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Telkom Annual Report 1999/2000 1

2000 1999 Increase / (decrease)

Rm Rm %

Revenue 26,720 22,675 17.8

Profit before depreciation

and finance charges (EBITDA) 8,988 7,439 20.8

Attributable profit 1,850 2,346 (21.1)

Interest cover (times) 2.0 3.7 (46.0)

Debt-equity ratio (times) 1.3 1.0 30.0

Group Financial Highlights

20

1996 1997 1998 1999 2000

Shareholders’ interestInterest-bearing debt

10

12

8

0

Billion

s

3.655

13.548

15.398

11.533

5.280

10.212 10.525

6.347

13.541

19.946

18

16

14

6

4

2

10

8

1996 1997 1998 1999 2000

Capital expenditureLine roll-out

4

6

2

0

Billion

s –

Ca

pit

al Ex

pen

dit

ure

3.209 3.681

7.031

12.888

9.471

150

256

406

503

647

12

14

1000

800

400

600

200

0

1200

1400

Thou

san

ds

– Li

ne r

oll-o

ut

24 000

1996 1997 1998 1999 2000

Profit before depreciation and finance charges (EBITDA)Revenue

12 000

18 000

6 000

0

Billion

s

5.079

7.439

8.988

7.489

6.828

13.091

15.843

19.218

22.675

26.720

30 000 20 000

1996 1997 1998 1999 2000

Value createdValue re-invested

10 000

15 000

5 000

0

Billion

s

9.313

13.968

16.538

12.941

11.926

2.620

3.636

4.434

5.6366.262

Shareholders’ interest and interest-bearing debt Capital expenditure and line roll-out

Revenue and profit before depreciation Value addedand finance charges (EBITDA)

4-year annual 2000 1999 1998 1997 1996

compound

growth (%)

Income statement (Rm)

Revenue 19.63 26,720 22,675 19,218 15,843 13,091

Profit before depreciation and

finance charges (EBITDA) 15.34 8,988 7,439 7,489 6,828 5,079

Profit before taxation 7.75 2,455 3,231 3,519 2,884 1,821

Effective rate of taxation % (2.45) 24.1 26.0 31.3 38.1 26.5

Attributable profit 8.42 1,850 2,346 2,408 1,786 1,339

Balance sheet (Rm)

Fixed assets & investments 25.55 35,082 29,844 20,012 15,682 14,120

Current assets 20.85 9,650 7,272 5,250 6,440 4,524

Deferred taxation (28.36) 348 610 1,236 1,360 1,321

Assets to be funded 24.46 45,080 37,726 26,498 23,482 19,965

Shareholders’ interest 43.27 15,398 13,548 11,533 5,280 3,655

Interest bearing debt 18.22 19,946 13,541 6,347 10,525 10,212

Provisions (4.32) 2,302 2,705 2,899 2,897 2,747

Current liabilities 21.84 7,385 7,848 5,700 4,780 3,351

Outside shareholders interest 49 84 19 – –

Source of funding 24.46 45,080 37,726 26,498 23,482 19,965

Cash flow (Rm)

Cash flow from operating activities 4,390 6,123 3,976 5,324 2,857

Cash flow in investing activities (9,041) (12,658) (6,942) (3,549) (2,831)

Cash flow from/(in) financing activities 5,513 6,383 1,218 (341) (191)

Net increase/(decrease) in cash 862 (152) (1,748) 1,434 (165)

Ordinary share performance

Earnings per share – cents (0.84) 332.0 421.2 448.5 458.0 343.4

Dividend per share – cents (100.00) – 59.5 98.1 103.0 77.0

Dividend cover (100.00) – 7.1 4.6 4.4 4.5

Net asset value per share – cents 31.04 2,764.3 2,432.2 2,148.1 1,354.1 937.4

Telkom Annual Report 1999/200072

Five Year Financial Review of the Groupfor the years ended 31 March


4-year annual 2000 1999 1998 1997 1996

compound

growth %

Profitability ratios %

Profit before taxation as a

percentage of revenue (9.85) 9.2 14.2 18.3 18.2 13.9

Return on total assets (8.61) 13.8 15.0 23.0 23.2 19.8

Return on shareholders’ interest (24.32) 12.0 17.3 20.9 33.8 36.6

Solvency and liquidity

Debt-equity ratio (17.48) 1.3 1.0 0.6 2.0 2.8

Current ratio (0.81) 1.3 0.9 0.9 1.3 1.4

Acid test ratio 0.28 1.2 0.8 0.8 1.2 1.1

Average credit extended to

telephony customers (days) 4.50 46.5 43.0 41.6 39.9 39.0

Net operating cash flow margin (%) (9.92) 24.4 33.8 35.1 45.3 37.1

Interest cover (2.01) 2.0 3.7 3.3 2.7 2.2

Productivity of the Group

Average number of employees 0.16 57,877 60,613 57,813 57,496 57,501

Revenue per employee (R) 19.33 461,664 374,090 332,417 275,550 227,666

Operating profit per employee (R) 14.51 147,012 118,299 114,818 110,842 85,512

Value created per employee (R) 15.25 285,744 230,446 223,842 207,423 161,962

Productivity of the company

Main telephone service lines 8.24 5,492,838 5,075,417 4,645,065 4,258,639 4,002,180

Main service line per employee 12.42 112 83 82 75 70

Revenue per main service line (R) 8.43 4,378 4,079 3,878 3,574 3,167

Operating costs per main service line (R) 12.75 3,847 3,441 3,094 2,652 2,380

Profit before interest depreciation and

taxation per main service line 1.10 1,296 1,232 1,464 1,531 1,241

FIVE YEAR FINANCIAL REVIEW OF THE GROUP

Company registration

Telkom SA Limited

Registration number

91/05476/06

Web site

http://www.telkom.co.za

Company secretary’s address

and registered office

Telkom Towers North

152 Proes Street

PRETORIA

0002

South Africa

Postal address

Private Bag X881

PRETORIA

0001

South Africa

Contacts:

Telkom’s aim is to remain the leading integrated communications group in South Africa.


Industry Overview

The telecommunications sector is arguably the most dynamic

sector in the world today. This dynamic is being propelled by

a diverse series of drivers; increased competition through

global deregulation, globalisation and consolidation and new

products and services being created by the rapid pace of tech-

nological change.

Group Strategy

Against this background, Telkom is preparing for a new com-

petitive era in South African communications. Our aim is to

remain the leading integrated communications group in South

Africa. Our strategy involves the expansion and moderni-

sation of our fixed network, meeting our licence targets, and

improving efficiencies across the board, as well as focusing on

new technology deployment. There is not a leading world

communications technology, which is not today being

deployed in South Africa.

While continuing to streamline the business and improve effi-

ciencies, the Group is aggressively exploring new

revenue-growth opportunities. In particular, this includes the

areas of data, internet and mobile communications

and through our 50% strategic stake in leading mobile oper-

ator, Vodacom.

Public listing

As the first major state enterprise to be selected for a public

listing, Telkom is proud to spearhead South Africa’s drive to

unlock the value of key national assets. Indeed, the

Government’s decision to list a portion of its majority equity

stake in Telkom is a strong vote of confidence in the progress

we have made since the government sold a 30% equity stake

in Telkom to strategic partners in 1997.

The listing process will be led by the government and Telkom’s

Board. Management is playing a vital role in preparing the

Group for this process and for maximising investor interest.

Competition

Preparation for listing is also standing Telkom in good stead

for the expansion of competition in telecommunications after

the expiry of its limited exclusivity period.

Telkom looks forward to competing on a level playing field

and in a competitive environment in which all players have an

equitable share of socio-economic commitments, including

investing in infrastructure to further broaden public access to

communications.

Telkom’s current exclusivity has facilitated major achievements

modernising the network, increasing bandwidth availability

and improving the competitiveness of our pricing. This has

enabled us to meet some of the more sophisticated needs of

South African businesses as well as bringing millions more

South Africans into the connected world.

The contribution of our R47 billion five-year capital expendi-

ture programme to the South African economy should not be

underestimated. Every R1 invested in telecommunications

infrastructure in Africa is estimated to add R3 to GDP.

Financial performance highlights

Despite fluctuating exchange rates and a low economic

revival, the group delivered strong increases in revenue and

earnings before depreciation and finance charges (EBITDA) in

1999/2000. Group revenue grew 17.8% to R26.7 billion

whilst EBITDA increased 20.8% to R9 billion.

Important progress has been made in restructuring the business

with some related charges. The year saw some changes in

accounting policy to bring the company closer to International

Accounting Standards. Planned capital expenditure resulted in

higher depreciation and interest charges. Overall, these items

offset EBITDA growth resulting in net profit of R1.8 billion for the

period (1999: R2.3 billion). The company’s gearing ratio at

y e a r-end was 130%. The group embarked on a successful

inaugural Eurobond offering for 500 million Euros in March

2000.

Vodacom Group currently has some 3.1 million customers

and contributes R2.1 billion to group revenue, which was

39.5 % higher than in 1998/99. Vodacom’s operating profit

rose by 51.5%.

The Board of Directors have proposed a nil dividend.

Key strategic moves & corporate developments

A l r e a d y, we have made significant progress in raising

efficiencies, technological prowess and management

capability to the levels of our global peers. Where we

have not had expertise in certain areas, we have developed

Chairman’s Report

We have made significant progress in raising efficiencies,

technological prowess and management capability

a series of exclusive strategic partnerships with world leaders in

communications technology.

Network digitisation has exceeded 99%, compared to 74% just

three years ago; in addition, the core network is now managed

from a single, central point, and implementation of a new gen-

eration network is under way. Over the same time frame, we

have installed 1.6 million new lines under the terms of our

licence, increased the number of high-speed data services and

boosted international satellite capacity.

For Vodacom, an important milestone of 1999/2000 was the

creation of Vodacom Service Provider Company (Pty) Ltd,

enabling Vodacom to better its service to cellular customers.

Beyond South Africa’s borders, Vodacom is actively pursuing a

range of opportunities and it has secured a licence to operate

a GSM network in Tanzania. The company already operates a

GSM cellular network in Lesotho, in partnership with the

Lesotho Telecommunications Corporation.

Social commitments, shareholders,

management and employees

As a South African group, Telkom prioritises skills transfer,

black empowerment and employment equity in its social,

employment and procurement policies. Telkom continues to

make consistent and significant investments in developing the

technological capabilities of its employees and of other South

Africans.

We are indebted to our shareholders, the Government and

strategic equity partners Thintana Communications (the consor-

tium comprising SBC Communications and Telekom Malaysia

Berhad) on whose guidance we will continue to rely in the run-up

to listing. I also extend my appreciation to the Board, executive

management and Te l k o m’s employees, who have worked so

effectively together in sharpening the company’s focus on cost-

effectiveness, efficiency and productivity.

Dikgang Moseneke

Chairman

CHAIRMAN’S REPORT


The core

network is now

managed from

a single, central

point, and

implementation

of a new

generation

network is

under way

Telkom's ongoing restructuring programme is paying off richly with

striking improvements in productivityand efficiency during the past year.


As we enter the new millennium, Telkom continues its transfor-mation into a world-class communications company ready toface increased competition in its markets.

In 1999, we made significant progress in restructuring ourbusiness to focus on our core business of communications. Wecontinued to take advantage of the significant cost-savingopportunities available within the company. We raised effi-ciencies across the board to meet increased financial and net-work targets. The vast majority of our capital expenditure wentinto network expansion, growth businesses, including massiveinvestments in upgrading and expanding our data, Internetand broadband networks to meet new customer demand.

Going forward, we will continue restructuring the Group alongfunctional lines from the previous regional structure. We willalso remain focused on raising efficiencies and outsourcingnon-core operations as we prepare for increased competition.Our investment in network expansion and modernisation willcontinue, as well as investment in new technological develop-ment, in particular data and broadband communications.

We are at the forefront of the African drive to boost the wholecontinent’s connectivity through our involvement in projectssuch as SAT-3/WASC/SAFE optic fibre cable system.

A look at financial performanceThe overall impact of these strategies has been positive interms of financial performance. Group revenue grew by17.8% over the year under review to R26.7 billion. Vodacomcontributed to 7.9% of Group revenue. Revenue per line, at a Company level, continued to improve to R4,378 from R4,079 last year.

Group earnings before depreciation and finance chargesincreased 20.8% to R9 billion, partially driven by strong con-tributions from Vodacom and data services as well asimproved cost efficiencies.

The focus was on restructuring the group with a number ofonce-off charges impacting, including some increases in provisions relating to pensions and post retirement medical ben-efits owing to changes in accounting policies to bring Telkom’saccounts closer to International Accounting Standards.

The restructuring improved benchmark employee productivityratios. The critical lines-per-employee ratio rose to 112:1 atyear-end from a base of 83:1 in the previous year – animprovement of 35%. Furthermore, the restructuring process

CEO Review

1996 1997 1998 1999 2000

20

10

15

5

0

25

Reve

nu

e (

Rm

)

30

13,091

15,843

19,218

22,675

26,720

8

1996 1997 1998 1999 2000

4

6

2

0

10

EBIT

DA

(R

m)

5,079

6,8287,489

7,439

8,988

40

1996 1997 1998 1999 2000

20

30

10

0

50

Tota

l A

ssets

(R

m)

45,080

19,965

23,482

26,498

37,726

*Earnings before interest tax, depreciation and amortisation

Total Assets

*EBITDA

Revenue


realised a profit of R468 million and proceeds of R753 millionon the outsourcing of the vehicle fleet to a fleet managementorganisation.

The economic slowdown experienced in 1998/99, however,continued to adversely affect Company debtor repaymentsresulting in a year-on-year increase in bad debts from R392million to R813 million.

Group capital expenditure for the year was R9.5 billion, mainly funded through increased borrowings. Resultingfinance charges were higher for the Group at R2.4 billion(1999: R1.2 billion). Our first Eurobond issue for 500 millionEuros was well received in the markets in March/April 2000and our credit ratings with Moody’s and Standard and Poor’swere favourable.

Capital expenditure amounted to just over R29 billion in thepast three years, and a key focus area remains tight manage-ment of borrowings and reduced financing charges throughimproved debt instruments.

These higher interest charge and restructuring costs, some ofthem once-off, combined to reduce net profit attributable toshareholders to R1.8 billion from R2.3 billion last year.

A changing environmentAfrica is on the verge of a communications explosion, withtraffic on the continent forecast to grow by nearly 60 timesover the next five years. In South Africa alone, the growth indata traffic during the past year outpaced industry projectionsby more than 300%.

The process of issuing further licences for both fixed andmobile operators is well underway. The establishment of theIndependent Communications Authority of South Africa(ICASA) is expected to bring much-needed stability to the reg-ulatory environment and accommodate the growing conver-gence of technologies and services.

Among the issues that ICASA can be expected to address arefrequency management, the implementation of the new num-bering plan, regulations on Value Added Network Services

(VANS) and private telecommunication networks (PTNs), aswell as interconnection guidelines for the remainder of ourexclusivity period and the competitive environment to follow.

Network modernisation and expansion driveOverall, Telkom met 15 out of its 16 licence targets during1999/2000, our best performance in the three years since theissuing of our licence. We met our line roll-out targets set in thelicence, with a cumulative three-year tally totalling 1.6 millionlines. Of these, just over one million lines were installed inunderserviced areas, some 90,000 of the cumulative target.

Similarly, we are 328 villages ahead of the three-year target forproviding first-time services to villages, 17,860 ahead for new

CEO REVIEW

A key focus area remains tight management of borrowings and

reduced financing charges throughimproved debt instruments

12 000

9 000

6 000

3 000

TargetAchieved

10 820

13 697

0

15 000

New lines installed – priority customers

80 000

60 000

40 000

20 000

TargetAchieved

68 027

85 887

0

10 000

New public payphones installed

payphones and almost 1 million ahead of our three-year targetto replace non-digital lines.

