Group operating revenue decreased by 0.7% to R33,079 million (2011: R33,308 million) in the year ended 31 March 2012. The decrease is mainly due to lower fixed-line traffic and data revenue partially offset by the inclusion of mobile revenue for a full year. Data Centre Operations includes R1,322 million (2011: R1,165 million) internal revenue received from the fixed-line segment in terms of the transfer pricing policy. This revenue is eliminated on consolidation.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Fixed-line | 31,533 | 30,638 | (2.8) |
| Mobile | 81 | 1,200 | 1,381.5 |
| Other International | |||
| iWayAfrica | 413 | 368 | (10.9) |
| Other South African | |||
| Trudon | 1,167 | 1,180 | 1.1 |
| Swiftnet | 127 | 128 | 0.8 |
| Data Centre Operations | 1,240 | 1,406 | 13.4 |
| Corporate centre | 83 | 78 | (6.0) |
| Eliminations | (1,336) | (1,919) | 43.6 |
| Total | 33,308 | 33,079 | (0.7) |
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Subscriptions and connections | 6,763 | 6,900 | 2.0 |
| Traffic | 12,045 | 11,078 | (8.0) |
| Local | 2,836 | 2,409 | (15.1) |
| Long distance | 1,588 | 1,365 | (14.0) |
| Fixed-to-mobile | 5,181 | 5,121 | (1.2) |
| Fixed-to-fixed | 78 | 110 | 41.0 |
| International outgoing | 725 | 495 | (31.7) |
| Subscription based calling plans | 1,637 | 1,578 | (3.6) |
| Interconnection | 1,679 | 1,757 | 4.6 |
| Mobile domestic | 498 | 375 | (24.7) |
| Mobile international | 186 | 630 | 238.7 |
| Fixed | 328 | 262 | (20.1) |
| International | 667 | 490 | (26.5) |
| Data | 10,699 | 10,517 | (1.7) |
| Data connectivity | 5,325 | 5,365 | 0.8 |
| Leased lines facilities | 2,182 | 2,310 | 5.9 |
| Internet access and related services | 1,814 | 1,689 | (6.9) |
| Managed data network service | 1,243 | 1,101 | (11.4) |
| Multi-media services | 135 | 52 | (61.5) |
| Other | 347 | 386 | 11.2 |
| Total | 31,533 | 30,638 | (2.8) |
Operating revenue from the fixed-line segment decreased by 2.8% to R30,638 million (2011: R31,533 million) primarily due to lower traffic revenue and lower data revenue as a result of the inclusion of the revenue generated during the Soccer World Cup in the prior year, partially offset by higher international interconnection and subscriptions and connections revenue.
Subscription and connections revenue increased by 2.0% to R6,900 million (2011: R6,763 million) largely as a result of higher line and customer premises equipment rental tariffs.
Traffic revenue decreased by 8.0% mainly due to lower local and long-distance revenue as a result of the substitution by mobile and increased competition through VANS and Neotel. International outgoing revenue also shows a decreasing trend in volumes as a result of increased competition.
Interconnection revenue increased by 4.6% to R1,757 million (2011: R1,679 million) largely as a result of a significant increase in mobile international interconnection revenue as a result of a 222.4% increase in volumes. This was partially offset by a 26.5% decrease in international interconnection revenue due to a decrease in switched hubbing and international incoming volumes as well as the decrease fixed-line termination rates.
Data revenue decreased 1.7% to R 10,517 million (2011: R10,699 million) mainly due to the inclusion of the revenue generated from the Soccer World Cup in the prior year, the cancellation of mobile links by other mobile operators, lower SAIX internet access and related revenue and lower growth on VPN supreme. This was partially offset by the inclusion of R239 million revenue received from 8•ta for mobile links during the year that is eliminated on consolidation.
