In ZAR millions |
2014 |
2013 |
% |
|---|---|---|---|
| Voice and subscriptions | 7 847 | 8 185 | (4,1) |
| Fixed-line usage | 3 584 | 4 071 | (12,0) |
| Fixed-line subscriptions | 3 915 | 3 889 | 0,7 |
| Mobile voice and subscriptions | 348 | 225 | 54,7 |
| Interconnection | 728 | 739 | (1,5) |
| Fixed-line domestic | 225 | 236 | (4,7) |
| Fixed-line international | 443 | 470 | (5,7) |
| Mobile interconnection | 60 | 33 | 81,8 |
| Data | 5 448 | 5 419 | 0,5 |
| Data connectivity1 | 2 744 | 2 757 | (0,5) |
| Leased line facilities | 741 | 941 | (21,3) |
| Internet access and related services | 884 | 846 | 4,5 |
| Managed data network services | 507 | 444 | 14,2 |
| Multi-media services | 23 | 25 | (8,0) |
| Mobile data | 422 | 303 | 39,3 |
| IT Business services | 127 | 103 | 23,3 |
| Customer premises equipment sales and rentals | 1 140 | 864 | 31,9 |
| Sales | 112 | 135 | (17,0) |
| Rentals | 423 | 364 | 16,2 |
| Mobile handset and equipment sales | 605 | 365 | 65,8 |
| Other | 174 | 172 | 1,2 |
| Trudon | 528 | 562 | (6,1) |
| Swiftnet | 46 | 48 | (4,2) |
| Total | 15 911 | 15 989 | (0,5) |
| Reclassification of comparative information | |||
| (1) Income relating to the undersea cables activities that are not in the ordinary course of business of R34 million has been reclassified from data connectivity revenue to other income. | |||
Group operating revenue decreased 0.5% to R15 911 million (September 2013: R15 989 million), driven by the continuous decline in fixed-line voice revenue and lower data leased line revenue resulting from self-provisioning by other licensed operators, partly offset by higher mobile revenue.
Fixed-line voice usage revenue continued its downward trend, decreasing 12.0% to R3 584 million (September 2013: R4 071 million). This can be attributed to a 6.1% decline in voice minutes, resulting from fixed-to-mobile substitution and a 4.9% decline in the number of lines. The decrease was predominantly in residential lines, but business lines also decreased due to the consolidation of business activities and cost-saving initiatives.
Fixed-line subscriptions revenue grew 0.7% to R3 915 million (September 2013: R3 889 million) as a result of average line rental tariff increases of around 6%.
Mobile voice and subscriber revenue increased 54.7% to R348 million (September 2013: R225 million). This can be attributed to a 26.7% increase in the number of active mobile subscribers and a 22.4% increase in blended ARPU.
Fixed-line domestic interconnection revenue decreased 4.7% to R225 million (September 2013: R236 million), primarily driven by lower mobile-to-fixed volumes.
The 5.7% decrease in fixed-line international interconnection revenue to R443 million (September 2013: R470 million) was driven by lower switched hubbing revenue as traffic volumes to certain African countries reduced.
Revenue from data connectivity services decreased 0.5% to R2 744 million (September 2013: R2 757 million), caused by a decline in Diginet and IPLC revenue, due to increased competition and migration to Metro Ethernet services. This was partially offset by an increase in Metro Ethernet services and ADSL revenue. ADSL revenue increased as a result of a 7.4% increase in ADSL subscribers to 965 046 (September 2013: 898 203).
With continued self-provisioning by other licensed operators, revenue from leased line facilities remained under pressure and declined 21.3% to R741 million (September 2013: R941 million).
Higher growth of 9.1% on Internet subscribers was supported by a 4.5% increase in Internet access and related services revenue.
Managed data network services revenue increased 14.2% to R507 million (September 2013: R444 million) due to an increase of 5.3% in the number of sites to 47 830 (September 2013: 45 441).
In line with our strategy to focus on data, we offered attractive data deals and promotional products which led to an increase in data subscribers, and a 39.3% increase in mobile data revenue to R422 million (September 2013: R303 million).