An important part of our network modernisation programme isline digitisation, which is the platform on which we can buildvalue-added services like caller line identification, electronic callanswering and innovative billing systems like per-second billing.The ongoing efforts of our technicians across the country result-ed in almost 99% of our 5.5 million automatic working tele-phone lines were connected to digital exchanges by year-end.We were able to upgrade a further 350,440 lines during thepast year alone, bringing the three-year total to just over onemillion lines, against the cumulative licence target of 98,000.

We have put a great deal of work into making our networkmore resilient, and are recording 11% fewer faults than twoyears ago in spite of monsoon-like weather across large partsof the country in the first quarter of the new millennium. Eventhough the flooding pushed our residential fault rate slightly

above the licence target, we still managed to improve our residential fault rate by 13% since 1997/98.

The past year saw us achieving the two licence targets that wefailed to meet in 1998/99, namely those for repairing busi-ness and residential telephone faults within 48 hours. Whatthis means in real terms is that over the past two years, Telkomhas achieved a steady 14.4% improvement in repairing busi-ness faults and a 15.4% improvement for residential faults.

These improvements, however, are only a precursor to farmore substantial ones that we expect to realise in the nearfuture through projects like the opening of the new NationalNetwork Operations Centre (NNOC), the implementation ofour end-to-end customer delivery initiative known as iCare-Flowthru, and higher line-revenue generation through digital,network-based product development.

The NNOC is an ultra-modern facility which will provide anunprecedented level of seamless and robust service across thecountry. It has a 120-metre-wide video wall providing an up-to-the-second, real-time visual summary of the status ofTelkom’s entire network. This facility compares favourably withsimilar centres run by some of the world’s top telecommuni-cations companies. The complex’s emergency restoration andcontrol centre has already been successfully tested by the mil-lennium or Y2K preparations.

Key efficiency improvements The restructuring process has seen no part of the companyescape scrutiny. Every aspect of our business – from work-force profile to stock control, from pricing to credit manage-ment, from product range to network reach, management,

CEO REVIEW


1500000

1200000

9000000

6000000

3000000

TargetAchieved

1 316 466

1 451 582

0

Total new lines installed

1500000

1200000

9000000

6000000

3000000

TargetAchieved

915 863

1 017 799

0

New lines installed – underserviced areas

2 000

1 500

1 000

500

TargetAchieved

1 710

2 038

0

2 500

First time service to villages

reliability and diversity – has been streamlined and refocused.Our efficiency drive has seen the reorganisation of the com-pany from regional-based reporting to function-based report-ing. We are outsourcing our non-core businesses, managingstaff numbers down to more competitive levels, introducingmore efficient procurement and stock control measures.

During the year, we outsourced five non-core entities: Telkom’sfleet, physical security, electronic and light engineering work-shops and catering services. These divisions were bought byorganisations that specialise in these fields and have the exper-tise and economies of scale to run them efficiently and cost-effectively. In the process, approximately 2,000 employees havebeen transferred to the new business owners.

The outsourcing process provided us with a compelling oppor-tunity to boost the economic development of black small,medium and macro enterprises (SMMEs) and businesses com-mitted to black economic empowerment. All five of the non-


CEO REVIEW

1 000

800

600

400

200

Business Residential

TargetAchieved

470

332

490522

0

Fault reports per 1000 lines

100%

80%

60%

40%

20%

Business

TargetAchieved

96

99

0

Perc

en

tag

e

Services activated within 90 days

100%

80%

60%

40%

20%


TargetAchieved

8282.4

75 75

0

Perc

en

tag

e

Faults cleared within 48 hours

100%

80%

60%

40%

20%


TargetAchieved

81

95

73

83

0

Perc

en

tag

e

Services activated within 28 days

Operational Statistics 2000 1999

Main telephone services 5,492,838 5,075,417

Payphones 173,064 153,476

Manual exchanges 74 89

Total automatic

exchange units 3,697 3,512

Digital exchange units 3,666 3,388

Analogue exchange units 31 124

Percentage working lines

connected to digital

exchanges 99% 92.5%

Transmission circuits

(1 000km) 318,000 256,694

Optical fibre

(1 000km) 910 360


CEO REVIEW

core divisions outsourced were either bought by black-controlled companies or by organisations with meaningfulblack equity participation.

Although we reduced our staff complement by about 12,000positions by March 2000, more than 80% of the departureswere either voluntary or achieved through our ongoing out-sourcing programme, which has ensured sustainable employ-ment for most of the staff affected.

In all, just over 8,000 employees accepted voluntary pack-ages or voluntary early retirement in a process which weunderpinned with an extensive Social Plan, designed to helpstaff start their own small businesses, retire in financial securi-ty or prepare for alternative employment.

Retaining and hiring quality staff remains at the core of our business thinking. We are accelerating the process of ensuringthe right depth and breadth of management ability, as well astechnical, business and sales skills, to take the company forward.

This year Telkom cut costs and improved services from suppli-ers through the adoption of Cross Functional Sourcing Teams(CFSTs), multidisciplinary teams sourced from various special-ist units within the company to evaluate all tender bids –putting the people with the knowledge into the decision-mak-ing process.

The CFST is a model followed by most European and US-based companies, but Telkom has pioneered this more effi-cient and transparent tender process in South Africa.

Cost-reducing initiatives in our procurement division haveseen the number of our stores slashed from 600 a few yearsago to 35 today, with a resulting increase in control, distribu-tion and warehousing practices. Telkom is also developingonline procurement strategies with a number of suppliers,which will ultimately see sizeable savings in time and moneyand improved controls and supplier relationships.

Booming data trafficData and multimedia revenues grew by 39% to R3.5 billion in1999/2000, driven by increased customer demand, productenhancements, the development of additional sales channels,price reductions on data and internet-based products, and theongoing reduction of ISDN and Diginet backlogs.

Bandwidth availability, one of the drivers behind the currentconvergence of the telecommunications, information technol-ogy and broadcasting industries, remains a key focus for

Telkom. The total number of 2MB circuits grew by 53% in1999/2000, with even higher growth of 78% in ISDN primary rate services.

We piloted new technologies like Digital Subscriber Line (DSL)and Dense Wavelength Division Multiplexing (DWDM), whichwill increase the capacity of our fibre networks by 40 times inthe next two years. ISDN services have consistently shownexceptional growth since the commercial launch in April 1995,and are now growing at an average rate of 7% per month. Thekey factors behind our ISDN success were the cuts in monthlyrental rates in both 1999 and 2000, and the increase in avail-ability of basic rate ISDN in the network to 96%.

Two data-product milestones were the re-launch of ourFrameRelay product as FrameExpress in June 1999, which was accompanied by network view enhancements and a price reduction, and the launch in October 1999 ofCybertrade, our e-commerce solution.

Telkom also assisted in pioneering delivery of the first onlinelottery in Africa. We provided a 950-site VSAT (Very SmallAperture Terminal) satellite backbone from March 2000 forthe licensed national lottery network operator, Uthingo, includ-ing those in the remotest parts of the country.

At the cutting edge of technological developmentIn the new financial year, we will begin the migration towardsa Next Generation Network (NGN) that will support one con-nection capable of handling voice, data and video, makingthe virtual office a reality. Through this connection, customerswill have access to high bandwidth and optimum availability,while being able to manage their communication devices,whether fax, phone, modem or data lines, through just onephone number.

The NNOC will be an integral part of these changes. Plansare already in place to introduce new support systems that willallow synergies created by the NNOC to be fully exploited asthe network evolves.

DSL technology is expected to be deployed during the latterpart of the next financial year, as is our use of DWDM toenhance capacity. Apart from that, we have upgraded the

ATM technology has an important role to play

in the evolution of our network


transport network with the latest asynchronous digital hierar-chy (SDH) equipment over optic fibre self-healing rings, andstarted deploying ATM technology extensively across thecountry in 1999.

Our core ATM network now covers most of the major metro-politan areas. This technology has an important role to playin the evolution of our network, as it provides a sound plat-form from which to support Internet Protocol. A growingnumber of corporate customers are migrating towards ATMas part of an ongoing process that will accelerate as part ofour technological deployment, sales, marketing and cus-tomer service initiatives.

Focusing on business communication needsWe are forging strategic alliances that enhance our ability to provide solutions for business customers and enter newmarket arenas such as consulting, call centres, network customer premises equipment (CPE) and systems integration.The expertise of partners like Unisys, Arthur Andersen,Compaq, Siemens and PQ Africa gives us instant marketaccess and recognition.

In the large PBX market, our partnership with Siemensfuelled growth of 147% in our customer base. We haveentered a number of vertical markets, including govern-ment, industrial, mining, hospitality and medical, but themost remarkable achievement was the penetration of theeducation market. Here we provided solutions to tertiaryinstitutions such as the University of the Western Cape, theUniversity of Stellenbosch, the Department of Educationand the University of Zululand.

In the broader PBX market, which has been deregulated foralmost 20 years and is ferociously competitive, we are one ofa handful of suppliers that cater for every market segment,from small office/home office right through to large corporateenterprises. This year we entered the outright purchase PBXmarket after previously dealing on a rental basis only.Introducing other purchasing options will strengthen ouralready leading market position.Primenet, Telkom’s virtual private network product offering,exceeded expectations in 1999/2000 by contracting 17

national and corporate customers. Our intentions are to pro-vide international virtual private network solutions to cus-tomers during the next financial year.

Prioritising customer focus and competitive pricing The wide-ranging reorganisation of the company, with theemphasis on an interim structure based on functional ratherthan geographical requirements, is being undertaken with oneprimary goal in mind, customer service.

Accelerated training programmes which emphasise customercare, new products and the latest emerging technologies aresteadily changing our skills profile to assume that of a globalcommunications company.

The new NNOC has given us the capability to start offeringour corporate customers the guaranteed service levels theyrequire to compete globally through much-reducedresponse times, more up-time and improved overall networkreliability.

Our tariff rebalancing drive, which will bring prices of ser-vices more into line with international trends, is bearing fruit.International call costs have declined by 50% in real termsbetween 1997 and 2000 and are nearing global priceratios. Three years ago, a long-distance call was around 13times more expensive than a local call. Today, the gap hasbeen narrowed to 6.9 times, far closer to the internationalnorm of 4.5.

The most recent international price cuts, in March 2000, sawprices drop by up to 35% for calls to 24 countries, includingmajor trading partners such as the United Kingdom andAustralia.

Despite annual increases in the cost of local services, theseremain extremely competitive. An authoritative internationalcomparison of prices in 24 countries showed Telkom’s con-nection rates to be the cheapest of the countries surveyed.Rental rates were the 7th lowest, and a three-minute local callin peak time was the 7th cheapest.

Long term investment in international linksInternational voice traffic volumes make up approximately 11%of Telkom’s revenues. During the year transit traffic rose by 26%.The signing in June 1999 of an agreement on the SAT-3/WASC/SAFE cable project paved the way for an underseaoptical fibre system that will cater for the continent’s burgeoningtelecommunications needs for up to 25 years.

CEO REVIEW

We’re forging strategic alliances that enhance our ability to provide

solutions for business customers


CEO REVIEW

60 000

1995 1996 1997 1998 1999 2000

30 000

45 000

15 000

0

49128

70 000

61237

564805681155347

58793

Staff Complement

80%

1994 1999 2000

40%

60%

20%

0

100%

54

WhiteBlack (African, Coloured, Indian)

46

41

59

44

56

Workforce Composition

A US$630 million project for an 80 gigabit link (with capacityequal to 960,000 simultaneous telephone conversations), hasbrought together 40 nations and some of the world’s mostinfluential telecommunications players.

Expected to be fully operational early in December 2001, thissystem will stretch nearly 28,000 kilometres and will linkAfrica to Europe and Asia. The cost of transmissions is estimated at one-hundredth that of a comparable satellitetransmission.

One of the major benefits of the project is that it will be owned,controlled and maintained by the individual operators. Whereasan estimated 80% of Africa’s telecommunications revenue cur-rently flows out of the continent, revenue generated by the coun-try to country operators will remain in Africa – which is critical tothe economic development of the continent as a whole.

The past year also saw us adding direct international links toeight countries, including Cuba and Pakistan, bringing the totalnumber of direct dial-access destinations to 86. At the sametime, we secured VSAT landing agreements in 10 additionalAfrican countries, ensuring seamless data connectivity solutionsfor South African companies investing on the continent.

We continued to play a leading role in the design and develop-ment of a regional network for the Southern AfricanDevelopment Community (SADC). Fifteen regional priority pro-jects were identified and are being implemented through bilateral and multilateral cooperation between regional carriers.

Vodacom, a core contributorVodacom is South Africa’s leading cellular network and is

50% owned by Telkom. Vodacom contributed R2.1 billion toGroup revenue, which is 39.5% higher than the previous peri-od. Unknown before 1994, Vodacom has become a house-hold name and by May 2000 was one of the best-recognisedbrands in South Africa and has some 3.1 million customers.By comparison, Vodacom had some two million customers atthe end of May 1999.

Vodacom is pursuing opportunities on the African continentthat make economic sense and secured a licence to operatea GSM network in Tanzania during mid-1999. The companyalready operates a GSM cellular network in Lesotho in part-nership with the Lesotho Telecommunications Corporation.

During the year R2 billion was invested in increasing the net-work capacity, bringing to more than R8 billion the amountinvested on the network since inception. The year also sawthe creation of Vodacom Service Provider Company (Pty)Ltd, after the merger of Vodac, Teljoy Cellular Services andGSM Direct into a single entity to enable Vodacom to betterservice its customers.

Developing complementary growth businesses We’ve concentrated on improving operational efficienciesand customer service within our subsidiaries Intekom, Swiftnetand Telkom Directory Services.

• Intekom has succeeded in establishing itself as a major roleplayer in the Internet Service Provider market by supplyingmarket-related products and services at competitive pricesfrom dedicated offices throughout South Africa, and expectsto grow its subscriber base further this year by focusing onthe SMME market.


CEO REVIEW

• Swiftnet specialises in the provision of wireless data applications and solutions. Increased demand forSwiftnet’s services saw radio pad installations growing byover 38% last year, with total billable calls increasingmore than 50%.

• Telkom Directory Services (TDS) publishes 21 directories inSouth Africa with a combined circulation of over 7.5 milliondirectories. Additionally, it operates the “Talking YellowPages”, which enables users to obtain information telephonically. TDS will continue its focus on growing revenues, improving the use of technology and expandingthe usage of its products.

Meeting social challenges Having started our affirmative action programme more thansix years ago, Telkom is well placed to comply with all require-ments of the new Employment Equity Act.

During the year, we consulted employee groups in an attemptto reach agreement on issues relating to the Act, conductedwork force analyses and completed a review of our employ-ment policies and practices. We have already submitted areport to the Department of Labour.

By March 2000, there were more than 950 black managersin Telkom, representing 13% of staff on management lev-els. Some 73% percent of the South African component of top management are black (African, Coloured or Indian), and 27% are women. Emphasis is also being placed on improving the representation of women at all levels and

in all job categories. Women currently represent 25% ofTelkom’s work force.

Telkom has prioritised the development of its skills basethrough an unprecedented training and development drivewithin the company. Overall, the number of learner days hasalmost trebled over the past three years, rising from 267,000to over 757,000 facilitated learning days. When combinedwith the Centre for Learning’s online Virtual Multi-MediaCampus, learner days have increased to more than 1.2 million annually.

This is a direct result of the strategic equity partnership agree-ment signed in early 1997, which allowed us to raise our five-year training budget for the period to March 2002 by 150%, toR2.3 billion. Technology-related training accounts for roughlyhalf of all the training we’re doing. We have also invested heav-ily in an adult basic education and training programme, in whichmore than 12,000 staff have participated since mid-1997.