Other revenue increased 11.2% mainly as a result of R105 million subscriber acquisition commissions received from the mobile segment, which are eliminated on consolidation, higher revenue from expired cards and co-location, partially offset by revenue related to the 2010 Soccer World Cup.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Fixed-line | 409 | 232 | (43.3) |
| Mobile | - | 51 | - |
| Other International | |||
| iWayAfrica | 15 | 10 | (33.3) |
| Telkom Management Services | 8 | - | (100.0) |
| Telkom International | 19 | 21 | 10.5 |
| Other South African | |||
| Trudon | 41 | 40 | (2.4) |
| Swiftnet | 6 | 3 | (50.0) |
| Corporate centre | 150 | 177 | 18.0 |
| Eliminations | (108) | 45 | (141.7) |
| Total | 540 | 579 | 7.2 |
Other income includes profit on the disposal of investments, property, plant and equipment and intangible assets as well as interest received from debtors and on loans to subsidiaries. The decrease in fixed-line other income is mainly attributable to the inclusion of the profit on the sale of a portion of our right of use in the SAT-3 undersea cable in the prior year. Mobile other income relates to a donation of two base station controllers received. The corporate centre's other income increased due to the R167 million profit on sale of Multi-Links.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Employee expenses | 9,716 | 8,636 | 11.1 |
| Payments to other operators | 5,567 | 5,484 | 1.5 |
| Selling, general and administrative expenses | 5,545 | 7,193 | (29.7) |
| Service fees | 2,886 | 2,974 | (3.0) |
| Operating leases | 764 | 825 | (8.0) |
| Depreciation, amortisation, impairments and write-offs | 4,965 | 6,138 | (23.6) |
| Total | 29,443 | 31,250 | (6.1) |
Group operating expenses increased by 6.1% to R31,250 million (2011: R29,443 million) in the year ended 31 March 2012, primarily due to an increase in selling, general and administrative expenses and depreciation, amortisation, impairments and write-offs partially offset by a decrease in employee expenses.
The increase in selling, general and administrative expenses is mainly due to the inclusion of mobile expenses and higher fixed-line marketing and materials and maintenance expenses, partially offset by a decrease in fixed-line bad debts. Depreciation, amortisation, impairments and write-offs include R569 million relating to the impairment of iWayAfrica goodwill and assets. The decrease in employee expenses is due to savings resulting from voluntary severance packages offered in the prior year.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Fixed-line | 24,484 | 23,638 | 3.5 |
| Mobile | 1,230 | 3,895 | (216.7) |
| Other International | |||
| iWayAfrica | 556 | 1,024 | (84.2) |
| Telkom Management Services | 36 | - | 100.0 |
| Telkom International | 70 | 33 | 52.9 |
| Other South African | |||
| Trudon | 695 | 718 | (3.3) |
| Swiftnet | 124 | 121 | 2.4 |
| Data Centre Operations | 1,054 | 1,100 | (4.4) |
| Corporate centre | 2,584 | 2,712 | (5.0) |
| Eliminations | (1,390) | (1,991) | (43.2) |
| Total | 29,443 | 31,250 | (6.1) |
The 6.1% increase in group operating expenses was primarily driven by the inclusion of mobile expenses and the iWayAfrica goodwill and asset impairment of R569 million. This was partially offset by a decrease in employee expenses in the fixed-line segment.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Employee expense | 7,810 | 6,641 | 15.0 |
| Salaries and wages | 5,761 | 5,618 | 2.5 |
| Benefits | 1,832 | 1,520 | 17.0 |
| Workforce reduction expenses | 650 | 8 | 98.8 |
| Employee related expenses capitalised | (433) | (505) | 16.6 |
| Payments to other network operators | 5,193 | 4,839 | 6.8 |
| Mobile network operators | 3,704 | 3,218 | 13.1 |
| International network operators | 792 | 1,029 | (29.9) |
| Fixed-line network operators | 404 | 306 | 24.3 |
| Data commitments | 293 | 286 | 2.4 |
| Selling, general and administrative expenses | 3,541 | 3,834 | (8.3) |
| Materials and maintenance | 1,843 | 1,960 | (6.3) |
| Marketing | 377 | 567 | (50.4) |
