Telkom Group Annual Report 2004 Contents Telkom at a glance Letter to shareholders Board of Directors Executive management Mana
A GLANCE Our vision is to be a world-class communications group For the Telkom Group the 2004 financial year has been one of gr
Financial performance @ a glance Group revenue ZARbn 37.5 40.8 Free cash flow ZARbn 9.0 -1.1 4.0 Solid group revenue growth of
Operational performance @ a glance Fixed-line data revenue ZARbn 5.0 137 112 113 125 149 Lines per employee Fixed-line data rev
Telkom Group @ a glance GROUP STRUCTURE Telkom SA Limited is one of the largest companies registered in the Republic of South A
SHAREHOLDERS Government The Government of the Republic of South Africa is the majority shareholder of Telkom. Thintana Thintana
Strategic direction @ a glance By investing smartly to save money and grow the business, coupled with ongoing efficiencies and
• Competing aggressively to win and retain customers • Relevant responses to evolving customer needs • Constant re-invention of
Focusing on customer growth and retention From ordinary telephone line to multi-tasking access medium. From dial-up to alwaysav
To strengthen our market leadership we anticipate our customers’ evolving needs, designing solutions to win and keep them on ou
Driving operational excellence Being there for you. Using the language of your choice to introduce you to products and services
To drive profitability requires that we stay efficient and productive in the fulfilment of our customer needs, applying excelle
Sustaining the development of our marketplace As a result of outstanding marketing, branding and distribution, Vodacom’s prepai
To support sustainable growth in the future requires that we play a leading role in driving the socio-economic development of o
Looking forward to 2005 Deliver solid growth in group revenue How? Group revenue 37,507 03 34.7 29.5 02 03 04 9,004 5,712 00 01
Operating free cash flow 9,009 (ZAR million) Maximise operating cash flow generation How? 4,042 00 01 (3,799) (3,810) Cash flow
TO TO US you are more than a number. YOU we will be more than a phone company.
DE A R SHAREHOLDER From the Chairman and Chief Executive Officer “The level of performance achieved by the Telkom Group in the
From the Chairman and Chief Executive Officer Dear shareholder, In our outlook for the Group a year ago, we expressed confidenc
Cash from operating activities increased 42.4% to R13,884 million. This adequately covered cash requirements for group capital
From the Chairman and Chief Executive Officer continued investment in Mozambique is doing well, and some 58,000 customers were
Telkom has already built into its exchanges. In terms of full carrier pre-selection, we have proposed that implementation be su
From the Chairman and Chief Executive Officer continued In the traditional fixed-line voice market, no significant growth is ex
Board of Directors Non-executive Chairman Executive directors Sizwe Nxasana (46) Chief Executive Officer: Telkom SA Limited Sha
Executive management Left to right Shawn McKenzie (Chief Operating Officer), Chian Khai Tan (Chief Strategic Officer), Sizwe Nx
Sizwe Nxasana (46) Chief Executive Officer Sizwe Nxasana was appointed Chief Executive Officer in April 1998. Prior to joining
Management team Theo Hess (46) Managing Executive: Network Field Operations Management Advanced Programme, National Certificate
Corporate governance statement The Board is committed to ensuring that the affairs of the Company are conducted with integrity
Corporate governance continued The following key areas have been identified as areas of non-compliance with King II, some of wh
Compliance with Sarbanes-Oxley and NYSE Corporate Governance rules The Sarbanes-Oxley Act of 2002 was passed in the United Stat
Corporate governance statement continued Sarbanes-Oxley compliance Section 404(b) places responsibility on the Company’s extern
Key differences between South African corporate governance rules and NYSE corporate governance listing rules NYSE Board of Dire
Corporate governance statement continued NYSE Composition All members required to be independent, and financially literate. One
The Board of Directors The Board of Directors comprises of three executive and eight non-executive directors. The Government of
Corporate governance statement continued Directors’ attendance of Board meetings Scheduled Number of meetings1 Attendance Speci
Members’ attendance of Operating Committee meetings Scheduled Number of meetings1 Attendance SE Nxasana (Chairman) SM McKenzie
Corporate governance statement continued Telkom has in place a policy to address the potential hiring of audit team members to
Human Resources Review Committee The Board has established a Human Resources Review Committee comprising at least seven members
Corporate governance statement continued No director is involved in deciding his or her own remuneration. In addition, Telkom h
Financial statements The Board is responsible for preparing Telkom’s financial statements. In this regard, it is the Board’s re
Human capital management The people of Telkom are our greatest assets in achieving our vision of being a world-class communicat
Experience and age Due to ongoing organisational renewal over the past few years and planned reductions of headcount levels, th
Human capital management continued Employee losses The number of employees was reduced by 8.5% from 35,361 to 32,358 employees
For ASA1 (managers and bargaining unit employees) and ASA2 (managers) the placement target was set at 50% of the total intake.
