TKG Telkom SA Ltd Ads

Group Interim Results for the Six Months Ended September 30, 2003 (Part 1) Johannesburg, November 24 /PRNewswire/ -- Group highlights Telkom SA Limited, South Africa's largest communications group announces interim results for the six months ended September 30, 2003. - 171.1% growth in interim headline earnings per share to 335.9 cents - Group EBITDA margin expansion to 37.8% - 24.9% reduction in group capital expenditure - Strong interim group operating free cash flow of R3.9 billion - Group net debt to equity ratio of 85.1% - Fixed-line data revenue growth of 17.1% - Vodacom's other African customer growth of 98.1% - Interim dividend payment of 90.0 cents per share Chief Executive Officer's statement Sizwe Nxasana, Chief Executive Officer said: "The Group has delivered an excellent performance across all areas of our business with financial results exceeding our expectations. We continue to benefit from the exceptional customer growth in our mobile business and the margin expansion and strong growth of cash generation in the fixed-line business. In the period under review, we have successfully grown our revenue in selected markets by expanding our integrated product and service offerings; we have increased profitability and cash flows through strict cost discipline. Telkom has significantly reduced indebtedness and are pleased to be reinstating our dividend policy." Operational review The six months under review saw the continued delivery on group financial targets, yielding results ahead of expectations. Significant progress has been made in improving the competitiveness of the fixed-line business by streamlining the cost structures and increasing employee efficiencies, with resultant improvements to the customer experience. The Group has continued to benefit from the strong growth in the mobile business in South Africa and other African countries. Fixed-line The fixed-line segment delivered solid revenue growth, driven largely by data volume growth. Margin expansion was achieved through a strong focus on cost cutting, improving productivity, and enhancing the segment's competitiveness. Capital expenditure has been further reduced, with future investment focused in areas that drive revenue growth and efficiencies. In the period under review, good growth was achieved in value-added services, with these services penetrating 58% of the residential customer base. In particular, there has been a strong take-up of products such as ADSL, residential ISDN and basic voicemail. Prepaid revenue growth remained strong, although growth in prepaid customers slowed to 4% due to a clean up of all inactive customers. Prepaid distribution was further improved through signing contracts with groups such as Standard Bank, First National Bank and Vodacom. The Group continued to make great strides in its strategy of becoming the data service provider of choice, with several new product launches such as VPN Supreme, a dedicated IP service, CyberTradeMall and TelkomInternet powered by Satellite. Telkom has started an intensive WiFi feasibility study, having commissioned the first few hotspots in a pilot programme that will include 100 sites around South Africa. The data business was further improved through additional business sales force training, system upgrades and improved key account management. Operational efficiency enhancements gained momentum, with the successful rollout of workforce management by the Operational Support Systems (OSS) organisation. Fixed-line reduced costs, excluding depreciation and amortisation, by R536 million mainly through reductions in payments to other operators, materials and maintenance, property management costs, operating leases and employee expenses. Fixed-line employees were reduced by 11% through a controlled and responsible retrenchment programme and increased employee productivity was reflected in growth to 142 lines per employee (September 30, 2002: 129). Mobile Vodacom again delivered excellent results and maintained its market leadership position despite increased competition. Vodacom achieved 20% growth in customers in South Africa, record gross connections of 2.2 million and contract churn of 11%. Vodacom made good progress in the realisation of its African strategy, reflecting a 98% increase in customers to over 1 million and remains strongly positioned for further African expansion. Having cleared several regulatory hurdles, Vodacom is planning to launch as the second licensed mobile operator in Mozambique in December 2003. Vodacom is also currently considering a proposed investment in Nigeria's second largest mobile operator, which