| Bad debts | 361 | 245 | 32.1 |
| Other | 960 | 1,062 | (10.6) |
| Service fees | 3,158 | 3,123 | 1.1 |
| Property management | 1,336 | 1,292 | 3.3 |
| Security and other | 779 | 663 | 14.9 |
| Data centre operations intercompany transactions | 1,043 | 1,168 | (12.0) |
| Operating leases | 647 | 620 | 4.2 |
| Buildings | 164 | 162 | 1.2 |
| Equipment | 31 | 14 | 54.8 |
| Vehicles | 452 | 444 | 1.8 |
| Depreciation, amortisation, impairments and write-offs | 4,135 | 4,581 | (10.8) |
| Depreciation | 3,396 | 3,837 | (13.0) |
| Amortisation | 569 | 538 | 5.4 |
| Impairments and write-offs | 170 | 206 | (21.2) |
| Total | 24,484 | 23,638 | 3.5 |
Fixed-line expenditure decreased 3.5% in the year ended 31 March 2012, to R23,638 million (2011: R24,484 million), primarily due to lower voluntary employee severance package expenses and lower payments to mobile operators due to the reduction in mobile termination rates, partially offset by increased depreciation due to the review of the useful lives of existing network equipment as we invest to transform to a commercially led next generation network.
Employee expenses decreased by 15.0% in the year ended 31 March 2012, primarily due to voluntary employee severance package expenses of R650 million incurred in the prior year and lower headcount and bonuses, partially offset by the average annual salary increases of 5.7%.
Payments to mobile network operators decreased 13.1% largely due to the reductions in mobile termination rates. The decrease in mobile termination rates contributed to a R679 million decrease in payments to mobile operators. Payments to international network operators increased by 29.9% mainly due to higher settlement rates as a result of a change in the mix of countries dialled and higher settlement rates as a result of foreign currency movements.
Selling, general and administrative expenses increased by 8.3% primarily as a result of higher marketing expenses due to the move of fixed-line specific marketing expenses from the corporate centre to the fixed-line segment, higher materials and maintenance as a result of a drive to reduce the fault rate on the core cable network as well as higher expenditure on the repair of copper theft incidents, partially offset by lower bad debts.
Service fees decreased by 1.1% primarily due savings on security costs offset by higher intercompany services charged by Cybernest. Intercompany cost is eliminated on consolidation.
Equipment leases decreased mainly due to lower rental of security equipment. Vehicle leases decreased as a result of a 10.2% reduction in the number of vehicles from 7,606 to 6,833 partially offset by inflation and fuel increases.
Depreciation increased 13.0% due to accelerated depreciation as a result of the review of the useful lives of existing network equipment as we invest to transform to a commercially led next generation network.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Employee expenses | 140 | 195 | (39.3) |
| Payments to other operators | 161 | 449 | (178.9) |
| Selling, general and administrative expenses | 769 | 2,536 | (229.8) |
| Service fees | 87 | 397 | (356.3) |
| Operating leases | 27 | 99 | (266.7) |
| Depreciation, amortisation, impairments and write-offs | 46 | 219 | (376.1) |
| Total | 1,230 | 3,895 | (216.7) |
Mobile expenditure increased 216.7% in the year ended 31 March 2012 to R3,895 million (2011: R1,230 million), mainly due to the inclusion of expenditure for the full year. 8•ta was launched in October 2010.
Employee expense increase due to a 39.3% increase in 8•ta employees since March 2011 to 355 employees.
Payments to other operators consist mainly of interconnection payments to other operators and payments to MTN in terms of the roaming agreement. The increase is due to the significant increase in mobile outgoing traffic from the previous year.
The increase in selling, general and administrative expenses is mainly due to an increase in direct network cost, maintenance, cost of handsets sold, marketing expenses and bad debts.