Human capital management continued (11,140,636 shares) through the Diabo Share Trust established for the benefit of: • employee
half-day leave from January 1, 2004. These initiatives are expected to have a positive impact on the leave liability in future.
Human capital management continued Telkom pension and retirement funds The Telkom Pension Fund was established on October 1, 19
Training days Year ended March 31, 2003 2004 Facilitator led WEB based Total Training days per average employee 301,214 19,978
Human capital management continued The Telkom Mentorship Programme A mentorship programme is being introduced in a focused mann
As a participant in the Commonwealth Telecommunication Organisation (CTO) Telkom participates as a training recipient whilst it
Human capital management continued School of accounting The objective of the Company’s Training Outside Public Practice (TOPP)
stability for the Company and creating certainty for employees on salary and benefits related matters. Employee relations clima
Black Economic Empowerment For Telkom, it is a business imperative to enable the diverse majority of South Africans to particip
• Establish a national policy on broad-based BEE to promote economic unity, protect the common market and promote equal opportu
Black Economic Empowerment continued Telkom’s BEE scorecard exceeds most of the DTI’s recommended empowerment weightings. Where
Telkom was ranked as South Africa’s most black empowered company in the Empowerdex/Financial Mail 2004 survey, scoring highly a
Black Economic Empowerment continued Review of progress In the year to March 31, 2004, Telkom made strong progress in most aspe
Safety, health and environment As a responsible employer and model corporate citizen, Telkom conducts its business in a manner
Safety, health and environment continued Key characteristics of this framework are that: • safety and environmental management
and maintenance activities in sensitive environments. Special attention is given to the following aspects: • Storage and dispos
Safety, health and environment continued It encouraged employees to take ownership of their total health status by attending vo
Corporate social investment The Telkom Foundation’s Corporate Social Investment programmes are an integral element of the Compa
Corporate social investment continued Believing that proficiency in the areas of mathematics, science and technology will event
the year, 11 special schools from various provinces were equipped, bringing the total number of these centres to 20. The Founda
Corporate social investment continued technology. The Foundation donated voice recognition computers and training to the value
Telkom strongly identifies with the ideals of dedication, achievement and excellence represented by the Olympic Games. This syn
Five-year financial review 2004 USD 4 Year CAGR (%) Year ended March 31, Amounts in accordance with IFRS 2000 2001 2002 2003 20
Five-year operational review 4 Year CAGR (%) Year ended March 31, Amounts in accordance with IFRS 2000 2001 2002 2003 2004 Fixe
Operational overview Fixed-line overview The fixed-line segment is the largest business segment and includes fixed-line voice,
The following table shows information related to the number of fixed access lines in service, net line growth and churn for the
Operational overview – fixed-line continued Traffic was adversely affected by a decrease in the number of fixed access lines in
The increase in domestic mobile interconnection traffic in the years ended March 31, 2003 and 2004 was primarily due to an over
Operational overview – fixed-line continued The primary internet protocol data transmission products, ViPLink and ViPDial have
In January 2004 Telkom introduced a new online activation service which enables customers to order their TelkomInternet service
Operational overview – fixed-line continued to 2.7:1 as of March 31, 2002. The weighted average effective price per minute to a
We are an integrated communications service provider of bundled voice, data, video and internet services with the expertise to
Operational overview – fixed-line continued We are seeking to compete in the residential market by offering communication packa
In May 2003, Telkom, together with Standard Bank SA, introduced a new PrepaidFone electronic voucher recharge service that enab
Operational overview – fixed-line continued Overall, we have significantly improved installation and repair times and service q
converted our switching network infrastructure from a fourtier architecture that historically was based on analog switching tec
Operational overview – fixed-line continued Voice over internet protocol network The voice over internet protocol network termi
