directors’ responsibility statement - sharedata · 2011. 4. 4. · 140 telkom annual report 2009...

Telkom Annual Report 2009 137

The directors are responsible for the preparation of the annual financial

statements of the Company and the Group. The directors are also

responsible for maintaining a sound system of internal controls to

safeguard shareholders’ investments and the Group’s assets.

In presenting the accompanying financial statements, International

Financial Reporting Standards as issued by the International

Accounting Standards Board have been followed and applicable

accounting policies have been used incorporating prudent judgements

and estimates.

The external auditors are responsible for independently auditing and

reporting on the annual financial statements.

In order for the directors to discharge their responsibilities,

management continues to develop and maintain a system of internal

controls aimed at reducing the risk of error or loss in a cost-effective

manner. The internal controls include a risk-based system of internal

auditing and administrative controls designed to provide reasonable

but not absolute assurance that assets are safeguarded and that

transactions are executed and recorded in accordance with generally

accepted business practices and the Group’s policies and procedures.

The directors, primarily through the audit and risk committee, which

consists of non-executive directors, meet periodically with the external

and internal auditors, as well as executive management to evaluate

matters concerning accounting policies, internal controls, auditing and

financial reporting.

The directors are of the opinion, based on the information and

explanations given by management and internal audit, that the internal

accounting controls are adequate, so that the financial records may be

relied on for preparing the financial statements and maintaining

accountability for assets and liabilities. The directors are satisfied that

the Company and the Group have adequate 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.

Against this background, the directors of the Company accept

responsibility for the annual financial statements, which were approved

by the Board of directors on 10 July 2009 and are signed on their

behalf by:

Shirley Lue Arnold

Chairman

Reuben September

Chief Executive Officer

Peter Nelson

Chief Financial Officer

Pretoria

Directors’ responsibility statement

I hereby certify that in accordance with section 268G(d) of the Companies Act, 1973, as amended, the Company has lodged with the Registrar

of Companies all such returns as are required of a public company in terms of this Act and that all such returns are, to the best of my knowledge

and belief, true, correct and up to date.

Mmathoto Lephadi

Group Company Secretary

Pretoria

10 July 2009

Certificate from Group Company Secretary

Telkom fins (group) NEW 8/12/09 6:28 PM 37

Telkom Annual Report 2009138

Telkom fins (group) NEW 8/12/09 6:29 PM Page 138


To the members of Telkom SA Limited

The directors have pleasure in submitting the annual financial

statements of the Company and the Group for the year ended

March 31, 2009.

NATURE OF BUSINESSTelkom is a leading integrated communications service provider in

South Africa and on the African continent.

FINANCIAL RESULTSEarnings attributable to equity holders of Telkom for the year ended

March 31, 2009 were R4,170 million (2008: R7,975 million)

representing basic earnings per share from continuing operations of

407.4 cents (2008: 963.7 cents). Full details of the financial position

and results of the Group are set out in the accompanying Company

and Group financial statements.

DIVIDENDSThe following dividend was declared in respect of the year ended

March 31, 2009:

• Ordinary dividend number 14 of 115 cents per share (2008:

660 cents);

• Special dividend of 260 cents per share (2008: nil cents).

The level of dividend payments will be based upon a number of

factors, including the consideration of financial results, capital and

operating expenditure requirements, the Group’s debt level, interest

coverage, internal cash flows, prospects and available growth

opportunities.

SUBSIDIARIESParticulars of the significant subsidiaries of the Group are set out in

notes 42 and 43 of the accompanying Group financial statements.

The attributable interest of the Group in the after taxation earnings from

continuing operations of its subsidiaries for the year ended March 31,

2009 were:

2008 2009

Rm Rm

Aggregate amount of loss after taxation (102) (2,142)

SHARE CAPITALDetails of the authorised, issued and unissued share capital of the

Company as at March 31, 2009 are contained in note 22 and

note 20 of the accompanying Group and Company financial

statements respectively.

SHARE REPURCHASEShareholders approved a special resolution granting a general

authority for the repurchase of shares by the Company at its annual

general meeting of September 15, 2008. The Company repurchased

286 ordinary shares at a value of R30,425 (including costs) during the

year under review. These shares have been cancelled as issued share

capital and restored as authorised but unissued share capital.

BORROWING POWERSIn terms of the Company’s articles of association, Telkom has unlimited

borrowing powers subject to the restrictive financial covenants of the

TL20 bond and Syndicated loans.

CAPITAL EXPENDITURE AND COMMITMENTSDetails of the Company’s capital expenditure on property, plant and

equipment as well as intangibles are set out in notes 9 and 10 of the

accompanying financial statements, while details of the Company’s

capital commitments are set out in note 34.

Details of the Group’s capital expenditure on property, plant and

equipment as well as intangibles are set out in notes 11 and 12 of the

accompanying financial statements, while details of the Group’s

capital commitments are set out in note 38.

EVENTS SUBSEQUENT TO BALANCE SHEET DATEEvents subsequent to the balance sheet date are set out in note 45 of

the accompanying Group financial statements and note 39 of the

Company financial statements.

DIRECTORATEThe following changes occurred in the composition of the Board from

April 1, 2008 to date of this report.

Appointments

B Molefe July 3, 2008

PG Joubert August 12, 2008

DD Barber September 1, 2008

PG Nelson December 8, 2008

Resignations

MJ Lamberti June 3, 2008

AG Rhoda July 3, 2008

Directors’ report



The Board of Directors at date of this report are as follows:

ST Arnold (Chairman)

RJ September (Chief Executive Officer)

PG Nelson (Chief Financial Officer)

DD Barber

B du Plessis

RJ Huntley

PG Joubert

VB Lawrence

PCS Luthuli

KST Matthews

B Molefe

E Spio-Garbrah

Details of each director may be found on pages 28 and 29 in the

Management review section.

DIRECTORS’ INTERESTSAt the date of this report, none of Telkom’s directors other than

Mr RJ September, Mr PG Nelson, Mr PG Joubert and Mr DD Barber,

held any direct and indirect, beneficial and non-beneficial interests in

the share capital of the Company. Mr RJ September directly held

90,815 and indirectly held 1,820 ordinary shares, Mr. PG Nelson

directly held 19,182 ordinary shares, Mr PG Joubert indirectly held

15,000 ordinary shares and Mr DD Barber indirectly held

1,200 ordinary shares in the capital of Telkom.

Details of the Company Secretary’s business address and the

Company’s registered office are set out on the inside back cover.

Directors’ report (continued)



Restated* Restated* Audited

2007 2008 2009

Notes Rm Rm Rm

Total revenue 3.1 32,919 34,084 36,433

Operating revenue 3.2 32,441 33,611 35,940

Other income 4 338 472 343

Operating expenses 23,028 25,014 29,895

Employee expenses 5.1 7,254 7,629 8,345

Payments to other operators 5.2 5,005 6,098 6,919

Selling, general and administrative expenses 5.3 4,184 4,045 5,772

Service fees 5.4 2,209 2,437 2,756

Operating leases 5.5 775 671 823

Depreciation, amortisation, impairment and write-offs 5.6 3,601 4,134 5,280

Operating profit 9,751 9,069 6,388

Investment income 6 199 168 181

Finance charges and fair value movements 7 857 1,556 2,843

Interest 1,142 1,543 1,732

Foreign exchange and fair value movement (gain)/loss (285) 13 1,111

Profit before taxation 9,093 7,681 3,726

Taxation 8 2,803 2,647 1,660

Profit from continuing operations 6,290 5,034 2,066

Profit for the year from discontinued operations 9 2,559 3,138 2,181

Profit for the year 8,849 8,172 4,247

Attributable to:

Equity holders of Telkom 8,646 7,975 4,170

Minority interest 203 197 77

8,849 8,172 4,247

Total operations

Basic earnings per share (cents) 10 1,681.0 1,565.0 832.8

Diluted earnings per share (cents) 10 1,676.3 1,546.9 819.6

Dividend per share (cents) 10 900.0 1,100.0 660.0

Continuing operations

Basic earnings per share (cents) 10 1,204.7 963.7 407.4

Diluted earnings per share (cents) 10 1,201.3 952.6 401.0

* The amounts have been restated for the effect of the discontinued operation and disposal groups held for sale as disclosed in note 9.

Consolidated income statementfor the three years ended March 31, 2009



2007 2008 2009Notes Rm Rm Rm

ASSETSNon-current assets 48,770 57,763 51,010

Property, plant and equipment 11 41,254 46,815 41,418 Intangible assets 12 5,111 8,468 7,232 Investments 14 1,384 1,448 1,383 Deferred expenses 15 270 221 55 Finance lease receivables 16 158 206 166 Deferred taxation 17 593 605 756

Current assets 10,376 12,609 11,287

Short-term investments 14 77 51 –Inventories 18 1,093 1,287 1,974 Income taxation receivable 34 520 9 91 Current portion of deferred expenses 15 287 362 –Current portion of finance lease receivables 16 88 166 109 Trade and other receivables 19 7,303 8,986 5,980 Other financial assets 20 259 614 1,202 Cash and cash equivalents 21 749 1,134 1,931

Assets of disposal groups classified as held for sale 9 – – 23,482

Total assets 59,146 70,372 85,779

EQUITY AND LIABILITIESEquity attributable to equity holders of Telkom 31,724 32,815 36,253

Share capital 22 5,329 5,208 5,208 Treasury share reserve 23 (1,774) (1,638) (1,517)Share-based compensation reserve 24 257 643 1,076 Non-distributable reserves 25 1,413 1,292 1,758 Retained earnings 26 26,499 27,310 28,852 Reserves of disposal groups classified as held for sale 9 – – 876

Minority interest 27 284 522 853

Total equity 32,008 33,337 37,106

Non-current liabilities 8,554 15,104 15,348

Interest-bearing debt 28 4,338 9,403 10,653 Other financial liabilities 20 36 919 –Provisions 29 1,443 1,675 1,875 Deferred revenue 15 1,021 1,128 997 Deferred taxation 17 1,716 1,979 1,823

Current liabilities 18,584 21,931 17,452

Trade and other payables 31 7,237 8,771 5,538 Shareholders for dividend 35 15 20 23 Current portion of interest-bearing debt 28 6,026 6,330 7,622 Current portion of provisions 29 2,095 2,181 2,150 Current portion of deferred revenue 15 1,983 2,593 1,714 Income taxation payable 34 594 323 50 Other financial liabilities 20 193 371 228 Credit facilities utilised 21 441 1,342 127

Liabilities of disposal groups classified as held for sale 9 – – 15,873

Total liabilities 27,138 37,035 48,673

Total equity and liabilities 59,146 70,372 85,779

Consolidated balance sheetat March 31, 2009



Attributable to equity holders of Telkom

Share-based Discon-

Treasury compen- Non-distri- tinuedShare Share share sation butable Retained opera- Minority Total

capital premium reserve reserve reserves earnings tions Total interest equityRm Rm Rm Rm Rm Rm Rm Rm Rm Rm

Balance at April 1, 2006 5,449 1,342 (1,809) 151 1,128 22,904 – 29,165 301 29,466 Total income and expense for the year 46 8,646 – 8,692 217 8,909 Profit for the year – 8,646 – 8,646 203 8,849 Foreign currency translation reserve (net of taxation of R4 million) (refer to note 25) 46 – – 46 14 60 Dividend declared (refer to note 35) – (4,678) – (4,678) (166) (4,844) Transfer to non-distributable reserves (refer to note 25) 239 (239) – – – –Shares vested and re-issued (refer to note 24) 35 (35) – – – – – –Increase in share-based compensation reserve (refer to note 24) – 141 – – – 141 – 141 Acquisition of subsidiaries and minorities (refer to note 36) – – – – – – (68) (68) Shares bought back and cancelled (refer to note 22) (120) (1,342) – – – (134) – (1,596) (1,596)

Balance at March 31, 2007 5,329 – (1,774) 257 1,413 26,499 – 31,724 284 32,008 Total income and expense for the year 529 7,975 – 8,504 226 8,730 Profit for the year – 7,975 – 7,975 197 8,172 Revaluation of available-for-sale investment (net of taxation of R1 million) 8 – – 8 – 8 Foreign currency translation reserve (net of taxation of R6 million) (refer to note 25) 521 – – 521 29 550 Dividend declared (refer to note 35) – (5,627) – (5,627) (65) (5,692) Transfer to non-distributable reserves (refer to note 25) 11 (11) – – – –Increase in share-based compensation reserve (refer to note 24) 522 – – – 522 – 522 Shares vested and re-issued (refer to note 24) 136 (136) – – – – – –Acquisition of subsidiaries and minorities (refer to note 36) – – – – – – 77 77 Shares bought back and cancelled (refer to note 22) (121) – – – (1,526) – (1,647) – (1,647) Minority put option – – – – (661) – – (661) – (661)

Balance at March 31, 2008 5,208 – (1,638) 643 1,292 27,310 – 32,815 522 33,337 Discontinued operations (4) – 4 – – –Total income and expense for the year (181) 4,171 181 4,171 93 4,264 Profit for the year – 4,171 – 4,171 77 4,248 Revaluation of available-for-sale investment (net of taxation of R1 million) – – (8) (8) – (8) Foreign currency translation reserve (net of taxation of R6 million) (refer to note 25) (181) – 189 8 16 24 Dividend declared (refer to note 35) – (3,306) – (3,306) (33) (3,339) Transfer to non-distributable reserves (refer to note 25) (10) 10 – – – –Increase in share-based compensation reserve (refer to note 24) 554 – – – 554 – 554 Shares vested and re-issued (refer to note 24) 121 (121) – – – – – –Acquisition of subsidiaries and minorities – – – 667 – 667 – 667 Shares bought back and cancelled (refer to note 22) – – – – – – – –Minority put option – – 661 – – 661 – 661 Broad-based black economic empowerment transaction in Vodacom – – – – 691 691 271 962

Balance at March 31, 2009 5,208 – (1,517) 1,076 1,758 28,852 876 36,253 853 37,106

Consolidated statement of changes in equityfor the three years ended March 31, 2009



2007 2008 2009Notes Rm Rm Rm

Cash flows from operating activities 9,356 10,603 11,432

Cash receipts from customers 50,979 55,627 61,302

Cash paid to suppliers and employees (30,459) (34,371) (40,908)

Cash generated from operations 32 20,520 21,256 20,394

Interest received 422 433 485

Dividends received 6 3 – –

Finance charges paid 33 (1,115) (1,077) (2,164)

Taxation paid 34 (5,690) (4,277) (3,947)

Cash generated from operations before dividend paid 14,140 16,335 14,768

Dividend paid 35 (4,784) (5,732) (3,336)

Cash flows from investing activities (10,412) (14,106) (17,005)

Proceeds on disposal of property, plant and equipment and

intangible assets 54 169 43

Proceeds on disposal of investments 77 8 –

Additions to property, plant and equipment and intangible assets (10,037) (11,657) (13,191)

Acquisition of subsidiaries and minority interest (445) (2,462) (3,778)

