Group operating revenue decreased by 1.5% to R16,146 million (30 September 2011: R16,387 million) in the six months ended 30 September 2012. The decrease is mainly due to lower fixed-line voice usage revenue, partially offset by an increase in mobile revenue. The decrease in voice usage is mainly due to the continued substitution of fixed-line traffic by mobile traffic.
The increase in eliminations is mainly as a result of R257 million bulk minutes purchased by the fixed-line segment from the Telkom mobile segment for the convergence strategy.
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Fixed-line | 14 867 | 15,345 | (3.1) |
| Mobile | 898 | 301 | 198.3 |
| Other International | |||
| iWayAfrica | 185 | 175 | 5.7 |
| Other South African | |||
| Trudon | 600 | 639 | (6.1) |
| Swiftnet | 59 | 65 | 9.2 |
| Data Centre Operations | 691 | 695 | (0.6) |
| Corporate centre | 35 | 21 | 66.7 |
| Eliminations | (1 189) | (854) | 39,2 |
| Total | 16 146 | 16,387 | (1,5) |
We have changed the fixed-line revenue presentation to align to internal business focus areas. Prior year numbers have been restated to reflect the new presentation format.
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Fixed-line Revenue | |||
| Voice | 8 266 | 8 738 | (5,4) |
| Usage | 4 408 | 4 909 | (10,2) |
| Subscriptions | 3 858 | 3 829 | 0,8 |
| Interconnection | 843 | 834 | 1,1 |
| Domestic | 292 | 311 | (6,1) |
| International | 551 | 523 | 5,4 |
| Data | 5 210 | 5 057 | 3,0 |
| Data connectivity | 2 761 | 2 657 | 3,9 |
| Leased lines facilities | 1 160 | 1 143 | 1,5 |
| Internet access and related services | 798 | 791 | 0,9 |
| Managed data network service | 464 | 442 | 5,0 |
| Multi-media services | 27 | 24 | 12,5 |
| Customer premises equipment sales and rentals | 503 | 536 | (6,2) |
| Sales | 156 | 199 | (21,6) |
| Rentals | 347 | 337 | 3,0 |
| Other | 45 | 180 | (75,0) |
| Total | 14 867 | 15,345 | (3,1) |
Operating revenue from the fixed-line segment decreased by 3.1% to R14,867 million (30 September 2011: R15,345 million) primarily due to lower voice usage revenue, partially offset by an increase in data revenue due to higher leased line revenue received from 8ta and growth in ADSL revenue.
Voice revenue decreased 5.4% to R8,266 million (30 September 2011: R8,738 million) largely as a result of lower usage volumes mainly due to continued mobile substitution partially offset by higher subscriptions revenue due to tariff increases.
International interconnection revenue increased by 5.4% to R551 million (30 September 2011: R523 million) largely as a result of higher tariffs on mobile international interconnection and switched hubbing, partially offset by lower volumes. Domestic interconnection revenue decreased 6.1% primarily due to a decrease in volumes on mobile incoming calls.
Data revenue increased 3.0% to R5,210 million (30 September 2011: R5,057 million) mainly due to R173 million received from our mobile business for leased lines (2011: R74 million), which is eliminated on consolidation and an increase in volumes as a result of a 5.8% growth in our ADSL subscriber base.
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Fixed-line | 111 | 109 | 1,8 |
| Mobile | - | 51 | - |
| Other International | - | ||
| iWayAfrica | 7 | 4 | 75,0 |
| Telkom International | 27 | 10 | 170,0 |
| Other South African | |||
| Trudon | 14 | 20 | (30,0) |
| Swiftnet | 3 | 2 | 50,0 |
| Corporate centre | 76 | 101 | (24,8) |
| Eliminations | (74) | (79) | (6,3) |
| Total | 164 | 218 | (24,8) |
Other income includes profit on the disposal of investments, property, plant and equipment and intangible assets, royalty income as well as interest received from debtors. Mobile other income in the prior period relates to a donation of two base station controllers received.
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Employee expenses | 4 738 | 4 542 | (4,3) |
| Payments to other operators | 2 458 | 2 653 | 7,4 |
| Selling, general and administrative expenses | 3 567 | 3 124 | (14,2) |
| Service fees | 1 472 | 1 476 | 0,3 |
| Operating leases | 442 | 397 | (11,3) |
| Depreciation, amortisation, impairments and write-offs | 2 953 | 3 190 | 7,4 |
| Total | 15 630 | 15 382 | (1,6) |
Group operating expenses increased by 1.6% to R15,630 million (30 September 2011: R15,382 million) in the six months ended 30 September 2012, primarily due to the provision for the penalty handed down to Telkom by the Competition Tribunal and the average annual salary increase of 6.5%. This was partially offset by the R445 million goodwill impairment of iWayAfrica included in the comparative period and a decrease in payments to other operators due to the decrease in mobile termination rates.
