Fixed-line subscriptions revenue grew 1.1% to R3,889 million (30 September 2012: R3,847 million) as a result of line rental tariff adjustments ( 5.8% increase in post-paid residential and a 6% increase in business line rental tariffs effective 1 August 2012 and 1 August 2013).

Although revenue from our mobile operations increased by 55.4%, mobile voice and subscriber revenue decreased 20.2% and interconnection revenue decreased 10.8%. This is driven by both the decline in the number of post-paid subscribers and lower post-paid ARPU. The decline in our post-paid subscribers is attributable to the expiration of a large number of hybrid contracts as well as the continuation of the debtors clean-up to ensure a better quality customer base. These hybrid contracts were generating low ARPUs and the current base is providing a more sustainable growth base than the prior year. Fixed-line domestic interconnection revenue decreased 17.5% to R236 million (30 September 2012: R286 million) primarily due to the 20.9% average decrease in fixed termination rates.

Fixed-line international interconnection revenue decreased by 14.7% to R470 million (30 September 2012: R551 million) largely as a result of the loss of traffic as competitors provide their own routes.

Data connectivity increased 1.1% to R2,791 million (30 September 2012: R2,761 million) as a 6.7% increase in the number of ADSL subscribers to 898,203 (30 September 2012: 841,831)was offset by lower revenue from Diginet, Megalines, ATM and LanConnect.

Revenue from mobile leased line facilities remained under pressure and declined 4.8% to R941 million (30 September 2012: R988 million) as self-provisioning by other operators continues.

Internet access revenue increased 6.0% contributed by higher IP Connect revenue.

Managed data network services revenue decreased 4.3% to R444 million (30 September 2012: R464 million) as a credit note of approximately R30 million was issued following the renegotiation of a contract. In terms of the renegotiated contract the revenue will only be recognised in the second half of the 2014 financial year. The migration of customers to lower cost solutions also contributed to the decrease and was partially offset by a 12.8% increase in the number of sites to 45,441 (30 September 2012: 40,284).

Mobile data revenue increased 50.0% to R303 million (30 September 2012: R202 million) from growth in the number of data subscribers, data deals and promotional products launched during the period in line with our strategy to focus on data.

IT Business services data revenue increased 110.2% to R103 million (30 September 2012: R49 million) as we experienced good traction in the IT market with key strategic wins.

Although our customer premises equipment sales decreased 13.5% to R135 million (30 September 2012: R156 million) due to a strategic decision to discontinue the sale of PC and gaming equipment, our rentals increased 4.9% to R364 million (30 September 2012: R347 million) from growth in new generation equipment rentals and higher tariffs.

Mobile handset and equipment sales revenue increased 386.7% driven by higher bulk sales to dealers as well as the sharp increase from Smartphone and Tablet sales.

Other revenue increased 290.9% to R172 million (30 September 2012: R44 million) as we recognised higher revenue from expired cards and higher co-location revenue generated from an increase in the number of sites.

Higher rental received from commercial buildings was the main contributor to in the increase in other income.

The 2.9% decrease in direct expenses driven by the decrease in mobile termination rates was partially offset by higher mobile acquisition costs, higher cost of customer premises equipment and mobile handsets sold.

Payment to other operators decreased by 18.0% resulting from a reduction in mobile termination rates, lower international settlement rates and volumes, and higher fixed line volumes, offset by lower fixed-line termination rates.

Direct cost increased 62.3% following an increase in mobile sales acquisition cost relating to a 6.9% increase in active mobile subscribers.

The increase in cost of sales is mainly as a result of the increase in the cost of mobile handsets sold.

Group operating expenses increased by 2.4% to R12,496 million (30 September 2012: R12,209 million) in the six months ended 30 September 2013, primarily due to the 6.8% average salary increase for bargaining unit employees and a 3.6% average salary increase for management employees as well as the impairment of legacy and technologically aged spare parts that was reclassified from inventory to property, plant and equipment in terms of an amendment to IFRS..

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.

Employee expenses were 4.0% higher driven by a 6.8% average salary increase for bargaining unit employees and a 3.6% average salary increase for management employees, partially offset by a 9.0% decrease in headcount achieved through the voluntary severance packages and voluntary early retirement packages offered.

Selling, general and administrative expenses reduced by 6.9% to R2,340 million (30 September 2012: R2,513 million), contributed by lower inventory write-offs and bad debts which reduced by 80.6% as lower international bad debts were written off and mobile credit vetting systems were improved. We did however experience an increase in marketing expenses of 20.8% as mobile marketing campaigns increased.

Space optimisation projects, repairs and renovation of mobile buildings and masts, resulted in a 4.9% increase in property management expenses. Consultants, security and other service fees increased 6.9% driven by higher consulting cost incurred relating to the Company transformation process.