Additions to other investments (61) (164) (79)

Cash flows from financing activities (2,920) 2,943 7,093

Loans raised 5,624 23,877 18,168

Loans repaid (6,922) (19,315) (10,212)

Shares bought back and cancelled (1,596) (1,647) –

Finance lease obligation repaid (37) (61) (136)

Decrease/(increase) in net financial assets 11 89 (727)

Net (decrease)/increase in cash and cash equivalents (3,976) (560) 1,520

Net cash and cash equivalents at beginning of the year 4,255 308 (208)

Effect of foreign exchange rate differences 29 44 (30)

Net cash and cash equivalents at end of the year 21 308 (208) 1,282

Consolidated cash flow statementfor the three years ended March 31, 2009



1. CORPORATE INFORMATIONTelkom SA Limited (Telkom) is a company incorporated and

domiciled in the Republic of South Africa (South Africa)

whose shares are publicly traded. The main objective of Telkom,

its subsidiaries and joint ventures (the Group) is to supply

telecommunication, broadcasting, multimedia, technology,

information and other related information technology services to

the general public, as well as mobile communication services

through the Vodacom Group (Proprietary) Limited (Vodacom) in

South Africa and certain other African countries. The principal

activities of the Group include:

• fixed-line subscription and connection services to post-paid,

prepaid and private payphone customers using PSTN

(‘Public Switched Telephone Network’) lines, including ISDN

(‘Integrated Services Digital Network’) lines, and the sale of

subscription based value-added voice services and customer

premises equipment rental and sales;

• fixed-line traffic services to post-paid, prepaid and payphone

customers, including local, long distance, fixed-to-mobile,

international outgoing and international voice-over-internet

protocol traffic services;

• interconnection services, including terminating and transiting

traffic from South African mobile operators, as well as from

international operators and transiting traffic from mobile to

international destinations;

• fixed-line data and internet services, including domestic and

international data transmission services, such as point-to-point

leased lines, ADSL (Asymmetrical Digital Subscriber Line)

services, packet-based services, managed data networking

services and internet access and related information

technology services;

• e-commerce, including internet access service provider,

application provider, hosting, data storage, e-mail and

security services;

• W-CDMA (Wideband Code Division Multiple Access), a

3G next generation network, including fixed voice services,

data services and nomadic voice services; and

• other services including directory services, through Trudon

(Proprietary) Limited (formerly trading as TDS Directory

Operations (Proprietary) Limited), wireless data services,

through Swiftnet (Proprietary) Limited, television media

services, through Telkom Media Group, internet services

outside South Africa, through Africa Online Limited and

information, communication and telecommunication

operating services in Nigeria, through Multi-Links

Telecommunications Limited.

Mobile communications services, wireless data services and

television media services through Vodacom, Swiftnet and Telkom

Media Group respectively have been classified as disposal

groups held for sale and discontinued operations.

2. SIGNIFICANT ACCOUNTING POLICIESBasis of preparation

The consolidated annual financial statements comply with

the International Financial Reporting Standards (IFRS) of the

International Accounting Standards Board (IASB) and the

Companies Act of South Africa, 1973.

The financial statements are prepared on the historical cost

basis, with the exception of certain financial instruments which

are measured at fair value and share-based payments which are

measured at grant date fair value.

Details of the Group’s significant accounting policies are set out

below, and are consistent with those applied in the previous

financial year except for the following:

The Group has adopted certain amendments to IAS39 and

IFRS7, and adopted IFRIC12 and IFRIC14 which are

applicable for annual periods on or after January 1, 2008.

The principal effects of these changes are discussed below.

Adoption of amendments to standards and new

interpretation

IAS39 Financial Instruments: Recognition and Measurement

and IFRS7 Financial Instruments: Disclosures –

Reclassification of Financial Assets (amended)

The amendments, which are effective on or after July 1, 2008,

permit an entity to reclassify non-derivative financial assets (other

than those designated at fair value through profit or loss by the

entity upon initial recognition) out of the fair value through profit

or loss category in particular circumstances. The amendments

also permit an entity to transfer from the available-for-sale

category to the loans and receivables category a financial asset

that would have met the definition of loans and receivables

(if the financial asset had not been designated as available-for-

sale), if the entity has the intention and ability to hold that

financial asset for the foreseeable future. The amendments do

not have an impact on the consolidated annual financial

statements.

IFRIC12 Service Concession Arrangements

The interpretation, which is effective for annual periods

beginning on or after January 1, 2008, sets out general

principles on recognising and measuring the obligations and

related rights in service concession arrangements from an

operator’s perspective. The interpretation does not have an

impact on the consolidated annual financial statements.

Notes to the consolidated annual financial statementsfor the three years ended March 31, 2009



2. SIGNIFICANT ACCOUNTING POLICIES (continued)Adoption of amendments to standards and new

interpretation (continued)

IFRIC14 The Limit on a Defined Benefit Asset, MinimumFunding Requirements and their InteractionThe interpretation, which is effective for annual periods

beginning on or after January 1, 2008, provides guidance on

assessing the limit in IAS19 on the amount of the surplus that can

be recognised as an asset. It also explains how the pension

asset or liability may be affected by a statutory or contractual

minimum funding requirement. The interpretation does not have

any impact on the consolidated annual financial statements, as

the Group is not subject to minimum funding requirements.

Significant accounting judgements, estimates and

assumptions

The preparation of financial statements requires the use of

estimates and assumptions that affect the reported amounts

of assets and liabilities and disclosure of contingent assets and

liabilities at the date of the financial statements and the reported

amounts of revenue and expenses during the reporting periods.

Although these estimates and assumptions are based on

management’s best knowledge of current events and actions that

the Group may undertake in the future, actual results may

ultimately differ from those estimates and assumptions.

The presentation of the results of operations, financial position

and cash flows in the financial statements of the Group is

dependent upon and sensitive to the accounting policies,

assumptions and estimates that are used as a basis for the

preparation of these financial statements. Management has

made certain judgements in the process of applying the Group’s

accounting policies. These, together with the key estimates and

assumptions concerning the future, and other key sources of

estimation uncertainty at the balance sheet date, are as follows:

Revenue recognitionTo reflect the substance of each transaction, revenue recognition

criteria are applied to each separately identifiable component

of a transaction as disclosed in note 3. In order to account for

multiple-element revenue arrangements in developing its

accounting policies, the Group considered the guidance

contained in the United States Financial Accounting Standards

Board (’FASB’) Emerging Issues Task Force No 00-21 Revenue

Arrangements with Multiple Deliverables. Judgement is required

to separate those revenue arrangements that contain the delivery

of bundled products or services into individual units of

accounting, each with its own earnings process, when the

delivered item has stand-alone value and the undelivered item

has fair value. Further judgement is required to determine the

relative fair values of each separate unit of accounting to be

allocated to the total arrangement consideration. Changes in

the relative fair values could affect the allocation of arrangement

consideration between the various revenue streams.

Judgement is also required to determine the expected customer

relationship period. Any changes in these assessments may

have a significant impact on revenue and deferred revenue.

Property, plant and equipment and intangible assets

The useful lives of assets are based on management’s

estimation. Management considers the impact of changes in

technology, customer service requirements, availability of

capital funding and required return on assets and equity to

determine the optimum useful life expectation for each of the

individual categories of property, plant and equipment and

intangible assets. Due to the rapid technological advancement

in the telecommunications industry as well as Telkom’s plan to

migrate to a next generation network over the next few years,

the estimation of useful lives could differ significantly on an

annual basis due to unexpected changes in the roll-out strategy.

The impact of the change in the expected useful life of property,

plant and equipment is described more fully in note 5.6.

The estimation of residual values of assets is also based on

management’s judgement whether the assets will be sold

or used to the end of their useful lives and what their condition

will be like at that time.

For intangible assets that incorporate both a tangible and an

intangible portion, management uses judgement to assess which

element is more significant to determine whether it should be

treated as property, plant and equipment or intangible assets.

Asset retirement obligations

Management judgement is exercised when determining whether

an asset retirement obligation exists, and in determining the

present value of expected future cash flows and discount rate

when the obligation to dismantle or restore the site arises, as

well as the estimated useful life of the related asset.

Impairments of property, plant and equipment and

intangible assets

Management is required to make judgements concerning

the cause, timing and amount of impairment as indicated on

notes 11 and 12. In the identification of impairment indicators,

management considers the impact of changes in current

competitive conditions, cost of capital, availability of funding,

technological obsolescence, discontinuance of services and

other circumstances that could indicate that an impairment

exists. The Group applies the impairment assessment to its

separate cash-generating units. This requires management to

make significant judgements concerning the existence of

impairment indicators, identification of separate cash-generating

units, remaining useful lives of assets and estimates of projected

Notes to the consolidated annual financial statements (continued)

for the three years ended March 31, 2009



2. SIGNIFICANT ACCOUNTING POLICIES (continued)Significant accounting judgements, estimates and

assumptions (continued)Impairments of property, plant and equipment andintangible assets (continued)cash flows and fair value less costs to sell. Managementjudgement is also required when assessing whether a previouslyrecognised impairment loss should be reversed.

Where impairment indicators exist, the determination ofthe recoverable amount of a cash-generating unit requiresmanagement to make assumptions to determine the fair valueless costs to sell and value in use. Key assumptions on whichmanagement has based its determination of fair value less coststo sell include the existence of binding sale agreements, and forthe determination of value in use include the weighted averagecost of capital, projected revenues, gross margins, averagerevenue per customer, capital expenditure, expected customerbases and market share. The judgements, assumptions andmethodologies used can have a material impact on the fairvalue and ultimately the amount of any impairment.

Impairment of other financial assetsAt each balance sheet date management assesses whetherthere are indicators of impairment of financial assets, includingequity investments. If such evidence exists, the estimated presentvalue of the future cash flows of that asset is determined.Management judgement is required when determining theexpected future cash flows. To determine whether any decline infair value in available-for-sale investments is significant orprolonged, reliance is placed on an assessment bymanagement. In measuring impairments, quoted market pricesare used, if available, or projected business plan informationfrom the investee is used for those financial assets not carried atfair value.

Impairment of receivablesAn impairment is recognised on trade receivables that areassessed to be impaired (refer to notes 13 and 19). Theimpairment is based on an assessment of the extent to whichcustomers have defaulted on payments already due and anassessment on their ability to make payments based on theircredit worthiness and historical write-offs experience. Should theassumptions regarding the financial condition of the customerchange, actual write-offs could differ significantly from theimpaired amount.

Leases The determination of whether an arrangement is, or contains alease is based on whether, at the date of inception, the fulfilmentof the arrangement is dependent on the use of a specific assetor assets or the arrangement conveys a right to use the asset asset out in notes 16 and 38.

Leases in which a significant portion of the risks and rewards of

ownership are retained by the lessor are classified as operating

leases. Payments made under operating leases (net of any

incentives received from the lessor) are charged to the income

statement on a straight-line basis over the period of the lease.

A lease is classified as a finance lease if it transfers substantially

all the risks and rewards incidental to ownership.

Deferred taxation asset

Management judgement is exercised when determining the

probability of future taxable profits which will determine whether

deferred taxation assets should be recognised or derecognised.

The realisation of deferred taxation assets will depend on

whether it is possible to generate sufficient taxable income,

taking into account any legal restrictions on the length and

nature of the taxation asset. When deciding whether to

recognise unutilised taxation credits, management needs to

determine the extent that the future obligation is likely to be

available for set-off. In the event that the assessment of the future

obligation and future utilisation changes, the change in the

recognised deferred taxation asset must be recognised in profit

or loss.

Taxation

The taxation rules and regulations in South Africa as well as the

other African countries within which the Group operates are

highly complex and subject to interpretation. Additionally, for

the foreseeable future, management expects South African

taxation laws to further develop through changes in South

Africa’s existing taxation structure as well as clarification of the

existing taxation laws through published interpretations and the

resolution of actual taxation cases. Refer to notes 8 and 17.

Management has made a judgement that all outstanding

taxation credits relating to secondary taxation on companies

(STC) will be available for utilisation before the taxation regime

from STC to withholding taxation change is effective.

The growth of the Group, following its geographical expansion

into other African countries over the past few years, has made

the estimation and judgement required in recognising and

measuring deferred taxation balances more challenging. The

resolution of taxation issues is not always within the control of

the Group and it is often dependent on the efficiency of the

legal processes in the relevant taxation jurisdictions in which

the Group operates. Issues can, and often do, take many years

to resolve. Payments in respect of taxation liabilities for an

accounting period result from payments on account and on the

final resolution of open items. As a result there can be substantial

differences between the taxation charge in the consolidated

income statement and the current taxation payments.






assumptions (continued)

Taxation (continued)Group entities are regularly subject to evaluation, by the relevanttaxation authorities, of their historical taxation filings and inconnection with such reviews, disputes can arise with the taxationauthorities over the interpretation or application of certain taxationrules to the business of the relevant Group entities. These disputesmay not necessarily be resolved in a manner that is favourable forthe Group. Additionally the resolution of the disputes could result inan obligation for the Group that exceeds management’s estimate.The Group has historically filed, and continues to file, all requiredincome taxation returns. Management believes that the principlesapplied in determining the Group’s taxation obligations areconsistent with the principles and interpretations of the relevantcountries’ taxation laws.

Deferred taxation rateManagement makes judgements on the taxation rate applicablebased on the Group’s expectations at balance sheet date onhow the asset is expected to be recovered or the liability isexpected to be settled.

Employee benefitsThe Group provides defined benefit plans for certain post-employment benefits. The Group’s net obligation in respect ofdefined benefits is calculated separately for each plan byestimating the amount of future benefits earned in return forservices rendered. The obligation and assets related to each ofthe post-retirement benefits are determined through an actuarialvaluation. The actuarial valuation relies heavily on assumptionsas disclosed in note 30. The assumptions determined bymanagement make use of information obtained from theGroup’s employment agreements with staff and pensioners,market related returns on similar investments, market relateddiscount rates and other available information. The assumptionsconcerning the expected return on assets and expected changein liabilities are determined on a uniform basis, consideringlong-term historical returns and future estimates of returns andmedical inflation expectations. In the event that further changesin assumptions are required, the future amounts of post-employment benefits may be affected materially.

The discount rate reflects the average timing of the estimateddefined benefit payments. The discount rate is based on long-term South African government bonds with the longest maturityperiod as reported by the Bond Exchange of South Africa.The discount rate is expected to follow the trend of inflation.

The overall expected rate of return on assets is determinedbased on the market prices prevailing at that date, applicableto the period over which the obligation is to be settled.

Telkom provides equity compensation in the form of the TelkomConditional Share Plan to its employees. The related expenseand reserve are determined through an actuarial valuationwhich relies heavily on assumptions. The assumptions includeemployee turnover percentages and whether specifiedperformance criteria will be met. Changes to these assumptionscould affect the amount of expense ultimately recognised in thefinancial statements. An actuarial valuation relies heavily on theactual plan experience assumptions as disclosed in note 30.

