PSTN is a collection of interconnected voice telephone networks,
either for a given country or the whole world. It is the sum of the parts.
It was originally entirely analog, but now increasingly digital (indeedin many developed countries digitisation has reached 100%), thesenetworks can be either state-owned or commercially owned. PSTN isdistinct from closed private networks (although these may interconnectto the PSTN) and from public data networks (PDN).
REVENUE PER FIXED ACCESS LINERevenue per fixed access line is calculated by dividing total fixed-line
revenue during the period, excluding data and directories and other
revenue, by the average number of fixed access lines during the
period.
RICARegulation of Interception of Communication and Provision of
Communication- related Information Act.
ROA (RETURN ON ASSETS)Return on Assets is calculated by dividing net profit (annualised) by total
assets.
Definitions continued
Telkom fins (company) NEW 8/12/09 6:58 PM Page 341
Telkom Annual Report 2009342
ROE (RETURN ON EQUITY)Return on Equity is calculated by dividing net income by the average
of the shareholders’ funds.
SDH (SYNCHRONOUS DIGITAL HIERARCHY)SDH is used in most modern systems, where multimedia can be
transmitted at high speeds. The networks are shaped in a ring, so that
if there is a problem, the traffic can be redirected in the other direction
and the caller will not detect the interruption.
SMS (SHORT MESSAGE SERVICE)SMS refers to short, usually text-based messages sent by or to a
wireless subscriber. They are not delivered to the recipient instantly and
have some degree of transmission time delay. SMS messages are
usually limited to total character lengths of 140 to 160 characters.
SWITCHA switch is a computer that acts as a conduit and director of traffic. It
is a means of sharing resources as a network.
TOTAL INTEREST-BEARING DEBTTotal interest-bearing debt is defined as short- and long-term interest-
bearing debt, including credit facilities, finance leases and other
financial liabilities.
UMTS (UNIVERSAL MOBILE TELECOMMUNICATIONSSYSTEM)UMTS is the Western European name for the 3G WCDMA standard
adopted as an evolutionary path by the GSM world. However, it
utilises the radio spectrum in a fundamentally different manner than
GSM. UMTS is based on DCMA technology and the GSM standard
is based on TDMA technology.
VOIP (VOICE OVER INTERNET PROTOCOL)Voice over Internet Protocol is a protocol enabling voice calls to be
made over the Internet. Rather than a dedicated circuit being set up
between the caller and receiver, as with ordinary phone calls, the
voice conversation is digitised and transmitted over Internet Protocol
using packet-switched data networks.
WAN (WIDE AREA NETWORK)A WAN comprises LANs in different geographic locations that are
connected, often over the public network.
WAP (WIRELESS APPLICATION PROTOCOL)WAP is an application environment designed to bridge the gap
between the mobile and Internet worlds. It is a set of communication
protocols for wireless devices designed to provide vendor-neutral and
technology- neutral access to the Internet and advanced
telecommunications services.
W-CDMA (WIDEBAND CODE DIVISION MULTIPLE ACCESS)W-CDMA is a 3G mobile network that supports services like high-
speed Internet access, video and high quality voice transmission.
WIMAXWiMAX is a standard for extending broadband wireless access to new
locations and over longer distances. The technology is expected to
enable multimedia applications with wireless connectivity and typically
with a range of up to 30 km. It is a standard for fixed wireless access
with substantially higher bandwidth capabilities than cellular networks.
The emergence of further enhancements to the standard will enable
nomadic data communications across an entire metropolitan area
network linking homes and businesses to the core telecommunications
network. WiMAX can be viewed as a technology complementing
existing ADSL broadband offerings.
Definitions continued
Telkom fins (company) NEW 8/12/09 6:58 PM Page 342
Telkom Annual Report 2009 343
Many of the statements included in this annual report, as well as oral
statements that may be made by us or by officers, directors or
employees acting on behalf of us, constitute or are based on forward
looking statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995, specifically Section 27A of the U.S.
Securities Act of 1933, as amended, and Section 21E of the U.S.
Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, including, among others, statements
regarding our mobile and other strategies, future financial position and
plans, objectives, capital expenditures, projected costs and
anticipated cost savings and financing plans, as well as projected
levels of growth in the communications market, are forward looking
statements. Forward looking statements can generally be identified by
the use of terminology such as “may”, “will”, “should”, “expect”,
“envisage”, “intend”, “plan”, “project”, “estimate”, “anticipate”,
“believe”, “hope”, “can”, “is designed to” or similar phrases, although
the absence of such words does not necessarily mean that a statement
is not forward looking.
These forward looking statements involve a number of known and
unknown risks, uncertainties and other factors that could cause our
actual results and outcomes to be materially different from historical
results or from any future results expressed or implied by such forward
looking statements. Among the factors that could cause our actual
results or outcomes to differ materially from our expectations are those
risks identified in the Sustainability report – Enterprise Risk Management
– Risk factors, including, but not limited to, the effect of global
economic and financial conditions on us, any changes to our mobile
strategy and our inability to successfully implement such strategy and
organisational changes thereto, our ability to turn around Multi-Links’s
financial performance; increased competition in the South African
communications and data communications markets; our ability to
implement our strategy of transforming from basic voice and data
connectivity to fully converged solutions, developments in the regulatory
environment; continued mobile growth and reductions in Telkom’s net
interconnect margins; Telkom’s ability to expand its operations and
make investments and acquisitions in other African countries and the
general economic, political, social and legal conditions in South Africa
and in other countries where Telkom invests; our ability to improve and
maintain our management information and other systems; our ability to
attract and retain key personnel and partners; our ability to replace
revenue, profits and cash flows previously received from Vodacom with
revenue, profits and cash flows from our existing and new businesses;
our negative working capital; changes in technology and delays in the
implementation of new technologies; our ability to reduce theft,
vandalism, network and payphone fraud and lost revenue to non-
licensed operators; the amount of damages Telkom is ultimately
required to pay to Telcordia Technologies Incorporated; the outcome of
regulatory, legal and arbitration proceedings, including tariff
approvals, and the outcome of Telkom’s hearings before the
Competition Commission and others; any requirements that we
unbundle the local loop, our ability to negotiate favourable terms, rates
and conditions for the provision of interconnection services and
facilities leasing services or if ICASA finds that we have significant
market power or otherwise imposes unfavourable terms and conditions
on us; our ability to implement and recover the substantial capital and
operational costs associated with carrier preselection, number
portability and the monitoring, interception and customer registration
requirements contained in the South African Regulation of Interception
of Communications and Provisions of Communication-Related
Information Act and the impact of these requirements on our business;
Telkom’s ability to comply with the South African Public Finance
Management Act and South African Public Audit Act and the impact of
the Municipal Property Rates Act; fluctuations in the value of the Rand
and inflation rates; the impact of unemployment, poverty, crime, HIV
infection, labour laws and labour relations, exchange control
restrictions and power outages in South Africa; and other matters not
yet known to us or not currently considered material by us.
We caution you not to place undue reliance on these forward looking
statements. All written and oral forward looking statements attributable
to us, or persons acting on our behalf, are qualified in their entirety by
these cautionary statements. Moreover, unless we are required by law
to update these statements, we will not necessarily update any of these
statements after the date of this annual report, either to conform them
to actual results or to changes in our expectations.
Special note regarding forward-looking statements
Telkom fins (company) NEW 8/12/09 6:58 PM Page 343
Telkom SA Limited
(Incorporated in the Republic of South Africa)
(Registration number 1991/005476/06
(JSE and NYSE share code: TKG)
ISIN: ZAE000044897)
(Telkom or the Company)
Notice is hereby given that the seventeenth annual general meeting of members will be held on Wednesday 16 September 2009 in The Bill
Gallagher Room, Sandton Convention Centre, Maude Street, Sandton, South Africa at 10:00 to conduct the following business:
1. To receive and consider the annual financial statements for the year ended 31 March 2009.
2. To elect Mr DD Barber as a director who in terms of the articles of association retires by rotation. Being eligible, Mr Barber is available for
re-election. His profile may be found on page 29 of the annual report.