Operating leases increased 14.5% as we increased in the number of mobile sites acquired and higher building leases.

Depreciation decreased 6.8% to R2,294 million (30 September 2012: R2,461 million). The decrease relates to the R12 billion impairment of the asset base in March 2013. This was partially offset by accelerated depreciation as we reviewed the useful lives of new connections installed to customer premises.

Impairment and write-offs increased significantly. With effect from 1 April 2013, Telkom adopted an amendment to IAS 16, property plant and equipment (PPE) which clarifies that spare parts previously included in inventory be classified as PPE if they meet the definition of PPE. Consequently, certain legacy and technologically aged items were reclassified to PPE from inventory. As the carrying amount of these items exceeded the recoverable amount thereof, IFRS required an impairment to be recognised regarding these assets.

Details of operating expenditure related to our mobile business that is included in Telkom's operating expenditure are provided below for additional information to monitor Telkom Mobile as a start-up business.

Investment Income

Investment income consists of interest received on short-term investments and bank accounts. Investment income decreased by 17.4% to R123 million (30 September 2012: R149 million) as a result of lower cash balances.

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.

Foreign exchange and fair value gains increased significantly to R279 million (30 September 2012: R60 million). The increase emanated from higher fair value gains on derivatives caused by the weakening of the Rand and a higher fair value of the investment in Cell Captive preference shares. The interest expense decreased by 21.3% to R269 million (30 September 2012: R342 million) driven by lower interest rates and a 34.9% decrease in interest bearing debt from 31 March 2013.

Taxation

The consolidated tax expense decreased to R202 million (30 September 2012: R301 million) resulting from lower taxable profit in the six months ended 30 September 2013 as the deferred tax on the net curtailment gain was not recognised and the Competition Commission fine provided in the prior period was not tax deductible.

The consolidated effective tax rate for the six months ended 30 September 2013, excluding the net curtailment gain was 20.7%. The consolidated effective tax rate, excluding the non-deductible Competition Commission fine for the six months ended 30 September 2012 was 35.5%. The higher effective tax rate for the six months ended 30 September 2012 was as a result of the non-deductible impairment of the loan to Multi-Links and the loan and investment in iWayAfrica. Although the impairments are eliminated on consolidation, it has an impact on the Company's taxation expense.

Consolidated Statement of Financial Position

The Group's capital structure remains strong. Net debt, after financial assets and liabilities, decreased by 4.6% to R2,029 million from R2,122 million as at 31 March 2013, resulting in a net debt to EBITDA ratio of 0.3 times excluding the net curtailment gain at 30 September 2013. On 30 September 2013, the Group had cash balances, including other financial assets and liabilities, of R2,229 million (31 March 2012: R4,464 million).

Current liabilities decreased in the six months ended 30 September 2013 as we settled the R2.0 billion syndicated loan payable in December 2013.

Free cash flow decreased 97.8% to R33 million (30 September 2012: R1,510 million) resulting from a 50.3% increase in additions to property plant and equipment and a 11.9% decrease in cash generated from operations. Cash generated from operations decreased due to the payment of severance packages, higher creditor payments resulting from the weakening of the Rand against major currencies and payment of part of the Competition Tribunal fine in the six months ended 30 September 2013.

Group Capital Expenditure

Our capital expenditure remains directed at our strategic intent of building our Next Generation Network and growing our mobile and converged service offerings.

Group capital expenditure, which includes spend on intangible assets, increased by 49.5% to R3,173 million (30 September 2012: R2,123 million) and represents 19.6% of Group operating revenue (30 September 2012: 13.1%).

Baseline capital expenditure of R1,083 million (30 September 2012: R968 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, Customer Specific Solutions and the core transport network.

Expenditure on network evolution of R1,014 million (30 September 2012: R344 million) was mainly for the continued rollout of the Next Generation Network programme to modernise the legacy voice network, to provide high speed ADSL service in selected areas and to address the associated operational and business support systems. Expenditure has increased as the programme progresses beyond the initial phase.

Mobile capital expenditure increased 56.4% as we continue to invest in our mobile and LTE network. This is as a result of the first half of the prior year being a repositioning period.

The sustainment category expenditure of R60 million (30 September 2012: R89 million) was largely for the replacement of obsolete power systems as well as the replacement and modernisation of the access and core network.

The increase in the effectiveness and efficiency category to R58 million (30 September 2012: R23 million) was as a result of the movement of staff from leased buildings to owned buildings and of the upgrade of the IT service desk.

The support capital expenditure of R91 million (30 September 2012: R99 million) is mainly for the rebranding of Telkom stores, for the provision of new buildings and building extensions in support of network growth and compliance upgrades.