Telkom SA Reports FY08

South African carrier reports operating revenue up 9% to R56.3B; headline earnings per share decreased by 4.4%

June 9, 2008

4 Min Read

JOHANNESBURG, South Africa -- Telkom SA Limited (JSE and NYSE: TKG), today announcedgroup annual results for the year ended March 31, 2008.


  • Operating revenue up 9.0% to R56.3 billion.

  • Group EBITDA increased by 4.2% to R20.6 billion.

  • Group EBITDA margin decreased from 38.3% to 36.6%.

  • Operating profit increased by 0.1% to R14.5 billion.

  • Net debt to equity increased to 49.9% from 31.3% at March 31, 2007.

  • Cash generated from operations increased by 3.6% to R21.3 billion.

  • Headline earnings per share decreased by 4.4% to 1,634.8 cents per share.

  • Ordinary dividend increased by 10.0% to 660 cents per share payable on July 7, 2008.

Statement by Reuben September, Chief Executive Officer:“As such competition is intensifying, price pressures are a business and regulatory reality and inflation is rising.Growth was impacted with the Group delivering 9.0% growth in revenue, the fixed-line business delivering0.7% growth in revenue to R32.6 billion and the mobile business impressing with 17.1% revenue growth toR48.2 billion of which 50% is consolidated. The drop in Group EBITDA margin from 38.3% to 36.6% is mainlyattributable to flat revenue in the fixed-line business. Attributable net profit declined by 7.7% to R8.0 billionlargely as a result of the fixed-line’s decreasing operating profit margin and increased finance charges. TheGroup reported a 4.4% decrease in headline earnings per share to 1,634.8 cents and declared an ordinarydividend of 660 cents per share, an increase of 10.0% from the ordinary dividend of 600 cents per sharein the 2007 financial year, a continuation of our commitment to progressively grow the ordinary dividend.

Unlike in the past no special dividend was declared due to an increased investment in our expansion programmeand pressure on the fixed-line’s EBITDA margin. In the next few years, in line with our strategy, Telkom willbe aggressively funding the expansion of our African subsidiaries and our network in South Africa.

Both the fixed-line and mobile segments are operating in changing and challenging business environments.As mobile voice growth slows, the mobile segment is aggressively expanding into data and particularlycorporate data. The fixed-line is challenged with increased competition and pricing pressures in its traditional highmargin, predominantly retail markets. The above business developments, amongst others, are evident in thedrop in fixed-line domestic local and long distance voice revenue from R7.6 billion at March 31, 2007 toR6.3 billion at March 31, 2008. The growth in demand is in the lower margin, wholesale and data markets.This necessitates increased investments in the provisioning of backbone networks and support systems.

The fixed-line segment is gearing up to deliver the full suite of converged services to a far greater extent inSouth Africa and Africa. Given its ubiquity and network management capabilities, we believe the fixed-linesegment is well positioned to deliver data and value-added data managed services at speeds and quality levelssuperior to its competitors. As we continue to deploy the Next Generation Network, this competitive advantagewill be enhanced.

The execution of our strategic initiatives is gaining momentum. We have completed the preparation for buildingout the fixed wireless and mobile data networks. As announced, we intend to roll-out networks in selected areasand to seek a suitable partner for roaming of our mobile services. Telkom has well entrenched relationshipswith corporate customers and as the provider of mobile backbone network in South Africa, is ideally positionedto offer a full bouquet of solutions to its customers. The shareholders agreement with Vodafone has preventedTelkom from entering into the mobile voice market. The discussion with Vodafone Plc regarding the sale of our50% stake in Vodacom, as announced, is intended to remove this impediment. We are determined to putourselves in a position where we can forcefully drive the creation of value for our shareholders.

We are also moving into gaining data hosting abilities to bolster our ability to deliver the full bundle of dataservices to our customers.

We have taken the decision to aggressively work on our cost profile and are now beginning the process ofconsolidating our service provider profile in order to reap the benefits of scale and are working towards outsourcingnon-core services with the intent of reducing operational expenditure.

The building of the fixed wireless networkand mobile data network in selected areas should reduce our access costs and improve customer service onADSL in particular. Losses due to cable theft are increasing and it is no longer economical to replace copperwith copper. We are implementing wireless. A wireless data network will allow us to provide 3G services whileADSL is being installed. This should be hugely beneficial to our customer service.

Telkom has a challenging but exciting few years ahead of us. A compelling differentiation strategy is in placethat we believe will deliver substantial value to all stakeholders as it is progressively executed, setting thescene for both organic and acquisitive growth. We are committed to build the Telkom Group in the years tocome towards being an African based, globally competitive, formidable force within the ICT industry and arelooking forward to reaping the benefits in the future.

Telkom SA Ltd. (NYSE/Johannesburg: TKG)

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