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Fixed-line | 12 283 | 11 710 | (4,9) |
| Mobile | 1 651 | 1 493 | (10,6) |
| Other International | |||
| iWayAfrica | 234 | 657 | 64,4 |
| Telkom International | 64 | 15 | (326,7) |
| Other South African | |||
| Trudon | 359 | 372 | 3,5 |
| Swiftnet | 58 | 58 | - |
| Data Centre Operations | 556 | 547 | (1,6) |
| Corporate centre | 1 667 | 1 415 | (17,8) |
| Eliminations | (1 242) | (885) | (40,3) |
| Total | 15 630 | 15 382 | (1,6) |
Fixed-line, mobile and corporate centre's operating expenses are discussed in detail below.
The decrease in iWayAfrica's operating expenses is due to the R445 million impairment included in the prior period.
The increase in eliminations is mainly as a result of R257 million bulk minutes purchased by the fixed-line segment from the Telkom mobile segment for the convergence strategy.
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Employee expense | 3 597 | 3 492 | (3,0) |
| Salaries and wages | 2 969 | 2 815 | (5,5) |
| Benefits | 841 | 873 | 3,7 |
| Workforce reduction expenses | 6 | 6 | - |
| Employee related expenses capitalised | (219) | (202) | (8,4) |
| Payments to other network operators | 2 137 | 2 395 | 10,8 |
| Payment to mobile operators | 1 296 | 1 614 | 19,7 |
| Payment to international operators | 516 | 493 | (4,7) |
| Data commitments | 156 | 136 | (14,7) |
| Payment to fixed-line operators | 169 | 152 | (11,2) |
| Selling, general and administrative expenses | 2 127 | 1 701 | (25,0) |
| Materials and maintenance | 1 033 | 981 | (5,3) |
| Marketing | 312 | 210 | (48,6) |
| Bad debts | 117 | 91 | (28,6) |
| Other | 665 | 419 | (58,7) |
| Service fees | 1 615 | 1 562 | (3,4) |
| Property management | 696 | 645 | (7,9) |
| Consultants and security | 919 | 917 | (0,2) |
| Operating leases | 331 | 315 | (5,1) |
| Buildings | 89 | 79 | (12,7) |
| Equipment | 6 | 7 | 14,3 |
| Vehicles | 236 | 229 | (3,1) |
| Depreciation, amortisatin, impairments and write-offs | 2 476 | 2 245 | (10,3) |
| Depreciation | 2 074 | 1 869 | (11,0) |
| Amortisation | 351 | 270 | (30,0) |
| Write-offs | 51 | 106 | 51,9 |
| Total | 12 283 | 11 710 | (4,9) |
Fixed-line expenditure increased 4.9% in the six months ended 30 September 2012, to R12,283 million (30 September 2011: R11,710 million), primarily due to selling, general and administrative expenses, higher depreciation, and employee expenses, partially offset by lower payments to mobile operators.
Employee expenses increased by 3.0% in the six months ended 30 September 2012, primarily due to the average annual salary increase of 6.5%.
Payments to mobile operators decreased 19.7% largely due to the reduction in mobile termination rates.
Selling, general and administrative expenses increased by 25.0% primarily as a result of R257 million bulk minutes purchased from Telkom mobile for the convergence strategy, higher maintenance expenditure on a programme to integrate independent business systems, higher marketing due to more sponsorships and higher bad debts due to the reversal of the provision, in the prior year, of certain wholesale debtors. Internal payments to Telkom mobile are eliminated on consolidation.
Service fees increase by 3.4% primarily attributable to higher property utility costs driven by increased electricity tariffs.
Depreciation increased 10.3% as a result of the review of the useful lives of property, plant and equipment given the current focus on the modernisation of the network.
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Employee expenses | 152 | 90 | (68,9) |
| Payments to other network operators | 191 | 169 | (13,0) |
| Selling, general and administrative expenses | 789 | 984 | 19,8 |
| Service fees | 292 | 136 | (114,7) |
| Operating leases | 61 | 39 | (56,4) |
| Depreciation, amortisation, impairments and write-offs | 166 | 75 | (121,3) |
| Total | 1 651 | 1 493 | (10,6) |
Employee expenses increased as a result of a 63.3% increase in headcount to 436 employees from 267 employees.
The increase in payments to other operators is driven by an increase in traffic to other networks.
Selling, general and administrative expenses decreased 19.8% as a result of a decrease in sales and acquisition cost as we refocus our strategy.
Operating leases increased 56.4% as a result of an increase in site acquisitions.
Depreciation, amortisation, impairments and write-offs increased as a result of the additional investment in the mobile network.
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Employee expenses | 625 | 628 | 0,5 |
| Selling, general and administrative expenses | 550 | 149 | (269,1) |
| Service fees | 374 | 464 | 19,4 |
| Operating leases | 12 | 9 | (33,3) |
| Depreciation, amortisation, impairments and write-offs | 106 | 165 | 35,8 |
| Total | 1 667 | 1 415 | (17,8) |
Selling, general and administrative expenses increased significantly due to the inclusion of a provision for the penalty imposed by the Competition Tribunal.
Service fees decreased 19.4% as a result of a lower spend on consulting fees during the period.