One of the cornerstones of our procurement policy is BlackEconomic Empowerment (BEE), which saw Telkom’s totalspending with black economic empowerment companiesclimbing to R3 billion in 1999/2000. This amount, reflecting ayear-on-year increase of almost 100%, represented 28% of thetotal volume of purchases, up from 19% in the previous year.Recognising that many black small, medium and macroenterprises (SMMEs) struggle to do business with major pur-chasers, we are overcoming this through strategic initiativesdesigned to make ourself more accessible to these suppliers,as well as to improve their capacity to do business.

1994* 1995* 1996* 1998 1999 2000

57

43

53

47

46

54

45

55

38

62

4852


* Calendar Year

80%

40%

60%

20%

0

100%

Promotion

80%

1994* 1995* 1996* 1998 1999 2000

40%

60%

20%

0

100%

35

65

32

68

42

58

29

71

26

74

25

75


* Calendar Year

Recruitment


CEO REVIEW

In 1999/2000 we spent more with black SMMEs than withlarge black suppliers for the first time, although both enjoyedsubstantially increased business with Telkom from the previousyear. Of the R3 billion spent on economic empowerment,R456 million went to purchases from black SMMEs (supplierswith annual revenue of under R25 million), R435 million tolarge black suppliers, and just over R2 billion to suppliers withsignificant black economic empowerment programmes.

Vodacom is also able to contribute heavily to a large num-ber of deserving communities and organisations. Highlightsof Vodacom’s main corporate social responsibility initiativesduring the 1999 financial year included the building of anR8 million school and clinic in the Amapisi administrativearea of the rural Eastern Cape and the R15 million renova-tion of the Alexandra Police Station and WynbergMagistrates Courts.

Telkom Foundation’s social contributionWe’re continuing to make a significant contribution to improv-ing the quality of life in South Africa’s disadvantaged commu-nities through the Telkom Foundation. The Foundation hascommitted R100 million over five years to boost the quality oftechnology-related education, and to support social develop-ment through child care and job creation. One of the Foundation’s ongoing projects has been the estab-lishment of Internet laboratories at 10 tertiary institutionsacross South Africa in conjunction with the Department ofCommunications.

No less important was the Foundation’s involvement in the

National Plan of Action (NPA) for Children, a project launchedby the President’s Office to promote, develop and protect chil-dren’s rights. Using the notion that “every child is my child”, theNPA is a critical step towards building a culture in our societyin which children and their fundamental rights are cherished.

The Telkom Foundation also supported Internet connectivity toover 1,000 schools. This project is the largest of its kind inSouth Africa and is expected to benefit close to one millionchildren in all nine provinces.

Our commitment to fighting HIV/AIDSHIV/AIDS is a business threat that every company operating inSouthern Africa has to deal with. We initiated our responseprogramme three years ago in an attempt to manage theimplications that HIV/AIDS holds for our operations, costs andproductivity levels.

With the full support of our trade unions, we have alreadyidentified every element that could potentially be affected bythe epidemic - including overtime, recruitment, training andpension benefits. We are currently evaluating their potentialimpact and are exploring response options to contain these.

In the next phase of our response programme, we aim tofocus on medical, psychological, financial and legal coun-selling for employees living with AIDS.

AppreciationIn moving towards our listing and open competition, the quality of leadership within our Company will play an increasingly important role. On a strategic level, our Board ofDirectors has set a clear framework for continued revenuegrowth, operating cost control, efficient capital expendituremanagement and careful debt-equity management.

Every company can only be as good as its people, and I there-fore extend my appreciation to Telkom’s dedicated work force,who have met constant change, exacting targets and large-scale restructuring with equanimity. With their continued sup-port, along with that of the Board and management, I amconfident that we are well placed to achieve the ongoingimprovements expected in the coming financial year.

2000

1996/97 1997/98 1998/99 1999/2000

1000

1500

500

0

2500 Actual Black SpendTarget for Black SpendSignificant Suppliers Spend

Rm

Of the R3 billion spent on economicempowerment, R456 million went to

purchases from black SMMEs

Black Economic Empowerment spend

Financial Review

Changes in accounting practices

This year the Group embarked on the alignment of its finan-

cial reporting to International Accounting Standards.

Accounting changes relate to the treatment of post-retirement

medical benefits to staff, recognition of retirement and pension

fund liabilities, accounting for goodwill, and the effect of

changes in foreign exchange rates.

This resulted in prior year adjustments to equity of R1.5 billion,

an increase in provisions of R2.1 billion, and goodwill being

amortised over a five-year period, previously written off in the

year of acquisition.

Turnover

The year under review saw strong growth of 17.8% in Group

revenue, to R26.7 billion. At a Company level, revenue

growth was 16.1% to R24 billion. Vodacom, Telkom’s joint

venture, which is consolidated on a proportionate basis, con-

tributed R2.1 billion to group turnover, which was a 39.5%

improvement on last year.

Net operating expenses

Group net operating expenses grew by 17.5%, compared to

23.2% the previous year. Company net operating expenses

saw a 18.3% year-on-year increase and included costs relat-

ing to management of staff numbers and outsourcing initia-

tives, which amounted to R353 million and which form part of

an ongoing restructuring process. The restructuring process

led to a 19.8% decrease in headcount, from 61,237 to

49,128.

During the year R168 million of investments were written off.

However, the successful outsourcing of the vehicle fleet to

a fleet management organisation, realised a profit of

R468 million and proceeds of R753 million.

The year to 31 March 2000 saw some significant increases in

bad debts due to the slow economy. There was a year-o n -

year increase in bad debts from R392 million to R813 million

( 1 0 8 % ) .

Operating profit

Group operating profit improved by 18.7% to R8.5 billion. Of

this 19.6% relates to Vodacom, a 51.5% improvement on

Vodacom’s contribution last year. Group operating profits

were enhanced by the sale of "Yebonet", a business division of

Vodacom.

Income from investments

The year under review saw growth in income from investments

of 78.8% and 62.8% for the Group and Company

respectively.

EBITDA

The Group achieved growth in earnings before interest, tax,

depreciation and amortisation (EBITDA) of 20.8% to

R9 billion. Group EBITDA margins improved slightly to 33.6%

from 32.8% last year.

Finance and other charges

The major network expansion drive resulted in an increase of

47.3% in Group interest bearing debt with a corresponding

increase of 46.6% at a company level. This resulted in finance

charges almost doubling to R2.4 billion year-on-year for the

Group and to R2.3 billion for the Company.

The increase in depreciable assets resulted in a 38.6%

increase in depreciation charges for the Group.

Profit before tax for the Group was 24% lower at R2.5 billion

from R3.2 billion in 1999.

Taxation

Taxation charges decreased by R237 million to R592 million

for the Group. The effective taxation rate decreased by 2% to

24%.

Net profit

Group net profit for the period was R1.8 billion, 22% down on

the previous period’s net profit of R2.4 billion. The higher

depreciation and finance charges saw a decrease of 46% in

the Company’s net profit. Earning per share was 332.0 cents

(1999:421.2 cents) based on 557 million ordinary shares in

issue.

Cashflow

Higher debtor’s balances and increased finance charges

resulted in decrease in Group cash flow from operating

activities of 29.5%.

Shareholders’ equity and total assets

Growth in shareholders equity was 13.7% for the period to

R15.4 billion. The Group has total assets of R45.1 billion.

Capital expenditure

Group capital expenditure for the year of 31 March 2000



FINANCIAL REVIEW

totalled R9.5 billion. Capital expenditure at a Company level

was R8.4 billion. Capital investment for the Company has

totalled R26 billion over the past three years. It is anticipated

that the Company will have invested a total of

R47 billion during the five-year exclusivity period.

Funding and liquidity

I n t e r e s t-bearing borrowings have increased by 47.3% to

R19.9 billion.

An increase in pre fund investments resulted in net debt

increasing by 39.3% to R18.4 billion for the Group at

31 March 2000.

Telkom funded its capital requirements in both the local and

international debt markets. At 31 March 2000, 21.7% of debt

outstanding by the Company was foreign. Company debt

repayments over the next year total R4.9 billion.

Telkom has finalised an inaugural Eurobond offering, which

was placed at a favourable rate in a period during which the

markets were unsettled. The Telkom Eurobond is listed on the

London Stock Exchange and has performed well since its

pricing in March and issuance in early April 2000.

During the year, Telkom was rated by two international credit

agencies, and received a favourable investment rating of Baa3

from Moody’s and BBB from Standard & Po o r’s. These were

improvements on previous ratings and will assist with broadening

of the company’s investor base.

Telkom hedges its exposures to foreign financial markets based

on a conservative policy, which ensures that Telkom does not

have excessive exposure to volatile market movements.

Telkom hedges its

exposures to

foreign financial

markets based on

a conservative

policy, which

ensures that

Telkom does not

have excessive

exposure to

volatile market

movements

Sizwe Nxasana

Chief Executive Officer


Basis of accounting

The financial statements are prepared on the historical cost

basis in conformity with South African Generally Accepted

Accounting Practice. The Group has embarked on a process of

aligning its accounting policies with international standards.

International accounting standards, with respect to pension and

retirements funds, business combinations and post- r e t i r e m e n t

medical aid have been adopted before their effective dates in

terms of Generally Accepted Accounting Practice in South

Africa. The following are the principal accounting policies used

by the Group which, with the exception of those indicated in

note 1, are consistent with those applied in the previous year.

Basis of consolidation

The consolidated financial statements include those of the

holding company, its subsidiaries and joint venture compa-

nies. The results of all subsidiaries are included from the dates

effective control is acquired up to the date effective control

ceases. Intragroup transactions are eliminated in full on con-

s o l i d a t i o n .

Joint ventures

A joint venture is an entity jointly controlled by the Group and

one or more other venturers in terms of a contractual

arrangement. Joint ventures are accounted for by means of the

proportionate consolidation method, whereby the attributable

share of assets and liabilities, revenue, expenses and cash flow

of the joint venture are incorporated on a line by line basis,

with similar items in the consolidated financial statements.

A proportionate share of intercompany items is eliminated.

Goodwill

The difference between the fair value of the consideration paid

and the fair value of the underlying net assets of subsidiaries

and joint ventures at the date of acquisition is shown as good-

will on consolidation. Goodwill is amortised over its useful life

dependent on the particular circumstances applicable to the

acquisition. The maximum amortisation period does not exceed

5 years. In the event of a diminution in the value of a subsidiary

or joint venture, the unamortised balance is written off to the

income statement.

Investments

Investments, including investments in subsidiaries are stated

at cost less amounts written off. Investments are written down

to give recognition to a diminution in value.

Fixed assets and depreciation

Tangible fixed assets, except for freehold land, are stated at

historical cost less accumulated depreciation. The cost of

self-constructed fixed assets includes all direct expenditure,

but excludes abnormal wastage and internal profits.

Borrowing costs incurred in the construction and develop-

ment of the telecommunication network and other qualifying

fixed assets are capitalised. Borrowing costs include mainly

interest, forward cover premiums and other hedging costs.

Actual borrowing costs incurred on asset specific borrowings

are capitalised. The capitalisation rate used for purposes of

calculating interest incurred on general borrowings to be

capitalised is arrived at by dividing borrowing costs by the

applicable weighted average borrowings outstanding during

the period other than specific borrowings.

Year 2000 expenditure incurred in the restoration and

maintenance of existing hardware and software is expensed

as the work is carried out. Replacements of and enhance-

ments to existing hardware, software and other major

assets are capitalised only if the originally assessed useful

life of the said assets is extended and the costs can be

m e a s u r e d .

Freehold land is stated at historical cost and is not

depreciated. All other fixed assets are depreciated from

the date of commissioning on a straight line basis over

their expected useful lives.

Intangible fixed assets, as detailed below, are stated at

historical cost less depreciation or amounts amortised.

The expected useful lives assigned to groups of fixed assets are:

Years

Buildings 40

Telecommunication network equipment

Cables 10 to 20

Switching equipment 5 to 15

Transmission equipment 15

Other telecommunication equipment 2 to 15

Telecommunication support equipment 5 to 10

Other equipment 5 to 10

Data-processing equipment 4 to 5

Vehicles 5

Furniture and office equipment 5 to 10

The expected useful lives

assigned to intangible assets are:

Licences 10 to 15

Goodwill 3 to 5

Trademarks and Subscriber base 6

Accounting Policies


Capital inventory

Engineering stores items are used in the construction and

maintenance of the network. When issued, the carrying

value of items used in the construction of the network

is included in the cost of the network or charged to the

income statement as appropriate. Engineering stores items

are stated at cost, less a provision for obsolescence.

Fixed asset investments

Indefeasible rights of use bought in cable systems are classi-

fied as fixed asset investments. Fixed asset investments are

stated at cost less accumulated amortisation. Amortisation is

calculated on a straight-line basis over the expected useful

lives of the cables. The maximum expected useful life-span

of cables is 25 years.

Participating interests

Participating interests are stated at cost and are written down

only if there is a permanent diminution in value. Income

from participating interests is brought to account when the

right to receive payment is established.

Inventories

Inventories are stated at the lower of cost, determined on a

weighted average basis, and estimated net realisable value.

In the case of self-manufactured products, cost includes all

direct expenditure, but excludes abnormal wastage and

internal profits.

Local Telkom stock

Telkom loan stock is stated at nominal value less unamor-

tised discounts. Discounts arising on the issue of Telkom

loan stock are amortised over the period of the debt, using

the yield-to-maturity-basis.

Financial instruments

Measurement

Financial instruments are initially measured at cost, which

includes transaction costs. Subsequent to initial recognition,

these instruments are measured as set out below.

Trade and other receivables

Trade and other receivables originated by the Group are

stated at cost less provision for doubtful debts.

Cash and cash equivalents

Cash and cash equivalents are measured at fair value.

Financial liabilities

Financial liabilities are recognised at amortised cost.

Derivative instruments

Premiums paid or received on hedging instruments are

amortised over the period of the instrument contracts and

included in finance charges or operating cost, depending on

the nature thereof. Interest differentials, under swap contracts

used to manage interest rate risk are recognised as

adjustments to finance charges.

Foreign currencies

Transactions denominated in foreign currencies are translated

at the rate of exchange ruling at the transaction date.

Monetary items denominated in foreign currencies are

translated at the rate of exchange ruling at the balance sheet

date. The Group fully hedges all foreign currency exposures.

The cost of forward exchange contracts are accrued over the

period of the contract and are included in finance charges or

operating costs, depending on the nature thereof. Re a l i s e d

and unrealised profits and losses on foreign exchange are

included as operating costs or finance charges, depending

on the nature thereof.

Interest-bearing investments

Investments are held either for the investment of surplus

funds, or for hedging purposes of capital market funding

activities. Investments held for investment of surplus funds

are stated at cost and are adjusted for amortised discount

on a yield-to-maturity basis, where applicable.

Investments held for hedging purposes are stated at cost and

are adjusted for amortised discount on the same basis as the

hedged liability. Profits and losses relating to these invest-

ments are accounted for in income when price changes

which affect the hedged liability occur.

Deferred taxation

Deferred taxation is accounted for using the balance sheet

liability method at current rates in respect of temporary dif-

ferences. Deferred tax assets are raised only to the extent

that it is probable that future taxable profit will be available

against which the unused tax losses can be utilised.

Revenue

Revenue which excludes value added tax, comprises the

value of services provided and interest from debtors.

Revenue is stated at the fair value of consideration received

or receivable and is recognised only when it is probable that

economic benefits associated with a transaction will flow to

ACCOUNTING POLICIES

The Group

provides defined

benefit and

defined

contribution

plans for the

benefit of

employees


ACCOUNTING POLICIES

the Group and the enforceable right to receive payment is

established. Interest earned on arrear account balances is

accrued on a time proportion basis.

Retirement benefits

The Group provides defined benefit and defined contribution

plans for the benefit of employees. Current contributions

reducing the deficit of these funds operated for employees are

charged against the provision as actuarially determined and as

set out in note 1.2. The funds are actuarially valued at inter-

vals of three years. Benefit costs are determined and expensed

using the projected benefit valuation method that recognises

the expected costs of providing benefits over the period during

which the Group benefits from the employee’s services.