Provisions and contingent liabilitiesManagement judgement is required when recognising andmeasuring provisions and when measuring contingent liabilities asset out in notes 29 and 39 respectively. The probability that anoutflow of economic resources will be required to settle theobligation must be assessed and a reliable estimate must be madeof the amount of the obligation. Provisions are discounted wherethe effect of discounting is material based on management’sjudgement. The discount rate used is the rate that reflects currentmarket assessments of the time value of money and, whereappropriate, the risks specific to the liability, all of which requiresmanagement judgement. The Group is required to recogniseprovisions for claims arising from litigation when the occurrence ofthe claim is probable and the amount of the loss can be reasonablyestimated. Liabilities provided for legal matters require judgementsregarding projected outcomes and ranges of losses based onhistorical experience and recommendations of legal counsel.Litigation is however unpredictable and actual costs incurred coulddiffer materially from those estimated at the balance sheet date.

Held-to-maturity financial assetsManagement has reviewed the Group’s held-to-maturityfinancial assets in the light of its capital management andliquidity requirements and has confirmed the Group’s positiveintention and ability to hold those assets to maturity.

Summary of significant accounting policiesBasis of consolidationThe consolidated financial statements incorporate the financialstatements of Telkom and entities (including special purposeentities) controlled by Telkom, its subsidiaries, as well as its jointventures and associates. Control is achieved where Telkom hasthe power to govern the financial and operating policies of aninvestee entity so as to obtain benefits from its activities. Jointventures are those enterprises over which the Group exercisesjoint control in terms of a contractual agreement. Joint venturesare proportionately consolidated. Associates are those entitiesover which the Group has significant influence and that areneither subsidiaries nor joint ventures. Associates are equityaccounted. Significant influence exists when the Group has thepower to participate in the financial and operating policydecisions of these entities, but does not have control or jointcontrol over those policies.





2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)

Basis of consolidation (continued)

The results of subsidiaries acquired or disposed of during the

year are included in the income statement from the effective date

of acquisition and up to the effective date of disposal, as

appropriate.

Where necessary, adjustments are made to the financial

statements of subsidiaries, joint ventures and associates to bring

the accounting policies used in line with those used by the

Group.

Inter-company transactions, balances and unrealised gains on

transactions between Group companies are eliminated.

Unrealised profit or losses are also eliminated.

The Group applies a policy of treating transactions with minority

interests as transactions with parties external to the Group.

Disposals to minority interests result in gains and losses for the

Group and are recorded in the income statement. Acquisition of

minority interests results in goodwill, being the difference

between any consideration paid and the relevant share

acquired of the carrying value of net assets of the subsidiary.

Business combinations

The purchase method of accounting is used to account for the

acquisition of subsidiaries by the Group. The cost of an

acquisition is measured as the fair value of the assets given,

equity instruments issued and liabilities incurred or assumed at

the date of exchange, plus costs directly attributable to the

acquisition. Identifiable assets acquired and liabilities and

contingent liabilities assumed in a business combination are

measured initially at their fair values at the acquisition date,

irrespective of the extent of any minority interest. The excess

of the cost of acquisition over the fair value of the Group’s share

of the identifiable net assets acquired is recorded as goodwill.

If the cost of acquisition is less than the fair value of the net

assets of the subsidiary acquired, the difference is recognised

directly in the income statement.

Operating revenue

The Group provides fixed-line communication services, mobile

communication services and other services. Other includes

data services, directory services and communication related

products. The Group provides such services to business,

residential, payphone and mobile customers. Revenue

represents the fair value of fixed or determinable consideration

that has been received or is receivable.

Revenue for services is measured at amounts invoiced to

customers and excludes Value Added Taxation.

Revenue is recognised when there is evidence of an

arrangement, collectability is reasonably assured, and the

delivery of the product or service has occurred. In certain

circumstances revenue is split into separately identifiable

components and recognised when the related components are

delivered in order to reflect the substance of the transaction.

The value of components is determined using verifiable

objective evidence. The Group does not provide customers with

the right to a refund.

Fixed-line and other

Subscriptions, connections and other usage

The Group provides telephone and data communication

services under post-paid and prepaid payment arrangements.

Revenue includes fees for installation and activation, which are

deferred over the expected customer relationship period. Costs

incurred on first time installations that form an integral part of

the network are capitalised and depreciated over the expected

average customer relationship period. All other installation and

activation costs are expensed as incurred.

Post-paid and prepaid service arrangements include

subscription fees, typically monthly fees, which are recognised

over the subscription period.

Revenue related to sale of communication equipment, products

and value-added services is recognised upon delivery and

acceptance of the product or service by the customer.

Traffic (domestic, fixed-to-mobile and international)

PrepaidPrepaid traffic service revenue collected in advance is deferred

and recognised based on actual usage or upon expiration of

the usage period, whichever comes first. The terms and

conditions of certain prepaid products allow the carry over of

unused minutes. Revenue related to the carry over of unused

minutes is deferred until usage or expiration.

PayphonesPayphone service coin revenue is recognised when the service

is provided.

Payphone service card revenue collected in advance is deferred

and recognised based on actual usage or upon expiration of

the usage period, whichever comes first.

Post-paidRevenue related to local, long distance, network-to-network,

roaming and international call connection services is recognised

when the call is placed or the connection provided.

Interconnection

Interconnection revenue for call termination, call transit, and

network usage is recognised as the traffic flow occurs.






Fixed-line and other (continued)

Data

The Group provides data communication services under post-

paid and prepaid payment arrangements. Revenue includes fees

for installation and activation, which are deferred over the

expected average customer relationship period. Costs incurred

on first time installations that form an integral part of the network

are capitalised and depreciated over the life of the expected

average customer relationship period. All other installation and

activation costs are expensed as incurred. Post-paid and prepaid

service arrangements include subscription fees, typically monthly

fees, which are recognised over the subscription period.

Directory services

Included in other are directory services. Revenue is recognised

when printed directories are released for distribution, as the

significant risks and rewards of ownership have been transferred

to the buyer. Electronic directories’ revenue is recognised on a

monthly basis, as earned.

Sundry revenue

Sundry revenue is recognised when the economic benefit flows

to the Group and the earnings process is complete.

Dealer incentives

Telkom provides incentives to its retail payphone card distributors

as trade discounts. Incentives are based on sales volume and

value. Revenue for retail payphone cards is recorded as traffic

revenue, net of these discounts as the cards are used.

Mobile

The Vodacom Group invoices its independent service providers

for the revenue billed by them on behalf of the Group. The

Group, within its contractual arrangements with its agents, pays

them administrative fees. The Group receives in cash, the net

amount equal to the gross revenue earned less the administrative

fees payable to the agents.

Contract products

Contract products that may include deliverables such as a

handset and 24-month service are defined as arrangements

with multiple deliverables. The arrangement consideration is

allocated to each deliverable, based on the fair value of each

deliverable on a stand-alone basis as a percentage of the

aggregated fair value of the individual deliverables. Revenue

allocated to the identified deliverables in each revenue

arrangement and the cost applicable to these identified

deliverables are recognised based on the same recognition

criteria of the individual deliverable at the time the product or

service is delivered.

Vodacom revenue from the handset is recognised when the

product is delivered limited to the amount of cash received.

Monthly service revenue received from the customer is recognised

in the period in which the service is delivered. Airtime revenue is

recognised on the usage basis. The terms and conditions of the

bundled airtime products, where applicable, allow the carry over

of unused airtime. The unused airtime is deferred in full. Deferred

revenue related to unused airtime is recognised when utilised by

the customer. Upon termination of the customer contract, all

deferred revenue for unused airtime is recognised in revenue.

Prepaid products

Prepaid products that may include deliverables such as a SIM-

card and airtime are defined as arrangements with multiple

deliverables. The arrangement consideration is allocated to

each deliverable, based on the fair value of each deliverable

on a stand-alone basis as a percentage of the aggregated fair

value of the individual deliverables. Revenue allocated to the

identified deliverables in each revenue arrangement and the

cost applicable to these identified deliverables are recognised

based on the same recognition criteria of the individual

deliverable at the time the product or service is delivered.

• Revenue from the SIM-card representing activation fees is

recognised over the average useful life of a prepaid customer.

• Airtime revenue is recognised on the usage basis. Unused

airtime is deferred in full.

• Deferred revenue related to unused airtime is recognised

when utilised by the customer. Upon termination of the

customer relationship, all deferred revenue for unused airtime

is recognised in revenue.

Upon purchase of an airtime voucher the customer receives the

right to make outgoing voice and data calls to the value of the

airtime voucher. Revenue is recognised as the customer utilises

the voucher.

Deferred revenue and costs related to unactivated starter packs

which do not contain any expiry date, are recognised in the

period when the probability of these starter packs being

activated by a customer becomes remote. In this regard the

Group applies a period of 36 months before these revenue and

costs are released to the consolidated income statement.

Data

Revenue, net of discounts, from data services is recognised

when the Group has performed the related service and

depending on the nature of the service, is recognised either at

the gross amounts billed to the customer or the amount

receivable by the Group as commission for facilitating the

service.



Telkom fins (group) NEW 8/12/09 6:29 PM 1


2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)Mobile (continued)Equipment salesAll equipment sales are recognised only when delivery andacceptance has taken place. Equipment sales to third partyservice providers are recognised when delivery is accepted.No rights of return exist on sales to third party service providers.

Mobile number portabilityRevenue transactions from mobile number portability areaccounted for in terms of current business rules and revenuerecognition policies above.

Interest on debtors’ accountsInterest is raised on overdue accounts on an effective interestrate method and recognised in the income statement.

MarketingMarketing costs are recognised as an expense when incurred.

IncentivesIncentives paid to service providers and dealers for productsdelivered to the customer are expensed as incurred. Incentivespaid to service providers and dealers for services delivered areexpensed in the period that the related revenue is recognised.

Distribution incentives paid to service providers and dealers forexclusivity are deferred and expensed over the contractualrelationship period.

Investment incomeDividends from investments are recognised on the date that theGroup is entitled to the dividend. Interest is recognised on a timeproportionate basis taking into account the principal amountoutstanding and the effective interest rate.

TaxationCurrent taxationThe charge for current taxation is based on the results for the yearand is adjusted for non-taxable income and non-deductibleexpenditure. Current taxation is measured at the amount expectedto be paid to the taxation authorities, using taxation rates andlaws that have been enacted or substantively enacted by thebalance sheet date.

Deferred taxationDeferred taxation is accounted for using the balance sheetliability method on all temporary differences at the balancesheet date between the taxation bases of assets and liabilitiesand their carrying amounts for financial reporting purposes.

Deferred taxation is not provided on the initial recognition ofassets or liabilities which is not a business combination and at thetime of the transaction affects neither accounting nor taxable profitor loss.

A deferred taxation asset is recognised to the extent that it is

probable that future taxable profits will be available against

which the associated unused taxation losses, unused taxation

credits and deductible temporary differences can be utilised.

The carrying amount of deferred taxation assets is reviewed at

each balance sheet date and is reduced to the extent that it is

no longer probable that the related taxation benefit will be

realised. In respect of deductible temporary differences

associated with investments in subsidiaries, associates and

interest in joint ventures, deferred income taxation assets are

recognised only to the extent that it is probable that temporary

differences will reverse in the foreseeable future and taxable

profit will be available against which temporary differences can

be utilised.

Deferred taxation relating to items recognised directly in equity

is recognised in equity and not in the income statement.

Deferred taxation assets and liabilities are measured at the

taxation rates that are expected to apply to the period when the

asset is realised or the liability is settled, based on taxation rates

(and taxation laws) that have been enacted or substantively

enacted by the balance sheet date. Deferred taxation assets and

liabilities are not discounted.

Deferred taxation assets and deferred taxation liabilities are

offset, if a legally enforceable right exists to set off current

taxation assets against current taxation liabilities and the

deferred taxes relate to the same taxable entity and the same

taxation authority.

Exchange differences arising from the translation of foreign

deferred taxation assets and liabilities of foreign entities where

the functional currency is different to the local currency, are

classified as a deferred taxation expense or income.

Secondary taxation on companies

Secondary taxation on companies (STC) is provided for at a

rate of 10% (12.5% before October 1, 2007) on the amount

by which dividends declared by the Group exceeds dividends

received. Deferred taxation on unutilised STC credits is

recognised to the extent that STC payable on future dividend

payments is likely to be available for set-off.






Property, plant and equipment

At initial recognition acquired property, plant and equipment

are recognised at their purchase price, including import duties

and non-refundable purchase taxes, after deducting trade

discounts and rebates. The recognised cost includes any directly

attributable costs for preparing the asset for its intended use.

The cost of an item of property, plant and equipment is

recognised as an asset if it is probable that the future economic

benefits associated with the item will flow to the Group and the

cost of the item can be measured reliably.

Property, plant and equipment is stated at historical cost less

accumulated depreciation and any accumulated impairment

losses. Each component of an item of property, plant and

equipment with a cost that is significant in relation to the total

cost of the item is depreciated separately. Depreciation is

charged from the date the asset is available for use on a

straight-line basis over the estimated useful life and ceases at the

earlier of the date that the asset is classified as held for sale and

the date the asset is derecognised. Idle assets continue to attract

depreciation.

The estimated useful life of individual assets and the

depreciation method thereof are reviewed on an annual basis

at balance sheet date. The depreciable amount is determined

after taking into account the residual value of the asset. The

residual value is the estimated amount that the Group would

currently obtain from the disposal of the asset, after deducting

the estimated cost of disposal, if the asset were already of the

age and in the condition expected at the end of its useful life.

The residual values of assets are reviewed on an annual basis

at balance sheet date.

Assets under construction represents freehold buildings, integral

operating software, network and support equipment and

includes all direct expenditure as well as related borrowing

costs capitalised, but excludes the costs of abnormal amounts of

waste material, labour or other resources incurred in the

production of self-constructed assets.

Freehold land is stated at cost and is not depreciated. Amounts

paid by the Group on improvements to assets which are held in

terms of operating lease agreements are depreciated on a

straight-line basis over the shorter of the remaining useful life of

the applicable asset or the remainder of the lease period.

Where it is reasonably certain that the lease agreement will be

renewed, the lease period equals the period of the initial

agreement plus the renewal periods.

The estimated useful lives assigned to groups of property, plant

and equipment are:

Years

Freehold buildings 15 to 50

Leasehold buildings 7 to 50

Network equipment

Cables 20 to 40

Switching equipment 2 to 25

Transmission equipment 3 to 18

Other 1 to 20

Support equipment 3 to 13

Furniture and office equipment 2 to 25

Data processing equipment and software 3 to 10

Other 2 to 20

An item of property, plant and equipment is derecognised upon

disposal or when no future economic benefits are expected from

its use or disposal. Any gain or loss arising on derecognition of

the asset (calculated as the difference between the net disposal

proceeds and the carrying amount of the asset) is included in

the income statement in the year the asset is derecognised.

