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12 June 2014

Telkom’s turnaround begins to produce results

Key financial highlights:
  • Operating Revenue increased 1.1% to R32.5 billion
  • Operating expenses, excluding depreciation, decreased 2.1% to R18.2 billion
  • Group EBITDA increased 3.8% to R8.4bn
  • Headline earnings per share, excluding the once-off items increased 35.1% to 388.0 cents
  • Net debt to EBITDA remains at 0.3x
  • Return on Invested Capital increased from 4.6% to 6.5%
Telkom SA SOC Limited today published its annual results for the year ended 31 March 2014, recording a profit after tax from continuing operations of R1.577 billion, excluding the net curtailment gain in respect of the post-retirement medical aid liability and related tax benefit, which is a 5.6% increase from the prior period. Group EBITDA also improved 3.8% to R8.4 billion (2013: R8.1 billion).
Headline earnings per share from continuing operations, excluding once-off items, increased 35.1% to 388 cents from the previous year, while basic earnings per share increased to 285.2 cents from 268.5 cents.
“Our efforts to turn Telkom around are starting to produce results. This process will continue to be our focus,” said Sipho Maseko, Group Chief Executive Officer at Telkom.
“We have managed to stabilise revenues through significant once-off items, which were carefully considered and form part of our strategic imperative to turn around the business and generate sustainable revenues.”
In line with our guidance to stabilise revenues, we have achieved revenue growth of 1.1% for the year, confirming that we still face significant challenges largely as a result of the continued pressure on voice revenue, resulting from fixed-to-mobile substitution.  We recorded promising growth of 80.2% in mobile data revenue and 69.3% in IT Business Services revenue.
Operating costs decreased 2.1%, which was achieved through lowering employee costs and lower bad debts, through improved credit vetting processes, and efficiencies gained on various cost management initiatives, including a reduction in marketing expenditure and lower inventory write offs.
Free cash flow remained strong at R1.2 billion, after capital investment of R6.5 billion, which increased 12.0%. This was due to a substantial investment in the upgrade of the Group’s network. The Group remains lowly geared, with net debt decreasing 0.8% to R2.1 billion, which will ensure Telkom remains in a solid position to fund its capital expenditure programme.
“Our objective to further stabilise and grow revenue depends on effectively positioning our resources to drive value and achieving efficiencies across our operating cost base. This will require us to focus our capital expenditure on areas that generate satisfactory returns for our shareholders, and avoid unprofitable operations,” added Maseko.
The Group aims to successfully conclude the proposed MTN South Africa and Business Connexion transactions within the current financial year, enabling it to offer fully converged solutions to customers.
Telkom’s turnaround depends largely on improving customer service. While Telkom has managed to improve its ratings in various customer surveys, decisions must be guided by customers’ needs to successfully evolve the business further.
Going forward, Telkom expects to see continued pressure on fixed-line voice revenues, intensified by strong competition, a challenging macro-economic environment and effects of regulatory changes.
Editor’s note:
The Group’s results are impacted by the following significant once-off items:
  • A R2,169 million net curtailment gain recognized on the post-retirement medical aid liability and R246 million related tax benefit on the R878 million settlement of the post-retirement medical aid liability;
  • R12 billion asset impairment included in the 2013 financial year;
  • R434 million cost relating to voluntary severance and early retirement in 2013; and
  • R592 million provision for the Competition Commission fine included in 2013.
The comparative information for March 2013 has been restated as a result of the adoption of IAS 19R, the amendment to IAS 16, the reclassification of  iWayAfrica as a discontinued operation and to account for the change in accounting policy regarding the  Cell captive.
In addition the following items have been reclassified:
  • Direct cost of R373 million and cost of sales of R1,176 million have been reclassified from selling, general and administrative expenses to direct cost and cost of sales, respectively.
  • Sundry revenue of R128 million have been reclassified from selling, general and administrative expenses to other income.
  • Motor insurance scheme expenses of R84 million, previously included in service fees, have been reclassified to employee expenses

For further enquiries, please contact:

Pynee Chetty

Senior Specialist: Media Relations

Group Communication

Tel:+27 12 642 1716

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Leigh-Ann Francis

Specialist: Media Relations

Group Communication

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Mobile: +27 81 391 4780


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Telkom is a leading communications services provider in South Africa. We had consolidated operating revenue of R16.8 billion and normalised profit after tax of R1, 683 million for the period ended 30 September 2015. Total assets amounted to R41.9 billion and equity attributable to the owners of Telkom to R23.5 billion as of 30 September 2015. The group generated normalised free cash flow of R1.4 billion for the period ended 30 September 2015.

As of 30 September 2015, we had approximately 3.3 million telephone access lines in service and 1,030,441 ports connected via MSAN access. We offer business, residential and payphone customers a wide range of services and products, including:

  • fixed-line retail voice services 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 calling plans;
  • fixed-line customer premises equipment rental and sales services both voice and data needs and these include PABX, Computers, Routers, Modems, Telephone handsets and other ancillary equipment;
  • 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 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;
  • Data Centre Operations includes e-commerce, application service 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;
  • mobile communication services, including voice services, data services and handset sales through our mobile navbar-brand called Telkom Mobile;
  •  information and communication services including cloud services, infrastructure services, workspace services, global service integration management and hardware and network equipment sales locally, in seven African countries, the UK and Dubai through Business Connexion Group; and
  • other services including directory services, through Trudon (Pty) Ltd, wireless data services, through Swiftnet (Pty) Ltd.

Convergence is one of our key strategic initiatives in building a sustainable future for Telkom.  We will lead the provision of converged services in South Africa in support of our mission statement: Seamlessly connecting people to a better life.