We won some key strategic deals in the IT market, which boosted our IT Business services data revenue by 23.3% to R127 million (September 2013: R103 million).
The strategic decision that was made to discontinue sales of PC and gaming equipment saw a 17.0% decline in customer premises equipment sales to R112 million (September 2013: R135 million). Despite this, our rentals increased 16.2% to R423 million (September 2013: R364 million) due to increased uptake in next generation equipment rentals and higher tariffs.
Mobile handset and equipment sales revenue increased 65.8%, driven by higher bulk sales to dealers and a sharp increase in smartphone and tablet sales.
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Telkom1 | 254 | 214 | 18.7 |
| Trudon | 17 | 14 | 21.4 |
| Swiftnet | 1 | 1 | - |
| Total | 272 | 229 | 18.8 |
| Reclassification of comparative information | |||
| (1) Income relating to undersea cables activities that are not in the ordinary course of business of R34 million has been reclassified from operating revenue to other income and sundry income of R49 million previously included in selling, general and administrative expenses was reclassified as other income. | |||
Other income includes profit on the disposal of investments, property, plant and equipment as well as interest received from debtors and sundry income.
Other income increased 18.8% to R272 million (September 2013: R229 million) mainly as a result of higher profit on sale of properties.
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Payments to other operators | 1 446 | 1 928 | 25.0 |
| Direct cost | 261 | 257 | (1.6) |
| Cost of sales | 905 | 717 | (26.2) |
| Total | 2 612 | 2 902 | 10.0 |
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Payments to other operators | 1 435 | 1 913 | 25.0 |
| Mobile network operators | 675 | 1 120 | 39.7 |
| International network operators | 429 | 456 | 5.9 |
| Fixed-line network operators | 179 | 181 | 1.1 |
| Data commitments | 152 | 156 | 2.6 |
| Direct cost | 261 | 258 | (1.2) |
| Cost of sales | 728 | 541 | (34.6) |
| Total | 2 424 | 2 712 | 10.6 |
Payments to mobile operators decreased 39.7% as a result of a reduction in mobile termination rates. The 34.6% increase in cost of sales is largely attributed to the increase in the cost of mobile device sales.
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Employee expenses1 | 4 727 | 4 987 | 5.2 |
| Selling, general and administrative expenses2 | 2 341 | 2 391 | 2.1 |
| Service fees1 | 1 596 | 1 513 | (5.5) |
| Operating leases | 504 | 498 | (1.2) |
| Operating expenses excluding depreciation, amortisation, impairments and write-offs | 9 168 | 9 389 | 2.4 |
| Depreciation, amortisation, impairments and write-offs | 2 489 | 3 091 | 19.5 |
| Total | 11 657 | 12 480 | 6.6 |
| Reclassification of comparative information | |||
| (1) Motor insurance scheme expenses of R37 million, previously included in service fees have been reclassified as employee expenses. | |||
| (2) Sundry income of R49 million previously included in other expenses has been reclassified as other income. | |||
Group operating expenses decreased by 6.6% to R11 657 million (September 2013: R12 480 million) in the six months ended 30 September 2014, primarily due to lower asset impairments and accelerated depreciation on new connections installed to customer premises included in the prior period as well as lower employee expenses as a result of the curtailment of the post-retirement medical aid liability in the prior period.
