Group       Company  

6. Operating expenses

     2015
Rm		   Restated
2014
Rm		       2015
Rm		   2014
Rm		  
6.1 Payments to other operators     2 930   3 944       2 956   3 950  
Payments to other network operators (interconnection fees) have decreased due to the reduction in the mobile termination rates.

            
6.2 Cost of sales     2 787   2 177       2 787   2 177  
The increase in the cost of sales is largely attributable to increase in the mobile device sales.

                        
6.3 Employee expenses     9 354   6 922       9 288   6 867  
Salaries and wages     7 217   7 143       7 166   7 103  
Medical aid contributions     –   1       –   –  
Retirement contributions: Defined contribution plan     621   604       617   601  
Post-retirement pension and retirement fund (refer to notes 29 and 31)     23   104       23   104  
   Current service cost     25   6       25   6  
   Interest cost     990   875       990   875  
   Interest on plan assets     (992)   (879)       (992)   (879)  
   Curtailment loss – Telkom Retirement Fund*     –   103       –   103  
   Curtailment gain – Telkom Pension Fund     –   (1)       –   (1)  
Post-retirement medical aid (refer to notes 29 and 31)     (177)   (1 836)       (177)   (1 836)  
   Current service cost     4   62       4   62  
   Interest cost     276   468       276   468  
   Settlement (gain)/loss     (221)   234       (221)   234  
   Interest on plan asset     (236)   (197)       (236)   (197)  
   Curtailment gain     –   (2 403)       –   (2 403)  
Post-retirement telephone rebates(refer to notes 29 and 31)     36   34       36   34  
   Current service cost     3   4       3   4  
   Interest cost     33   31       33   31  
   Curtailment loss     –   (1)       –   (1)  
Share-based compensation expense (refer to note 25)     115   11       115   11  
Other benefits**     2 005   1 317       1 994   1 306  
Employee expenses capitalised     (486)   (456)       (486)   (456)  
The increase in employee expenses is mainly due to a net curtailment gain of
R2.2 billion that related to the curtailment and settlement of the post-retirement medical aid benefit which occurred in the prior financial year. The average salary increase as well as the retrenchment packages, voluntary early retirement packages and voluntary severance packages gave rise to the increase in employee expenses offset by a settlement gain that related to the post-retirement medical aid benefit.		                        

* Impact of the VSP/VERP process related to 31 March 2013
** Other benefits include, amongst others, skills development, annual leave, performance incentive, service bonuses, voluntary employee severance/voluntary early retirement packages costs and termination benefits.

      Group       Company  
      2015
Rm		   Restated
2014
Rm		       2015
Rm		   2014
Rm		  
6.4 Selling, general and administrative expenses     4 712   4 699       4 693   4 733  
Selling and administrative expenses     749   856       765   861  
Maintenance     2 938   2 903       2 937   2 903  
Marketing     705   789       714   799  
Impairment of receivables     320   151       277   170  
Selling, general and administrative expenses increased marginally. More focused marketing activities resulted in a decrease in selling, general and administrative expenses in the current financial year. The decrease was partially offset by an increase in bad debt provision. The adverse economic conditions gave rise to higher impairments.                        
Change in comparative                        
Copper theft losses of R134 million was reclassified from maintenance to selling and administrative expenses for more relevant disclosure.

                       
6.5 Service fees     3 212   3 103       3 208   3 108  
Facilities and property management*     1 934   1 741       1 934   1 741  
Consultancy, security and other services     1 221   1 302       1 218   1 308  
Auditors' remuneration     57   60       56   59  
The increase in service fees is driven by costs relating to higher utilities and maintenance costs on Telkom properties.

                        
*Includes R52 million provision for site rehabilitation in the current financial year.

                        
6.6 Operating leases*     992   1 007       987   1 004  
Land and buildings     460   458       455   455  
Equipment     48   35       48   35  
Vehicles     484   514       484   514  
Operating leases decreased as a result of the lower number of vehicles utilised by the group.                        

* Operating lease commitments are disclosed in note 38.

      Group       Company  
      2015
Rm		   Restated
2014
Rm		       2015
Rm		   2014
Rm		  
6.7 Depreciation, amortisation, impairment, write-offs and losses     5 478   5 891       5 457   5 871  
Depreciation of property, plant and equipment     4 500   4 605       4 480   4 587  
Amortisation of intangible assets     758   654       757   652  
Impairment of property, plant and equipment and intangible assets     –   392       –   392  
Write-offs of property, plant and equipment and intangible assets     220   240       220   240  
The decrease in depreciation is due to accelerated depreciation on new connections installed to customer premises in the prior financial year that was not incurred to the same extent in the current financial year together with the impairment of certain legacy and technologically aged items that did not occur in the current financial year.                        
The estimated useful lives assigned to groups of property, plant and equipment are:     Years       Years  
Freehold buildings     15 to 40   15 to 40       15 to 40   15 to 40  
Leasehold buildings     1 to 5   1 to 5       1 to 4   1 to 5  
Network equipment                        
   Cables     4 to 30   4 to 30       4 to 30   4 to 30  
   Switching equipment     5 to 18   5 to 18       5 to 18   5 to 18  
   Transmission equipment     5 to 18   5 to 18       5 to 18   5 to 18  
   Other     2 to 20   2 to 20       2 to 20   2 to 20  
Support equipment     5 to 13   5 to 13       5 to 13   5 to 13  
Furniture and office equipment     1 to 15   1 to 15       11 to 15   11 to 15  
Data processing equipment and software     1 to 10   1 to 10       5 to 10   5 to 10  
Telkom support services equipment     1 to 20   1 to 20       2 to 20   2 to 20  
The expected useful lives assigned to intangible assets are:     Years       Years  
Software and licences     2 to 11   2 to 11       5 to 10   5 to 10  
Trademarks, copyrights and other     4 to 13   4 to 13       4 to 13   4 to 13  

As a result of the transformation programme together with the group policies and procedures, the group reassessed the useful lives of certain legacy equipment. The reassessment of useful lives had the effect of increasing the depreciation and amortisation expense for the year ended 31 March 2015 by R353 million (2014: R1 193 million). Depreciation and amortisation for each year of the remaining useful lives of the individually reassessed equipment will be significantly lower.