Assets held under finance leases are depreciated over their

expected useful lives on the same basis as owned assets or,

where shorter, the term of the relevant lease if there is no

reasonable certainty that the Group will obtain ownership by the

end of the lease term.

Intangible assets

Goodwill

Goodwill arising on the acquisition of a subsidiary is

recognised as an asset at the date that control is acquired (the

acquisition date). Goodwill is measured as the excess of the

sum of the consideration transferred, the amount of any minority

interest in the acquiree and the fair value of the acquirer’s

previously-held equity interest (if any) in the entity over the net fair

value of the identifiable net assets recognised.

If, after reassessment, the Group’s interest in the net fair value of

the acquiree’s identifiable net assets exceeds the sum of the

consideration transferred, the amount of any minority interest in

the acquiree and the fair value of the acquirer’s previously-held

equity interest (if any), the excess is recognised immediately in

profit or loss as a bargain purchase gain.

Goodwill is not amortised, but is reviewed for impairment at

least annually. Any impairment loss is recognised immediately in

profit or loss and is not subsequently reversed.

On disposal of a subsidiary, the attributable amount of goodwill

is included in the determination of the profit or loss on disposal.





2. SIGNIFICANT ACCOUNTING POLICIES (continued)Intangible assets (continued)

Licences, software, trademarks, copyrights and other

At initial recognition acquired intangible assets are recognised

at their purchase price, including import duties and non-

refundable purchase taxes, after deducting trade discounts and

rebates. The recognised cost includes any directly attributable

costs for preparing the asset for its intended use. Internally

generated intangible assets are recognised at cost comprising

all directly attributable costs necessary to create and prepare

the asset to be capable of operating in the manner intended by

management. Licences, software, trademarks, copyrights and

other intangible assets are carried at cost less accumulated

amortisation and any accumulated impairment losses.

Amortisation commences when the intangible assets are

available for their intended use and is recognised on a straight-

line basis over the assets’ expected useful lives. Amortisation

ceases at the earlier of the date that the asset is classified as

held for sale and the date that the asset is derecognised.

The residual value of intangible assets is the estimated amount that

the Group would currently obtain from the disposal of the asset,

after deducting the estimated cost of disposal, if the asset were

already of the age and in the condition expected at the end of its

useful life. Due to the nature of the asset the residual value is

assumed to be zero unless there is a commitment by a third party

to purchase the asset at the end of its useful life or when there is an

active market that is likely to exist at the end of the asset’s useful life,

which can be used to estimate the residual values. The residual

values of intangible assets, amortisation methods and their useful

lives are reviewed on an annual basis at balance sheet date.

Intangible assets with indefinite useful lives and intangible assets

not yet available for use are tested for impairment annually

either individually or at the cash-generating unit level. Such

intangible assets are not amortised. The useful life of an

intangible asset with an indefinite life is reviewed annually to

determine whether indefinite life assessment continues to be

supportable. If not, the change in the useful life assessment from

indefinite to finite is made on a prospective basis.

Assets under construction represents application and other non-

integral software and includes all direct expenditure as well as

related borrowing costs capitalised, but excludes the costs of

abnormal amounts of waste material, labour or other resources

incurred in the production of self-constructed assets.

Intangible assets are derecognised when they have been

disposed of or when the asset is permanently withdrawn from

use and no future economic benefit is expected from its

disposal. Any gains or losses on the retirement or disposal of

assets are recognised in the income statement in the year in

which they arise.

The expected useful lives assigned to intangible assets are:

Years

Licences 5 to 30

Software 2 to 10

Trademarks, copyrights and other 1 to 15

Asset retirement obligationsAsset retirement obligations related to property, plant andequipment and intangible assets are recognised at the presentvalue of expected future cash flows when the obligation todismantle or restore the site arises. The increase in the relatedasset’s carrying value is depreciated over its estimated usefullife. The unwinding of the discount is included in financecharges and fair value movements. Changes in themeasurement of an existing liability that result from changes inthe estimated timing or amount of the outflow of resourcesrequired to settle the liability, or a change in the discount rateare accounted for as increases or decreases to the original costof the recognised assets. If the amount deducted exceeds thecarrying amount of the asset, the excess is recognisedimmediately in profit or loss.

Non-current assets held for saleNon-current assets and disposal groups are classified as heldfor sale if their carrying amount will be recovered through a saletransaction rather than through continuing use. This condition isregarded as met only when the sale is highly probable and theasset (or disposal group) is available for immediate sale in itspresent condition. Management must be committed to the sale,which should be expected to qualify for recognition as acomplete sale within one year from the date of classification andmarketed at a reasonable value. Assets are no longerdepreciated when they are classified into the category.

If a non-current asset or disposal group is classified as held forsale, but the criteria for classification as held for sale are nolonger met, the disclosure of such non-current asset or disposalgroup as held for sale is ceased. Where the disposal groupwas also classified as a discontinued operation, the subsequentclassification as held for use also requires that the discontinuedoperation be included in continuing operations.

Non-current assets (and disposal groups) classified as held forsale are measured at the lower of the assets’ previous carryingamount and fair value less cost to sell.






Impairment of property, plant and equipment and

intangible assets

The Group regularly reviews its non-financial assets and cash-

generating units for any indication of impairment. When

indicators, including changes in technology, market, economic,

legal and operating environments occur and could result in

changes of the asset’s or cash-generating unit’s estimated

recoverable amount, an impairment test is performed.

The recoverable amount of assets or cash-generating units is

measured using the higher of the fair value less costs to sell and

its value in use, which is the present value of projected cash

flows covering the remaining useful lives of the assets.

Impairment losses are recognised when the asset’s carrying

value exceeds its estimated recoverable amount. Where

applicable, the recoverable amount is determined for the cash-

generating unit to which the asset belongs.

Previously recognised impairment losses, other than goodwill, are

reviewed annually for any indication that it may no longer exist or

may have decreased. If any such indication exists, the recoverable

amount of the asset is estimated. Such impairment losses are

reversed through the income statement if the recoverable amount

has increased as a result of a change in the estimates used to

determine the recoverable amount, but not to an amount higher

than the carrying amount that would have been determined (net of

depreciation or amortisation) had no impairment loss been

recognised in prior years. Impairment on goodwill is not reversed.

Repairs and maintenance

The Group expenses all costs associated with repairs and

maintenance, unless it is probable that such costs would result in

increased future economic benefits flowing to the Group, and

the costs can be reliably measured.

Borrowing costs

Financing costs directly associated with the acquisition or

construction of assets that require more than three months to

complete and place in service are capitalised at interest rates

relating to loans specifically raised for that purpose, or at the

weighted average borrowing rate where the general pool of

Group borrowings was utilised. Other borrowing costs are

expensed as incurred.

Deferred revenue and expenses

Activation revenue and costs are recognised in accordance with

the principles contained in Emerging Issues Task Force Issue

No 00-21, Revenue Arrangements with Multiple Deliverables

(EITF 00-21), issued in the United States. This results in activation

revenue and costs up to the amount of the deferred revenue

being deferred and recognised systematically over the expected

duration of the customer relationship because it is considered to

be part of the customers’ ongoing rights to telecommunication

services and the operator’s continuing involvement. Any excess

of the costs over revenues is expensed immediately.

Inventories

Installation material, maintenance and network equipment

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

weighted average basis, or estimated net realisable value.

Merchandise inventories are stated at the lower of cost,

determined on a first-in first-out (FIFO) basis, or estimated net

realisable value. Write-down of inventories arises when, for

example, goods are damaged or when net realisable value is

lower than carrying value.

Financial instruments

Recognition and initial measurement

All financial instruments are initially recognised at fair value, plus,

in the case of financial assets and liabilities not at fair value through

profit or loss, transaction costs that are directly attributable to the

acquisition or issue. Financial instruments are recognised when the

Group becomes a party to their contractual arrangements. All

regular way transactions are accounted for on settlement date.

Regular way purchases or sales are purchases or sales of financial

assets that require delivery of assets within the period generally

established by regulation or convention in the marketplace.

Subsequent measurement

Subsequent to initial recognition, the Group classifies financial

assets as ’at fair value through profit or loss’, ’held-to-maturity

investments’, ’loans and receivables’, or ’available-for-sale’.

Financial liabilities are classified ’at fair value through profit or

loss’ or ’other financial liabilities’. The measurement of each is

set out below and presented in a table in note 13.

The fair value of financial assets and liabilities that are actively

traded in financial markets is determined by reference to quoted

market prices at the close of business on the balance sheet date.

Where there is no active market, fair value is determined using

valuation techniques such as discounted cash flow analysis.

Financial assets at fair value through profit or loss

The Group classifies financial assets that are held for trading in the

category ’financial assets at fair value through profit or loss’.

Financial assets are classified as held for trading if they are

acquired for the purpose of selling in the future. Derivatives not

designated as hedges are also classified as held for trading. On

remeasurement to fair value the gains or losses on held for trading

financial assets are recognised in net finance charges and fair

value movements for the year.





2. SIGNIFICANT ACCOUNTING POLICIES (continued)Financial instruments (continued)Financial assets at fair value through profit or loss(continued)Gains and losses arising from changes in the fair value of the’financial assets at fair value through profit or loss’ category arepresented in the income statement within ’finance charges andfair value movements’ in the period which they arise.

Held-to-maturity financial assetsThe Group classifies non-derivative financial assets with fixed ordeterminable payments and fixed maturity dates as held-to-maturity when the Group has the positive intention and ability tohold to maturity. These assets are subsequently measured atamortised cost. Amortised cost is computed as the amountinitially recognised minus principal repayments, plus or minusthe cumulative amortisation using the effective interest ratemethod. This calculation includes all fees paid or receivedbetween parties to the contract. For investments carried atamortised cost, gains and losses are recognised in net profit orloss when the investments are sold or impaired.

Loans and receivablesLoans and receivables are non-derivative financial assets withfixed or determinable payments that are not quoted in an activemarket. Such assets are carried at amortised cost using theeffective interest rate method. Trade receivables aresubsequently measured at the original invoice amount where theeffect of discounting is not material.

Available-for-sale financial assetsAvailable-for-sale financial assets are those non-derivative assetsthat are designated as available-for-sale, or are not classified inany of the three preceding categories. Equity instruments are alltreated as available-for-sale financial instruments. After initialrecognition, available-for-sale financial assets are measured atfair value, with gains and losses being recognised as aseparate component of equity, net of taxation. Dividend incomeis recognised in the income statement as part of other incomewhen the Group’s right to receive payment is established.

Changes in the fair value of monetary items denominated in aforeign currency and classified as available-for-sale areanalysed between translation differences resulting from changesin amortised cost of the security and other changes in carryingamount of the item. The translation differences on monetaryitems are recognised in profit or loss, while translationdifferences on non-monetary securities are recognised in equity.Changes in the fair value of monetary and non-monetary itemsclassified as available-for-sale are recognised directly in equity.When an investment is derecognised or determined to beimpaired, the cumulative gain or loss previously recorded inequity is recognised in profit or loss.

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as ‘at fair value through profit

or loss’ (FVTPL) where the financial liability is held for trading.

A financial liability is classified as held for trading:

• if it is acquired for the purpose of settling in the near term; or

• if it is a derivative that is not designated and effective as a

hedging instrument.

Financial liabilities at a FVTPL are stated at fair value, with any

resultant gains or losses recognised in profit or loss. The net

gain or loss recognised in profit or loss incorporates any interest

paid on the financial liability.

Other financial liabilities

Other financial liabilities are subsequently measured at

amortised cost using the effective interest rate method, with

interest expense recognised in finance charges and fair value

movements, on an effective interest rate basis.

The effective interest rate is the rate that accurately discounts

estimated future cash payments through the expected life of the

financial liability or, where appropriate, a shorter period.

Financial guarantee contracts

Financial guarantee contracts are subsequently measured at the

higher of the amount determined in accordance with IAS37

Provisions, Contingent Liabilities and Contingent Assets or the

amount initially recognised less, when appropriate, cumulative

amortisation, recognised in accordance with IAS18 Revenue.

Cash and cash equivalents

Cash and cash equivalents are measured at amortised cost. This

comprises cash on hand, deposits held on call and term

deposits with an initial maturity of less than three months when

entered into.

For the purpose of the cash flow statement, cash and cash

equivalents consist of cash and cash equivalents defined above,

net of credit facilities utilised.

Capital and money market transactions

New bonds and commercial paper bills issued are subsequently

measured at amortised cost using the effective interest rate

method.

Bonds issued where Telkom is a buyer and seller of last resort

are carried at fair value. The Group does not actively trade in

bonds.





2. SIGNIFICANT ACCOUNTING POLICIES (continued)Financial instruments (continued)DerecognitionA financial instrument or a portion of a financial instrument will

be derecognised and a gain or loss recognised when the

Group’s contractual rights expire, financial assets are transferred

or financial liabilities are extinguished. On derecognition of a

financial asset or liability, the difference between the

consideration and the carrying amount on the settlement date is

included in finance charges and fair value movements for the

year. For available-for-sale assets, the fair value adjustment

relating to prior revaluations of assets is transferred from equity

and recognised in finance charges and fair value movements for

the year.

Bonds and commercial paper bills are derecognised when the

obligation specified in the contract is discharged. The difference

between the carrying value of the bond and the amount paid to

extinguish the obligation is included in finance charges and fair


Impairment of financial assetsAt each balance sheet date an assessment is made of whether

there are any indicators of impairment of a financial asset or

a group of financial assets based on observable data about

one or more loss events that occurred after the initial recognition

of the asset or the group of assets. For loans and receivables

carried at amortised costs, if there is objective evidence that an

impairment loss has been incurred, the amount of the loss is

measured at the difference between the asset’s carrying amount

and the present value of estimated future cashflows. The

carrying amount of the assets is reduced through the use of an

allowance account and the amount of the loss is recognised in

the income statement. In the case of equity securities classified

as available-for-sale, a significant or prolonged decline in the

fair value of the security below its cost is considered as an

indicator that the securities are impaired.

If any such evidence exists for available-for-sale assets, the

cumulative loss – measured as the difference between the

acquisition cost and the current fair value, less any impairment

loss on that financial asset previously recognised in profit or loss

– is removed from equity and recognised in the income

statement. Impairment losses recognised in the income statement

on equity instruments are not reversed through the income

statement. The recoverable amount of financial assets carried at

amortised cost is calculated as the present value of expected

future cash flows discounted at the original effective interest rate

of the asset.

If, in a subsequent period, the amount of the impairment loss for

financial assets decreases and the decrease can be related

objectively to an event occurring after the impairment was

recognised, the previously recognised impairment loss is

reversed except for those financial assets classified as available-

for-sale and carried at cost that are not reversed. Any

subsequent reversal of an impairment loss is recognised in the

income statement, to the extent that the carrying value of the

asset does not exceed its amortised cost at the reversal date.

