Telkom SA Limited An overview of 2004

1
Telkom SA LimitedAn overview of 2004

• The benefit of our performance

2
Telkom DelegationChief Executive Officer
Sizwe NxasanaChief Executive Officer Telkom
Foundation Nkethelenga VokwanaGroup Executive
Regulatory Public Policy Nkenke KekanaChief
Financial Officer Kaushik patel
3
Contents

• Overview of Telkoms Financial Performance
• Investing in South Africa
• Investing in our customers
• Investing in people
• Investing in the future

4
Section 1

• Last years financial performance

5
Delivering strong growth
Strong cash flow growth
Excellent earnings growth
Operating free cash flow1
Headline earnings per share
In ZAR millions
In ZAR cents
123
175
1. Operating cash flow (after net finance charges
and taxation, before dividends) less investing
cash flow
Year ended March 31
6
Group financial highlights for 2004

• 9 group revenue growth
• 40 group EBITDA margins
• Group capex 13 of revenues
• Group return on assets of 18
• Net debt to equity of 61
• Total dividend of 200 cents per share

7
Our investments are paying off

• Achievements are a result of our investment, over
  a long period in
• South Africa
• Customers
• People
• The future
• While our past investments enable us to grow,
  continuing investments will ensure a sustainable
  future
• The ICT sector contributes 6 to the South
  African GDP

8
Section 2

• Our investment in South Africa

9
Investing in South AfricaEmpowerment Top
Empowerment Company 2004

• Procurement spend from April 2001 to March 2004
• Black owned companies R4.9 billion
• Black empowered/influenced R9.3 billion
• 478 black owned/empowered and influenced-companies
  dependent on Telkom for business
• 3000 companies employing over 600 000 people and
  60 of whom depend on Telkom for business
• Telkoms Enterprise Development Affirmative
  Procurement
• ICT BEE Charter
• Telkom has been actively involved, through the
  ICT Charter Working Group, on the drafting on the
  ICT BEE Charter

10
Investing in South AfricaConnecting communities

• Total access lines more than 4,8 million
• Prepaid fixed-lines 855 406
• Total number of payphones 175 178
• Working with Universal Service Area Licenced
  operators for universal access

11
Investing in South AfricaCreating wealth

• Total individual Khulisa shareholders 54 260
• Total Khulisa shares 4 465 686
• Total stokvels 424 with 217 300 holding
• Total shares through stokvels 4 682 986

12
Investing in South AfricaCreating wealth
(continues)
Khulisa offer
Retail shares (General offer)
Share price at close of business
13
Investing in South AfricaCommunity Builder of
the Year 2004

• Telkom Foundation spend R40,5 million
• Focus on
• Education Training
• Maths, science and technology
• Example North West Science Competition and
  science kits to Nyanga Senior Secondary School
  near Engcobo, Eastern Cape
• ICT planning
• Network computer laboratories with Internet
• Example Connecting 33 schools via V-Sat,
  including Matladi Project Shool in Limpopo
• Empowerment
• Women, children and people with disabilities
• Example Stop Women Abuse Helpline and Thlamelang
  School for the Physically Disabled
• General projects
• Disaster relief

14
Investing in South AfricaBuilding the knowledge
economy

• Support Governments objectives to create jobs
  and develop the economy
• ICT Learnership Graduate Progamme
• In partnership with ISETT SETA
• Call Centre Learnership training 264 unemployed
  learners
• Project Management Learnership 100 Telkom
  employees
• Graduate Development Programme Internship _at_
  Telkom during studies
• Centres of Excellence School of Accounting
• Bursary schemes R11 million to 787 participants

15
Investing in South AfricaNational Pride

• South African Olympic Team
• South African Paralympic Team
• Telkom Charity Cup
• Proudly South African
• Swimming South Africa
• Provide infrastructure of 2004 National Elections

16
Section 3

• Our investment in customers

17
Investing in our customersCreating a world class
network

• Extensive capital programme during period of
  exclusivity
• Total fixed-line capital investment R41.7
  billion over 5 years
• R27.9 billion for network modernisation and line
  roll-out
• Network digitisation 99.9
• State-of-the-art National Network Operations
  Centre (NNOC)
• Integrated surveillance and management centre

18
Investing in our customersCreating a world class
network

• Primary hosting site has no single point of
  failure
• Capability of standalone operation  
• Powered by dual, inline UPS generators
• Protected by five levels of security
• Handle any communications bandwidth specification
  required
• Fully scalable systems environment