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Telkom | 11 440 | 12 278 | 6.8 |
| Trudon | 168 | 155 | (8.4) |
| Swiftnet | 49 | 47 | (4.3) |
| Total | 11 657 | 12 480 | 6.6 |
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Employee expense1 | 4 575 | 4 849 | 5.7 |
| Salaries and wages | 3 674 | 3 649 | (0.7) |
| Benefits1 | 1 117 | 1 350 | 17.3 |
| Workforce reduction expenses | – | 64 | 100.0 |
| Employee related expenses capitalised | (216) | (214) | (0.9) |
| Selling, general and administrative expenses2 | 2 337 | 2 390 | 2.2 |
| Materials and maintenance | 1 555 | 1 554 | (0.1) |
| Marketing | 322 | 453 | 28.9 |
| Bad debts | 103 | 41 | (151.2) |
| Other2 | 357 | 342 | (4.4) |
| Service fees1 | 1 591 | 1 505 | (5.7) |
| Property management | 942 | 836 | (12.7) |
| Consultants, security and other3 | 649 | 669 | 3.0 |
| Operating leases | 479 | 475 | (0.8) |
| Buildings | 229 | 205 | (11.7) |
| Equipment | 19 | 19 | - |
| Vehicles | 231 | 251 | 8.0 |
| Depreciation, amortisation, impairments and write-offs | 2 458 | 3 059 | 19.7 |
| Depreciation | 2 092 | 2 294 | 8.8 |
| Amortisation | 323 | 316 | (2.2) |
| Impairment and write-offs | 43 | 449 | 90.4 |
| Total | 11 440 | 12 278 | 6.8 |
| Reclassification of comparative information | |||
| (1) Motor insurance scheme expenses of R37 million, previously included in service fees have been reclassified as employee expenses. | |||
| (2) Sundry income of R49 million previously included in other expenses has been reclassified as other income. | |||
| (3) R3 million relating to Cell Captive has been reclassified as foreign exchange and fair value movements as Cell Captive is no longer consolidated. | |||
Employee expenses were 5.7% lower due a R199 million reduction in service and interest cost as a result of the lower post retirement medical aid liability, a 2.7% reduction in full-time employee headcount and lower part-time staff headcount. This was negated by a 6.2% average salary increase for bargaining unit employees and a 6.0% average salary increase for management employees.
Selling, general and administrative expenses decreased 2.2% to R2 337 million (September 2013: R2 390 million), as a result of lower marketing expenses offset by increased bad debts as we made provision based on the adverse economic conditions affecting payment patterns.
Space optimisation projects and higher electricity tariffs led to a 12.7% increase in property management expenses. Consultants, security and other service fees decreased 3.0%, driven by lower consulting costs incurred relating to the Company’s transformation programme and lower security cost as a result of cost-saving initiatives.
Building leases increased 11.7% as a result of an increase in the number of mobile sites acquired. The 8.0% decrease in vehicle leases was mainly attributed to a 5.4% decrease in number of vehicles to 5 959 (September 2013: 6 298).
Depreciation decreased 8.8% to R2 092 million (September 2013: R2 294 million) due to accelerated depreciation on new connections installed to customer premises included in the prior period. Impairments and write-offs declined 90.4% to R43 million (September 2013: R449 million). This decline is largely attributable to the impairment of certain legacy and technologically aged items in the prior period.
Telkom Mobile, details of operating expenditure are provided below.
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Payments to other operators | 224 | 230 | 2.6 |
| Direct cost | 211 | 215 | 1.9 |
| Cost of sales | 542 | 331 | (63.8) |
| Employee expenses | 192 | 182 | (5.5) |
| Selling, general and administrative expenses | 471 | 572 | 17.7 |
| Service fees | 55 | 70 | 21.4 |
| Operating leases | 128 | 107 | (19.6) |
| Depreciation, amortisation, impairments and write-offs | 308 | 248 | (24.2) |
| Total | 2 131 | 1 955 | (9.0) |
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Telkom | 4 185 | 3 662 | 14.3 |
| EBITDA margin (%) | 27.3 | 23.8 | 3.5 |
| Trudon | 221 | 266 | (16.9) |
| EBITDA margin (%) | 41.9 | 47.3 | (5.4) |
| Swiftnet | (3) | (1) | 200.0 |
| EBITDA margin (%) | (6.5) | (2.1) | (4.4) |
| Total | 4 403 | 3 927 | 12.1 |
Investment income consists of interest received on short-term investments and bank accounts. Investment income increased by 13.4% to R127 million (September 2013: R112 million) as a result of higher cash balances held by the Group.
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 the Cell Captive as well as foreign exchange gains and losses on foreign currency denominated transactions and balances.