Post-retirement medical benefits

Medical aid costs are recognised as an expense in the peri-

od during which the employees render services to the Group.

The present value of future medical aid costs for all current

and retired employees is actuarially determined annually on

the basis of current actuarial practice, and any shortfalls or

surpluses are immediately recognised in the income state-

ment. Subsequent to discussions with organised labour, the

Group has reviewed the benefit structures in its medical

schemes which has resulted in the termination of future post-

retirement medical benefits in respect of employees joining

after 1 July 2000. The effects of this agreement have not

been taken into account in determining the provision at 31

March 2000.

Exceptional items

Exceptional items are items which fall within the ordinary

activities of the Group and are disclosed separately by virtue

of their size and incidence if the financial statements are to

present a true and fair view.

Comparatives

Comparative figures have been adjusted to conform with the

following changes in the current year.

IAS 22 – Business combinations (effective date: 1 July 1999)

IAS 19 – Employee benefits (effective date: 1 January 1999)

For practical reasons, comparative figures have not been

adjusted for the following change in accounting policy.

IAS 21 – The effects of Changes in Foreign Exchange rates

(effective date: 1 January 1995)


We have audited the annual financial statements and Group

annual financial statements of Telkom SA Limited set out on

pages 29 to 66 for the year ended 31 March 2000. These

annual financial statements are the responsibility of the

C o m p a n y’s Directors. Our responsibility is to express an

opinion on these annual financial statements based on our audit.

Scope

We conducted our audit in accordance with statements of

South African Auditing Standards issued by the South African

Institiute of Chartered Accountants. Those standards require

that we plan and perform the audit to obtain reasonable

assurance that the annual financial statements are free of

material misstatement. An audit includes:

• examining, on a test basis, evidence supporting the

amounts and disclosures in the annual financial

statements;

• assessing the accounting principles used and significant

estimates made by management; and

• evaluating the overall annual financial statements

presentation.

Our audit included an assessment of the compliance of the

requirements of the Reporting by Public Entities Act (Act 93 of

1992). We believe that our audit provides a reasonable basis

for our opinion.

Audit opinion

In our opinion, the annual financial statements fairly present,

in all material respects, the financial position of the Company

and the Group as at 31 March 2000 and of the results of their

operations and cash flows for the year then ended in accor-

dance with South African Generally Accepted Accounting

Practice issued by the Accounting Practices Board of the South

African Institute of Chartered Accountants and in the manner

required by the Companies Act of South Africa. The informa-

tion contained in this report conforms to the requirements of

the Reporting by Public Entities Act, in all material respects.

Auditors’ Report

Ernst & Young

Registered Accountants and Auditors

Chartered Accountants SA

Pretoria

28 June 2000

KMMT Incorporated

Registered Accountants and Auditors

Chartered Accountants SA


Notes to the Financial Statements

Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

1 Changes in accounting policy

1.1 Post-Retirement Medical Benefits

During the year the Group changed its accounting

policy with respect to the treatment of post-

retirement medical benefits to staff. The Group now

provides fully for the actuarially determined present

value of future medical aid obligations for all current

and retired staff, whereas previously post-retirement

benefit obligations were only provided for in respect

of staff who retired before 1 October 1991.

Comparative information has been restated.

The effect of the change in accounting policy

is as follows:-

Decrease in net profit

Gross (137,000) (106,400) (137,000) (106,400)

Taxation 41,100 31,920 41,100 31,920

Net (95,900) (74,480) (95,900) (74,480)

Restatement of opening retained earnings

in respect of change in accounting policy

Decrease in retained earnings

Gross (879,499) (773,099) (879,499) (773,099)

Taxation 263,850 231,930 263,850 231,930

Net (615,649) (541,169) (615,649) (541,169)

1 . 2 Recognition of Retirement and Pension Fund liability

During the year the Group changed its accounting

policy with respect to the treatment of the deficit in

the Telkom Retirement and Pension Funds. Due to

the fact that the funds' financial obligations have

been guaranteed by Telkom, the actuarially valued

deficit is now fully provided for on the financial

statements even though the retirement fund is a

defined contribution plan.


for the years ended 31 March


NOTES TO THE FINANCIAL STATEMENTS

Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

The effect of the change in accounting policy

is as follows:-

Increase in net profit

Gross 110,734 71,565 110,734 71,565

Taxation (33,220) (21,470) (33,220) (21,470)

Net 77,514 50,095 77,514 50,095

Restatement of opening retained earnings in

respect of change in accounting policy

Decrease in retained earnings

Gross (1,207,734) (1,279,299) (1,207,734) (1,279,299)

Taxation 362,320 383,790 362,320 383,790

Net (845,414) (895,509) (845,414) (895,509)

1.3 Business Combinations

IAS 22 (Revised 1998) requires that any goodwill

arising on the acquisition of subsidiaries and

trademarks be capitalised and amortised over its

expected remaining useful life.

Previously the Joint Venture's goodwill was written

off in the year of acquisition as an abnormal item.


The effect of the change in accounting policy is

as follows:-

Increase in net profit

Gross 283,400 37,427 – –

Taxation – – – –

Outside shareholders – – – –

Net 283,400 37,427 – –

Restatement of opening retained earnings in

respect of change in accounting policy

Increase in retained earnings

Gross 53,727 16,300 – –


Outside shareholders – – – –

Net 53,727 16,300 – –

Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

1.4 Foreign currencies

During the year the Group adopted IAS 21

(revised 1993), The Effects of Changes in

Foreign Exchange Rates. In terms of the

amended accounting policy, all foreign currency

denominated transactions in Group companies

are accounted for at the exchange rates prevailing

at the date of the transactions. The translation of all

monetary assets and liabilities denominated in foreign

currencies are accounted for at exchange rates

ruling at the balance sheet date.

Comparative information has not been restated as it is

not practical.

The effect of the change in accounting policy is as follows:-

Increase/(decrease) in net profit

Gross – – – –


Net – – – –

The Group hedges all foreign currency exposures

and therefore net profit is not expected to be

materially affected by the translation of monetary

items at balance sheet date, as all potential

unrealised losses are covered.

2 Revenue 26,719,736 22,674,702 24,047,911 20,704,218

Telecommunication and value added

services rendered 26,277,804 21,421,559 23,686,085 20,419,774

Interest on debtors and employee accounts 220,516 209,978 219,772 209,978

Other sales and services 221,416 1,043,165 142,054 74,466



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

3 Net operating expenses 18,211,122 15,504,255 17,540,048 14,825,672

Materials and consumables used 2,816,908 2,466,689 2,233,706 1,967,550

Employee costs 7,549,974 6,529,402 7,080,564 6,233,531

Salaries and employee costs 6,935,004 5,902,944 6,478,438 5,613,277

Pension and Retirement Fund contributions 614,970 626,458 598,645 618,253

Normal contributions 486,193 447,426 469,868 439,221

Deficit 128,777 179,032 128,777 179,032

Directors' emoluments 3,481 2,001

Services as directors 1,978 472

For management services 1,503 1,529

Access and other interconnect costs 2,490,759 2,020,457 5,041,432 3,755,556

Other operating expenses 6,228,204 5,000,459 3,988,358 3,388,460

Operating leases 577,675 472,975 379,145 330,470

Buildings 280,455 227,093 237,114 190,422

Data processing equipment 15,568 21,022 15,568 21,022

Other equipment 242,066 179,902 87,894 75,035

Vehicles 39,586 44,958 38,569 43,991

Consultancy services 52,423 55,908 31,699 45,904

Auditors' remuneration 9,405 8,409 6,965 7,015

Audit fees 7,719 6,983 6,000 5,962

Other 1,686 1,426 965 1,053

Losses on disposal of tangible fixed assets 23,128 14,067 18,187 12,564

Goodwill written off 24,128 4,947 – –

Other costs 4,035,012 3,409,105 2,133,256 2,025,844

Management fee 260,352 249,223 260,352 249,223

Bad debts 833,500 419,489 813,533 391,921

Investments written off 167,697 – 167,697 –

Hedging costs-other exposures 244,884 366,336 177,524 325,519



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

Other operating income (874,723) (512,752) (804,012) (519,425)

Profit on disposal of tangible fixed assets (504,921) (68,801) (504,685) (68,729)

Foreign exchange differences (49,736) – (50,000) –

Profit on disposal of subsidiary – (65,272) – (72,392)

Other income (320,066) (378,679) (249,327) (378,304)

4 Income from investments 479,254 267,966 612,363 376,030

Income from participating interests

Compensation for use of capital 25,741 29,197 25,741 29,197

Rental income 56,936 42,013 56,936 42,013

Dividends received – – 59,352 –

Interest received on investments 369,612 176,299 369,281 176,299

Income from joint ventures

Interest received 26,965 20,457 101,053 128,521

5 Depreciation and amortisation 4,153,060 2,995,188 3,590,637 2,638,576

Depreciation tangible fixed assets 4,143,303 2,989,116 3,588,064 2,636,003

Buildings 159,847 32,089 154,925 28,926

Telecommunication network equipment 2,786,534 2,109,951 2,389,309 1,856,147

Telecommunication support equipment 309,122 204,783 277,824 186,822

Other equipment 53,118 37,891 30,489 21,084

Data processing equipment 678,101 456,186 583,073 398,298

Vehicles 129,839 127,824 128,598 127,055

Furniture and office equipment 26,742 20,392 23,846 17,671

Depreciation intangible fixed assets – licences 3,387 3,499 – –

Amortisation costs – indefeasible right of 2,573 2,573 2,573 2,573

use of cable systems

Amortisation of trademark 3,157 – – –

Amortisation of subscriber base 640 – – –

6 Finance charges 2,379,713 1,212,425 2,262,191 1,128,420

Interest paid and loan discount amortised 2,072,238 981,115 1,954,716 897,139





Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

Locally registered stock 995,456 606,628 995,456 606,628

Foreign loans 204,474 204,104 169,581 165,744

Local loans 1,204,023 571,383 1,121,394 525,767

2,403,953 1,382,115 2,286,431 1,298,139

Less: Capitalised (331,715) (401,000) (331,715) (401,000)

Hedging costs 307,475 231,310 307,475 231,281

Interest bearing debt 307,475 231,310 307,475 231,281

7 Taxation 592,262 829,559 256,994 604,090

SA normal company taxation 319,539 165,092 – (3,807)

Current 318,956 169,928 – –

Underprovision / (overprovision) for prior year 583 (4,836) – (3,807)

Deferred taxation 258,743 626,657 253,825 570,087

Current 264,732 656,191 251,360 576,152

(Overprovision) / underprovision for previous year (5,596) (10,502) 2,465 2,547

Change in tax rate (393) 92,097 – 102,517

Prior year unprovided debit balance utilised – (100,679) – (100,679)

Prior year adjustment – (10,450) – (10,450)

Secondary tax on companies 13,068 37,810 3,169 37,810

Foreign tax 912 – – –

Reconciliation of taxation rate % % % %

Effective rate 24.1 26.0 20.2 24.0

South African normal rate of taxation 30.0 35.0 30.0 35.0

Adjusted for: (5.9) (9.0) (9.8) (11.0)

Exempt income (38.5) (23.1) (38.5) (23.1)

Deferred tax not utilised (0.2) (4.0) – (4.0)

Permanent differences 32.1 18.9 (28.3) 14.8

Tax losses not utilised 0.4 4.0 – –

Secondary tax on companies 0.5 1.5 0.2 1.5

Prior year adjustment – (4.2) – (4.2)

Change in tax rate – 0.5 – 4.1

(Overprovision) / underprovision for prior years (0.2) (2.6) (0.2) (0.1)


Group Company

`

2000 1999 2000 1999

R'000 R'000 R'000 R'000

8 Earnings per share

The calculation of earnings per share is based on

earnings of R1,849,530,000

(1999: R2,345,959,000) and ordinary shares in

issue of 557,031,819 (1999: 557,031,819)

The calculation of headline earnings per share is

based on headline earnings of R1,707,763,000

(1999 : R2,267,313,000) and 557,031,819

(1999 : 557,031,819) ordinary shares in issue

during the year.

Reconciliation between earnings and headline earnings

Earnings as reported 1,849,530 2,345,959

Adjustments:

Profit on sale of fixed assets (481,793) (54,734)

Goodwill amortisation 24,128 4,947

Prior year adjustments 26,266 34,835

Capital loss/(profit) 153,028 (65,272)

Tax and outside shareholder effects 136,604 1,578

Headline earnings 1,707,763 2,267,313

Headline earnings per share – cents 306,6 407,0

9 Segment reporting

Telkom operates as a unitary business providing an

integrated range of telecommunications products

and services. In the provision of these products and

services there is no distinguishable component in the

Group that is subject to risks and returns that are

different from those of other business segments and

for management reporting purposes, results are not

analysed according to reportable segments. For these

reasons a segment report has not been provided.




Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

10 Tangible fixed assets

Cost

Land and buildings 2,904,283 2,055,621 2,711,084 1,856,624


Telecommunication support equipment 2,342,430 1,706,885 2,154,670 1,580,769

Other equipment 413,590 319,759 253,593 209,706

Data processing equipment 5,097,507 3,352,830 4,644,250 3,067,964

Vehicles 36,368 923,531 29,699 919,215


Capital work in progress 3,229,495 4,932,529 3,226,238 4,925,209

Capital inventory 134,781 590,910 126,384 590,910

53,305,708 44,993,057 48,816,035 41,567,006

Accumulated depreciation

Buildings 455,800 296,084 447,489 292,696


Telecommunication support equipment 1,034,753 726,119 967,249 689,906

Other equipment 181,497 133,059 134,085 103,612


Vehicles 19,601 497,418 17,348 496,375


18,881,753 15,489,155 17,508,335 14,655,878


Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

Book value

Land and buildings 2,448,483 1,759,537 2,263,595 1,563,928


Telecommunication support equipment 1,307,677 980,766 1,187,421 890,863

Other equipment 232,093 186,700 119,508 106,094


Vehicles 16,767 426,113 12,351 422,840


Capital work in progress 3,229,495 4,932,529 3,226,238 4,925,209

Capital inventory 134,781 590,910 126,384 590,910

34,423,955 29,503,902 31,307,700 26,911,128

Full details of fixed properties are available for

inspection at the registered address of the

Company.

Fixed asset movements

Capital expenditure (note 33) 9,471,502 12,887,663 8,372,469 11,389,438

Proportionate share of Joint Venture assets 15,083 6,094 – –

Disposals (346,963) (123,449) (311,567) (121,563)

Depreciation for the year (note 5) (4,143,303) (2,989,116) (3,588,064) (2,636,003)

Transfer to inventories (50,526) – (50,526) –

Other (25,740) – (25,740) –

4,920,053 9,781,192 4,396,572 8,631,872

Disposals comprised

Telecommunication network equipment 55,186 23,749 19,846 21,867

Other equipment 2 2,737 2 2,737

Customer equipment sold – 89,192 – 89,192

Data processing equipment 739 123 700 119

Vehicles 290,852 7,296 290,835 7,296

Furniture and office equipment 184 352 184 352

346,963 123,449 311,567 121,563




Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

11 Intangible fixed assets

Licences 33,444 35,747

Cost 53,880 53,206

Accumulated depreciation (20,436) (17,459)

Goodwill 311,805 53,727

Prior year adjustment – 53,727

Cost 363,759 –

Accumulated depreciation (51,954) –

Subscriber base 3,123 –

Cost 3,763 –

Accumulated depreciation (640) –

Other 22,269 –

Trademarks – Cellphones direct 19,074 –

Trademarks – Vodacare 3,195 –

370,641 89,474

12 Participating interests 114,349 102,594 114,349 102,594

Intelsat

1.161013% (1999:1.161013% ) share in

International Telecommunications Satellite

Organisation, headquartered in Washington

DC, USA, at cost. 103,957 92,202 103,957 92,202

Directors' valuation – R 118.6 million

(1999: R112.5 million).