Service fees relate to the intercompany charge by Cybernest for services rendered of R246 million (2011: R6 million) that is eliminated on consolidation.
Operating leases relate mostly to rental of buildings.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Employee expenses | 1,076 | 1,162 | (8.0) |
| Payments to other network operators | - | - | - |
| Selling, general and administrative expenses | 496 | 388 | 21.8 |
| Service fees | 704 | 893 | (26.8) |
| Operating leases | 11 | 20 | (81.8) |
| Depreciation, amortisation, impairments and write-offs | 297 | 249 | 16.2 |
| Total | 2,584 | 2,712 | (5.0) |
Employee expenses increased 8.0% mainly as a result of an increase in interest cost on the Telkom Retirement Fund and an increase in the post retirement medical aid liability mainly due to an increase in interest and service costs. This was partially offset by lower bonuses.
Selling, general and administrative expenses decreased 21.8% mainly as a result moving fixed-line specific marketing expenses to the fixed-line segment.
Service fees increased 26.8% mainly due to higher consulting fees, electricity, transport and legal costs.
Operating leases increased 81.8% due to an increase of the percentage office space allocated to the corporate centre personnel based on an office location compliance process completed during the year.
Depreciation, amortisation, impairments and write-offs decreased 16.2% mainly due to lower write offs on support equipment in the current year.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Fixed-line | 11,593 | 11,813 | 1.9 |
| EBITDA margin (%) | 36.8 | 38.6 | |
| Mobile | (1,103) | (2,425) | (119.9) |
| EBITDA margin (%) | (1,361.7) | (202.1) | |
| Other International | (116) | (45) | 61.2 |
| EBITDA margin (%) | (28.1) | (12.2) | |
| Other South African | (959) | (917) | 4.4 |
| EBITDA margin (%) | (36.6) | (32.8) | |
| Eliminations | (45) | 120 | 366.7 |
| Total | 9,370 | 8,546 | (8.8) |
Investment income consists of interest received on short-term investments and bank accounts. Investment income increased by 11.7% to R238 million (2011: R213 million), as a result of higher interest and dividends received by the cell captive.
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 on foreign currency denominated transactions and balances.
Finance charges and fair value movements increased by 75.3% to R1,872 million (2011: R1,068 million) in the year ended 31 March 2012. The increase was mainly as a result of foreign exchange and fair value losses of R1,107 million (2011: R170 million) due to the cumulative amount of exchange differences of R1,292 million previously recognised in equity, now recognised in profit and loss on disposal of Multi-Links, partially offset by fair value gains on forward exchange contracts and interest rate swap agreements. The interest expense decreased 14.8% to R765 million (2011: R898 million) as a result of a 14.0% decrease in the Group's interest bearing debt to R7,186 million (2011: R8,355 million).
The consolidated tax expense from continuing operations decreased to R595 million (2011: R979 million) mainly due to lower deferred tax as a result of the foreign exchange losses realised on the disposal of Multi-Links and the accelerated depreciation on network equipment and lower secondary tax on companies as a result of lower dividend paid. The consolidated effective tax rate Year ended 31 March was 76.7% (2011: 30.8%). Excluding the effects of the sale of Multi-Links and the group impairment of iWayAfrica the consolidated effective tax rate is 33.4%.
The Group's financial position remains strong. Net debt, after financial assets and liabilities, from continuing operations decreased by 19.8% to R3,933 million from R4,907 million as at 31 March 2011 resulting in a net debt to EBITDA ratio of 0.5 times at 31 March 2012 and 2011. On 31 March 2012, the Group had cash balances of R1,165 million (2011: R1,773 million).
The decrease in cash is mainly attributable to the repayment of a portion of the syndicated loan. We repaid R1.3 billion during the year.