Foreign exchange and fair value gains decreased 81.2% to R59 million (September 2013: R314 million). This decrease was caused by lower fair value gains on derivatives due to the implementation of hedge accounting effective 1 October 2013, which results in certain foreign exchange gains and losses not being recognised in earnings in the current period. Lower fair value gains realised on the underlying assets held by the Cell Captive also contributed to the decrease. The interest expense increased 6.3% to R286 million (September 2013: R269 million) as a result of a 22.3% increase in interestbearing debt from 31 March 2014.
The Group’s capital structure remains strong. Net debt, including financial assets and liabilities, decreased 74.1% to R545 million from R2 108 million as at 31 March 2014, resulting in a net debt to EBITDA ratio of 0.1 times. On 30 September 2014, the Group had cash balances, including other financial assets and liabilities, of R4 409 million (31 March 2014: R1 930 million). The higher cash balances emanate from a measured approach to capital investment with a focus on returns as well as cash received from a R1 billion loan secured to extend our debt maturity profile.
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Cash generated from operations before dividends paid as reported | 3 469 | 3 166 | 9.6 |
| Cash paid for capital expenditure | (1 770) | (3 133) | 43.5 |
| Free cash flow | 1 699 | 33 | 5 048.5 |
Free cash flow increased significantly to R1 699 million (September 2013: R33 million) as a result of a 43.5% decrease in cash paid for capital expenditure.
Our capital expenditure programme is aligned to our strategy to build our Next Generation Network and grow mobile and converged service offerings.
Group capital expenditure, which includes spend on intangible assets, decreased 42.8% to R1 815 million (September 2013: R3 171 million) and represents 11.4% of Group operating revenue (September 2013: 19.8%).
In ZAR millions |
September 2014 |
September 2013 |
% |
|---|---|---|---|
| Baseline | 864 | 1 083 | 20.2 |
| Network evolution | 576 | 1 014 | 43.2 |
| Mobile | 164 | 815 | 79.9 |
| Sustenance | 76 | 60 | (26.7) |
| Effectiveness and efficiency | 48 | 58 | 17.2 |
| Support | 39 | 91 | 57.1 |
| Other | 3 | 2 | (50.0) |
| Trudon | 39 | 35 | (11.4) |
| Swiftnet | 6 | 13 | 53.8 |
| Total | 1 815 | 3 171 | 42.8 |
Baseline capital expenditure of R864 million (September 2013: R1 083 million) consists largely of the deployment of technologies to support the growing data services business, links to the mobile cellular operators and access line deployment in selected highgrowth commercial and business areas. The reduction in expenditure for the period is due to the provision of ADSL and Metro Ethernet services under the Next Generation Network programme included in the network evolution category.
Network evolution expenditure of R576 million (September 2013: R1 014 million) is related to the continued roll-out of the Next Generation Network programme which aims to modernise the legacy voice network, provide high-speed broadband in selected areas and to address the associated operational and business support systems. The lower expenditure in this six-month period is largely due to a more rigorous focus on project selection, in accordance with the Company’s focus on efficient execution of its strategy. Our roll out was also impacted by the availability of material as a result of the strikes in the manufacturing sector and the timely availability of way leaves.
Mobile capital expenditure decreased 79.9% to R164 million (September 2013: R815 million), due to the shift to a more concentrated rollout in major metropolitan areas. The current focus on the radio access network (RAN) is to complete existing projects and to provide capacity to relieve congestion in identified growth areas.
The sustenance category expenditure of R76 million (September 2013: R60 million) was largely linked to the replacement of obsolete power systems as well as the replacement and modernisation of the access and core network.
The decrease in the effectiveness and efficiency category to R48 million (September 2013: R58 million) was as a result of lower expenditure for the movement of staff from leased buildings to owned buildings.
The support capital expenditure of R39 million (September 2013: R91 million) is primarily related to the provision of new buildings and building extensions in support of network growth, building compliance upgrades and the purchase of test equipment for technical staff. This category decreased 57.1%, mainly due to a reduction in expenditure for the rebranding of Telkom stores.