Reversals in respect of equity instruments classified as available-

for-sale are not recognised in profit or loss. Reversals of

impairment losses on debt instruments classified as available-for-

sale are reversed through the income statement, if the increase

in fair value of the instrument is objectively related to an event

occurring after the impairment loss was recognised through the

income statement.

Remeasurement of embedded derivatives

The Group assesses whether an embedded derivative is

required to be separated from the host contract and accounted

for as a derivative when it first becomes party to the contract.

The Group reassesses the contract when there is a change in the

terms of the contract which significantly modifies the cash flows

that would otherwise be required under the contract.

Financial instruments: Disclosures

The Group groups its financial instruments into classes of similar

instruments and where disclosure is required, it discloses them

by class. It also discloses information about the nature and

extent of risks arising from its financial instruments as indicated

in note 13.

Foreign currencies

Each entity within the Group determines its functional currency.

The Group’s presentation currency is the South African rand

(ZAR).

Transactions denominated in foreign currencies are measured at

the rate of exchange at transaction date. Monetary items

denominated in foreign currencies are remeasured at the rate of

exchange at settlement date or balance sheet date, whichever

occurs first. Exchange differences on the settlement or translation

of monetary assets and liabilities are included in finance

charges and fair value movements in the period in which they

arise. Non-monetary items that are measured in terms of

historical cost in a foreign country are translated using the

exchange rates as at the dates of the initial transactions. Non-

monetary items measured at fair value in a foreign currency are

translated using the exchange rates at the date when the fair

value is determined.





2. SIGNIFICANT ACCOUNTING POLICIES (continued)Foreign currencies (continued)The annual financial statements of foreign operations aretranslated into South African rand, the Group’s presentationcurrency, for incorporation into the consolidated annualfinancial statements. Assets and liabilities are translated at theforeign exchange rates ruling at the balance sheet date.Income, expenditure and cash flow items are measured at theactual foreign exchange rate or average foreign exchange ratesfor the period. All resulting unrealised exchange differences areclassified as equity. On disposal, the cumulative amounts ofunrealised exchange differences that have been deferred arerecognised in the consolidated income statement as part of thegain or loss on disposal.

All gains and losses on the translation of equity loans to foreignoperations that are intended to be permanent, whether they aredenominated in one of the entities’ functional currencies or in athird currency, are recognised in equity.

Goodwill and intangible assets arising on the acquisition of aforeign operation are treated as assets of the foreign operationand translated at the foreign exchange rates ruling at balancesheet date.

Treasury sharesWhere the Group acquires, or in substance acquires, Telkomshares, such shares are measured at cost and disclosed as areduction of equity. No gain or loss is recognised in profit or losson the purchase, sale, issue or cancellation of the Group’s ownequity instruments. Such shares are not remeasured for changesin fair value.

Where the Group chooses or is required to buy equity instrumentsfrom another party to satisfy its obligations to its employees underthe share-based payment arrangement by delivery of its ownshares, the transaction is accounted for as equity-settled. Thisapplies regardless of whether the employees’ rights to the equityinstruments were granted by the Group itself or by its shareholdersor was settled by the Group itself or its shareholders.

LeasesA lease is classified as a finance lease if it transfers substantiallyall the risks and rewards incidental to ownership. All otherleases are classified as operating leases.

Where the Group enters into a service agreement as a supplier ora customer that depends on the use of a specific asset, and conveysthe right to control the use of the specific asset, the arrangement isassessed to determine whether it contains a lease. Once it has beenconcluded that an arrangement contains a lease, it is assessedagainst the criteria in IAS17 to determine if the arrangement shouldbe recognised as a finance lease or operating lease.

The land and buildings elements of a lease of land and

buildings are considered separately for the purposes of lease

classification unless it is impracticable to do so.

Lessee

Operating lease payments are recognised in the income

statement on a straight-line basis over the lease term.

Assets acquired in terms of finance leases are capitalised at the

lower of fair value or the present value of the minimum lease

payments at inception of the lease and depreciated over the

lesser of the useful life of the asset or the lease term. The capital

element of future obligations under the leases is included as a

liability in the balance sheet. Lease finance costs are amortised

in the income statement over the lease term using the interest rate

implicit in the lease. Where a sale and leaseback transaction

results in a finance lease, any excess of sale proceeds over the

carrying amount is deferred and recognised in the income

statement over the term of the lease.

Lessor

Operating lease revenue is recognised in the income statement

on a straight-line basis over the lease term.

Assets held under a finance lease are recognised in the balance

sheet and presented as a receivable at an amount equal to the

net investment in the lease. The recognition of finance income is

based on a pattern reflecting a constant periodic rate of return

on the net investment in the finance lease.

Employee benefits

Post-employment benefits

The Group provides defined benefit and defined contribution

plans for the benefit of employees. These plans are funded by

the employees and the Group, taking into account

recommendations of the independent actuaries. The post-

retirement telephone rebate liability is unfunded.

Defined contribution plans

The Group’s funding of the defined contribution plans is charged

to employee expenses in the same year as the related service is

provided.

Defined benefit plans

The Group provides defined benefit plans for pension,

retirement, post-retirement medical aid benefits and telephone

rebates to qualifying employees. The Group’s net obligation in

respect of defined benefits is calculated separately for each

plan by estimating the amount of future benefits earned in return

for services rendered.





2. SIGNIFICANT ACCOUNTING POLICIES (continued)Employee benefits (continued)

Defined benefit plans (continued)

The amount recognised in the balance sheet represents the present

value of the defined benefit obligations, calculated by using the

projected unit credit method, as adjusted for unrecognised

actuarial gains and losses, unrecognised past service costs and

reduced by the fair value of the related plan assets. The amount

of any surplus recognised and reflected as deferred expenses is

limited to unrecognised actuarial losses and past service costs plus

the present value of available refunds and reductions in future

contributions to the plan. To the extent that there is uncertainty as

to the entitlement to the surplus, no asset is recognised. No gain

is recognised solely as a result of an actuarial loss or past service

cost in the current period and no loss is recognised solely as a

result of an actuarial gain or past service cost in the current period.

Actuarial gains and losses are recognised as employee

expenses when the cumulative unrecognised gains and losses

for each individual plan exceed 10% of the greater of the

present value of the Group’s obligation and the fair value of

plan assets at the beginning of the year. These gains or losses

are amortised on a straight-line basis over 10 years for all the

defined benefit plans, except gains or losses related to the

pensioners in the Telkom Retirement Fund or unless the standard

requires faster recognition. For the Telkom Retirement Fund

pensioners, the cumulative unrecognised actuarial gains and

losses in excess of the 10% corridor at the beginning of the year

are recognised immediately.

Past service costs are recognised immediately to the extent that

the benefits are vested, otherwise they are recognised on a

straight-line basis over the average period the benefits become

vested.

Leave benefits

Annual leave entitlement is provided for over the period that the

leave accrues and is subject to a cap of 22 days.

Workforce reduction

Workforce reduction expenses are payable when employment

is terminated before the normal retirement age or when an

employee accepts voluntary redundancy in exchange for

benefits. Workforce reduction benefits are recognised when the

entity is demonstrably committed and it is probable that the

expenses will be incurred. In the case of an offer made to

encourage voluntary redundancy, the measurement of

termination benefits is based on the number of employees

expected to accept the offer.

Deferred bonus incentives

Employees of the wholly owned subsidiaries of Vodacom,

including executive directors, are eligible for compensation

benefits in the form of a Deferred Bonus Incentive Scheme. The

benefit is recorded at the present value of the expected future

cash outflows.

Share-based compensation

The grants of equity instruments, made to employees in terms of

the Telkom Conditional Share Plan, are classified as equity-

settled share-based payment transactions. The expense relating

to the services rendered by the employees, and the

corresponding increase in equity, is measured at the fair value

of the equity instruments at their date of grant based on the

market price at grant date, adjusted for the lack of entitlement to

dividends during the vesting period. This compensation cost is

recognised over the vesting period, based on the best available

estimate at each balance sheet date of the number of equity

instruments that are expected to vest.

Short-term employee benefits

The cost of all short-term employee benefits is recognised during

the year the employees render services, unless the Group uses

the services of employees in the construction of an asset and the

benefits received meet the recognition criteria of an asset, at

which stage it is included as part of the related property, plant

and equipment or intangible asset item.

Long-term incentive provision

The Vodacom Group provides long-term incentives to eligible

employees payable on termination or retirement. The Group’s

liability is based on an actuarial valuation. Actuarial gains and

losses are recognised as employee expenses.

Provisions

Provisions are recognised when the Group has a present

obligation (legal or constructive) as a result of a past event, it is

probable that an outflow of resources will be required to settle

the obligation, and a reliable estimate can be made of the

amount of the obligation. Provisions are reviewed at each

balance sheet date and adjusted to reflect the current best

estimate. Where the effect of the time value of money is

material, the amount of the provision is the present value of the

expenditures expected to be required to settle the obligation.





2007 2008 2009Rm Rm Rm

3. REVENUE3.1 Total revenue 32,919 34,084 36,433

Operating revenue 32,441 33,611 35,940

Other income (excluding profit on disposal of property, plant and

equipment, intangible assets and investments, refer to note 4) 279 305 312

Investment income (refer to note 6) 199 168 181

3.2 Operating revenue 32,441 33,611 35,940

Fixed-line 32,345 32,572 33,659

Multi-Links – 845 1,900

Other 873 1,040 1,214

Eliminations (777) (846) (833)

Fixed-line 32,345 32,572 33,659

Subscriptions, connections and other usage 6,286 6,330 6,614

Traffic 16,740 15,950 15,323

Domestic (local and long distance) 7,563 6,328 5,670

Fixed-to-mobile 7,646 7,557 7,420

International (outgoing) 988 986 933

Subscription based calling plans 543 1,079 1,300

Interconnection 1,639 1,757 2,084

Data 7,489 8,308 9,310

Sundry revenue 191 227 328

4. OTHER INCOME 338 472 343

Other income (included in Total revenue, refer to note 3) 279 305 312

Interest received from trade receivables 188 254 270

Sundry income 91 51 42

Profit on disposal of property, plant and equipment and intangible assets 16 167 31

Profit on disposal of investment 43 – –





2007 2008 2009Rm Rm Rm

5. OPERATING EXPENSESOperating expenses comprise:

5.1 Employee expenses 7,254 7,629 8,345

Salaries and wages 5,215 5,710 6,050

Medical aid contributions 384 415 410

Retirement contributions 446 470 472

Post-retirement pension and retirement fund (refer to note 30) 33 5 29

Current service cost 5 5 4

Interest cost 329 509 633

Expected return on plan assets (508) (713) (825)

Actuarial gain (136) (16) –

Settlement loss/(gain) 21 (2) (3)

Asset limitation 322 222 220

Post-retirement medical aid (refer to notes 29 and 30) 330 278 457



Expected return on plan asset (188) (257) (223)

Actuarial loss 149 129 157

Telephone rebates (refer to notes 29 and 30) 104 27 61



Past service cost 76 2 2

Actuarial loss 5 – 14

Share-based compensation expense (refer to note 24) 141 522 554

Other benefits* 1,297 988 1,048

Employee expenses capitalised (696) (786) (736)

* Other benefits include annual leave, performance incentive,

service bonuses, skills development and workforce reduction expenses.

5.2 Payments to other operators 5,005 6,098 6,919

Payments to other network operators consist of expenses in respect of interconnection with other network operators.





2007 2008 2009Rm Rm Rm

5. OPERATING EXPENSES (continued)5.3 Selling, general and administrative expenses 4,184 4,045 5,772

Selling and administrative expenses 1,533 1,220 2,374 Maintenance 1,870 1,966 2,319 Marketing 640 614 711 Bad debts 141 245 368

The increase in the current year’s selling and administrative expenses is attributable to the focus on expanding the customer base in Nigeria.

5.4 Service fees 2,209 2,437 2,756

Facilities and property management 1,142 1,228 1,275 Consultancy services 192 169 295 Security and other 821 982 1,121 Auditors’ remuneration 54 58 65

Audit services 53 57 58

Company auditors 48 46 47

Current year 47 43 47 Prior year underprovision 1 3 –

Other auditors – current year 5 11 11

Audit related services – 1 –

Other auditors – 1 –

Other services 1 – 7

Included in the current year’s consultancy services is an amount of R177 million relating to services rendered in respect of the transaction to dispose of Telkom’s shareholding in Vodacom Group (Proprietary) Limited.

The increase in the current year’s security and other costs is mainly attributable to the new contract negotiated to secure the copper network in Telkom’s drive to cut down on cable thefts.

5.5 Operating leases 775 671 823

Land and buildings 135 160 244 Transmission and data lines 8 35 118 Equipment 80 48 72 Vehicles 552 428 389

5.6 Depreciation, amortisation, impairment and write-offs 3,601 4,134 5,280

Depreciation of property, plant and equipment 3,011 3,151 3,733 Amortisation of intangible assets 306 469 724 Impairment of property, plant and equipment and intangible assets – 229 501 Write-offs of property, plant and equipment and intangible assets 284 285 322

Included in the current year’s amortisation of intangible assets is an amount of R134 million relating to the FIFA brand intangible asset.The impairment charge for the 2009 financial year consists of R462 million and R39 million relating to Multi-Links and Africa Onlinerespectively.





2007 2008 2009Rm Rm Rm

6. INVESTMENT INCOME 199 168 181

Interest income 196 168 181

Dividend income from investments 3 – –

Included in investment income is an amount of R160 million (2008:

R142 million; 2007: R196 million) which relates to interest earned from

financial assets not measured at fair value through profit or loss.

7. FINANCE CHARGES AND FAIR VALUE MOVEMENTS 857 1,556 2,843

Finance charges on interest-bearing debt 1,142 1,543 1,732

Local debt 1,303 1,700 1,895

Foreign debt – 18 –

Finance charges capitalised (161) (175) (163)

Foreign exchange gains and losses and fair value movement (285) 13 1,111

Foreign exchange losses 59 93 843

Fair value adjustments on derivative instruments (344) (80) 268

Capitalisation rate 14.77% 12.60% 12.40%

Included in finance charges is an amount of R1,655 million (2008: R1,499 million; 2007: R1,142 million) which relates to interest paid

on financial liabilities not measured at fair value through profit or loss.

Included in foreign exchange losses and fair value adjustments are forex losses of R961 million in respect of the loan that Multi-Links

received from Telkom and R409 million loss in respect of the Multi-Links put option, offset by the R318 million gain in Telkom.





2007 2008 2009Rm Rm Rm

8. TAXATION 2,803 2,647 1,660

South African normal company taxation 1,989 2,018 1,658

Current taxation 2,023 2,018 1,686

Overprovision for prior year (34) – (28)

Deferred taxation 490 254 (164)

Temporary differences – normal company taxation 534 121 241

Temporary difference – secondary taxation on companies

(STC) taxation credits (raised)/utilised (45) 190 (89)

Change in taxation rate – (54) –

Capital gains taxation (CGT) asset – – (454)

Underprovision/(overprovision) for prior year 1 (3) 138

Secondary taxation on companies 324 381 164

Foreign taxation – (6) 2

Included in the current year’s deferred taxation expense is a credit of

R454 million relating to the deferred taxation on temporary differences

associated with the disposal groups which are classified as held for sale.