that enables operational and customer personnel to keep abreast of the current state of our information technology infrastructu
Operational overview – fixed-line continued for sale to a strategic equity investor to be identified in the future. The Ministe
Mobile Communications Overview We participate in the South African mobile communications market through our 50% interest in Vod
Operational overview – mobile communications continued usage of SMS and a need for per second billing. Since its inception, the
infancy, with broad application hampered by low transmission speeds. Vodacom expects that the broad introduction of “always on”
Operational overview – mobile communications continued Vodacom is the leading South African mobile communications network opera
those that lack access to credit and steady income to obtain telephone service. Vodacom believes that its aggressive marketing
Operational overview – mobile communications continued The sale and distribution of Vodacom’s products and services and the acq
providing walk-in customer support to Vodacom customers, and an advanced repair centre hub for high-level repairs situated in M
Operational overview – mobile communications continued 180 locations in Pretoria, 68 locations in KwaZulu-Natal, 43 locations i
The following table sets forth customer data for Vodacom’s mobile communications networks in its other African operations as of
Financial review Our operating structure comprises two segments, fixed-line and mobile. Our fixed-line segment provides fixed-l
Summary group results 2002 ZAR 34,087 143 30,039 4,191 512 2,550 2,153 873 1,280 59 1,221 10,044 9,004 (1,079) 21,966 299.3 219
Financial review continued Operating expenses Operating expenses increased 1.9% in the year ended March 31, 2004 primarily due
Investment income Investment income consists of interest received on trade receivables, short-term investments and bank account
Financial review continued Boosting our bouquet of telecommunications equipment products and making our presence felt in the hi
Fixed-line segment Fixed-line segment summary 2002 ZAR 27,866 25,568 2,425 7,233 6,962 8.7 26.0 25.0 Year ended March 31, 2003
Financial review continued Operating revenue from our fixed-line segment increased 4.6% and 6.0% in the years ended March 31, 2
Page 1:
Telkom SA Limited Group Annual Report 2004 Tel
Page 2:
Telkom Group Annual Report 2004 Contents Telkom at a glance Let
Page 3:
A GLANCE Our vision is to be a world-class communications group
Page 4:
Financial performance @ a glance Group revenue ZARbn 37.5 40.8
Page 5:
Operational performance @ a glance Fixed-line data revenue ZARb
Page 6:
Telkom Group @ a glance GROUP STRUCTURE Telkom SA Limited is on
Page 7:
SHAREHOLDERS Government The Government of the Republic of South
Page 8:
Strategic direction @ a glance By investing smartly to save mon
Page 9:
• Competing aggressively to win and retain customers • Relevant
Page 10:
Focusing on customer growth and retention From ordinary telepho
Page 11:
To strengthen our market leadership we anticipate our customers
Page 12:
Driving operational excellence Being there for you. Using the l
Page 13:
To drive profitability requires that we stay efficient and prod
Page 14:
Sustaining the development of our marketplace As a result of ou
Page 15:
To support sustainable growth in the future requires that we pl
Page 16:
Looking forward to 2005 Deliver solid growth in group revenue H
Page 17:
Operating free cash flow 9,009 (ZAR million) Maximise operating
Page 18:
TO TO US you are more than a number. YO
Page 19:
DE A R SHAREHOLDER From the Chairman and Chief Executive Office
Page 20:
From the Chairman and Chief Executive Officer Dear shareholder,
Page 21:
Cash from operating activities increased 42.4% to R13,884 milli
Page 22:
From the Chairman and Chief Executive Officer continued investm
Page 23:
Telkom has already built into its exchanges. In terms of full c
Page 24:
From the Chairman and Chief Executive Officer continued In the
Page 25:
Board of Directors Non-executive Chairman Executive directors S
Page 26:
Executive management Left to right Shawn McKenzie (Chief Operat
Page 27:
Sizwe Nxasana (46) Chief Executive Officer Sizwe Nxasana was ap
Page 28:
Management team Theo Hess (46) Managing Executive: Network Fiel
Page 29:
Corporate governance statement The Board is committed to ensuri
Page 30:
Corporate governance continued The following key areas have bee
Page 31:
Compliance with Sarbanes-Oxley and NYSE Corporate Governance ru
Page 32:
Corporate governance statement continued Sarbanes-Oxley complia
Page 33:
Key differences between South African corporate governance rule
Page 34:
Corporate governance statement continued NYSE Composition All m
Page 35:
The Board of Directors The Board of Directors comprises of thre
Page 36:
Corporate governance statement continued Directors’ attendance
Page 37:
Members’ attendance of Operating Committee meetings Scheduled N
Page 38:
Corporate governance statement continued Telkom has in place a
Page 39:
Human Resources Review Committee The Board has established a Hu
Page 40:
Corporate governance statement continued No director is involve
Page 41:
Financial statements The Board is responsible for preparing Tel
Page 42:
Human capital management The people of Telkom are our greatest
Page 43:
Experience and age Due to ongoing organisational renewal over t
Page 44:
Human capital management continued Employee losses The number o
Page 45:
For ASA1 (managers and bargaining unit employees) and ASA2 (man
Page 46:
Human capital management continued (11,140,636 shares) through
Page 47:
half-day leave from January 1, 2004. These initiatives are expe
Page 48:
Human capital management continued Telkom pension and retiremen
Page 49:
Training days Year ended March 31, 2003 2004 Facilitator led WE
Page 50:
Human capital management continued The Telkom Mentorship Progra
Page 51:
As a participant in the Commonwealth Telecommunication Organisa
Page 52:
Human capital management continued School of accounting The obj
Page 53:
stability for the Company and creating certainty for employees
Page 54:
Black Economic Empowerment For Telkom, it is a business imperat
Page 55:
• Establish a national policy on broad-based BEE to promote eco
Page 56:
Black Economic Empowerment continued Telkom’s BEE scorecard exc
Page 57:
Telkom was ranked as South Africa’s most black empowered compan
Page 58:
Black Economic Empowerment continued Review of progress In the
Page 59:
Safety, health and environment As a responsible employer and mo
Page 60:
Safety, health and environment continued Key characteristics of
Page 61:
and maintenance activities in sensitive environments. Special a
Page 62:
Safety, health and environment continued It encouraged employee
Page 63:
Corporate social investment The Telkom Foundation’s Corporate S
Page 64:
Corporate social investment continued Believing that proficienc
Page 65:
the year, 11 special schools from various provinces were equipp
Page 66:
Corporate social investment continued technology. The Foundatio
Page 67:
Telkom strongly identifies with the ideals of dedication, achie
Page 68:
Five-year financial review 2004 USD 4 Year CAGR (%) Year ended
Page 69:
Five-year operational review 4 Year CAGR (%) Year ended March 3
Page 70:
Operational overview Fixed-line overview The fixed-line segment
Page 71:
The following table shows information related to the number of
Page 72:
Operational overview – fixed-line continued Traffic was adverse
Page 73:
The increase in domestic mobile interconnection traffic in the
Page 74:
Operational overview – fixed-line continued The primary interne
Page 75:
In January 2004 Telkom introduced a new online activation servi
Page 76:
Operational overview – fixed-line continued to 2.7:1 as of Marc
Page 77:
We are an integrated communications service provider of bundled
Page 78:
Operational overview – fixed-line continued We are seeking to c
Page 79:
In May 2003, Telkom, together with Standard Bank SA, introduced
Page 80:
Operational overview – fixed-line continued Overall, we have si
Page 81:
converted our switching network infrastructure from a fourtier
Page 82:
Operational overview – fixed-line continued Voice over internet
Page 83:
that enables operational and customer personnel to keep abreast
Page 84:
Operational overview – fixed-line continued for sale to a strat
Page 85:
Mobile Communications Overview We participate in the South Afri
Page 86:
Operational overview – mobile communications continued usage of
Page 87:
infancy, with broad application hampered by low transmission sp
Page 88:
Operational overview – mobile communications continued Vodacom
Page 89:
those that lack access to credit and steady income to obtain te
Page 90:
Operational overview – mobile communications continued The sale
Page 91:
providing walk-in customer support to Vodacom customers, and an
Page 92:
Operational overview – mobile communications continued 180 loca
Page 93:
The following table sets forth customer data for Vodacom’s mobi
Page 94:
Financial review Our operating structure comprises two segments
Page 95:
Summary group results 2002 ZAR 34,087 143 30,039 4,191 512 2,55
Page 96:
Financial review continued Operating expenses Operating expense
Page 97:
Investment income Investment income consists of interest receiv
Page 98:
Financial review continued Boosting our bouquet of telecommunic
Page 99:
Fixed-line segment Fixed-line segment summary 2002 ZAR 27,866 2
Page 100:
Financial review continued Operating revenue from our fixed-lin
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