3. To re-appoint Ernst & Young Inc as auditors of the Company, to hold office until the conclusion of the next annual general meeting of the
Company and to note that the individual registered auditor who will undertake the audit during the financial year ending 31 March 2010
is Mr R Hillen.
SPECIAL BUSINESSTo consider and if deemed fit, pass the following special resolutions:
Special resolution number 1
It is resolved that the Company’s articles of association be and are hereby amended as follows –
1. In article 1.1.1.58 in line 4 the words “and the Company’s subsidiaries expressly include Vodacom and its subsidiaries” are deleted
2. Article 1.1.1.66 is deleted.
Reason for and effect of special resolution number 1:
The reason for and effect of special resolution number 1 is to clean up the Articles by deleting all references in the Articles that are no longer
applicable, namely references to Vodacom, as Vodacom is no longer an associate company of the Company.
Special resolution number 2
RESOLVED THAT the directors of the Company be and are hereby authorised to approve the purchase by the Company, or by any of its
subsidiaries, of the Company’s ordinary shares subject to the provisions of the Companies Act, 1973, as amended, and the Listings Requirements
of JSE Limited (JSE) provided that:
a) the general authority granted to the directors shall be valid only until the Company’s next annual general meeting and shall not extend beyond
15 (fifteen) months from the date of this resolution;
b) any general purchase by the Company and/or any of its subsidiaries of the Company’s ordinary shares in issue shall not in aggregate in
any one financial year exceed 20% (twenty percent) of the Company’s issued ordinary share capital at the time that the authority is granted;
c) no acquisition may be made at a price more than 10% (ten percent) above the weighted average of the market value of the ordinary share
for the 5 (five) business days immediately preceding the date of such acquisition;
d) the repurchase of the ordinary shares are effected through the order book operated by the JSE trading system and done without any prior
understanding or arrangement between the Company and the counter party (reported trades are prohibited);
e) the Company may only appoint one agent at any point in time to effect any repurchase(s) on the Company’s behalf;
f) the Company or its subsidiary may not repurchase ordinary shares during a prohibited period;
g) the general authority may be varied or revoked by special resolution of the members prior to the next annual general meeting of the Company;
and
Notice of annual general meeting
Telkom Annual Report 2009344
Telkom fins (company) NEW 8/12/09 6:58 PM Page 344
Telkom Annual Report 2009 345
h) should the Company or any subsidiary cumulatively repurchase, redeem or cancel 3% (three percent) of the initial number of the Company’s
ordinary shares in terms of this general authority and for each 3% (three percent) in aggregate of the initial number of that class acquired
thereafter in terms of this general authority, and announcement shall be made in terms of the Listings Requirements of the JSE.”
Having considered the effect on the Company of the maximum repurchase under this general authority, the directors are of the opinion that:
• the Company and the Group will be able in the ordinary course of business to pay its debts for a period of 12 (twelve) months after the date
of this notice of annual general meeting;
• the assets of the Company and the Group will be in excess of the liabilities of the Company and the Group for a period of 12 (twelve) months
after the date of this notice of annual general meeting which assets and liabilities have been valued in accordance with the accounting
policies used in the audited financial statements of the Group for the year ended March 31, 2009;
• the share capital and reserves of the Company and the Group will be adequate for the ordinary business purposes for a period of 12 (twelve)
months after the date of this notice of annual general meeting; and
• the working capital of the Company and Group are considered adequate for ordinary business purposes for a period of 12 (twelve) months
after the date of this notice of annual general meeting.
The Board will ensure that the Company’s sponsor provides the JSE with the necessary report on the adequacy of the working capital of the
Company and its subsidiaries in terms of the JSE Listings Requirements prior to the commencement of any share repurchase in terms of this special
resolution.
Reasons for and effect of special resolution number 2:
The reason for this special resolution is to grant the Company’s directors a renewable general authority or permit a subsidiary Company to acquire
ordinary shares of the Company. The effect of this special resolution is to confer a general authority on the directors of the Company to repurchase
ordinary shares of the Company which are in issue from time to time.
