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| Chief Financial
Officer's review |
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| Group operating revenue |
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| Group operating revenue increased 8.4% to R51,619 million (2006:
R47,625 million) in the year ended March 31, 2007. Fixed-line operating
revenue, after inter-segmental eliminations, increased 1.6% to R32,540 million
primarily due to good growth in data services and increased subscription
revenue. Mobile operating revenue, after inter-segmental eliminations,
increased 22.4% to R19,079 million primarily due to significant customer
growth, offset in part by declining ARPUs. |
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| Group operating expenses |
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| Group operating expenses increased 12.3% to
R37,533 million (2006: R33,428 million) in the year
ended March 31, 2007, primarily due to a 21.0%
increase in operating expenses in the mobile segment to
R14,430 million (after inter-segmental eliminations) and an
increase in fixed-line operating expenditure by 7.5% to
R23,104 million (after inter-segmental eliminations) due to
increased employee expenses, selling general and
administrative expenses, payments to other operators,
services rendered and operating leases, partially offset by a
decrease in depreciation, amortisation, impairment and
write-offs. The increase in mobile operating expenses of
21.0%, (after inter-segmental eliminations), was primarily
due to increased gross connections resulting in increased
cost to connect customers to the network. Mobile payments
to other operators also increased as a result of the increased
outgoing traffic and the higher volume growth of more
expensive outgoing traffic terminating on other mobile
networks when compared to traffic terminating on the lower
cost fixed-line network. |
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| Investment income |
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| Investment income consists of interest received on shortterm
investments and bank accounts. Investment income
decreased 40.8% to R235 million (2006: R397 million),
largely as a result of lower interest received due to less
cash available for short-term investments and increased
taxation payments. |
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| Finance charges |
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| 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. Finance
charges decreased 8.0% to R1,125 million (2006:
R1,223 million) in the year ended March 31, 2007, due to
a 1.4% decrease in interest expense to R1,327 million
(2006: R1,346 million) as a result of the redemption of local
and foreign loans. In addition to the decrease in the interest
expense, net fair value and exchange gains on financial
instruments of R202 million (2006: R123 million) arose
primarily as a result of currency movements. |
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| Taxation |
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| Group tax expense increased 4.6% to R4,731 million
(2006: R4,523 million) in the year ended March 31, 2007.
The Group effective tax rate for the year ended March 31,
2007, was 34.8% (2006: 32.7%). Telkom Company's
effective tax rate was 24.3% (2006: 25.0%). The lower
effective tax rate for Telkom Company in the year ended
March 31, 2007, was primarily due to higher exempt
income resulting mainly from dividends received from
Group companies. Vodacom's effective tax rate decreased
marginally to 36.9% (2006: 37.5%). |
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| Profit for the year and earnings per share |
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| Profit for the year attributable to the equity holders of
the Group decreased 5.9% to R8,646 million (2006:
R9,189 million) for the year ended March 31, 2007.
Group basic earnings per share decreased 3.7% to
1,681.0 cents (2006: 1,746.1 cents) and Group headline
earnings per share decreased 1.0% to 1,710.7 cents
(2006: 1,728.6 cents). |
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| Group balance sheet |
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Operating performance across the Group has seen the
balance sheet retain its strength with net debt, after financial
assets and liabilities, increasing 45.0% to R9,901 million
(2006: R6,828 million) as at March 31, 2007, resulting in
a net debt to equity ratio of 30.9% from 23.2% at March
31, 2006. On March 31, 2007, the Group had cash
balances of R749 million.
During the year ended March 31, 2007, 12.1 million
shares were repurchased for R1.6 billion, to be cancelled
from the issued share capital by the Registrar of Companies.
As at March 31 2007, 1,035,506 of these shares have not
yet been cancelled.
Interest-bearing debt, including credit facilities utilised,
decreased 8.6% to R10,805 million (2006: R11,816 million)
in the year ended March 31, 2007. The decrease was
mainly due to the redemption of the TL06 bond with a
nominal value of R2,100 million on October 31, 2006 and R3,731 million nominal value commercial paper bill debt
that matured during the year. These debt repayments were
partially offset by the issuance of R4,651 million nominal
value commercial paper bills during the year to fund a
portion of the TL06 redemption with the balance being
utilized to fund capital expenditure.
Telkom maintains an active dialogue with the principal
credit rating agencies, who review Telkom's ratings
periodically. Moody's Investor Services and Standard &
Poor's have rated our foreign debt A3 and BBB respectively. |
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| Group cash flow |
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Cash flows from operating activities decreased 1.6% to
R9,356 million (2006: R9,506 million), mainly due to
higher taxation and dividend payments that exceeded
the 4.0% increase in cash generated from operations of
R20,520 million (2006: R19,724 million). Cash flows
utilised in investing activities increased 42.9% to
R10,412 million (2006: R7,286 million), primarily due to
increased capital expenditure in both the fixed-line and
mobile segments. Cash utilised in financing activities of
R2,920 million (2006: R258 million) was mostly due to the
R1,596 million paid for share repurchases, the repayment
of the TL06 bond with a nominal value of R2,100 million on
October 31, 2006 and maturing commercial paper debt of
R3,731 million nominal value, during the year offset by the issuance of R4,651 million nominal value commercial paper
bills, to fund a portion of the TL06 bond redemption with the
balance being utilised to fund capital expenditures. |
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| Summary |
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Year ended March 31,
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| In ZAR millions |
2006 |
2007 |
% |
| Cash generated from operations |
19,724 |
20,520 |
4.0 |
| Cash from operating activities (after tax, interest, dividends) |
9,506 |
9,356 |
(1.6) |
| Cash from investing activities |
(7,286) |
(10,412) |
42.9 |
| Cash from financing activities |
(258) |
(2,920) |
1,031.8 |
| Net increase/(decrease) in cash |
1,962 |
(3,976) |
(302.2) |
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| EBITDA minus capital expenditure |
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Year ended March 31, |
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| In ZAR millions |
2006 |
2007 |
% |
| Fixed-line |
9,711 |
6,022 |
(38.0) |
| Mobile |
3,336 |
3,514 |
5.3 |
| Group |
13,047 |
9,536 |
(26.9) |
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