Chief financial officer’s review

In this review I will be providing you with a brief overview of our financial performance, which will be discussed in the Financial capital section that follows.

I am pleased to be able to report to you that the year under review was a good financial year for Telkom. It was a year during which we had two very specific focuses: the one was on stabilising our revenues, which we achieved as we said we would do, and the other was managing the cost drivers within the business. While we have not as yet brought our cost drivers totally under control, we have made substantial progress there.

This will be further supported by the new supply management initiatives that we concluded post year end to make a valuable contribution to operating cost efficiencies in the next financial year.

One of the key elements of the stability phase of our turnaround was the strengthening of our balance sheet by the settlement of our post-retirement medical aid liability for certain pensioners, addressing our fixed asset base and improving our working capital management.

We achieved our objective of stabilising our revenues and establishing a solid base to build on for the future, having grown our EBITDA by 15.1 percent and achieved a 60 percent increase in HEPS in a significantly difficult operating environment. It is expected that the South African operating environment will remain tough for the next twelve months, in terms of the overall economic environment, the very competitive telecoms environment in which we operate and regulatory interventions.

Our successful management of the balance sheet is reflected in the significant increase in our free cash flow to R3.9 billion, which is 240 percent up year-on-year. Our shareholders will be pleased to hear that as a result we have reintroduced a dividend, which is made up of an ordinary final dividend of 215 cents per share, together with a once-off special dividend of 30 cents per share, making a total dividend of 245 cents. The board decided that our strong financial position and healthy cash balance warranted a special dividend as we reintroduce dividend payments for the first time since 2011.

In the year ahead we will continue with the next phase of our turnaround strategy. To achieve our aim of repositioning the business for commercial sustainability we need to become more efficient.

This will require

a highly efficient and

cost effective workforce

and an efficient and

high-performing network.

Our aim is to achieve

a staff cost to revenue of at least

25% within the next four years.

I am hopeful that when we report to you again in November 2015 we will have made progress with our employee cost reduction programme, part of which we were unable to achieve in the year under review.

The Financial capital section follows.

Deon Fredericks
Chief financial offi cer