The decrease in the deferred taxation expense is mainly due to the

temporary difference associated with the disposal groups which are

classified as held for sale.

The STC expense was provided for at a rate of 10% (12.5% before

October 1, 2007) on the amount by which dividends declared exceeded

dividends received. Deferred taxation expense relating to STC credits is

provided for at a rate of 10% (2008: 10%; 2007: 12.5%).

Reconciliation of taxation rate % % %

Effective rate 30.8 34.5 44.5

South African normal rate of taxation 29.0 29.0 28.0

Adjusted for: 1.8 5.5 16.5

Change in taxation rate – (0.5) –

Exempt income (2.2) (2.5) (26.8)

Disallowable expenditure 0.7 2.9 47.7

Taxation losses not utilised – (0.7) 1.6

STC credits (raised)/utilised (0.3) 1.5 (2.4)

STC charge 3.1 5.3 4.4

CGT asset 1.1 – (11.0)

Net (overprovision)/underprovision for prior year (0.5) (0.5) 3.0

Utilisation of assessed loss (0.1) – –





2007 2008 2009Rm Rm Rm

9. DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE9.1 Discontinued operations

Telkom Media (Proprietary) Limited

Telkom Media was classified as held for sale in the September 2008 interim

financials. At year end March 31, 2009, the subsidiary did not meet

the held for sale criteria as management were unable to sell the disposal

group for its expected price and therefore decided to abandon it.

The results and cash flows of the subsidiary are disclosed as a

discontinued operation in accordance with IFRS.

Analysis of the results of discontinued operations:

Revenue* 14 26

Expenses* 157 305

Loss before taxation of discontinued operations 143 279

Taxation (1) 2

Loss after taxation of discontinued operations 142 281

The net cash flows attributable to the operating, investing and

financing activities of discontinued operations:

Operating cash flows (95) (140)

Investing cash flows (218) (39)

Financing cash flows 319 149

Total cash inflow/(outflow) 6 (30)

9.2 Disposal groups held for sale

9.2.1 Vodacom Group (Proprietary) Limited

In the current year, the Group announced a decision to dispose of its entire

interest in Vodacom through selling 15% of its shareholding to Vodafone, a

wholly owned subsidiary of Vodafone Group Plc (Vodafones) and unbundling

its remaining 35% shareholding to its shareholders pursuant to a listing of

Vodacom on the main board of the JSE Limited. This decision was taken in

line with the Group’s strategy to unlock shareholder value; consequently, all

assets and liabilities of Vodacom and its subsidiaries were classified as a

discontinued operation.


Revenue* 19,157 22,653 26,215

Expenses* 14,709 17,334 21,749

Profit before taxation of discontinued operations 4,448 5,319 4,466

Taxation 1,918 2,055 2,023

Profit after taxation of discontinued operations 2,530 3,264 2,443

* Revenue comprises operating revenue, other income and investment income. Expenses comprises operating expenses and finance charges.





2007 2008 2009Rm Rm Rm

9. DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE (continued)

9.2 Disposal groups held for sale (continued)9.2.1 Vodacom Group (Proprietary) Limited (continued)

The major classes of assets and liabilities of the business classified as a disposal group:Assets 23,410

Property, plant and equipment 10,922 Intangible assets 5,897 Trade and other receivables 4,283 Other non-current and current assets 2,308

Liabilities 15,858

Interest-bearing debt 4,170 Trade and other payables 4,679 Current portion of interest-bearing debt 2,882 Current portion of deferred revenue 1,260 Credit facilities utilised 1,102 Other non-current and current liabilities 1,765

Reserve of disposal group held for sale 876

Reconciliation of carrying value transferred to disposal groups at year end: Property,plant and

equipment

Carrying value at beginning of year 9,585Additions 2,979Disposals (28)Foreign currency translation reserve 340 Business combinations 143Impairments and write-offs (53)Depreciation (1,974) Transfers (33)Other transfers (37)

Carrying value at end of year 10,922

Intangibleassets

Carrying value at beginning of year 2,111Additions 590Foreign currency translation reserve 26Business combinations 3,503Amortisation (366) Transfers (33)

Carrying value at end of year 5,897

The net cash flows attributable to the operating, investing and financing activities of the disposal group:

Operating cash flows 2,429 2,563 2,092 Investing cash flows (3,292) (3,751) (6,375)Financing cash flows (100) 1,617 4,436

Total cash (outflow)/inflow (963) 429 153





2007 2008 2009Rm Rm Rm

9. DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE (continued)

9.2 Disposal groups held for sale (continued)

9.2.2 Swiftnet (Proprietary) Limited

In February 2009, Telkom’s Board of directors took a decision to

dispose of its 100% investment in Swiftnet (Proprietary) Limited.

The investment is classified as held for sale.


Revenue* 103 98 97

Expenses* 64 79 82

Profit before taxation of discontinued operations 39 19 15

Taxation 10 3 (4)

Profit after taxation of discontinued operations 29 16 19

The major classes of assets and liabilities of the business

classified as a disposal group:

Assets 72

Property, plant and equipment and intangible assets 24

Income taxation receivable 2

Trade and other receivables 18

Cash and cash equivalents 28

Liabilities 15

Provisions 1

Trade and other payables 10

Current portion of provisions 4

The net cash flows attributable to the operating, investing and financing

activities of the disposal group:

Operating cash flows 43 22 31

Investing cash flows (15) (11) (33)

Financing cash flows (23) – 10

Total cash inflow 5 11 8

* Revenue comprises operating revenue, other income and investment income. Expenses comprises operating expenses and finance charges.





2007 2008 2009

10. EARNINGS PER SHARETotal operations

Basic earnings per share (cents) 1,681.0 1,565.0 832.8

The calculation of earnings per share is based on profit attributable to equity

holders of Telkom for the year of R4,170 million (2008: R7,975 million;

2007: R8,646 million) and 500,700,538 (2008: 509,595,092;

2007: 514,341,284) weighted average number of ordinary shares in issue.

Diluted earnings per share (cents) 1,676.3 1,546.9 819.6

The calculation of diluted earnings per share is based on earnings for the

year of R4,170 million (2008: R7,975 million; 2007: R8,646 million) and

508,782,641 (2008: 515,541,968; 2007: 515,763,581) diluted

weighted average number of ordinary shares. The adjustment in the

weighted average number of shares is as a result of the expected future

vesting of shares already allocated to employees under the Telkom

Conditional Share Plan.

Headline earnings per share (cents)* 1,710.7 1,634.8 994.6

The calculation of headline earnings per share is based on headline

earnings of R4,980 million (2008: R8,331 million; 2007:

R8,799 million) and 500,700,538 (2008: 509,595,092;

2007: 514,341,284) weighted average number of ordinary shares in issue.

Diluted headline earnings per share (cents)* 1,706.0 1,616.0 978.8

The calculation of diluted headline earnings per share is based on headline

earnings of R4,980 million (2008: R8,331 million; 2007: R8,799 million)

and 508,782,641 (2008: 515,541,968; 2007: 515,763,581)

diluted weighted average number of ordinary shares in issue. The

adjustment in the weighted average number of shares is as a result

of the expected future vesting of shares already allocated to

employees under the Telkom Conditional Share Plan.

Continuing operations

Basic earnings per share (cents) 1,204.7 963.7 407.4

The calculation of earnings per share is based on profit attributable to

equity holders of Telkom for the year of R2,040 million (2008: R4,911 million;

2007: R6,196 million) and 500,700,538 (2008: 509,595,092;

2007: 514,341,284) weighted average number of ordinary shares

in issue.

Diluted earnings per share (cents) 1,201.3 952.6 401.0

The calculation of diluted earnings per share is based on earnings for

the year of R2,040 million (2008: R4,911 million; 2007: R6,196 million)

and 508,782,641 (2008: 515,541,968; 2007: 515,763,581) diluted

weighted average number of ordinary shares. The adjustment in the








2007 2008 2009

10. EARNINGS PER SHARE (continued)Continuing operations (continued)

Headline earnings per share (cents)* 1,235.5 1,028.9 557.0



and 500,700,538 (2008: 509,595,092; 2007: 514,341,284)

weighted average number of ordinary shares in issue.

Diluted headline earnings per share (cents)* 1,232.2 1,017.0 548.2

The calculation of diluted headline earnings per share is based on headline


and 508,782,641 (2008: 515,541,968; 2007: 515,763,581) diluted

weighted average number of ordinary shares in issue. The adjustment in the




Discontinuing operations

Basic earnings per share (cents) 476.3 601.3 425.4

The calculation of earnings per share is based on profit attributable to

equity holders of Telkom for the year of R2,130 million (2008:

R3,064 million; 2007: R2,450 million) and 500,700,538

(2008: 509,595,092; 2007: 514,341,284) weighted average

number of ordinary shares in issue.

Diluted earnings per share (cents) 475.0 594.3 418.6

The calculation of diluted earnings per share is based on earnings for the

year of R2,130 million (2008: R3,064 million; 2007: R2,450 million)

and 508,782,641 diluted weighted average number of ordinary shares

(2008: 515,541,968; 2007: 515,763,581). The adjustment in the




Headline earnings per share (cents)* 475.2 606.0 437.6



and 500,700,538 (2008: 509,595,092; 2007: 514,341,284)

weighted average number of ordinary shares in issue.

Diluted headline earnings per share (cents)* 473.9 599.0 430.6

The calculation of diluted headline earnings per share is based on

headline earnings of R2,191 million (2008: R3,088 million; 2007:

R2,444 million) and 508,782,641 (2008: 515,541,968;

2007: 515,763,581) diluted weighted average number of ordinary

shares in issue. The adjustment in the weighted average number of

shares is as a result of the expected future vesting of shares already

allocated to employees under the Telkom Conditional Share Plan.





2007 2008 2009

10. EARNINGS PER SHARE (continued)Reconciliation of weighted average number of ordinary shares:

Ordinary shares in issue (refer to note 22) 544,944,901 532,855,530 520,784,186

Weighted average number of shares bought back (7,442,253) (1,594,241) (27)

Weighted average number of treasury shares (23,161,364) (21,666,197) (20,083,621)

Weighted average number of shares outstanding 514,341,284 509,595,092 500,700,538

Reconciliation of diluted weighted average number of ordinary shares

Weighted average number of shares outstanding 514,341,284 509,595,092 500,700,538

Expected future vesting of shares 1,422,297 5,946,876 8,082,103

Diluted weighted average number of shares outstanding 515,763,581 515,541,968 508,782,641

Gross** Net

Total operations Rm Rm

2009

Reconciliation between earnings and headline earnings:

Earnings as reported 4,170

Profit on disposal of property, plant and equipment and intangible assets (25) (21)

Impairment loss on property, plant and equipment and intangible assets 557 557

Write-offs of property, plant and equipment and intangible assets 322 274

Headline earnings 4,980

2008



Profit on disposal of investments (available-for-sale) (4) (3)





2007





Reversal of impairment loss on property, plant and equipment and intangible assets 12 9



* The disclosure of headline earnings is a requirement of the JSE Limited and is not a recognised measure under IFRS. It has been calculated in accordance

with the South African Institute of Chartered Accountants’ circular issued in this regard.

** These are the gross amounts, before deducting taxation and minority interests.





10. EARNINGS PER SHARE (continued)Gross* Net

Continuing operations Rm Rm

2009


Profit from continuing operations 2,066

Minority interest 26

Earnings from continuing operations attributable to equity holders of Telkom 2,040





2008









2007









* These are the gross amounts, before deducting taxation and minority interests.





10. EARNINGS PER SHARE (continued)Gross* Net

Discontinuing operations Rm Rm

2009


Profit from discontinued operations 2,181


Earnings from discontinued operations attributable to equity holders of Telkom 2,130

Profit on disposal of property, plant and equipment and intangible assets 7 5



2008






Profit on disposal of property, plant and equipment and intangible assets 19 13



2007







Reversal of impairment loss on property, plant and equipment and intangible assets 12 9


2007 2008 2009

Dividend per share (cents) 900.0 1,100.0 660.0

The calculation of dividend per share is based on dividends of R3,306 million (2008: R5,627 million; 2007: R4,678 million) declared

on June 6, 2008 and 500,941,027 (2008: 511,513,237; 2007: 519,711,236) number of ordinary shares outstanding on the date

of dividend declaration. The reduction in the number of shares represents the number of treasury shares held on date of payment.

* These are the gross amounts, before deducting taxation and minority interests.





2007 2008 2009*Accumu- Accumu- Accumu-

lated lated lated depre- depre- depre-

ciation and ciation and ciation andimpair- Carrying impair- Carrying impair- Carrying

Cost ment value Cost ment value Cost ment valueRm Rm Rm Rm Rm Rm Rm Rm Rm

11. PROPERTY, PLANT AND EQUIPMENTFreehold land and

buildings 4,594 (1,837) 2,757 4,931 (2,010) 2,921 4,950 (2,136) 2,814

Leasehold buildings 926 (362) 564 1,052 (418) 634 805 (477) 328

Network equipment 63,003 (31,820) 31,183 69,572 (35,214) 34,358 59,765 (29,982) 29,783

Support equipment 4,045 (2,436) 1,609 4,355 (2,635) 1,720 3,921 (2,482) 1,439

Furniture and office

equipment 536 (366) 170 568 (377) 191 453 (328) 125

Data processing

equipment and

software 5,836 (3,707) 2,129 6,279 (3,904) 2,375 5,543 (3,518) 2,025

Under

construction 2,536 – 2,536 4,200 – 4,200 4,612 – 4,612

Other 860 (554) 306 1,046 (630) 416 721 (429) 292

82,336 (41,082) 41,254 92,003 (45,188) 46,815 80,770 (39,352) 41,418

Fully depreciated assets with a cost of R155 million (2008: R498 million; 2007: R1,225 million) were derecognised in the 2009 financial

year. This has reduced both the cost price and accumulated depreciation of property, plant and equipment.

Property, plant and equipment with a carrying value of R158 million (2008: R681 million; 2007: R574 million) are pledged as security.

Details of the loans are disclosed in note 28.

* Net of assets of disposal groups classified as held for sale.