The Board has considered the impact of a repurchase of up to 20% (twenty percent) of the Company’s shares, being the maximum permissible
under a general authority in terms of the JSE Listings Requirements. Should the opportunity arise and should the directors deem it in all respects to
be advantageous to the Company to repurchase such shares, it is deemed appropriate that the directors be authorised to repurchase the
Company’s shares.
Additional disclosures required in terms of the JSE Listings Requirements
Directors and management – refer to pages 28 to 32 of the annual report.
Major shareholders – refer to page 3 of the annual report.
Directors’ interests in securities – refer to page 229 of the annual report.
Share capital of the Company – refer to page 196 of the annual report.
Directors’ responsibility statement
The directors, whose names appear on pages 28 and 29 of the annual report collectively and individually accept full responsibility for the accuracy
of the information pertaining to this special resolution and certify to the best of their knowledge and belief there are no facts that have been omitted
which would make any statement false or misleading and that all reasonable enquiries to ascertain such facts have been made and that this special
resolution contains all information required by the Listings Requirements of the JSE.
Litigation statement
The directors, whose names appear on pages 28 and 29 of the annual report , are not aware of any legal or arbitration proceedings, including
proceedings that are pending or threatened other than what has been disclosed on page 223, that may have or have had in the previous twelve
months a material effect on the Group’s financial position.
Material change
Other than the facts and developments reported on in the annual report which was posted to shareholders [with this notice/or similar wording],
there have been no material changes in the affairs or financial position of the Company and its subsidiaries since the date of signature of the
annual financial statements and the date of this notice.
Telkom fins (company) NEW 8/12/09 6:58 PM Page 345
VOTING AND PROXIESOrdinary shareholders are entitled to attend, speak and vote at the annual general meeting.
Ordinary shareholders may appoint a proxy to attend, speak and vote in their stead. A proxy need not be a shareholder of the Company.
Shareholders holding dematerialised shares, but not in their own name, must furnish their Central Securities Depositary Participant (CSDP) or broker
with their instructions for voting at the annual general meeting. If your CSDP or broker, as the case may be, does not obtain instructions from you,
it will be obliged to act in terms of your mandate furnished to it, or if the mandate is silent in this regard, complete the relevant form of proxy
attached.
Unless you advise your CSDP or broker, in terms of the agreement between you and your CSDP or broker by the cut off time stipulated therein,
that you wish to attend the annual general meeting or send a proxy to represent you at this annual general meeting, your CSDP or broker will
assume that you do not wish to attend the annual general meeting or send a proxy.
If you wish to attend the annual general meeting or send a proxy, you must request your CSDP or broker to issue the necessary letter of authority
to you. Shareholders holding dematerialised shares in their own name, or holding shares that are not dematerialised, and who are unable to
attend the annual general meeting and wish to be represented thereat, must complete the relevant form of proxy attached in accordance with the
instructions therein and lodge it with or mail it to the transfer secretaries.
Forms of proxy should be forwarded to reach the transfer secretaries, Computershare Investor Services (Pty) Ltd by no later than 10:00 on Tuesday
15 September 2009.
The completion of a form of proxy will not preclude a shareholder from attending the annual general meeting.
By order of the Board
Per: ML Lephadi
Group Secretary
10 July 2009
Telkom Annual Report 2009346
Notice of annual general meeting continued
Telkom fins (company) NEW 8/12/09 6:58 PM Page 346
Telkom Annual Report 2009
Telkom SA Limited
(Incorporated in the Republic of South Africa)
(Registration number 1991/005476/06
(JSE and NYSE share code: TKG)
ISIN: ZAE000044897)
(Telkom or the Company)
(For completion by certificated shareholders and own-name dematerialised shareholders . Members entitled to attend and vote at the annual
general meeting may appoint one or more proxies to attend ,vote and speak at the annual general meeting in his stead.Such proxy/ies
need not be a member/s of Telkom.)
