Chairman’s letter to stakeholders

I am pleased to introduce you to our integrated report for the financial year ended 31 March 2015.

Last year I was able to tell you that the board had approved Telkom’s new strategic direction, which included our new growth strategy. The board believed that the implementation of this strategy was key to the sustainability of Telkom in the future.

Our strategy recognises the need to transform our business model, while at the same time addressing the issues that contributed to our recent difficulties. This means that our management team is faced with the considerable challenge of addressing legacy issues that could threaten Telkom’s sustainability if not addressed, identifying the potential of certain legacy assets to add value in the medium and long term, while at the same time implementing the new, which is also essential if we are to ensure Telkom’s future in an intensely competitive market.

We need a strong, committed management team, with the necessary skills, foresight and determination to meet and address our challenges. I am pleased to advise you that all our executive positions are now filled with permanent appointments, some of which are new to the Telkom team. I believe our management team, which has been very carefully selected, has what it takes to address our legacy issues and position Telkom as a leader in home and connectivity services and solutions and South Africa’s leading ICT infrastructure group with right sized, fit-for-purpose support functions.

As you will see from the group chief executive’s Strategic review the Telkom team has made very pleasing progress with its implementation of the stability phase of our turnaround strategy.

Some of the key outcomes of this first phase of Telkom’s turnaround are:

• The benefits of the discipline in operational and capital expenditure
• The improvements in addressing customer experience and implementing the net promoter score (NPS)
• Telkom has improved its relationship and engagement with the regulator and we have seen the correction of some market distortions
• The continued strengthening of our balance sheet which is discussed by the group chief executive officer and the chief financial officer on pages 50 and 51, respectively
• A high calibre management team is in place and leadership has been stable

At Telkom we understand that a sound and robust approach to group corporate governance standards throughout our organisation requires a focus on performance as well as conformance.

The Competition Commission’s approval of our acquisition of Business Connexion (BCX), which provides information communication technology (ICT) products, services and solutions and which still requires the go-ahead of the Competition Tribunal, is an important step in the implementation of our growth strategy. We have, however, a great deal more to do in this regard.

We were also proud to be recognised as South Africa’s best mobile broadband operator for the third year running and best fixed broadband services provider for the fourth year running, at the annual My Broadband Conference.

At Telkom we understand that a sound and robust approach to group corporate governance standards throughout our organisation requires a focus on performance as well as conformance. We also recognise that strategy, performance, sustainability and risk are inseparable. We have established clear lines of accountability for the implementation of our strategy from board level down. I would refer you to my corporate governance review for details of our application of the King lll Codes of Good Practice and our compliance with the JSE Listings Requirements.

Telkom recognises and embraces its responsibility to contribute to the socio-economic development of South Africa. In this regard I am particularly proud of our recently announced FutureMakers programme, which resonates with my entrepreneurial spirit. Not only does the programme support the national drive to increase access to technology for SMMEs and create sustainable business in the ICT sector, it also makes good business sense for Telkom as it supports our aim of taking the lead through an end-to-end strategy that will open up the digital world and economy to entrepreneurs and support them in this. You can find out more about this programme in the Social and Relationship capital section of this report. We are, of course, also in a unique position, through the Telkom Foundation, to use our resources and ICT capabilities to provide sustainable socio-economic solutions in the areas of education, health and social welfare.

I look forward to being able to report to you on substantial progress against our strategic objectives in our integrated report for 2016.

Appreciation

Those of us who serve on the Telkom board do so at a critical time in the history of the business as we seek ways to ensure Telkom thrives in a very competitive market, which is rapidly evolving, and delivers significant value to all its stakeholders. My thanks to all my fellow board members for their valuable and insightful contributions to our debates and decision-making. My thanks also go to the Telkom management team for your achievements during this financial year and I look forward to being able to report on the progress you make in the year ahead. To all our employees my thanks for the efforts you have made to enable Telkom to deliver against its turnaround strategy and I would ask that you remain committed to helping Telkom achieve its strategic objectives and build a brand of which we can all be justly proud.

Jabu Mabuza
Chairman