11. PROPERTY, PLANT AND EQUIPMENT (continued)The carrying amounts of property, plant and equipment can be reconciled as follows:**

Carrying Transfers Impairment, Carrying value at to Business Foreign write-offs value at

beginning disposal combi- currency and Depre- end of of year groups Additions nations Transfers* translation reversals Disposals ciation year

Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

2009Freehold land and buildings 2,921 (293) 283 – 82 (4) (5) (2) (168) 2,814 Leasehold buildings 634 (360) 119 – 24 (64) – – (25) 328 Network equipment 34,358 (7,951) 2,913 – 3,378 30 (141) (71) (2,733) 29,783 Support equipment 1,720 (235) 137 – 112 1 (12) – (284) 1,439 Furniture and office equipment 191 (72) 19 – 13 1 – – (27) 125 Data processing equipment and software 2,375 (370) 154 – 310 (1) (5) (1) (437) 2,025 Under construction 4,200 – 4,872 – (4,120) (238) (102) – – 4,612 Other 416 (304) 228 – 13 (1) (1) – (59) 292

46,815 (9,585) 8,725 – (188) (276) (266) (74) (3,733) 41,418

2008Freehold land and buildings 2,757 – 300 22 27 2 (3) (8) (176) 2,921 Leasehold buildings 564 – 136 26 32 1 (67) (1) (57) 634 Network equipment 31,183 – 5,167 404 1,301 272 (136) (107) (3,726) 34,358 Support equipment 1,609 – 316 1 116 3 (8) – (317) 1,720 Furniture and office equipment 170 – 78 3 1 1 (8) (1) (53) 191 Data processing equipment and software 2,129 – 525 31 150 6 (19) (2) (445) 2,375 Under construction 2,536 – 3,416 135 (1,737) 2 (152) – – 4,200 Other 306 – 170 8 11 7 (2) (3) (81) 416

41,254 – 10,108 630 (99) 294 (395) (122) (4,855) 46,815

2007Freehold land and buildings 2,699 – 209 – – 2 17 (1) (169) 2,757 Leasehold buildings 618 – – – 1 – – (14) (41) 564 Network equipment 28,941 – 5,154 1 849 240 (199) (270) (3,533) 31,183 Support equipment 1,321 – 442 – 109 2 (15) – (250) 1,609 Furniture and office equipment 134 – 51 3 8 1 – – (27) 170 Data processing equipment and software 2,082 – 466 12 (36) 8 (10) (2) (391) 2,129 Under construction 1,320 – 2,165 – (912) – (37) – – 2,536 Other 159 – 161 – 58 4 (1) (3) (72) 306

37,274 – 8,648 16 77 257 (245) (290) (4,483) 41,254

Full details of land and buildings are available for inspection at the registered offices of the Group.

The Group does not have temporarily idle property, plant and equipment.

A major portion of this capital expenditure relates to the expansion of existing networks and services. An extensive build programme that provides capacityfor growth in services, with focus on Next Generation Network technologies, roll-out of the W-CDMA network and Multi-Links’s expansion of networkequipment, has resulted in an increase in property, plant and equipment additions.

During the 2008 financial year, the Group recognised an impairment loss relating to Telkom Media assets. The recoverable amount for certain items ofproperty, plant and equipment was estimated, and an impairment loss of R217 million was recognised in order to reduce the carrying amount of thoseassets to their recoverable amount. The impairment has been included in impairment, write-offs and reversals.

Included in the current year’s additions in the other category, is an amount of R179 million (2008: R31 million; 2007: RNil) that relates to finance leases.

An amount of R71 million (2008: R88 million; 2007: R240 million) under property, plant and equipment disposals relates to the reclassification ofCustomer Premises Equipment at the start of the lease. These disposals are as a result of the Group entering into a leasing arrangement.

* An amount of R21 million was transferred from network equipment to cash and cash equivalents for Telkom Media.** The 2009 reconciliation excludes assets held in the disposal groups held for sale, refer to note 9.





2007 2008 2009* Accumulated Accumulated Accumulated amortisation amortisation amortisationand impair- Carrying and impair- Carrying and impair- Carrying

Cost ment value Cost ment value Cost ment valueRm Rm Rm Rm Rm Rm Rm Rm Rm

12. INTANGIBLE ASSETSGoodwill 673 – 673 3,267 (12) 3,255 3,461 (501) 2,960 Trademarks, copyrights and other 761 (521) 240 1,127 (633) 494 677 (332) 345 Licences 222 (116) 106 311 (140) 171 228 (35) 193 Software 6,720 (3,737) 2,983 8,106 (4,298) 3,808 7,045 (3,799) 3,246 Under construction 1,109 – 1,109 740 – 740 488 – 488

9,485 (4,374) 5,111 13,551 (5,083) 8,468 11,899 (4,667) 7,232

* Net of assets of disposal groups classified as held for sale.

The carrying amounts of intangible assets can be reconciled as follows:**Carrying Transfers Impair- Carrying value at to Business Foreign ment value at

beginning disposal combi- currency and Amor- end of of year groups Additions nations Transfers translation write-offs tisation year

Rm Rm Rm Rm Rm Rm Rm Rm Rm

2009Goodwill 3,255 (947) – 1,309 – (156) (501) – 2,960 Trademarks, copyrights and other 494 (178) 300 – (28) (22) – (221) 345 Licences 171 (104) 41 – 137 (42) – (10) 193 Software 3,808 (882) 209 – 613 (8) (1) (493) 3,246 Under construction 740 – 356 – (555) 2 (55) – 488

8,468 (2,111) 906 1,309 167 (226) (557) (724) 7,232

2008Goodwill 673 – 492 1,727 – 375 (12) – 3,255 Trademarks, copyrights and other 240 – 174 165 – 20 – (105) 494 Licences 106 – 32 36 – 15 (3) (15) 171 Software 2,983 – 739 – 713 9 (10) (626) 3,808 Under construction 1,109 – 354 – (614) – (109) – 740

5,111 – 1,791 1,928 99 419 (134) (746) 8,468

2007Goodwill 305 – 186 173 – 9 – – 673 Trademarks, copyrights and other 213 – 8 69 – – – (50) 240 Licences 60 – 47 1 – 8 – (10) 106 Software 2,269 – 628 – 559 7 (4) (476) 2,983 Under construction 1,063 – 729 – (636) – (47) – 1,109

3,910 – 1,598 243 (77) 24 (51) (536) 5,111

Intangible assets that are material to the Group consist of Software and Goodwill. The average remaining amortisation period for Softwareis between 2 and 10 years.

** The 2009 reconciliation excludes assets held in the disposal groups held for sale, refer to note 9.





12. INTANGIBLE ASSETS (continued)Impairment testing of goodwillFor the purposes of impairment testing, goodwill is allocated to the smallest cash-generating unit. A cash-generating unit is the smallestidentifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups ofassets. The Group reviews goodwill for impairment annually by comparing the recoverable amounts of cash-generating units to the carryingamounts.

Goodwill acquired through business combinations has been allocated to two cash-generating units for impairment testing as follows:

Africa Online Limited (Kenya)Multi-Links Telecommunications Limited (Nigeria)

KenyaThe carrying amount of goodwill is R144 million.

For the period ending March 31, 2009, Africa Online was treated as one cash-generating unit for impairment testing purposes. Thisrepresents the lowest level within the Group at which the goodwill is monitored for internal management purposes.

Goodwill relating to Africa Online was tested for impairment on March 31, 2009. The recoverable amount of goodwill relating to AfricaOnline was determined on the basis of value in use calculations.

Key assumptions used to determine the value in use include the discount rate and cash flows. Cash flows are based on a five year forecastof future cash flows, extrapolated in perpetuity to reflect the long-term plans for the entity, using a weighted average cost of capital of 15.4%(2008: 11.59%) and a terminal growth rate of 3%.

An impairment loss of R39 million (2008: R12 million) was recognised.

NigeriaThe carrying amount of goodwill is R2,749 million.

Multi-Links has been identified as a single cash-generating unit within the Group. The recoverable amount of goodwill relating to Multi-Linkswas determined using the discounted cash flow method.

The key assumptions in determining cash flows are a five year forecast of future cash flows, extrapolated in perpetuity to reflect the long-term plans for the entity, using a weighted average cost of capital of 18.8%. The calculated perpetuity value for Multi-Links assumes thatthe company will continue to grow at 3% p.a. (nominal).

Key assumptions used in the testing of goodwill for impairment:Applicable to all cash-generating unitsExpected customer base: The basis for determining value(s) assigned to key assumptions is based on the closing customer base in the periodimmediately preceding the budget period and increased for expected growth. The value assigned to key assumptions reflects pastexperience, and has an element of potential growth. The growth is based on market assumptions.

Gross margin: The basis for determining value(s) assigned to key assumptions is based on the average gross margin achieved in the periodimmediately before the budget period and increased for expected efficiences. The value assigned reflects past experience and efficiencyimprovements.

Capital expenditure: The basis for determining value(s) assigned to key assumptions is based on the total capital expenditure achieved inthe period immediately before the budget period and adjusted for expected network coverage roll-out. The value assigned is based onmanagement’s expected network coverage roll-out.

Applicable to all cash-generating units except for the Africa Online cash-generating unitsARPU: The basis for determining value(s) assigned to key assumptions is based on past experience and expected growth which is basedon market forces and external sources of information.

Applicable to all non-South African cash-generating unitsExchange rates: The basis for determining value(s) assigned to key assumptions is based on the average market forward exchange rateover the budget period in respect of the ZAR/US$. The value assigned to the key assumption is consistent with external sources ofinformation.





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENTRisk management

Exposure to continuously changing market conditions has made management of financial risk critical for the Group. As a result of the

financial instruments held, the Group is exposed to market risk (comprising interest rate risk and currency risk), credit risk and liquidity risk.

Treasury policies, risk limits and control procedures are continuously monitored by the Board of directors through its audit and risk

management committee.

The Group holds or issues financial instruments to finance its operations, for the temporary investment of short-term funds and to manage

currency and interest rate risks. In addition, financial instruments, for example trade receivables and payables, arise directly from the

Group’s operations.

The Group finances its operations primarily by a mixture of issued share capital, retained earnings, long-term and short-term loans. The

Group uses derivative financial instruments to manage its exposure to market risks from changes in interest and foreign exchange rates. The

derivatives used for this purpose are principally interest rate swaps and forward exchange contracts. The Group does not speculate in

derivative instruments.

The table below sets out the Group’s classification of financial assets and liabilities:

At fair

value

through

profit or Financial

loss liabilities at Total

held for amortised Held-to- Available- Loans and carrying

trading cost maturity for-sale receivables value Fair value

Note Rm Rm Rm Rm Rm Rm Rm

2009

Classes of financial

instruments per balance sheet

Assets 1,442 – 1,046 – 7,976 10,464 10,464

Investments 14 1,286 – – – 97 1,383 1,383

Trade and other receivables* 19 – – – – 5,673 5,673 5,673

Other financial assets 20 156 – 1,046 – – 1,202 1,202

Interest rate swaps 4 – – – – 4 4

Forward exchange contracts 152 – – – – 152 152

Repurchase agreements – – 1,046 – – 1,046 1,046

Finance lease receivables 16 – – – – 275 275 275

Cash and cash equivalents 21 – – – – 1,931 1,931 1,931

Liabilities (228) (23,963) – – – (24,191) (25,265)

Interest-bearing debt 28 – (18,275) – – – (18,275) (19,349)

Trade and other payables 31 – (5,538) – – – (5,538) (5,538)

Other financial liabilities 20 (228) – – – – (228) (228)

Interest rate swaps (72) – – – – (72) (72)

Forward exchange contracts (156) – – – – (156) (156)

Credit facilities utilised 21 – (127) – – – (127) (127)

Shareholders for dividends 35 – (23) – – – (23) (23)

* Trade and other receivables are disclosed net of prepayments of R307 million (2008: R404 million; 2007: R256 million).





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)Risk management (continued)

At fair

value

through

profit or Financial





2008



Assets 1,991 – – 55 10,155 12,201 12,201

Investments 14 1,377 – – 55 67 1,499 1,499


Other financial assets 20 614 – – – – 614 614


Forward exchange

contracts 589 – – – – 589 589

Other financial assets 16 – – – – 16 16

Finance lease receivables 16 – – – – 372 372 372

Cash and cash equivalents 21 – – – – 1,134 1,134 1,134

Liabilities (1,290) (25,866) – – – (27,156) (27,692)



Other financial liabilities 20 (1,290) – – – – (1,290) (1,290)

Put option (Multi-Links) (919) – – – – (919) (919)

Put option (Vodacom DRC) (198) – – – – (198) (198)


Credit facilities utilised 21 – (1,342) – – – (1,342) (1,342)

Shareholders for dividend 35 – (20) – – – (20) (20)






13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)Risk management (continued)

At fair

value

through

profit or Financial





2007



Assets 1,608 – 246 47 7,861 9,762 9,762

Investments 14 1,349 – – 47 65 1,461 1,461


Other financial assets 20 259 – – – – 259 259

Bills of exchange 98 – – – – 98 98


Forward exchange contracts 145 – – – – 145 145

Finance lease receivables 16 – – 246 – – 246 246

Cash and cash equivalents 21 – – – – 749 749 749

Liabilities (327) (17,959) – – – (18,286) (19,676)

Interest-bearing debt 28 (98) (10,266) – – – (10,364) (11,754)


Other financial liabilities 20 (229) – – – – (229) (229)

Put option (Vodacom DRC) (125) – – – – (125) (125)

Interest rate swaps (26) – – – – (26) (26)


Other financial liabilities (36) – – – – (36) (36)








13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.1 Fair value of financial instruments

Carrying value of all financial instruments noted in the balance sheet approximates fair value except as disclosed below.

The estimated net fair values as at March 31, 2009, have been determined using available market information and appropriate valuation

methodologies as outlined below.

Derivatives are recognised at fair value.

The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cash flow analysis is

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

The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their fair

amount due to the short-term maturities of these instruments.

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

payments discounted at market interest rates, as a result they differ from carrying values.

The fair values of listed investments are based on quoted market prices.

13.2 Interest rate risk management

Interest rate risk arises from the repricing of the Group’s forward cover and floating rate debt as well as incremental funding or new

borrowings and the refinancing of existing borrowings.

The Group’s policy is to manage interest cost through the utilisation of a mix of fixed and floating rate debt. In order to manage this mix in

a cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated peak

additional borrowings, the Group makes use of interest rate derivatives as approved in terms of the Group policy limits. Fixed rate debt

represents approximately 64.86% (2008: 51.88%; 2007: 90.37%) of the total debt, after taking the instruments listed below into

consideration. There were no changes in the policies and processes for managing and measuring the risk from the previous period.

The table below summarises the interest rate swaps outstanding as at March 31:

Notional Weighted

Average amount average

maturity Currency Rm coupon rate

2009

Interest rate swaps outstanding

Pay fixed 2-5 years ZAR 2,000 10.84%

2008


Pay fixed < 1 year ZAR 27 13.62%

Receive fixed 1-5 years ZAR 58 13.30%

2007


Pay fixed < 1 year ZAR 1,000 14.67%

Receive fixed 1-5 years ZAR 38 11.45%

>5 years ZAR 61 11.44%

Pay fixed

The floating rate is based on the three month JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage interest

rate risk on debt instruments.





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.3 Credit risk management

Credit risk is the risk due to uncertainty in a counterparty’s ability to meet its obligations as they fall due.