may see it entering this rapidly expanding market. Vodacom repaid its shareholder loans of R920 million (Telkom share: R460 million) in June 2003, and paid an interim dividend of R600 million (Telkom share: R300 million) in September 2003. Regulatory developments On July 15, 2003, the Department of Communications communicated their plans to introduce a Convergence Act that will provide a licensing and regulatory framework for a converged telecommunications, broadcasting and information technology industry. This will supplement or replace current sector-specific legislation. No formal timeline for the tabling in Parliament of the new legislation has been communicated, but Government will continue to interact with the industry in its development. On November 4, 2003, the Minister of Communications announced her intention to licence the second national operator (SNO) within eight weeks. The license will be issued to an entity consisting of an integrated 30% of state-owned enterprises Transtel and Eskom, 19% to the empowerment consortium, Nexus Connexion and 51% to a suitable investor to be identified. On November 12, 2003 Government tabled in Parliament a proposed amendment to the Telecommunications Act to define the multi-media and carrier-of-carriers licensee Sentech as a public operator. On November 14, 2003, Telkom filed its fixed-line average tariff adjustments of 2.7% effective from January 2004 with ICASA. BEE achievements Black Economic Empowerment (BEE) is an important business imperative for Telkom, with procurement forming the cornerstone of its strategy. The Group's BEE procurement programme involved more than R5 billion in the 2003 financial year and is based on empowering small and medium businesses through a developed sustainable procurement programme. The Group considers itself a leader in a number of BEE strategic initiatives in South Africa and has been actively involved in the development of the ICT BEE Charter. Telkom's commitment to BEE and corporate social investment as a progressive leader in the ICT sector has been recognised over the last six months through eight awards including the Black Business Quarterly Corporate Social Investment Award, the 2002 Current Achiever Award in the Corporate Category of the Metropolitan Eastern Cape Awards, the Digital Partnership Award, four awards and citations under the Professional Management Review Africa Corporate Care Awards and the African ICT Achiever Award for the most progressive company in the ICT sector. Financial review The Group has delivered a strong set of interim financial results demonstrating management's commitment to meet targets. Group operating revenue increased 9.8% to R20,110 million and operating profit increased 51.2% to R4,250 million for the six months ended September 30, 2003. EBITDA margins during the same period expanded to 37.8% compared to 32.3% in the prior period primarily as a result of the strict cost discipline in the fixed-line business. Headline earnings per share grew 171.1% to 335.9 cents per share (September 30, 2002: 123.9 cents) and basic earnings per share grew 158.2% to 298.5 cents (September 30, 2002: 115.6 cents). Strong earnings growth was delivered despite the net losses of R561 million (September 30, 2002: R367 million) arising from measuring derivatives at fair value and the relative volatility of the currency during the period. Net cash from operating activities was R5,771 million which fully covered cash requirements for group capital expenditure of R1,763 million and facilitated the repayment of R3,458 million in net debt. The balance sheet was strengthened with net debt to equity of 85.1% at September 30, 2003. Impact of the appreciation of the Rand The appreciation of the Rand is positive for Telkom in the long-term as a significant portion of capital and operating expenditure is denominated in foreign currency. The value of the Rand as measured against the Dollar has appreciated 27.6% in the six month period ended September 30, 2003 to an average of R7.57 per $1.00 from R10.45 per $1.00 in the prior year six month period. While such appreciation negatively impacted Telkom's international interconnection revenues and the translation of Vodacom's revenues from international operations, the appreciation of the Rand resulted in savings in foreign denominated operating and capital expenditure and contributed to the improvement in operating margins. Although the strong Rand positively contributed to operating profit, it negatively impacted net reported earnings as a result of the R561 million loss on the net fair value and exchange losses of financial