Inmarsat

0.30186% (1999: 0.30186%) share in

International Mobile Satellite Services

Organisation, headquartered in London,

United Kingdom, at cost. 9,293 9,293 9,293 9,293

Directors' valuation – R 13.1 million

(1999: R14.8 million).

Rascom

3.527% (1999: 3.527%) share in

Regional Africa Satellite Communications

Organisation, headquartered in Abidjan,

Ivory Coast, at cost. 1,099 1,099 1,099 1,099

Directors' valuation – R 1.5 million (1999: R1.5 million)


Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

13 Fixed asset investments

Indefeasible right of use less amounts amortised 42,062 44,637 42,062 44,637

Submarine cable systems 38,113 40,325 38,113 40,325

Terrestrial cable systems 3,949 4,312 3,949 4,312

14 Investments 130,535 103,424 630,274 787,062

Joint ventures 2,000 4,194 563,828 539,194

Vodacom Group (Pty) Ltd

50% shareholding at cost – –

Loan 535,000 535,000

Globalstar Southern Africa (Pty) Ltd

42,5% Shareholding at cost 28,828 –

Loan – 4,194 – 4,194

Vodacom World Online

40% Shareholding at cost – –

Loan 2,000 –

Subsidiaries

Q -Trunk (Pty) Ltd (32,988) 65,405

100% shareholding at cost 10,001 10,001

Loan – 82,338

Provision for losses (42,989) (26,934)

Swiftnet (Pty) Ltd 79,038 65,305


Cumulative redeemable preference shares 45,000 45,000

Loan 46,198 35,498


Telesafe (Pty) Ltd – 1,138


Loan – 1,138




Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

Mnati Foods (Pty) Ltd – 5,102


Loan – 5,102

Intekom (Pty) Ltd (12,939) 5,220


Loan 78,641 58,413


Telkom Directory Services (Pty) Ltd 6,468 6,468

54,9% (1999: 54.9%) shareholding at cost 6,468 6,468

Teljoy Television 60,829 –

Film Fun Holdings-Television 35,000 –

The above subsidiaries have not been consolidated

in the joint venture's financial statements as they are

being held with a view to disposal in the near future.

Unlisted shares

I-CO Global Communications (Holdings) Limited

0.867% (1999: 0.867%) shareholding in I-CO

Global Communications (Holdings) Limited,

headquartered in London, UK, at cost. Unlisted

shares at directors' valuation – R NIL

(1999: R105.7 million)

Cost 72,363 72,363 72,363 72,363

Less: Provision for losses (72,363) – (72,363) –

Carrying value – 72,363 – 72,363

I -CO Global has incurred significant losses since

inception resulting in the filing of a voluntary petition

to reorganise under Chapter 11 of the bankruptcy

code in the USA. The company emerged from the

Chapter 11 order on 17 May 2000 and is now able

to conclude that current investors will also receive an

allotment of shares, which could result in a dilution

of the percentage share that Telkom SA Ltd holds.

Due to the uncertainties outlined above, the dimin-

ution in the cost of the investment has been provided

for in full.



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

14 Investments (continued)

Unlisted shares

New Skies Satellite Investment

1.1577% (1999: 1.045%) shareholding in New

Skies Satellite Investment, headquartered in The

Hague, Netherlands, at cost.

Unlisted shares at directors valuation –

R54.8 million (1999: R 45.6 million)

Cost 26,867 26,867 26,867 26,867

Other investments 5,839 – – –

15 Inventories 1,071,502 1,064,940 959,890 991,105

Installation and maintenance material 841,931 924,476 841,931 924,476

Consumables 6,961 22,378 4,847 5,222

Merchandise 157,281 108,897 47,861 52,338

Work in progress 65,329 9,189 65,251 9,069

16 Trade and other receivables 6,190,914 4,925,977 5,371,240 4,208,345

Trade receivables 5,609,615 4,424,455 4,910,643 3,825,281

Prepayments and other receivables 489,726 501,522 361,087 383,064

VAT receivable 1,881 – 9,818 –

Derivative instruments 89,692 – 89,692 –

17 Cash and cash equivalents at year-end 1,227,664 365,827 1,434,379 364,314

Cash on hand 3,671 225,872 3,661 9,457

Bank balances 145,037 88,897 324,317 88,897

Short term investments 1,078,956 51,058 1,106,401 265,960

18 Other financial assets

Interest-bearing investments 361,836 3,911 361,836 3,911

Repurchase agreements 275,969 3,911 275,969 3,911

Locally registered stock 85,867 – 85,867 –



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

19 Share capital

The company's authorised and issued share capital

and share premium are made up as follows :

Authorised

1,000,000,000 (1999: 1,000,000,000)

ordinary shares of R10 each 10,000,000 10,000,000 10,000,000 10,000,000

Issued 8,293,475 8,293,475 8,293,475 8,293,475

557,031,819 (1999: 557,031,819) ordinary 5,570,318 5,570,318 5,570,318 5,570,318

shares of R10 each.

Share premium 2,723,157 2,723,157 2,723,157 2,723,157

Arising from shares issued 2,803,905 2,803,905 2,803,905 2,803,905

Less: Share issue expenses 80,748 80,748 80,748 80,748

20 Reserves 7,104,060 5,254,220 5,515,110 4,504,706

20.1 Non – distributable reserve 310 – – –

Balance at beginning of year – 19,048 – 19,048

Transferred to distributable reserves – (19,048) – (19,048)

Depreciation on TBVC

telecommunication assets realised – (19,048) – (19,048)

Foreign currency translation reserve 310 – – –

20.2 Distributable reserves 7,103,750 5,254,220 5,515,110 4,504,706

Retained profit 7,103,750 5,254,220 5,515,110 4,504,706

Beginning of year 5,254,220 3,220,890 4,504,706 2,933,845

As previously stated 6,661,556 6,118,587 5,965,769 5,847,842

Prior year adjustment (1,407,336) (2,897,697) (1,461,063) (2,913,997)

- Depreciation & scrapping – (2,272,797) – (2,272,797)

- Post-retirement medical benefits (879,499) (773,099) (879,499) (773,099)

- Recognition of retirement & pension fund deficit (1,207,734) (1,279,299) (1,207,734) (1,279,299)

- Goodwill – Joint Venture 53,727 16,300 – –

- Tax effect of prior year adjustments 626,170 1,411,198 626,170 1,411,198

For the year 1,849,530 2,033,330 1,010,404 1,570,861

The distributable reserves comprise: 7,103,750 5,254,220

Company (before provision for losses in 5,913,626 4,692,202

subsidiary companies)

Joint venture 1,349,854 670,339

Subsidiaries (159,730) (108,321)



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

21 Interest-bearing debt

Telkom's financing is managed on a portfolio basis consisting of

i n t e r e s t-bearing debt and interest-bearing investments. As Te l k o m

is a net borrower, the investments represent temporary surplus

cash which will be utilised for capital and operational expenditure

and the repayment of loans. These investments are included in

cash and cash equivalents and other financial assets.

Interest-bearing debt 19,945,916 13,540,673 19,113,309 13,036,071

Interest-bearing debt as set out in Annexure A 19,945,916 13,540,673 19,113,309 13,036,071

Gross interest-bearing debt 23,316,848 15,109,437 22,484,241 14,604,835

Discount on stock issued (3,370,932) (1,568,764) (3,370,932) (1,568,764)

Interest-bearing debt consists of:

Long-term debt 14,625,083 8,268,330 14,214,670 7,763,146

Locally registered Telkom stock 7,957,758 5,057,020 7,957,758 4,907,518

Nominal value 11,328,690 6,624,603 11,328,690 6,475,101

Discount (3,370,932) (1,567,583) (3,370,932) (1,567,583)

Foreign debt 3,847,540 2,740,396 3,835,689 2,740,396

Debt 3,588,911 2,609,157 3,588,911 2,609,157

Accrued forward-cover costs 258,629 131,239 246,778 131,239

Other debt 2,819,785 470,914 2,421,223 115,232

Short-term debt 5,320,833 5,272,343 4,898,639 5,272,925

Locally registered Telkom stock – 30,726 – 30,726

Nominal value – 31,907 – 31,907

Discount – (1,181) – (1,181)

Foreign debt 304,840 572,575 304,840 572,575

Debt 266,641 407,388 266,641 407,388

Accrued forward-cover costs 38,199 165,187 38,199 165,187

Commercial paper bills and other debt 5,015,993 4,669,042 4,593,799 4,669,624

The capital balances of all foreign currency loans at year-end were covered by forward exchange or option contracts.

Short-term debt is of a revolving nature and is therefore not disclosed as current liabilities.



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

21 Interest-bearing debt (continued)

Guaranteed debt 3,937,283 3,910,746 3,937,283 3,910,505

by South African Government 3,867,826 3,800,872 3,867,826 3,800,864

by South African banks 69,457 109,874 69,457 109,641

The Company may issue or re-issue locally registered

stock in terms of the Post Office Amendment Act 85

of 1991. These borrowing powers are set out in the

C o m p a n y ' s articles of association.

22 Provisions 2,302,362 2,705,059 2,300,962 2,702,688

Leave pay to in-service employees 480,137 523,768 477,660 521,397

Balance at beginning of year 523,768 630,705 521,397 628,797

Charged to income 158,488 122,871 158,382 122,408

Managing staff numbers (58,306) – (58,306) –

Leave encashment (143,813) (229,808) (143,813) (229,808)

Po s t-retirement medical benefits for employees 1,504,000 1,547,000 1,504,000 1,547,000

Balance at beginning of year 667,501 607,901 667,501 607,901

Prior year adjustment due to

change in accounting policy 879,499 773,099 879,499 773,099

Funded contribution (180,000) – (180,000) –

Contributions (106,700) (96,400) (106,700) (96,400)

Actuarial calculation adjustment 243,700 262,400 243,700 262,400

Retirement and Pension fund deficit 1,097,000 1,207,734 1,097,000 1,207,734

Balance at beginning of year – – – –

Prior year adjustment due to

change in accounting policy 1,207,734 1,279,299 1,207,734 1,279,299

Contributions (239,511) (250,597) (239,511) (250,597)

Actuarial calculation adjustment 128,777 179,032 128,777 179,032

Short-term portion (778,775) (573,443) (777,698) (573,443)

Leave pay (456,775) (419,709) (455,698) (419,709)

Medical benefits (218,000) (43,000) (218,000) (43,000)

Retirement and Pension fund (104,000) (110,734) (104,000) (110,734)



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

23 Deferred taxation (348,038) (609,536) (509,425) (763,250)

Balance at beginning of year (609,536) (620,477) (763,250) (717,618)

Movements 261,498 10,941 253,825 (45,632)

Temporary differences – fixed assets, provisions

and other items 267,487 656,195 251,360 576,153

(Overprovision)/underprovision prior year (5,596) (10,502) 2,465 2,547

Prior year unprovided debit balance – (100,679) – (100,679)

Rate adjustment (393) 92,097 – 102,517

Prior Year adjustment – (626,170) – (626,170)

The balance comprises: (348,038) (609,536) (509,425) (763,250)

Capital allowances 105,977 (171,607) (720,143) (956,462)

Provisions (12,018) 31,894 453,778 476,338

Allowances and repayments (441,997) (469,823) (243,060) (283,126)

24 Trade and other payables 6,606,408 6,942,755 5,846,252 5,812,128

Trade payables 2,843,493 2,564,061 2,873,904 2,178,867

Capital expenditure 1,137,767 1,233,606 909,184 680,432

VAT payable – 9,652 – 4,746

Finance cost accrued 274,142 143,392 262,992 138,684

Income charged in advance 686,802 533,341 495,738 431,164

Anticipatory hedges 936,063 1,099,527 936,063 1,099,527

Deposits 50,399 110,704 46,854 109,864

Sundry payables 677,742 1,248,472 321,517 1,168,844

25 Capital commitments

Authorised 10,351,283 10,570,437 10,000,000 10,013,500

Contracted for 2,270,943 1,295,987 1,941,301 750,989

Not yet contracted for 8,080,340 9,274,450 8,058,699 9,262,511

The capital expenditure of the Group will be

financed out of funds generated by own

operations and from external sources.



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

26 Contingent liabilities 297,764 279,292 297,764 279,292

Third parties 35,471 4,103 35,471 4,103

Guarantee of employee housing loans 262,293 275,189 262,293 275,189

27 Financial instruments and financial risk management

Exposure to continuously changing market conditions has highlighted the importance of financial risk management as an

element of control for the Group. Treasury policies, risk limits and control procedures are continuously monitored by the

Board of Directors, the objective being to minimise exposure to interest rate, exchange rate, liquidity and credit

risk. To limit the impact of exchange and interest rate exposures, the Group uses derivative financial instruments.

Interest rate risk management

Interest rate risk arises from the repricing of the Group's floating rate debt, incremental funding, new

borrowings and the refinancing of existing borrowings. The Group's policy is to manage interest cost through the utilisa-

tion of a mix of fixed and variable rate debt. In order to manage this mix in a cost efficient manner, the group makes use

of interest rate derivatives as approved in terms of Group policy. Fixed rate debt represents approximately 76% of the

total consolidated debt, after taking the instruments listed below into consideration. All financial instruments that re-price

within one year are deemed to be floating rate debt.

The table below summarises the hedges outstanding as at 31 March 2000.

Average Currency Notional Amount Weighted average Average Cappedmaturity coupon rate (%) interest rate (%)

Interest rate Swaps

Pay fixed Under 2 yrs CHF 17 million 2.23

Under 2 yrs USD 70 million 6.30

2-5 years ZAR 1,350 million 12.32

Over 5 years ZAR 1,000 million 14.67

Received fixed Under 2 yrs FRF 50 million 4.15

Under 2 yrs GBP 0.8 million 7.25

Over 5 years ZAR 25 million 14.60

Caps

Caps Under 2 yrs USD 100 million 6.18

Refer to Annexure A on interest bearing debt for the interest repricing profile of the company and group debt at 31 March 2000.


Credit risk management

The group is not exposed to major concentrations of credit risk. To reduce the risk of counterparty failure, limits are set

based on the individual ratings of counterparties by well known rating agencies. The credit limits are reviewed on a

yearly basis or when information becomes available in the market. The Group limits its exposure to any counterparty and

these exposures are monitored daily.

Trade debtors comprise a large and widespread customer base, covering residential, business and corporate customer

profiles. Credit checks are performed on all customers on application for new services and on an ongoing basis where

appropriate.

Liquidity risk management

The Group is exposed to liquidity risk as a result of uncertain debtor related cashflows as well as capital commitments

of the Group. Liquidity risk is managed by the Treasury division in accordance with policies and guidelines formulated

by the Operating Committee. In terms of its borrowing requirements, the Group ensures that sufficient facilities exist to meet

its immediate obligations. In terms of its long term liquidity risk, the Operating Committee maintains a reasonable balance

between the period over which assets generate funds and the period over which the respective assets are funded.

Foreign currency exchange rate risk

The Group manages its foreign exchange rate risk by hedging all identifiable exposures via various financial instruments

suitable to the company's risk exposure.

a) Forward exchange contracts

Forward exchange contracts that relate to specific balance sheet items


Foreign

Currency notional

amount as at

31 March 2000

Currency 000 Average rate R'000

Forward exchange contracts

Purchases United States Dollar 599,854 6.57 3,940,203

Pound Sterling 11,189 10.83 121,136

Euro 2,311 6.12 14,142

Deutsche Mark 28,482 0.30 94,714

Swiss Franc 15,464 0.21 73,070

French Franc 209,724 0.87 241,185

Australian Dollar 793 0.27 2,982

Spanish Peseta 44,424 24.71 1,798

Sales United States Dollar 26,317 6.39 168,076

Pound Sterling 579 10.24 5,928

Deutsche Mark 1,285 0.28 4,641

Swiss Franc 343 0.22 1,558

French Franc 883 0.97 906



The following contracts do not relate to specific items in the Balance Sheet, but were entered into to cover foreign commitments

not yet due. The contracts will be utilised for the purposes of operations and capital imports.