For use at the seventeenth annual general meeting of shareholders of Telkom to be held on Wednesday 16 September 2009 in The Bill Gallagher
Room, Sandton Convention Centre, Maude Street, Sandton, South Africa, South Africa at 10:00
I/We (name in BLOCK LETTERS)
Of (address in BLOCK LETTERS)
Being a member/members of the Company holding ordinary shares in the Company,
do hereby appoint:
of
or failing him/her
of
or
of
or failing him/her, the Chairman of the annual general meeting as my/our proxy to represent me/us at the annual general meeting to be held on
Wednesday 16 September 2009 at 10:00 or at any adjournment thereof, as follows:
For Against Abstain
1. To receive and adopt the annual financial statements for the year
ended 31 March 2009
2. To re-elect Mr DD Barber as a director in terms of the company’s articles of association
3. To re-appoint Ernst & Young Inc as auditors of the company, to hold office until the
conclusion of the next annual general meeting
4. Special resolution number 1
5. Special resolution number 2
and generally to act as my/our proxy at the said annual general meeting.
(Indicate with an “x” or the relevant number of shares, in the applicable space, how you wish your votes to be cast.)
Unless otherwise directed the proxy will vote as he/she thinks fit.
Signed at this day of 2009
Signature of member assisted by (where applicable)
Please read the notes on the reverse side hereof.
Form of proxy
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Telkom Annual Report 2009
1. A member entitled to attend and vote at the annual general meeting may appoint one or more proxies to attend, vote and speak in his/her
stead at the annual general meeting. A proxy need not be a member of the Company.
2. A shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the space(s) provided, with or
without deleting “the Chairman of the annual general meeting”, but any such deletion or insertion must be initialled by the shareholder. Any
insertion or deletion not complying with the aforegoing will be declared not to have been validly effected. The person whose name stands
first on this form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose
names follow. In the event that no names are
3. A shareholder’s instructions to the proxy must be indicated by the insertion of an “X” or the relevant number of votes exercisable by that
shareholder in the appropriate box provided. An “X” in the appropriate box indicates the maximum number of votes exercisable by that
shareholder. Failure to comply with the above will be deemed to authorise the proxy to vote or abstain from voting at the annual general
meeting as he/she deems fit in respect of all the shareholder’s votes exercisable thereat. A shareholder or his/her proxy is not obliged to use
all the votes exercisable by the shareholder or by his/her proxy, but the total of the votes cast and in respect of which abstention is recorded,
may not exceed the maximum number of votes exercisable by the shareholder or by his/her proxy
4. To be effective, completed forms of proxy must be lodged with the company’s South African transfer secretaries, Computershare Investor
Services (Proprietary) Limited, no less than 24 hours before the time appointed for the holding of the annual general meeting, excluding
Saturdays, Sundays and public holidays. As the annual general meeting is to be held at 10:00 on Wednesday, 16 September 2009 forms
of proxy must be lodged no later than 10:00 on Tuesday, 15 September 2009.
5. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the annual general meeting and
speaking and voting in person thereat instead of any proxy appointed in terms hereof.
6. The Chairman of the annual general meeting may reject or accept any form of proxy which is not completed and/or received other than in
compliance with these notes.
7. Any alteration to this form, of proxy other than a deletion of alternatives, must be initialled by the signatory.
8. Documentary evidence establishing the authority of the person signing this form of proxy in a representative or other legal capacity must be
attached to this form of proxy unless previously recorded by the Company or the transfer secretaries or waived by the Chairman of the annual
general meeting.
9. Where there are joint holders of shares:
• any one holder may sign this form of proxy; and
• the vote of the senior shareholder (for that purpose, seniority will be determined by the order in which the names of the shareholders appear
in the Company’s register) who tenders a vote (whether in person or by proxy) will
10. This form of proxy is not for completion by those shareholders who have dematerialised their shares (other than those whose shareholding is
recorded in their own name in the sub-register maintained by their Central Securities Depository Participant (CSDP). Such shareholders should
provide their CSDP, broker or nominee with their voting instructions.
South African transfer secretaries
Computershare Investor Services (Proprietary) Limited
Ground Floor, 70 Marshall Street
Johannesburg, South Africa, 2001
(PO Box 61051, Marshalltown, 2107)
Notes
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