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| Financial review |
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| EBITDA can be reconciled to operating profit as follows: |
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Year ended March 31, |
|
2005 |
2006 |
2007 |
| (in millions) |
ZAR |
ZAR |
ZAR |
| Fixed-line |
|
|
|
| EBITDA |
12,753 |
14,646 |
12,663 |
| Depreciation, amortisation, impairments and write-offs |
(4,732) |
(4,404) |
(3,623) |
| Operating profit |
8,021 |
10,242 |
9,040 |
| Mobile |
|
|
|
| EBITDA |
4,796 |
5,907 |
7,122 |
| Depreciation, amortisation and impairments |
(1,556) |
(1,472) |
(1,692) |
| Operating profit |
3,240 |
4,435 |
5,430 |
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|
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| Operating revenue |
| Operating revenue increased in the years ended March 31,
2007 and 2006 due to increased operating revenue in
both its mobile and fixed-line segments. Vodacom's
operating revenue increased in the 2007 financial year
primarily due to increased data, interconnection and
equipment sales revenue as a result of strong customer
growth. The increase in fixed-line operating revenue in the
2007 financial year was primarily due to continued growth
in data revenue and higher subscriptions and connections
revenue partially offset by lower average traffic tariffs,
lower local and long distance traffic and lower
interconnection revenue. Fixed-line operating revenue
accounted for 64.5%, 68.8% and 72.9% of Telkom's
consolidated operating revenue before intercompany
eliminations in the years ended March 31, 2007, 2006
and 2005, respectively. |
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| Other income |
| Other income includes profit on the disposal of investments,
property, plant and equipment and intangible assets. The
decrease in fixed-line other income in the 2007 financial
year was primarily due to lower sales of assets and
properties as well as a decrease in profit on disposal of
investments, which resulted from the reclassification of
assets held by the Cell captive to an annuity policy that
qualifies as a plan asset. The profits and losses that would
have previously been included in other income are now
treated as movements in the plan assets funding the post
retirement medical aid obligation. The increase in fixed-line
other income in the 2006 financial year was primarily due
to the realisation of profits on the sale of investments held by
its consolidated special purpose entity used to fund post
retirement medical benefit obligations. |
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| Operating expenses |
Operating expenses increased in the year ended March 31,
2007 as a result of increased operating expenses in both its
mobile and fixed-line segments. Operating expenses
increased in the year ended March 31, 2006 as a result of increased operating expenses in its mobile segment,
partially offset by decreased operating expenses in its fixed-line
segment.
The increase in mobile operating expenses in the 2007
financial year was primarily due to increased selling,
general and administrative expenses to support the
expansion of 3G, growth in Vodacom's South African and
other African operations and increased competition,
increased payments to other network operators due to
higher outgoing traffic and the increased percentage of
outgoing traffic terminating on other mobile networks,
increased depreciation, amortisation and impairment,
higher employee costs as a result of increased headcount,
average 7.5% annual salary increases, an increase in the
provision for bonus schemes and an increase in the
provision for long term incentives for executives and
increased operating leases.
The increase in mobile operating expenses in the 2006
financial year was primarily due to increased selling,
general and administrative expenses to support the
expansion of 3G, growth in Vodacom's South African and
African operations and increased competition and as a
result of increased cost of equipment for increased handset
sales and maintenance of the GSM infrastructure and billing
systems, increased payments to other network operators due
to higher outgoing traffic and the increased percentage of
outgoing traffic terminating on other mobile networks,
higher employee costs as a result of increased headcount,
average 6% annual salary increases, the inclusion of a
provision for long-term incentives for executives and an
increase in the provision for bonus schemes due to
increased profits, increased operating leases and increased
services rendered, partially offset by decreased
depreciation, amortisation and impairments.
The increase in fixed-line operating expenses in the 2007
financial year was primarily attributable to increased
selling, general and administrative expenses, employee
expenses, payments to other operators, and services
rendered, partially offset by lower depreciation, amortisation, impairments and write-offs as a result of an
increase in the useful lives of certain assets. Selling, general
and administrative expenses increased primarily as a result
of the provision raised for possible liabilities in the Telcordia
dispute, higher materials and maintenance expenses,
increased marketing and sponsorships, and increased costs
of sales due to the reclassification of finance leases
associated with customer premises equipment in selling,
general and administrative expenses, partially offset by a
provision for VAT that was reversed due to a revenue ruling
from SARS. Employee expenses increased due to higher
salaries and wages as a result of average annual salary
increases of 7.0% and related benefits, an increase in the
number of employees and increased payments to part time
employees and contractors. Payments to other network
operators increased primarily due to higher call volumes
from its fixed-line network to the mobile networks and higher
payments to international network operators as a result of
higher international outgoing volumes and a weaker
exchange rate.
Services rendered increaseD in the year ended March 31,
2007 primarily due to increased payments to consultants to
explore local and international investment opportunities,
customer centricity and higher security and property
management costs at TFMC. The decrease in fixed-line
operating expenses in the 2006 financial year was
primarily attributable to lower employee expenses and
reduced depreciation, amortisation, impairments and writeoffs,
partially offset by higher payments to other network
operators, services rendered, selling, general and
administrative expenses and operating leases. Employee
expenses decreased primarily due to reduced workforce
reduction expenses, lower headcount and increased
employee related expenses capitalised, partially offset by
salary increases and related benefits. Depreciation,
amortisation, impairments and write-offs decreased
primarily as a result of an increase in the useful lives of
certain assets, partially offset by ongoing investment in
telecommunications network equipment and data
processing equipment. Payments to other network operators
increased primarily due to higher call volumes from its fixed-line
network to the mobile networks and increased
international outgoing traffic arising from its reduced tariffs.
Services rendered increased primarily due to increased
property management expenses at TFMC and increased
payments to consultants, partially offset by the nonrecurrence
of fees paid to Thintana Communications. |
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| Selling, general and administrative expenses increased
primarily due to increased other expenses resulting from
higher costs of sales and higher marketing costs, partially
offset by lower materials and maintenance expenses and, to
a lesser extent, reduced bad debts. Operating leases
increased primarily due to the impact of the straightlining of
lease payments, an increase in vehicle operating costs and
higher building lease costs following new lease agreements,
partially offset by a reduction in the number of vehicles in
Telkom's fleet. |
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