Foreign

Currency notional

amount as at

31 March 2000

Currency ‘000 Average rate R'000

Forward exchange contracts

Purchases United States Dollar 1,198,674 6.74 8,085,029

Pound Sterling 9,443 10.62 100,325

Euro 53,751 6.87 369,313

Deutsche Mark 141,634 0.27 524,130

Swiss Franc 484 0.26 1,896

French Franc 458,471 0.99 462,038

Australian Dollar 6,526 0.23 28,920

Netherlands Guilder 100 0.30 331

Japanese Yen 141,358 15.19 9,308

Italian Lira 16,417,671 293.30 55,976

Swedish Krone 58,780 1.33 44,303

Spanish Peseta 850,199 25.22 33,707

Canadian Dollar 284 0.23 1,231

Danish Krone 50 1.19 42

Austrian Shilling 87 2.09 41

Sales United States Dollar 327,773 7.17 2,351,414

Pound Sterling 141 11.57 1,629

Euro 19,750 6.40 126,453

Deutsche Mark 16,670 0.29 57,532

Swiss Franc 80 0.25 323

French Franc 66,014 0.95 69,565

Australian Dollar 3,504 0.21 16,303

Netherlands Guilder 97 0.34 290

Swedish Krone 1,000 1.28 779

Japanese Yen 13,921 16.13 863

Italian Lira 2,431,655 300.49 8,092

Spanish Peseta 443,320 26.15 16,954

27 Financial instruments and financial risk management

b) Swaps Average maturity Currency Notional amount

Basis swap 2-5 years USD/ZAR 220 million

Fair values of financial instruments

The estimated net fair values as at 31 March 2000, have been determined using available market information and appro-

priate valuation methodologies as outlined below. This value is not necessarily indicative of the amounts that the Group

could realise in the normal course of business.



Group Company

31 March 31 March 31 March 31 March

2000 2000 2000 2000

Carrying Fair Carrying Fair

Amount Value Amount Value

R'000 R'000 R'000 R'000

Assets

Cash and cash equivalents 1,227,664 1,227,664 1,434,379 1,434,379

Trade and other receivables 6,190,914 6,190,914 5,371,240 5,371,240

Liabilities

Interest bearing debt 19,945,916 20,617,870 19,113,309 19,785,263

Trade and other payables 6,606,407 6,606,407 5,846,252 5,846,252

Derivatives

Interest rate derivatives 9,927 9,927

Foreign exchange derivatives 12,069,879 11,426,279

The fair values of debtors, bank balances and other liquid funds, creditors and accruals, approximate their carrying amount

due to the short term maturities of these instruments.

The fair values of borrowings are based on quoted prices or, where such prices are not available, the expected future

payments discounted at market interest rates.

The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cashflow

analysis is used.

These amounts reflect the approximate values of the net derivatives position at the balance sheet date.



28 Retirement benefit information

Pensions

Telkom SA Limited provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom

Retirement Fund. The Pension Fund is a defined benefit fund which was created in terms of the Post Office Amendment

Act 85 of 1991. The Retirement Fund is a defined contribution fund which is subject to the Pension Fund Act 24 of 1956.

Due to the fact that a material percentage of the employees exercised their option to join the Retirement Fund, this fund

was obligated to meet the portion of the actuarial deficit of the Telkom Pension Fund. Both funds are valued actuarially

at intervals of not more than three years using the projected benefit method. The most recent actuarial valuation on the

Pension fund was performed on 31 March 1997. In arriving at their conclusion for the Pension Fund, the actuaries

assumed a return on investments of 15% per annum, salary increases of 12.5% per annum and pension increases of 9.5%

per annum. At 31 March 1997 the promised benefits of the Pension Fund were valued at R393.5 million while the Pension

Fund's assets were R299 million. The most recent actuarial valuation of the Retirement Fund was performed as at

31 March 1998.

The assessment of the funds is as follows:-

The Company guarantees the financial obligations of the Pension and Retirement Funds. The actuarially valued deficit of the Pe n s i o n

Fund at 30 September 1991, plus interest, as determined by the State Actuary has been guaranteed by the SA Government.

Medical benefits

In terms of existing practice the Group annually makes certain post-retirement contributions to a medical aid fund in respect

of retired employees, from the date of their retirement. The amounts due in respect of post-retirement medical benefits to

current and retired employees of Telkom have been actuarially determined and provided for as set out in note 22. Subsequent

to discussions with organised labour, the group has reviewed their benefit structures in its medical schemes which has resulted

in the termination of future post-retirement medical benefits in respect of employees joining after 1 July 2000.

31 March 31 March 31 March

2000 1999 1998

Telkom Pension Fund

Funding (%)

Actuarial valuation

Actuarial calculation 82% 77% 80%

Deficit (Rm)

Actuarial valuation

Actuarial calculation 65 75 85

Telkom Retirement Fund

Deficit (Rm)

Actuarial valuation 1,194

Actuarial calculation 1,032 1,123



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

29 Reconciliation of net profit before taxation 6,140,692 7,655,063 4,840,732 5,965,327

to cash generated from operations

Operating profit before income from

investments, net finance charges,

depreciation, amortisation and taxation 8,508,614 7,170,447 6,507,863 5,878,546

Adjustment for items not involving the

movement of funds: (617,531) (56,952) (438,043) (23,068)

Goodwill written off 24,128 4,947 – –

(Decrease)/increase in provisions (155,274) (58,107) (157,655) 58,107

Profit on disposal of tangible fixed assets (481,793) (54,734) (486,498) (56,165)

Profit on disposal of subsidiary – (65,272) – (72,392)

Profit on disposal of business division (64,670) – – –

Increase in provision for write off of

investments 154,701 – 154,701 –

(Decrease)/increase in provision for losses (94,623) – 51,409 47,382

(Decrease)/increase in working capital (1,750,391) 541,568 (1,229,088) 109,849

Inventories 125,573 (148,119) 146,635 (117,313)

Accounts receivable (1,514,370) (1,512,430) (1,409,847) (1,104,071)

Accounts payable (361,594) 2,202,117 34,124 1,331,233

30 Finance charges paid 1,613,061 251,486 1,501,981 171,020

Financing charges per income statement 2,379,713 1,212,425 2,262,191 1,128,420

Non-cash items (766,652) (960,939) (760,210) (957,400)

Net interest payable (174,424) (125,505) (167,982) (121,967)

Cost of forward exchange contracts amortised 11,450 (261,528) 11,450 (261,527)

Net discount amortised (659,049) (573,906) (659,049) (573,906)

Other non cashflow items 55,371 – 55,371 –

31 Taxation paid 236,006 1,001,765 40,977 910,183

Asset at beginning of year (911,328) (112,501) (1,077,843) (201,663)

Liability of joint venture acquired 15,202 36 – –

Current taxation 320,451 165,092 – (3,807)

Secondary tax on companies 13,068 37,810 3,169 37,810

Asset at end of year 798,613 911,328 1,115,651 1,077,843

32 Dividend paid 380,386 546,590 331,678 546,590

Liability at beginning of year 331,678 546,590 331,678 546,590

Dividend per income statement 48,708 331,678 – 331,678

Liability at end of year – (331,678) – (331,678)



Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

33 Additions to tangible fixed assets 9,471,502 12,887,663 8,372,469 11,389,438

Land and buildings 858,869 1,187,782 855,679 989,825


Telecommunication support equipment 636,167 572,714 574,518 486,811

Other equipment 109,689 89,315 43,902 86,326


Vehicles 11,285 164,210 8,945 161,098


Equipment rented by customers 4,440 382 – –

34 Net increase in

interest-bearing debt 5,678,593 6,261,434 5,485,010 6,196,190

Loans raised 6,410,326 7,074,867 6,141,177 6,892,802

Loans repaid (731,733) (813,433) (656,167) (696,612)

35 Disposal of business division

During the year, the joint venture – Vodacom,

disposed of its Internet division, Yebonet.

The fair value of the assets and liabilities disposed

of were as follows:

Inventories 447

Debtors 16,867

Property, plant and equipment 3,347

Creditors (23,276)

Cash and cash equivalents 12,001

Net asset value 9,386

Capital Gain (123,324)

Received 132,710

Cash and cash equivalents (12,001)

Cash flow items included in Capital Gain (20,816)

Net cash flow on disposal of division 99,893

36 Investment in Joint Venture

During the year the Joint Venture – Vodacom,

acquired 50% of Vodacom World Online (Pty) Ltd.

Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

The fair value of the assets acquired and liabilities

assumed, were as follows:

Inventories 223

Debtors 8,433

Property, plant and equipment 1,565

Creditors (11,530)


Net asset value 4,692

Goodwill 61,662

Paid (66,354)


Net cash flow on acquisition of 50% of Joint Ve n t u r e (60,353)

Investment in Joint Venture

During the year, 10% of the newly acquired

share in Vodacom World Online by Vodacom was

subsequently sold.

The fair value of the assets and liabilities disposed

of were as follows:

Inventories –

Debtors 1,854

Property plant and equipment 998

Intangibles 8,903

Creditors (4,117)

Shareholder loans (13,771)

Cash and cash equivalents (355)

Net asset value (6,488)

Shareholder loans 13,771

7,283

Capital gain 18,241

Received 25,524

Cash disposed 355

Net cash flow on disposal of 10% of Joint Venture 25,879





Group Company

2000 1999 2000 1999

R'000 R'000 R'000 R'000

Investment in Joint Venture, Globalstar Southern

Africa (Pty) Ltd.

During the year, Telkom SA Ltd made

a further investment in Globalstar Southern Africa

(Pty) Ltd, which is a jointly-controlled entity, of which

Telkom has a 42,5% shareholding.

Balance at beginning of year 4,194 – 4,194 –

Investment in current year 24,634 4,194 24,634 4,194

Shareholding in Globalstar 28,828 4,194 28,828 4,194

37 Exceptional Items

Net surplus/(deficit) on sale/(write off) of:

Fastfleet division 467,960 – 467,960 –

Yebonet division 64,670 – – –

ICO-Global (72,363) – (72,363) –

Q-Trunk loan account (95,334) – (95,334) –

Taxation effect (140,388) – (140,388) –

Net effect on earnings 224,545 – 159,875 –

Exceptional items are included in net operating expenses and are more fully described in the Financial Review.

Summary

Acquisition of 50% of Vodacom World Online (60,353)

Sale of 10% of Vodacom World Online 25,879

Investment in Globalstar Southern Africa (Pty) Ltd (24,634) (24,634)

Investments in joint ventures (59,108) (24,634)


Value Added Statement

The statement shows the value the Group has been able to create through the rendering

of telecommunication and information services and how it was distributed and reinvested.

2000 1999

% Rm % Rm

Revenue 26,720 22,675

Operating expenses, excluding

employee costs and depreciation 10,661 8,975

Value added from trading operations 16,059 13,700

Investment income 479 268

Value added 100 16,538 100 13,968

Value distributed 62 10,276 59 8,332

Employees 46 7,550 46 6,529

Salaries, wages, medical and other benefits 42 6,935 42 5,903

Pension and retirement fund contributions 4 615 4 626

Providers of finance

Financing charges 14 2,380 9 1,213

Outside shareholders 0 13 0 55

Government 2 333 4 535

Taxation 2 333 1 203

Dividend 0 0 3 332

Value reinvested 38 6,262 41 5,636

Depreciation 25 4,153 22 2,995

Deferred taxation 2 259 4 627

Transfer from non-distributable reserve 0 0 0 (19)

Retained profit 11 1,850 15 2,033

100 16,538 100 13,968

Government 2% Providers of Finance 14%

Value reinvested 38% Employees 46%

Government 4% Providers of Finance 9%

Value reinvested 41% Employees 46%

31 March 2000 31 March 1999



Financial Statements

INCOME STATEMENTS


2000 1999 2000 1999

Note Rm Rm Rm Rm

Revenue 2 26,720 22,675 24,048 20,704

Net operating expenses 3 18,211 15,504 17,540 14,826

Operating profit 8,509 7,171 6,508 5,878

Income from investments 4 479 268 612 376

Profit before depreciation

and finance charges 8,988 7,439 7,120 6,254

Depreciation and amortisation 5 4,153 2,995 3,591 2,639

Profit before finance charges 4,835 4,444 3,529 3,615

Finance charges 6 2,380 1,213 2,262 1,128

Profit before taxation 2,455 3,231 1,267 2,487

Taxation 7 592 830 257 604

Profit after tax 1,863 2,401 1,010 1,883

Attributable to outside shareholders 13 55 – –

Net profit attributable

to ordinary shareholders 1,850 2,346 1,010 1,883

Earnings per share – cents 8 332.0 421.2

Headline earnings

per share – cents 8 306.6 407.0

Dividend per share – 59.5

Group Company


FINANCIAL STATEMENTS

BALANCE SHEETS

at 31 March

Group Company

2000 1999 2000 1999

Note Rm Rm Rm Rm

Assets

Non-current assets 35,430 30,454 32,604 28,609

Tangible fixed assets 10 34,424 29,504 31,308 26,911

Intangible fixed assets 11 371 89 – –

Participating interests 12 114 103 114 103

Fixed asset investments 13 42 45 42 45

Investments 14 131 103 630 787

Deferred taxation 23 348 610 510 763

Current assets 9,650 7,272 9,243 6,645

Inventories 15 1,071 1,065 960 991

Trade and other receivables 16 6,191 4,926 5,371 4,208

Taxation 798 911 1,116 1,078

Cash and cash equivalents 17 1,228 366 1,434 364

Other financial assets 18 362 4 362 4

Total assets 45,080 37,726 41,847 35,254

Equity and liabilities

Capital and reserves 15,398 13,548 13,809 12,798

Share capital 19 8,294 8,294 8,294 8,294

Non-distributable reserves 20 – – – –

Retained profits 20 7,104 5,254 5,515 4,504

Outside shareholders' interest in subsidiaries 49 84 – –

Non-current liabilities 22,248 16,246 21,414 15,739

Interest-bearing debt 21 19,946 13,541 19,113 13,036

Provisions 22 2,302 2,705 2,301 2,703

Current liabilities 7,385 7,848 6,624 6,717

Trade and other payables 24 6,606 6,943 5,846 5,812

Shareholders for dividend – 332 – 332

Provisions 22 779 573 778 573

Total equity and liabilities 45,080 37,726 41,847 35,254

STATEMENTS OF CHANGES IN EQUITY


Group Company

2000 1999 2000 1999

Rm Rm Rm Rm

Opening Equity as previously reported 14,955 14,431 14,260 14,160

Share Capital 5,570 5,570 5,570 5,570

Share Premium 2,723 2,723 2,723 2,723

Retained profit 6,662 6,119 5,967 5,848

Non-distributable reserve – 19 – 19

Movement for the year 443 (883) (451) (1,362)

Net profit for the period 1,850 2,346 1,010 1,884

Effect of change in accounting

policy after taxation (1,407) (1,420) (1,461) (1,437)

Correction of fundamental

error after taxation – (1,477) – (1,477)

Dividends paid – (332) – (332)

Transfer to retained profit – (19) – (19)

Transfer from non-distributable reserve – 19 – 19

Closing equity 15,398 13,548 13,809 12,798





CASH FLOW STATEMENTS


Group Company

2000 1999 2000 1999

Note Rm Rm Rm Rm

Cash flow from operating activities 4,390 6,123 3,578 4,714

Cash received from customers 28,106 21,393 22,732 19,942

Cash paid to suppliers and employees (21,966) (13,738) (17,892) (13,977)

Cash generated from operations 29 6,140 7,655 4,840 5,965

Income from investments 4 479 268 612 376

Finance charges paid 30 (1,613) (251) (1,502) (171)

Taxation paid 31 (236) (1,002) (41) (910)

Operating cash flow before dividend 4,770 6,670 3,909 5,260

Dividend paid 32 (380) (547) (331) (546)

Cash flow in investing activities (9,041) (12,658) (7,635) (11,189)

Proceeds on disposal of

tangible fixed assets 829 178 798 178

Proceeds on disposal of subsidiary – 73 – 73

Additions to tangible fixed assets 33 (9,471) (12,888) (8,372) (11,390)

Decrease in other investments (63) (2) – (4)

Increase in participating interests (12) (12) (12) (12)

Investment in joint ventures 36 (59) 13 (24) 40

Investment in and loans to subsidiaries (359) (18) (25) (74)

Disposal of division 35 100 – – –

Goodwill purchased (6) (2) – –

Cash flow from financing activities 5,513 6,383 5,127 6,318

Net increase in

interest-bearing debt 34 5,679 6,261 5,485 6,196

(Increase)/decrease in

interest-bearing investments (166) 122 (358) 122

Net increase/(decrease) in cash

and cash equivalents 862 (152) 1,070 (157)

Cash and cash equivalents at

beginning of year 366 518 364 521

Cash and cash equivalents

at end of year 17 1,228 366 1,434 364


Board of Directors

This page, from left:

Dikgang Moseneke SC Chairman of Telkom; Metropolitan Life Ltd; Acting Chairman and CEO: New Africa Investments

Ltd; Director of New Africa Media; Chancellor of Technikon Pretoria; Deputy Chairman of Nelson

Mandela Children’s Fund; and Trustee: Project Literacy.