19
Investing in our customersCustomer benefits
Faults per 1000
20
Investing in our customersSatisfying the need
for data

• Increased demand for data transmission and
  Internet access services

21
Investing in customersA fresh look _at_ products

• Lifestyle-enhancing, value-adding and
  improved-convenience packages
• The benefit of partnerships
• Improved service offerings
• Superior technology

22
Investing in customersValue for money

• Prices are increased according to tariff regime
  linked to CPI
• Tarifica findings Telkom rates are highly
  competitive and amongst the most affordable in
  the world
• Rebalancing tariffs since 1997

Local 3-minute calls (Source Tarifica, March
2004)
23
Section 4

• Our investment in people

24
Investing in PeopleReflecting society

• Current situation
• Total of black employees 56
• Total black management 35
• Total female management 19
• Our EE targets

25
Investing in peopleReflecting society Promotions

• Promotions in 2003/04 73 black
• Recruitment in 2003/04 83 black

26
Investing in peopleReflecting society Promotions

• Promotions in 2003/04 50 female
• Up from only 14 in 1998

27
Investing in peopleA skilled workforce

• 1072 employees in leadership development
  programmes
• Targeted Development Initiative aimed at females
  to accelerate technical development 113 females
  in programme
• Overall training in Telkom
• Total number of training days 268 920
• On average, 8 training days per employee
• R390 million spent on training during past
  financial year

28
Investing in peopleCaring for our people

• Initiated the Thuso Wellness Programme on 4
  November
• A result of Health Profile in 2003
• Committed to strengthen health management
  strategy
• First initiative Combatting HIV/Aids
• Voluntary Counselling Testing and Treatment
  Programme
• Already more than 2500 employees in pilot
  voluntary testing
• Programme will be country-wide
• Future Extend to spouses and dependants on
  employees medical aid

29
Investing in peopleMaking ownership possible

• Conditional share plan
• Maximum of 4 of issued share capital will be
  made available to employees
• Vesting after three years (over three-year
  period)
• Share options (Diabo)
• 2 at a strike price of R33.81
• Four tranches from September 2003 to March 2006

30
Investing in peopleCreating alternative
employment

• Changing face of ICT landscape require different
  skills in different markets
• Telkoms Agency for Career Opportunities
• Continuous consultation with unions

31
Investing in peopleManaging staff numbers
responsibly

• Current financial year 1 869 affected positions
• Three-year predicted number 4 181 affected
  positions
• Possible reductions likely to be driven largely
  by natural attrition and voluntary packages
• Past five years only 6.1 of total staff losses
  as a result of retrenchments

32
Investing in peopleBecoming an employer of
choice

• Measuring employee satisfaction to determine
  needs and areas of improvement
• Develop and build on Corporate Culture to fit the
  requirements of our market
• Create experience for customer through their
  interaction with our people

33
Section 5

• Our investment in the future

34
Expansion beyond the borders
93 growth in other African mobile customers In
thousands

• Aggressive mobile rollout in DRC
• Market share at 47
• Launched Vodacom Mozambique in Dec 2003
• Opportunity for fixed-line to increase revenue
  from other African countries
• Traffic hubbing
• Network management
• Professional services
• Data services

Year ended March 31,
35
Accelerated managed liberalisation
Further PSTS and reseller licences
Licencing of SNO
Amended Telecommunications Act
Number portability
VOIP (date to be determined by Minister)
Legislation plan
Carrier selection
2001 2002 2003 2004
2005 2006
Licencing of SNO
Further PSTS and reseller licences
Actual
Carrier selection
Number portability
VOIP
New policy announcements on 2 September 2004 are
in accordance with Telecommunications Act as
Amended 2001
36
Investing in the futureOperating in a
competitive landscape

• Ministerial determinations
• Implementation of statutory provisions of
  Telecommunications Act
• Guard against a big bang approach to
  liberalisation
• Minor implications on existing regulatory
  framework
• Convergence Bill
• Expect the Bill to be tabled in 2005
• Urge for accelerated legislation
• Expect to create clarity in future licencing
  regime

37
Investing in the futureImpact of announcement on
ICT sector

• Viability of SNO and USALs
• Consultation process
• Interpretation of carrying of voice by VANs may
  result in 300 potential public switched telephone
  service providers
• Convergence legislation
• Third National Operator and/or other serviced
  based licencees
• Unclear how 2nd economy will benefit

38
Concluding Remarks

• Our achievements are a result of our investment,
  over a long period in
• South Africa
• Customers
• People
• The future
• Telkom is a large player in the ICT environment
  and has contributed, and will continue to do so,
  in addressing poverty alleviation and
  underdevelopment in SA