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Fixed-line | 5 171 | 5 989 | (13,7) |
| EBITDA margin(%) | 34,8 | 39,0 | |
| Mobile | (587) | (1 066) | 44,9 |
| EBITDA margin(%) | (65,4) | (354,2) | |
| Other International | (57) | (17) | (235,3) |
| EBITDA margin(%) | (30,8) | (9,7) | |
| Other South African | (852) | (446) | (91,0) |
| EBITDA margin(%) | (61,5) | (31.4) | |
| Eliminations | (42) | (47) | 10,6 |
| Total | 3 633 | 4 413 | (17,7) |
Investment income consists of interest received on short-term investments and bank accounts. Investment income increased by 34.2% to R149 million (30 September 2011: R111 million) as a result of higher cash balances.
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. Foreign exchange and fair value gains decreased 47.8% to R60 million (30 September 2011: R115 million). Lower exchange rate gains were incurred on the mark to market valuation of forward exchange contracts as a result of the sharper weakening of the Rand against major currencies in the prior period. This was partially offset by a higher fair value gain on assets held by the Cell Captive, a special purpose vehicle used to fund the postretirement medical aid liability. The interest expense decreased 9.8% to R342 million (30 September 2011: R379 million) mainly as a result of lower interest rates.
The consolidated tax expense from continuing operations decreased to R325 million (30 September 2011: R568 million). The consolidated effective tax rate for the six months ended 30 September 2012 was 59.4% (30 September 2011: 53.1%). The high effective tax rate is mainly as a result of the non-deductable provision for competition tribunal penalty in the current period and non-deductable impairment of the loan to Multi-Links and impairment of the investment and loans to iWayAfrica in the prior period.
The Group’s capital structure remains strong. Debt, after financial assets and liabilities, from continuing operations decreased by 41.4% to R2,700 million from R4,605 million as at 30 September 2011 resulting in a debt to EBITDA ratio of 0.4 times at 30 September 2012 and 0.5 times at 30 September 2011. On 30 September 2012, the Group had cash balances of R4,829 million (30 September 2011: R2,580 million).
The Group's current assets exceeded current liabilities by R2.5 billion (30 September 2011: R59 million).
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Cash generated from operations before operations before dividends paid | 3 595 | 2 987 | 20,4 |
| Add back: Multi-links operating cash flows | – | 75 | (100,0) |
| Less: Cash flow from investing activities | (2 085) | (1 629) | 28,0 |
| Add back: Multi-links cash flows from investing activities | - | 21 | (100,0) |
| Free cash flow | 1 510 | 1 454 | 3,9 |
Free cash flow increased 3.9% in the period despite lower EBITDA and higher capital expenditure. This is mainly as a result of higher non-cash expenditure.
Group capital expenditure which includes spend on intangible assets, increased by 17.6% to R2,123 million (30 September 2011: R1,805 million) and represents 13.1% of Group operating revenue (30 September 2011: 11.0%).
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Fixed-line | 1 496 | 1 152 | (29,9) |
| Mobile | 521 | 558 | 6,6 |
| Other International | |||
| iWayAfrica | 2 | 4 | 50,0 |
| Other South African | |||
| Trudon | 48 | 44 | (9,1) |
| Swiftnet | 14 | 23 | 39,1 |
| Data Centre Operations | 14 | 4 | (250,0) |
| Corporate centre | 28 | 20 | (40,0) |
| Total | 2 123 | 1 805 | (17,6) |
for the six months ended 30 September |
|||
|---|---|---|---|
| In ZAR millions | 2012 |
2011 |
% |
| Baseline | 956 | 747 | (28,0) |
| Network evolution | 344 | 237 | (45,1) |
| Sustainment | 89 | 57 | (56,1) |
| Effectiveness and efficiency | 14 | 64 | 78,1 |
| Support | 80 | 35 | (128,6) |
| Regulatory and other | 13 | 12 | (8,3) |
| Total | 1 496 | 1 152 | (29,9) |
Fixed-line capital expenditure, which includes spending on intangible assets, increased by 29.9% to R1,496 million (2011: R1,152 million) and represents 10.1% of fixed-line revenue (September 2011: 7.5%).
Baseline capital expenditure of R956 million (September 2011: R747 million) was largely for the deployment of technologies to support the growing data services business, links to the mobile cellular operators and expenditure for access line deployment in selected high growth commercial and business areas. The increased expenditure for the period can be attributed to growth in the IP Network and Customer Specific Solutions.
Expenditure on network evolution of R344 million (September 2011: R237 million) was mainly for the pilot phase rollout of the Next Generation Network to modernise the legacy voice network and to provide high speed ADSL service in selected areas and address the associated operational and business support systems.
The sustainment category expenditure of R89 million (September 2011: R57 million) was largely for the replacement of obsolete power systems as well as the replacement and modernisation of the access and core network.
The decrease in the effectivenesss and efficiency category was mainly due to expenditure on performance management systems in the prior period not recurring.
The support capital expenditure of R80 million (September 2011: R35 million) is mainly for provision of new buildings and building extensions in support of network growth and for the compliance upgrading of existing equipment buildings, including the associated AC power and air-conditioning.
The expenditure on regulatory requirements of R13 million (September 2011: R12 million) is primarily to institute regulatory changes to customer-facing functions.