Sizwe Nxasana Chief Executive Officer of Telkom; Board member: Vodacom; Chairman of the Audit Committee

of the SA Revenue Services; and Chairman of Zenex Foundation.

Tom Barry Chief Operating Officer of Telkom; President SBC International, SA Operations (USA); Board

Member: Vodacom; and Manager: Thintana Communications LLC.

Eric Molobi Executive Chairman of Kagiso Trust Investments; Director of Rembrandt Group; Imperial

Holdings; Future Growth; Lotteries and Gambling Board; Financial and Fiscal Commission; First

National Bank Southern Life; Independent Development Trust; Mvula Trust and New Housing

Company; and Advisor to the Board of Joint Education Trust. Chairman of Kagiso Publishers;

Kagiso Khulani Supervision Foods Services; National Housing Forum; and Investment

Development Unit.

Fatima Jakoet Corporate Finance Consultant: Eskom; Director of Metropolitan Life Ltd; Alisa Car Rental (Pty)

Ltd; Philela Holdings (Pty) Ltd; and Swantec.

Dató Ir Md Radzi Mansor Technical Advisor to the Malaysian Ministry of Energy, Telecommunications & Post.

Director: Operations Telekom Malaysia; Marketing, Customer Service

and Regulatory Management. Chairman of Telekom Malaysia.


BOARD OF DIRECTORS

This page, from left:

Charles Valkin Attorney and Senior Partner of Bowman, Gilfillan Inc Sandton, London and Channel Islands.

Shanmugam Manickam Group Executive: Strategic Planning, Mergers and Acquisitions/Subsidiaries; and Manager:

Thintana Communications LLC.

Colin Smith Executive President of South African Communications Union; labour representative on Telkom Board;

Board of Trustees of Telkom Retirement Fund; Representative of the Alliance of Telkom Unions;

Director of ATU Investments (Pty) Ltd. Chairman of the Joint Investment Committee of Te l k o m

Retirement and Pension Fu n d .

Wendy Luhabe Chairperson of Vodacom; Co-founder of Women Investment Portfolio Holdings; Executive

Chairperson of Alliance Capital Management SA; Managing Partner and Founder of Bridging the

Gap and Director of Tiger Oats, IDC and Cycad.

Ahmed Bawa Deputy Vice Chancellor of the University of Natal; Director of Atomic Energy Corporation

and Sanlam; Vice President: Academy of Science of South Africa; member of various national

committees on science and technology.

Ed Mueller President of SBC International Operations and Director of Aurec Ltd., Belgacom

and Bell Canada.

Top Management

Above, from left:

Sizwe Nxasana


Robert H Schlutow

Managing Executive: Procurement Services. Responsible for the

sourcing, purchasing, logistics, inventory management and

warehousing of all goods and services used by Telkom.

Nombulelo Moholi

Managing Executive: International and Special Market Services.

Responsible for Telkom’s carrier business, submarine cable ventures,

maritime business, international sales, domestic interconnect

negotiations and agreements as well as domestic customer relations

and special markets.

Anthony Lewis

Chief Financial Officer. Responsible for the overall financial

management of the Company.

Below, from left:

Francois Lutsch

Group Executive: Legal Services. Provides Telkom and its subsidiaries

with a comprehensive legal service.

Alfred W Todd Jr

Managing Executive: Marketing. Responsible for the marketing

function at Telkom, including market and product development,

advertising, research and management of Telkom’s revenue stream.

Amanda Singleton

Group Executive: Corporate Communication. Responsible for the

Company’s reputation, both internally and externally, mainly through

media and stakeholder relations and employee communication. She

is also responsible for the Telkom Foundation.

Joseph M Rajaratnam

Group Executive: Centre for Learning. Responsible for training

and human resource development programmes of all employees

in the Company.

Bheki Langa

Deputy Chief Operating Officer. Responsible for overall efficiency

and customer service of all customer-facing organisations.

Above, from left:

Victor Moche

Group Executive: Government and Regulatory Re l a t i o n s .

Represents the interests of Telkom, its shareholders and

customers in dealings with Local, Provincial and Pa r l i a m e n t a r y

bodies. He also manages the relationship between Telkom and

telecommunications regulatory and policy-making bodies.

Shanmugam Manickam

Group Executive: Strategic Planning, Mergers and

Acquisitions/Subsidiaries. Responsible for defining the Company’s

strategic direction in terms of global trends.

Randall Seidl

Managing Executive: Sales. Responsible for the delivery of quality

service and solutions to our Corporate Customers.

Tom Barry

Chief Operating Officer.

Victor Booysen

Group Executive: Human Resource Services. Sets the strategic

direction in labour relations, organisational design and development,

remuneration, transformation, recruitment and employee well-being.

Inset:

Ken Raley

Managing Executive: Network Operations and Chief

Technical Officer. Responsible for the operations and maintenance

of Telkom’s core network. Also functions as Telkom’s Chief

Technical Officer.

Below, from left:

Mike Rattan

Managing Executive: Access Network Operations. Responsible for

activation (installation) and assurance (repair) of voice telecommunication

services as well as maintenance of the access network.

Johan Maré

Managing Executive: Customer Services. Responsible for customer

care, including call centres, customer service branches, directory

enquiries, credit management and community relations.

Reuben September

Managing Executive: Technology and Network Services.

Responsible for the technology planning and building of the

national telecommunications network.

Jyoti Desai

Managing Executive: Information Technology Services. Manages the

information technology function, including the development and

support of software systems for customer care, service activation,

service assurance, billing and office automation.


The Board is committed to conducting the affairs of the

Company with integrity and in accordance with the highest

standards of corporate practice. Monitoring the Group’s

compliance with this approach forms part of the mandate of

the Audit Committee.

Governance structures

The Board of Directors

The Board of Directors comprises executive and non-executive

directors. The non-executive Directors have a wide range of

different skills and significant commercial and other interests

that enable them to bring independent judgement to the

Board’s deliberations and decisions.

The roles of Chairman and Chief Executive Officer do not

rest in the same person. The Chairman is a non-e x e c u t i v e

D i r e c t o r.

In terms of the Shareholders’ Agreement, the Equity Partners

have five representatives, three of whom are non-executive.

The major stakeholder has ten representatives, two positions

of which are reserved for organised labour.

Company Secretary and professional advice

All Directors have access to the services of the Company

Secretary, who is responsible for ensuring that Board proce-

dures are followed. All Directors are entitled to seek inde-

pendent professional advice about the affairs of the Group at

the Company’s expense.

Operating Committee

In terms of the Shareholders’ Agreement between the Major

Shareholder and the Equity Partners, the Board of Directors

has irrevocably delegated to an Operating Committee, exclu-

sive powers and authority primarily for the following;

• the implementation of an approved business plan and

annual budget, as well as a training programme;

• the implementation of Telkom’s obligations under its

licenses; and

• the review, preparation and recommendation to the Board

for its approval of new amended business plans, annual

budgets and training programmes.

The Operating Committee consists of the Chief Executive

Officer, the Chief Operating Officer, the Chief Strategic

O f f i c e r, the Chief Technical Officer and Deputy Chief

Operating Officer who is also a Government Appointee, as

ex-officio voting members. Ex-officio non-voting members

include the Chief Financial Officer, the Deputy Chief Financial

Officer, the Deputy Chief Strategic Officer and the Head of

Training. Decisions at meetings of the Operating Committee

are taken by a majority vote of the voting members. In the

event of an equality of votes, a nominee of the Equity Partners

has a casting vote.

Human Resources Review

and Remuneration Committee

The Human Resources Review and Remuneration Committee

comprises a majority of non-executive Directors. The Committee

is chaired by the Chairman of the Board. The Committee’s

specific terms of reference include direct authority for, or

consideration of and recommendation to the Board on matters

relating to, inter alia, general staff policy, remuneration,

bonuses, Directors’ remuneration and fees, service contracts and

Group pension and retirement fund benefits.

Audit Committee

The Audit Committee comprises two non-executive Directors

and, in terms of the Shareholders’ Agreement, the Chief

Financial Officer and the Head of the Internal Audit division

are members of the Committee. The Committee is chaired by

a non-executive Director.

The Audit Committee functions under the powers and

authority delegated to it by the Board to:

• review and recommend internal audits;

• review the draft interim and annual financial statements;

• review and recommend changes to the statutory audit;

• monitor internal control systems; and

• monitor compliance with the Code of Corporate

Governance and the Group’s Code of Ethics.

The names of the members of the Board of Directors, Audit,

Operating and Human Resources Review and Remuneration

Committees at the date of this Annual report are given on

pages 31 and 32.

Code of Ethics

A Code of Ethics which complies to the highest standards of

i n t e g r i t y, behaviour and ethics in dealing with all its stakehold-

ers, including the Group’s Directors, managers, employees,

customers, suppliers, investors, shareholders, and society at

large, has been implemented. Directors and staff are expected

to observe their ethical obligations in such a way as to carry on

business only through fair commercial competitive practices.

Corporate Governance

The Group

employs a variety

of participative

structures which

embrace goals

relating to values,

p r o d u c t i v i t y,

training

and retraining


Worker participation

The Group employs a variety of participative structures on

issues which affect employees directly and materially, and

which are designed to achieve good employer/employee

relations through the effective sharing of relevant information

and consultation, the speedy identification of potential

conflict areas and the effective and prompt resolution of

issues. These structures embrace goals relating to values,

p r o d u c t i v i t y, training and retraining.

Employment equity

The Group has developed an employment equity policy which

has been approved by the Board of Directors and has been

distributed to employees.

The essence of the policy document is for implementation of a

fair and reasonable employment equity programme based on

moral decency, sound business practice and principles of

economic common sense.

The broad objectives are to:

• Create an environment in which the best person can be

employed for the job regardless of gender, creed, colour

or race through achieving the state of balance in which

the question of race will no longer be an issue.

• Create within the Group a balanced profile of employees

that reflects the composition of the broad South African

society.

• Correct racial and social imbalances of the past.

• Provide for the Group’s present and future requirements

for skilled staff.

CORPORATE GOVERNANCE


The Directors are required by the Companies Act to prepare

annual financial statements which fairly present the state of

affairs of the Company and of the Group as at the end of the

financial year and of the results and cash flows for the year,

in conformity with South African Generally Accepted

Accounting Pr a c t i c e .

The external auditors are responsible for independently

reviewing and reporting on the annual financial statements.

The annual financial statements as set out in this annual

report have been prepared by management in accordance

with Generally Accepted Accounting Practice and are based

on appropriate accounting policies which, except for the

changes in accounting policies as set out in note 1, have been

consistently applied and which are supported by reasonable

and prudent judgement and estimates.

Management is responsible for implementing and maintain-

ing systems of internal control aimed at reducing the risk of

error or loss in a cost-effective way. Internal audit monitors the

most significant risks in the broadest sense, through evaluat-

ing the adequacy of the systems of internal control.

Findings and recommendations are reported to management

and the Audit Committee. Internal Audit also ensures that the

necessary corrective action is taken.

The directors believe that a continuous process of enhancing

the systems of internal control will ensure:

• The reliability and integrity of financial and operating

information.

• That systems are established to ensure compliance with

policies, plans, procedures, laws and regulations.

• The safe-guarding of the Group’s assets;

• Economic, effective and efficient utilisation of resources; and

• The accomplishment of established objectives and goals

for operations and programmes.

The Directors are of the opinion that the annual financial

statements fairly present the financial position of the Company

and of the Group as at 31 March 2000, and the results of

their operations and cash flow information for the year then

ended. The Directors are satisfied that the Company has ade-

quate resources to continue in operational existence for the

foreseeable future. Accordingly, Telkom SA Limited continues

to adopt the going concern basis in preparing the annual

financial statements.

The annual financial statements of the Company and of the

Group which appear on pages 29 to 66 were approved by

the Board of Directors on 28 June 2000 and are signed on

their behalf by:

Annual Financial Statements

Telkom SA Limited (Company registration no. 91/05476/06)

Contents Page

Report of the independent auditors 27

Directors’ report 28

Accounting Policies 33

Income Statements 37

Statements of changes in equity 38

Balance Sheets 39

Cash flow Statements 40

Notes to the Financial Statements 41

Annexure A 68

Annexure B 71

Directors’ responsibilities relating to the annual financial statements

Dikgang Moseneke

Chairman

Sizwe Nxasana


for the year ended 31 March 2000


The report is compiled in terms of the Companies Act (Act 61

of 1973), as amended. The requirements of the Reporting by

Public Entities Act (Act 93 of 1992), which apply by virtue of

the State’s shareholding, are covered in the Chief Executive

Officer’s overview on page 8.

Nature of Business

The Group is a leading provider of communications and infor-

mation services and products. Cellular services are provided

by a joint venture company: with radio trunking, fixed and

portable radio data access systems, internet services and direc-

tory services being operated by subsidiary companies.

The strategy outlined in Telkom’s business plan focuses on the

following seven objectives:

• Roll out 600,000 additional lines

• Modernise and upgrade the network

• Achieve greater customer satisfaction

• Embark on strategic employee initiatives

• Position Telkom for competition

• Improve the Company’s strategic enablers

• Improve productivity, efficiency and cost-effectiveness

Most importantly, the Company pursued the above key objec-

tives while ensuring financial health. In this regard the profit

after tax at R1,010 million is R256 million or 34% higher than

budget. This was primarily achieved by significant operating

efficiency improvements, which led to the operating expenditure

at R17.5 billion being R856 million or 4.6% below budget.

Roll out 600,000 additional lines

Telkom aimed at increasing the growth in main service lines

compared to 1998/99 by 30%. The goal of 600,000 was

exceeded by more than 50,000 lines. This achievement is

admirable considering that the bulk of these were achieved

under very difficult conditions in underserviced areas as well

as amid natural disasters such as floods and widespread fires

that the country experienced. More notable, however, is that

the three year cumulative growth target of 1,420,000 main

services has been exceeded by 10%.

Modernise and upgrade the network

The modernisation programme which is essential for improve-

ments in service quality as well as for value added services, is

ahead of targets such as that of the replacement of non-

digital connections. In this regard, the annual target of 65,000

was exceeded by approximately 285,000 digital lines.

The programme included further roll out of Asynchronous

Transfer Mode (ATM) network that delivers broadband and

bandwidth-on-demand virtually country-wide to corporate

customers. In addition, the network’s reliance was enhanced

by the expansion of synchronous digital hierarchy (SDH) man-

aged self-healing optic fibre rings.