The Group's current assets exceeded current liabilities by R497 million. The current portion of the interest bearing debt increased due to the TL12 bond of R1,060 million that matured in April 2012.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Cash generated from operations before dividends paid | 6,778 | 6,704 | (1.1) |
| Less: Cash flow from investing activities | (4,545) | (4,570) | (0.6) |
| Free cash flow | 2,233 | 2,134 | (4.4) |
The Group's free cash flow decreased 4.4% to R2,134 million from R2,233 million as at 31 March 2011. The decrease in the free cash flow is mainly as a result of the inclusion of higher mobile operating expenditure in the 2012 financial year offset by the R608 million settlement paid for the Telcordia dispute and the additional R500 million invested into the Cell Captive in the prior year.
Group capital expenditure which includes spend on intangible assets, increased 5.3% to R4,783 million (2011: R4,541 million) and represents 14.5% of group revenue (2011: 13.6%).
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Fixed-line | 2,835 | 3,151 | 11.1 |
| Mobile | 1,475 | 1,372 | (7.0) |
| Other International | |||
| iWayAfrica | 11 | 8 | (27.3) |
| Other South African | |||
| Trudon | 53 | 72 | 35.8 |
| Swiftnet | 16 | 42 | 162.5 |
| Data Centre Operations | 107 | 57 | (46.7) |
| Corporate centre | 44 | 81 | 84.1 |
| Total | 4,541 | 4,783 | 5.3 |
Fixed-line capital expenditure is discussed in detail below. The increase in corporate centre capital expenditure was mainly on operating system improvements for supplier management.
Year ended 31 March |
|||
|---|---|---|---|
In ZAR millions |
2011 |
2012 |
% |
| Baseline | 1,736 | 1,822 | 5.0 |
| Network evolution | 550 | 733 | 33.3 |
| Sustainment | 101 | 145 | 43.6 |
| Effectiveness and efficiency | 155 | 102 | (34.2) |
| Support | 265 | 304 | 14.7 |
| Regulatory and other | 28 | 45 | 60.7 |
| Total | 2,835 | 3,151 | 11.1 |
Fixed-line capital expenditure, which includes spending on intangible assets, increased by 11.1% to R3,151 million (2011: R2,835 million) and represents 10.3% of fixed-line revenue (2011: 9.0%).
Baseline capital expenditure of R1,822 million (2011: R1,736 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 lower expenditure for the period can be attributed to a more measured approach to the rollout of infrastructure to meet short-term demand and revenue generating services. The increased expenditure for the period can be attributed to the aggressive broadband marketing campaign designed to stimulate growth in the ADSL footprint.
Expenditure on network evolution of R733 million (2011: 550 million) was mainly to continue with the submarine cable projects to address international growth expected during the next decade and to provide next generation voice infrastructure on the national transport network as well as to relieve identified capacity requirements. The increase in expenditure is as a result of the investment on the commercially led next generation network, specifically on operating support systems as well as the pilot roll-out.
The sustainment category expenditure of R145 million (2011: R101 million) was largely for the replacement of obsolete batteries and direct-current power systems as well as the replacement and modernisation of the access and core network.
Telkom continues to focus on its operations support systems with current emphasis on provisioning and fulfilment, assurance and customer care and hardware technology upgrades on the enterprise networks. During the year ended 31 March 2012, R102 million (2011: R155 million) was spent on the implementation of several systems.
The support capital expenditure of R304 million (2011: R265 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 R45 million (2011: R28 million) is primarily to institute regulatory changes to customer-facing functions.
The condensed consolidated provisional annual financial statements of Telkom SA Limited, were approved by the board of directors on 7 June 2012 and signed on its behalf by Mr PL Zim(Chairman) and Mrs NT Moholi(Group Chief Executive Officer).
These condensed consolidated provisional annual financial statements were prepared by Mrs Dashni Sinivasan (Executive: Statutory Reporting) and supervised by Mr Deon Fredericks (Deputy Chief Financial Officer).
The consolidated annual financial statements, from which these condensed consolidated provisional financial statements have been derived, have been audited by the Company's auditors, Ernst & Young Inc. Their unqualified audit opinion is available for inspection at the Company's registered office.