instruments. Group operating revenue Group operating revenue increased 9.8% (September 30, 2002: 10.9%) to R20,110 million (September 30, 2002: R18,316 million) in the six months ended September 30, 2003. Fixed-line operating revenue, after inter-segmental eliminations, increased 5.5% (September 30, 2002: 6.5%) primarily due to solid growth in data services and increased traffic revenue. Mobile operating revenue, after inter-segmental eliminations, increased 25.2% (September 30, 2002: 29.9%) primarily due to customer growth. Group operating expenses Group operating expenses increased 2.3% (September 30, 2002: 8.0%) to R15,860 million (September 30, 2002: R15,505 million) in the six months ended September 30, 2003 due to increased operating expenses in the mobile segment. This was partially offset by a 2.5% decrease (September 30, 2002: 3.5% increase) in fixed-line operating expenses primarily due to reduced payments to operators, employee expenses and operating leases, partially offset by an increase in depreciation. The increase in mobile operating expenses of 16.4% (September 30, 2002: 27.7%) was primarily due to increased competition resulting in increased incentive costs and expenses to support customer growth. 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 relative to traffic terminating on the lower cost fixed-line network. Investment income Investment income consists of interest received on trade receivables, short-term investments and bank accounts. Investment income increased 71.1% (September 30, 2002: 50.3% decrease) to R260 million (September 30, 2002: R152 million) largely as a result of higher interest received due to surplus cash balances. Finance charges 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 increased 5.2% (September 30, 2002: 3.6% decrease) to R1,871 million (September 30, 2002: R1,779 million) due to a 52.9% increase in group net fair value and exchange losses on financial instruments of R561 million (September 30, 2002: R367 million), partially offset by a 7.2% decrease (September 30, 2002: 0.6% decrease) in interest expense to R1,310 million (September 30, 2002: R1,412 million). The decrease in interest expense was primarily due to lower balances on local loans. Taxation Consolidated tax expenses increased 104.6% (September 30, 2002: 121.4%) to R933 million (September 30, 2002: R456 million) in the six months ended September 30, 2003. The consolidated effective tax rate for the six months ended September 30, 2003 was 35.4% (September 30, 2002: 38.5%). The lower effective tax rate in the six months ended September 30, 2003 was primarily due to a higher proportion of non-deductible expenses in the prior period. The effective tax rate is higher than the statutory tax rate of 30% partly due to Secondary Tax on Companies (STC) payable on dividends declared by Vodacom and Telkom Directory Services. Net profit and earnings per share Net profit increased 158.2% (September 30, 2002: 73.6%) to R1,663 million (September 30, 2002: R644 million) in the six months ended September 30, 2003. Group basic earnings per share increased 158.2% (September 30, 2002: 73.6%) to 298.5 cents (September 30, 2002: 115.6 cents) and group headline earnings per share increased 171.1% (September 30, 2002: 76.5%) to 335.9 cents (September 30, 2002: 123.9 cents). Group cash flow Cash flows from operating activities increased 66.7% (September 30, 2002: 4.9%) to R5,771 million (September 30, 2002: R3,462 million) primarily due to increased operational cash flows and decreased interest paid. Cash flows utilised in investing activities decreased 22.8% (September 30, 2002: 32.8% decrease) to R1,893 million (September 30, 2002: R2,453 million) primarily due to the reduction in group capital expenditure. Funding sources Solid operating performance across the Group combined with strict cost discipline has resulted in a strengthened balance sheet. Net debt, after financial assets and liabilities, decreased 21.1% to R17,018 million (September 30, 2002: R21,558 million). The balance sheet at September 30, 2003 strengthened, resulting in a net debt to equity ratio of 85.1% from 123.4% at September 30, 2002. Interest bearing debt decreased 23.9% to R17,540 million (September 30, 2002: R23,050 million) in the six months ended September 30, 2003. In the six months ended September 30, 2003, loans repaid and the increase in net financial assets exceeded loans raised by R3,810 million. The Group's repayments in the six months ended September 30, 2003, included a repayment of R4,311 million of the Telkom TL03 local bond, which was partially financed by the issuing of commercial paper bills amounting