Achieve greater customer satisfaction

The strategies to improve customer satisfaction were based on

improving the quality of service and enhancing the ability to

meet or exceed customer needs. Service improvements

focused on service provisioning, fault rate and repair perfor-

mances. Despite adverse weather conditions, Telkom still

managed to deliver its best performance in terms of licence

targets, achieving 15 of its 16 licence targets. These were

achieved by new operational support systems such as the state

of the art National Network Operations Centre (NNOC) and

developing employee skills through the company’s nationally

acclaimed training programmes and facilities.

In terms of meeting or exceeding customer needs, Telkom’s

core marketing strategies together with the expansion of world

class data and multimedia networks bore fruitful achieve-

ments. Marketing strategies encompassed strategic alliances

to offer holistic business solutions. Product offerings included

the expansion of ISDN, the re-launch of FrameRelay and new

products such as security (video surveillance), call manage-

ment (Cell Relay Services), and IdentiCall.

Embark on strategic employee initiatives

Greater employee efficiencies are required to position

Telkom for competition. In this regard, a full range of train-

ing programmes are being offered to provide a more bal-

anced skills mix. In addition, a consultative process led to

the staff complement being reduced by 20% to 49,128. This

included approximately 2,000 employees affected by out-

sourcing initiatives.

As a responsible corporate citizen in terms of equity in the

workplace, Telkom made measurable progress when com-

pared to its 1998/1999 black staff representation. In addi-

tion, affirmative action development programmes achieved

significant successes in the following ongoing initiatives:

Directors’ Report

In terms of meeting or exceeding customer needs, Telkom’s core marketing

strategies together with the expansion of world class data and multimedia networks bore fruitful achievements


• Individual development plans for very high profile

e m p l o y e e s

• Deputies programme aimed at replacing Strategic Equity

Partner (SEP) managing and group executives

• Successor programme aimed at senior management and

executive positions

• Exchange programme to specific positions in SBC and

Telekom Malaysia

• Supervisory development programmes

• Adult Basic Education and Training (ABET) and bursary

programmes.

Position Telkom for competition

To provide business solutions, the formation of strategic alliances

is ongoing. Typical successes in this regard are our PBX and

Primenet offerings. More success stories will evolve as the com-

pany implements its competitive strategies developed for Internet,

interconnection, and the convergence of telecommunications.

By partnering with other operators in completing the SAT- 3 /

WASC/SAFE cable, connecting the east and west hemi-

spheres has improved connectivity and Te l k o m’s position in

global traffic trade. Furthermore, Te l k o m’s key role in the

African Renaissance has been augmented by its roll out of

international links and by its growing role as a hub on the

continent.

Comparing prices both on the local and international scenes,

has shown that Telkom’s rates are amongst the cheapest in the

world and the Company continues to move towards cost-

based rates for local exchange services, while reducing inter-

national and long distance charges.

Improve the Company’s strategic enablers

Telkom’s role in supporting Black Economic Empowerment is

based primarily on two strategies. Firstly, on black supplier

spend, where Telkom has doubled its performance over

1998/1999 and, secondly, to assist the development of black

small and medium enterprises (SMMEs) as an integral com-

ponent of the Company’s outsourcing programme.

Telkom has successfully outsourced two of its non-core enti-

ties, namely fleet management and electronics repair.

Internally, the ongoing process and systems improvements for

core business have produced world class sourcing processes,

state-of-the-art network and capacity management tools, an

increase in the availability and reliability of information sys-

tems and infrastructure.

Improve productivity, efficiency and cost-effectiveness

To enhance its competitiveness as well as increase sharehold-

er value, Telkom has initiated numerous efficiency improve-

ment programmes supported by the implementation of world

class measurement and reporting techniques to track, report

and sustain these improvements. Although many of these

efforts are of a longer term nature, key indicators such as rev-

enue per employee and lines per employee are already expe-

riencing double digit improvements.

Paramount to the above efficiency improvement programmes

is the fortification of the skills base. The R2.3 billion to be

spent on training and development by March 2002 illustrates

the priority and effort in this regard.

Ultimately, the aim of these programmes is to have Telkom’s

employees think and act like owners of the company and

thereby create value for the benefit of its customers, share-

holders and themselves.

Share capital

The Company’s share capital is:

Authorised R’000

1,000,000,000 ordinary shares of R10 each 10,000,000

Issued

557,031,819 ordinary shares of R10 each 5,570,318

Of the total shares in issue, 70% are held by the Government

of the Republic of South Africa and the balance of 30% by a

consortium consisting of SBC Communications Inc. and

Telekom Malaysia Berhad, operating through a USA limited

liability company, Thintana Communications LLC, registered

in the State of Delaware, United States of America.

Subsidiaries and joint ventures

The Company has the following interests:

• 50% interest in Vodacom Group (Pty) Ltd, which operates

one of two South African licensed cellular telephone net-

works and also acts as a service provider.

• 100% interest in Q-Trunk (Pty) Ltd, which provides radio-

trunking services.

Comparing prices both on the local and international scenes has shown

that Telkom’s rates are amongst the cheapest in the world


DIRECTORS’ REPORT

• 54.9% interest in Telkom Directory Services (Pty) Ltd, which

is responsible for the production of Telkom directories,

including the printing, compilation and distribution of text

directories and the collection of advertising charges.

• 100% interest in Intekom (Pty) Ltd, which acts as an

Internet Service Provider.

• 60% interest in Swiftnet (Pty) Ltd, which provides wireless

data applications and solutions.

• 100% interest in Mnati Foods (Pty) Ltd, which manages

the restaurants and catering facilities of the Company.

• 42.5% interest in Globalstar Southern Africa (Pty) Ltd which

operates a worldwide low earth orbit satellite- b a s e d d i g i t a l

telecommunication system as a mobile satellite service.

• 100% interest in Telesafe (Pty) Ltd which provides security

and related services to the Company.

Issued ordinary and preference share capital Shares at cost Indebtedness

and percentage held

2000 1999 2000 1999 2000 1999

R % % R R R R

Vodacom Group

(Pty) Ltd 100 50 50 50 50 535,000 535,000

Q-Trunk (Pty) Ltd 10,001,000 100 100 10,001,000 10,001,000 – 82,338

Swiftnet (Pty) Ltd 50,000,000 60 60 48,000,000 48,000,000 46,198 35,498

Intekom (Pty) Ltd *10,001,000 100 100 10,001,000 10,001,000 78,641 58,413

Telkom Directory

Services (Pty) Ltd 100,000 54.9 54.9 54,900 54,900 – –

Telesafe (Pty) Ltd 100 100 100 100 100 – 1,138

Mnati Foods

(Pty) Ltd 100 100 100 100 100 – 5,102

Globalstar South-

ern Africa (Pty) Ltd **67,830,050 42.5 – 28,827,771 – – –

* Including R9,900,000 in respect of share premium account – Intekom

** Including R67,829,950 in respect of share premium account – Globalstar Southern Africa

The Company’s interest in the aggregated profits earned

by the joint venture and subsidiary companies amounted to

R831 million after taxation and aggregate losses incurred

by subsidiary companies amounted to R61 million after

t a x a t i o n .

Borrowing powers

The Company’s borrowing powers are set out in its Articles of

Association.

DIRECTORATE

The following changes occurred in the Company’s Directorate

during the year under review:

Resignations:

12 July 1999 Dató Ali bin Hassan and

Mr E K Mosunkutu resign

as Directors of the

Company.

27 August 1999 Mr I D Sussman resigns as Director of

the Company.

15 November 1999 Mr JC Eason resigns as Director

of the Company.

Appointments

23 October 1999 Dató Ir. Md Radzi Mansor is appointed

as Director of the Company.

15 November 1999 Mr EA Mueller is appointed as Director

of the Company.

The following people acted as Directors of the Company

during the year under review:

Adv ED Moseneke (Chairman)

Mr SE Nxasana

Ms F Jakoet

Mr TM Barry


DIRECTORS’ REPORT

Ms WYN Luhabe

Prof AC Bawa

Dató Ir Md Radzi Mansor

Mr EA Mueller

Mr E Molobi

Mr S Manickam

Mr CL Valkin

Mr CBC Smith

OPERATING COMMITTEE

Mr SE Nxasana (Chairman)

Mr TM Barry

Mr S Manickam

Mr KA Raley

Mr BA Langa

AUDIT COMMITTEE

Ms F Jakoet (Chairperson)

Mr EA Mueller

Mr HL Engelbrecht

HUMAN RESOURCES REVIEW AND

REMUNERATION COMMITTEE

Adv. ED Moseneke (Chairman)

Mr SE Nxasana

Ms WYN Luhabe

Mr TM Barry

Mr E Molobi

Prof AC Bawa

Dató Ir Md Radzi Mansor

Company Secretary

Mr V V Mashale is the Secretary of the Company. His busi-

ness and postal addresses appear on page 73

of this report.

Events subsequent to balance sheet date

The shareholders of Globalstar Southern Africa (Pty) Ltd have

subsequent to year end agreed to sell their shareholding in

that company to Vodacom Group (Pty) Ltd. Telesafe and

Mnati were also sold subsequent to year end. Except for the

above-mentioned transactions the directors are not aware of

any matters or circumstances since the end of the financial

year, not otherwise dealt with, in the group annual financial

statements, that will have a significant effect on the

operations of the group, the results of the operations or the

financial position of the group.

Company Secretary’s Certificate

Declaration by the Company Secretary in terms of Section

268G(D) of the Companies Act.

The Company has lodged with the Registrar all such returns as

are required of a public company in terms of the Companies

Act, and all such returns are true, correct and up to date.

V V Mashale

Company Secretary

28 June 2000

ANNEXURE A

Interest-bearing debt at 31 March 2000 1999

Nominal value Book value Nominal value Book value

R'000 R'000 R'000 R'000

Interest-bearing debt 19,945,916 13,540,674

Local loans – Group 15,793,534 9,997,990

Company 14,972,779 9,726,550

Joint venture companies 820,755 271,440

Foreign loans – Group 4,152,382 3,542,684

Company 4,140,531 3,312,972

Joint venture company 11,851 229,712

Local loans – Company 14,972,779 9,726,550

Local Telkom stock 11,328,689 7,957,758 6,507,008 4,938,245

TK01, 2008, 10% 4,698,689 3,453,246 4,475,099 3,206,332

TL08, 2004,13% 3,500,000 3,121,868 2,000,000 1,701,185

PP01, 2002,12.5% 200,000 191,713 – –

PP02, 2010, Zero coupon 430,000 100,056 – –

TL20, 2020, 6% 2,500,000 1,090,875 – –

Zero coupon, 1999 – – 31,909 30,728

Telkom switching certificates

2008, 10.20% to 15.94% – 120,137 – 115,232

Repurchase agreements – 192,488 – 4,775

revolving

Commercial paper

2000 – 2005, 9.59% to 14.06% 7,868,444 6,702,396 – 4,668,298

Local loans – Joint venture company – 820,755 – 271,440

Finance leases – 207,857 – 196,440

These amounts are repayable between periods of five

and 14 years. Interest rates vary from 13% to 16%.

Long-term loans – 612,898 – 75,000


Annexures

2000 2000

Currency Nominal value Book value Nominal value Book value

R'000 R'000 R'000 R'000

Foreign loans – Company 4,140,531 3,312,972

Direct loans 4,140,531 3,312,972

United States Dollar, 2000 – 2003 USD 597,742 3,922,901 408,868 2,848,560

6.64% – 8.00%

Deutsche Mark, 2000 – 2002 DEM 15,365 35,730 32,146 85,037

5.07% – 5.98%

Pound Sterling, 2000 – 2001 GBP 9,792 58,433 20,431 143,942

7.70% – 9.65%

Swiss Franc, 2000 – 2001 CHF 14,696 33,472 24,494 65,814

3.81% – 3.97%

French Franc, 2000 – 2013 FRF 108,351 89,995 178,298 169,619

0.10% – 9.65%


Foreign Foreign

Currency Book value Currency Book value

(thousands) R'000 (thousands) R'000

Foreign loans – Joint venture company 11,851 229,711

Syndicated loan USD – – 50,000 221,750

The loan of US$100 million is unsecured and bears interest

at a variable interest rate determined half yearly of LIBOR

plus a margin of 0.55%. Exposure to foreign exchange and

interest rate fluctuations are fully covered, yielding an

effective fixed interest rate of 16.42% NACH from 26 March

1997. The loan was repaid on 17 March 2000.

Unsecured loan 11,851 2,338 7,961

The loan bears a variable interest rate of 6.9% to 7.4%

and is repayable in fixed payments commencing on 1 June 1999.

Pound Sterling,1998-2012

ANNEXURES

70 Telkom Annual Report 1999/2000

2000 1999

Foreign Foreign

Currency Currency Book value Currency Book value

(thousands) R'000 (thousands) R'000

Financial instruments

Locally registered stock

Stock is issued with the condition that Telkom will act as buyer of

last resort at prevailing market rates. Switching facilities between

Telkom long and short-term debt to the book value of R694 million

(1999: R694 million) were in issue at the financial year-end.

Management is not considering the issue of any new facilities of

this nature.

Switching facilities included in current debt

Maturing 2008: 694,271 694,150

TK01 574,134 578,918

Certificates 120,137 115,232

Company 2000 1999

Year repayable Foreign Local Total Total

R'000 R'000 R'000 R'000

1999/2000 – – – 5,274,107

2000/2001 335,687 4,593,798 4,929,485 278,749

2001/2002 2,194,147 1,454,863 3,649,010 2,172,836

2002/2003 1,517,996 241,976 1,759,972 182,238

2003/2004 70,361 36,091 106,452 105,276

2004/2005 1,784 4,268,156 4,269,940 2,014,391

2005/2006 1,784 – 1,784 (5,030)

2006/2007 1,783 – 1,783 –

Thereafter 16,989 7,748,826 7,765,815 4,582,268

4,140,531 18,343,710 22,484,241 14,604,835

Group

Year repayable

1999/2000 – – – 5,504,985

2000/2001 347,538 5,004,140 5,351,678 353,974

2001/2002 2,194,147 1,452,813 3,646,960 2,172,845

2002/2003 1,517,996 456,661 1,974,657 183,528

2003/2004 70,361 41,190 111,551 299,609

2004/2005 1,784 4,268,156 4,269,940 2,017,258

2005/2006 1,784 – 1,784 (5,030)

2006/2007 1,783 – 1,783 –

Thereafter 16,989 7,941,508 7,958,497 4,582,268

4,152,382 19,164,467 23,316,848 15,109,436

ANNEXURES


ANNEXURES

ANNEXURE B

Investment in Joint Venture – Vodacom

The Group's proportionate share of assets and liabilities is as follows:

R'000 R'000

Total assets 3,787,987 3,347,424

Fixed assets 3,399,723 2,538,070

Current assets 388,264 809,354

Total liabilities (3,252,987) (2,812,424)

Retained profit (1,350,164) (670,339)

Net interest-bearing debt (831,868) (503,276)

Deferred taxation (92,784) (100,637)

Current liabilities (978,171) (1,538,172)

Share of equity 535,000 535,000

Loans to joint venture 535,000 535,000

The Group's proportionate share of revenue and expenses is as follows:

Revenue 4,833,193 3,411,385

Net operating expenses (3,668,759) (2,590,975)

Profit before net financing charges 1,164,434 820,410

Net financing charges (216,244) (254,046)

Net income before taxation 948,190 566,364

Taxation (268,908) (171,079)

Share of profit after taxation 679,282 395,285

The Group's proportionate share of cash flow:

Cash flow from operating activities 828,472 1,285,306

Cash flow in investing activities (1,331,982) (1,468,077)

Cash flow from financing activities 328,261 114,955

Net decrease in cash and cash equivalents (175,249) (67,816)

Cash and cash equivalents at beginning of year (82,260) (14,444)

Cash and cash equivalents at end of year (257,509) (82,260)

Information regarding Joint Ventures is set out for only those of which the financial position or results are material for

a proper appreciation of the affairs of the Group. The Joint Venture information disclosed above, does not include

eliminated intragroup transactions.

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