to R800 million. Dividends The Telkom board of directors has declared a once-off interim dividend of 90.0 cents per share, payable on December 29, 2003. The board aims to pay a progressively increasing dividend annually. The level of dividend will be based upon a number of factors, including the assessment of financial results, the group's debt level, interest coverage and future expectations, including internal cash flows. Auditors' review report The joint auditors Ernst & Young and KPMG Inc have reviewed the interim condensed consolidated financial statements. Their unqualified review report is available for inspection at the company's registered office. Outlook Going forward, the Telkom Group believes it is well positioned to deliver shareholder returns by focusing on remaining competitive and ensuring increased operational efficiencies and productivity. Customer retention and growth will remain a key priority for the group. The strength of the Group's integrated business ensures that we can respond effectively to volatile macro-economic conditions and tap into exciting opportunities that exist in all markets, especially the rest of the African continent. NE Mtshotshisa SE Nxasana Non-executive chairman Chief executive officer November 24, 2003 Johannesburg Operational data Year ended 6 months ended September 30, March 31, 2003 2002 2003 % Fixed-line Fixed access lines 4,844 4,895 4,812 (1.7) (thousands) Revenue per fixed 4,989 2,456 2,575 4.8 access line (ZAR) Total fixed-line 32,868 16,441 16,635 1.2 traffic (millions of minutes) Internet customers 98,690 75,317 111,364 47.9 Managed data network 7,729 6,636 7,979 20.2 sites Full-time, fixed-line 35,361 38,009 33,828 (11.0) employees (excluding TDS and Swiftnet) Fixed lines per 137 129 142 10.1 fixed-line employee Mobile Total customers (thousands) 8,647 7,670 9,592 25.5 South Africa Customers (thousands) 7,874 7,130 8,522 19.5 Churn (%) 30.4 30.7 39.1 27.4 Average monthly revenue per customer (ZAR) 183 181 179 (1.1) Number of employees 3,904 3,845 3,844 - Number of customers per employee 2,017 1,854 2,217 19.6 Other African countries Customers (thousands) 773 540 1,070 98.1 Condensed consolidated interim income statement for the six months ended September 30, 2003 Audited Reviewed Reviewed March 31, September 30, September 30, 2003 2002 2003 Notes Rm Rm Rm Operating revenue 2 37,600 18,316 20,110 Other income 234 47 87 Operating expenses Employee expenses 7,208 3,707 3,646 Payments to other 6,185 3,105 2,967 operators Selling, general and 7,888 3,842 4,366 administrative expenses Services rendered 2,541 1,108 1,122 Operating leases 1,205 684 500 Depreciation and 6,293 3,106 3,346 amortisation Operating profit 6,514 2,811 4,250 Investment income 424 152 260 Profit before finance 6,938 2,963 4,510 charges Finance charges 4,154 1,779 1,871 Profit before tax 2,784 1,184 2,639 Taxation 1,049 456 933 Profit after tax 1,735 728 1,706 Minority interests 105 84 43 Net profit for the 1,630 644 1,663 year/period Basic and diluted 5 292.6 115.6 298.5 earnings per share (cents) Headline earnings per 5 314.0 123.9 335.9 share (cents) Condensed consolidated interim balance sheet at September 30, 2003 Audited Reviewed Reviewed March 31, September 30, September 30, 2003 2002 2003 Notes Rm Rm Rm Assets Non-current assets 43,233 43,386 41,120 Property, plant and 7 41,046 41,172 39,185 equipment Intangible assets 364 442 352 Investments 1,086 867 1,203 Deferred taxation 8 737 905 380 Current assets 9,921 11,195 9,887 Inventories 621 887 584 Trade and other 6,110 6,163 6,312 receivables Short-term investment 26 - 48 Income tax receivable 276 237 - Other financial assets 1,771 2,823 1,234 Cash and cash 9 1,117 1,085 1,709 equivalents Total assets 53,154 54,581 51,007 Equity and liabilities Capital and reserves 18,348 17,475 19,987 Share capital and 10 8,293 8,293 8,293 premium Non-distributable (11) 112 38 reserves Retained earnings 10,066 9,070 11,656 Minority interests 194 214 207 Non-current liabilities 20,504 21,340 17,112 Interest bearing debt 11 16,346 17,097 12,857 Finance leases 1,107 1,047 1,124 Deferred taxation 8 497 523 641 Provisions 2,554 2,673 2,490 Current liabilities 14,108 15,552 13,701 Trade and other payables 5,229 6,025 4,630 Current portion of 11 4,677 5,953 4,683 interest bearing debt Current portion of 7 5 10 finance leases Deferred income 1,030 838 1,083 Income tax payable 177 76 159 Other financial 567 - 475 liabilities Current portion of 2,141 1,291 1,849 provisions Credit facilities 9 280 1,364 812 utilised Total equity and 53,154 54,581 51,007 liabilities ......more DATASOURCE: Telekom SA Limited .

Copyright