Credit risk arises from derivative contracts entered into with financial institutions with a rating of A1 or better. The Group is not exposed to

significant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Group from counterparties

is a net favourable position of R29 million (2008: R438 million; 2007: R144 million). No collateral is required when entering into

derivative contracts. Credit limits are reviewed on an annual basis or when information becomes available in the market. The Group limits

the exposure to any counterparty and exposures are monitored daily. The Group expects that all counterparties will meet their obligations.

With regard to credit risk arising from other financial assets of the Group, which comprises held-to-maturity investments, financial assets held

at fair value through profit or loss, loans and receivables and available-for-sale assets, the Group’s exposure to credit risk arises from a

potential default by a counterparty, with a maximum exposure equal to the carrying amount of these instruments.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management reduces

the risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counterparty failure,

limits are set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large

widespread customer base, covering residential, business, government, wholesale, global and corporate customer profiles.

Credit checks are performed on all customers, other than prepaid customers, on application for new services on an ongoing basis where

appropriate.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.

The collective loss allowance is determined based on historical data of payment statistics for similar financial assets as well as expected

future cash flows. Refer to note 19.

The Group has provided a financial guarantee to Africa Online Limited for bank loans to the value of R26 million as at March 31, 2009

(2008: R23 million; 2007: RNil).

Telkom guarantees a certain portion of employees’ housing loans. The amount guaranteed differs depending on facts such as employment

period and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before

any pension payout can be made to the employee. There is no provision outstanding in respect of these contingencies. The maximum

amount of the guarantee in the event of a default is R12 million. The fair value of the guarantee at March 31, 2009 was RNil (2008:

RNil; 2007: RNil).

Given the deterioration of credit markets, stricter objectives, policies and processes were applied for managing and measuring the risk than

in the previous period.





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.3 Credit risk management (continued)

The maximum exposure to credit risk for financial assets at the reporting date by type of customer was:

Carrying amount

2007 2008 2009

Rm Rm Rm

Trade receivables

Fixed-line 3,926 4,401 4,231

Business and residential 1,924 1,824 1,870

Global, corporate and wholesale 1,643 1,875 1,708

Government 318 368 444

Other customers 41 334 209

Mobile 2,299 2,880 –

Multi-Links – 38 72

Other 567 666 720

Impairment of trade receivables (235) (290) (324)

Subtotal for trade receivables 6,557 7,695 4,699

Other receivables* 490 887 974

Other financial assets 259 614 1,202

7,306 9,196 6,875

* Excluding prepayments.

The ageing of trade receivables at the reporting date was:

Not past due/current 5,829 6,840 3,582

Ageing of past due but not impaired

21 to 60 days 331 384 441

61 to 90 days 80 110 135

91 to 120 days 59 71 84

120+ days 258 290 457

6,557 7,695 4,699

The ageing in the allowance for the impairment of trade receivables

at reporting date was:

Fixed-line and other

Current defaulted trade 24 53 70

21 to 60 days 21 25 30

61 to 90 days 19 31 19

91 to 120 days 15 19 74

120+ days 118 121 131

197 249 324

Mobile 38 41 –

235 290 324






The movement in the allowance for impairment in respect of trade receivables during the year is disclosed in note 19.

Included in the allowance for doubtful debts are individually impaired receivables with a balance of R49 million (2008: R32 million; 2007:

R49 million) which have been identified as being unable to service their debt obligation. The impairment recognised represents the

difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group

does not hold any collateral over these balances.

During the 2009 year end the Group renegotiated the terms of trade receivables amounting to R1,9 million from a long outstanding

customer. No impairment losses were recognised.

13.4 Liquidity risk management

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is exposed to liquidity

risk as a result of uncertain cash flows as well as capital commitments. Liquidity risk is managed by the Group’s various Corporate Finance

divisions in accordance with policies and guidelines formulated by the Group’s executive committees. 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 Group maintains

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

Short-term liquidity gaps may be funded through repurchase agreements and commercial paper bills.

There were no material changes in the exposure to liquidity risk and its objectives, policies and processes for managing and measuring

the risk from the previous period.

The table below summarises the maturity profile of the Group’s financial liabilities based on undiscounted contractual cash flow at the

balance sheet date:

Carrying Contractual 0 – 12 1 – 2 2 – 5 > 5

amount cash flows months years years years

Note Rm Rm Rm Rm Rm Rm

2009

Non-derivative financial liabilities

Finance lease liabilities 38 986 1,848 165 172 516 995

Interest-bearing debt (excluding

finance leases) 28 17,291 18,866 7,670 1,817 5,621 3,758

Trade and other payables 31 5,538 5,778 5,778 – – –

Credit facilities utilised 21 127 127 127 – – –

Derivative financial liabilities

Other financial liabilities 20 228 228 156 72 – –

Interest rate swaps 72 72 – 72 – –

Forward exchange contracts 156 156 156 – – –

24,170 26,847 13,896 2,061 6,137 4,753





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.4 Liquidity risk management (continued)

Carrying Contractual 0 – 12 1 – 2 2 – 5 > 5

amount cash flows months years years years

Note Rm Rm Rm Rm Rm Rm

2008


Finance lease liabilities 38 1,167 2,198 257 202 589 1,150

Interest-bearing debt (excluding finance

leases) 28 14,566 16,672 6,350 4,835 2,733 2,754


Credit facilities utilised 21 1,342 1,342 1,342 – – –


Other financial liabilities 20 1,290 1,290 371 919 – –

Put option (Multi-Links) 919 919 – 919 – –

Put option (Vodacom DRC) 198 198 198 – – –


27,136 30,273 17,091 5,956 3,322 3,904

2007


Finance lease liabilities 38 1,220 2,424 231 276 585 1,332


finance leases) 28 9,144 11,329 6,133 1 2,551 2,644


Credit facilities utilised 21 441 441 441 – – –


Other financial liabilities 20 229 229 229 – – –

Put option (Vodacom DRC) 125 125 125 – – –

Interest rate swaps 26 26 26 – – –


Other financial liability 36 36 36 – – –

18,271 21,660 14,271 277 3,136 3,976





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.5 Foreign currency exchange rate risk management

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

instruments suitable to the Group’s risk exposure.

Forward exchange contracts have been entered into to reduce the foreign currency exposure on the Group’s operations and liabilities. The

Group also enters into foreign forward exchange contracts to economically hedge interest expense and purchase and sale commitments

denominated in foreign currencies (primarily United States dollars and euros). The purpose of the Group’s foreign currency hedging activities

is to protect the Group from the risk that the eventual net cash flows will be adversely affected by changes in exchange rates.

There were no changes in the exposure to foreign currency exchange rate risk and its objectives, policies and processes for managing and

measuring the risk from the previous period.

The following table details the foreign forward exchange contracts outstanding at year end:

Foreign

contract Forward

amount amount Fair value

To buy m Rm Rm

2009

Currency

US$ 155 1,477 14

Euro 92 1,205 (24)

Other 36 69 (3)

2,751

2008

Currency

US$ 139 1,042 109

Euro 252 2,826 444

Pound Sterling 19 281 30

Other 31 32 6

4,181

2007

Currency

US$ 181 1,329 (1)

Euro 196 1,899 23


Other 66 49 (1)

3,538





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.5 Foreign currency exchange rate risk management (continued)

Foreign

contract Forward


To sell m Rm Rm

2009

Currency

US$ 99 947 (22)

Euro 35 485 28

Other 21 43 4

1,475

2008

Currency

US$ 78 596 (68)

Euro 73 848 (103)

Pound Sterling 5 89 (1)

Other 17 22 (1)

1,555

2007

Currency

US$ 122 994 88

Euro 52 505 (5)


Other 29 17 –

1,567

The Group has various monetary assets and liabilities in currencies other than the Group’s functional currency. The following table represents

the net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Group according to the

different foreign currencies.

South United

African Pound States

Rand Euro Sterling Dollar Other

Rm Rm Rm Rm Rm

2009

Net foreign currency monetary assets/(liabilities)

Functional currency of company operation

South African rand – 204 – 650 19

Naira – – – (1,611) –

2008



South African Rand – 481 (133) 224 (13)

United States Dollar – 8 – – (17)

Naira – – – (446) –





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.5 Foreign currency exchange rate risk management (continued)

South United African Pound States

Rand Euro Sterling Dollar OtherRm Rm Rm Rm Rm

2007Net foreign currency monetary assets/(liabilities)Functional currency of company operationSouth African rand – 475 (166) 159 32 United States dollar 26 (25) – – (17)

Currency swapsThere were no currency swaps in place at March 31, 2009, 2008 and 2007.

13.6 Sensitivity analysisInterest rate riskThe following table illustrates the sensitivity to a reasonably possible change in the interest rates, with all other variables held constant:

+1% movement –1% movementOther Other

movements movements Profit in equity Profit in equity

Rm Rm Rm Rm

2009Classes of financial instruments per balance sheetAssets

Trade and other receivables 5 – (5) –Other financial assets 28 – (28) –

Interest rate swaps 18 – (18) –Repurchase agreements 10 – (10) –

LiabilitiesInterest-bearing debt (67) – 67 –Other financial liabilities 15 – (15) –

Interest rate swaps 15 – (15) –

(19) – 19 –





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.6 Sensitivity analysis (continued)

Interest rate risk (continued)+1% movement –1% movement

Other Other movements movements

Profit in equity Profit in equityRm Rm Rm Rm


Trade and other receivables 5 – (5) –Liabilities

Interest-bearing debt (62) – 62 –

(57) – 57 –


Trade and other receivables 4 – (4) –Liabilities

Interest-bearing debt (1) – 1 –Other financial liabilities 2 – (2) –

Forward exchange contract 2 – (2)

5 – (5) –

Foreign exchange currency riskThe following table illustrates the sensitivity to a reasonably possible change in the exchange rates, with all other variables held constant.

+10% movement –10% movement(depreciation) (appreciation)

Other Other movements movements

Profit in equity Profit in equityRm Rm Rm Rm


Trade and other receivables 40 – (40)Other financial assets 1 – (1) –

Forward exchange contract 1 – (1) –

Liabilities Interest-bearing debt (70) – 70 –Trade and other payables (173) – 173 –Other financial liabilities 128 – (128) –


(74) – 74 –






Foreign exchange currency sensitivity (continued)

+10% movement –10% movement

(depreciation) (appreciation)

Other Other

movements movements

Profit in equity Profit in equity

Rm Rm Rm Rm


Trade and other receivables 10 – (10) –

Other financial assets 331 – (331) –


Liabilities

Interest-bearing debt 68 – (68) –

Trade and other payables (95) – 95 –

Other financial liabilities (153) – 153 –

Forward exchange contract (153) – 153 –

161 – (161) –





Liabilities

Interest-bearing debt 10 – (10) –


Other financial liabilities 11 – (11) –


45 – (45) –





13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)13.7 Exchange rate table (closing rate)

2007 2008 2009

R R R

United States Dollar 7.248 8.132 9.484

Euro 9.649 12.854 12.617

Pound Sterling 14.189 16.166 13.555

Swedish Krona 1.033 1.370 1.153

Japanese Yen 0.061 0.082 0.097

13.8 Capital management

The Group’s policy is to maintain a strong capital base so as to sustain investor, creditor and market confidence and to sustain future

development of the business. Capital comprises equity attributable to equity holders of Telkom. The Group monitors capital using net debt

to EBITDA ratio. Telkom’s policy is to keep the net debt to EBITDA ratio between 1 and 2 times. Included in net debt are interest-bearing

loans and borrowings, credit facilities and other financial liabilities, less cash and cash equivalents and other financial assets.

Telkom plans on continuing its share buy-back strategy based on certain criteria, including market conditions, availability of cash and other

investment opportunities and needs.

All of Telkom’s issued and outstanding ordinary shares, including the class A ordinary share and the class B ordinary share, rank equal for

dividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is

declared to holders of all ordinary shares. Telkom’s current dividend policy aims to provide shareholders with a competitive return on their

investment, while assuring sufficient reinvestment of profits to enable the Group to achieve its strategy. Telkom may revise its dividend policy

from time to time. The determination to pay dividends and the amount of the dividends, will depend upon, among other things, the earnings,

financial position, capital requirements, general business conditions, cash flows, net debt levels and share buy-back plans.

The Group has access to financing facilities; the total unused amount is R6,237 million (2008: R7,565 million; 2007: R8,658 million) at

the balance sheet date.

There were no changes in the Group’s approach to capital management during the year.

Neither the Group nor any of its subsidiaries are subject to externally imposed capital requirements.

The net debt to EBITDA ratio is as follows: 2007 2008 2009

Rm Rm Rm

Non-current portion of interest-bearing debt 4,338 9,403 10,653 Current portion of interest -bearing debt 6,026 6,330 7,622 Credit facilities utilised 441 1,342 127 Non-current portion of other financial liabilities 36 919 –Current portion of other financial liabilities 193 371 228 Less: Cash and cash equivalents (749) (1,134) (1,931)Less: Other financial assets (259) (614) (1,202)

Net debt 10,026 16,617 15,497

EBITDA 13,352 13,203 11,668

Net debt to EBITDA ratio 0.75 1.26 1.33





2007 2008 2009Rm Rm Rm

14. INVESTMENTS 1,384 1,444 1,383

Available-for-sale 47 55 –

Unlisted investments

Rascom – – –

WBS Holdings (Proprietary) Limited 40 23 –

2 500 ordinary shares at R0.01 each

Other investments 7 32 –

Loans and receivables 65 63 97

Mirambo Limited – 60 –

Planetel Communications Limited 25 – –

Caspian Limited 29 – –

Number Portability Company (Proprietary) Limited 3 3 –

Sekha-Metsi Investment Consortium Limited 8 – –

Empresa Mocambicana de Telecommunicacoes S.A.R.L. (’Emotel’) – 4 –

Other unlisted investments – – 97

At fair value through profit or loss 1,349 1,377 1,286

Linked insurance policies – Coronation 1,280 1,291 1,286

Other money market investments 69 51 –

Other unlisted investments – 35 –

Less: Short-term investments (77) (51) –

Sekha-Metsi Investment Consortium Limited (8) – –

WBS Holdings (Proprietary) Limited (included in other unlisted investments) – (13) –

Other money market investments (69) (38) –

Included in held-for-trading investments is R1,286 million (2008: R1,290 million, 2007: R1,279 million) that will be used to fund the post-

retirement medical aid liability. These investments are made through a cell captive, in which Telkom holds 100% of the preference shares of the

cell captive, and represent the fair value of the underlying investments of the cell captive. The initial cost of the investment amounts to R535 million

(2008: R535 million; 2007: R535 million). Telkom bears all the risks and rewards of the investment, as the returns/losses on the preference

shares are dependent on the performance of the underlying investments made by the cell captive. On this basis Telkom as the preference

shareholder receives any residual gains or losses made by the cell captive. The ordinary shareholders of the cell captive do not bear any of the

risks and rewards. The cell captive has been consolidated in full.





2007 2008 2009Rm Rm Rm

15. DEFERRED REVENUE AND DEFERRED EXPENSESDeferred revenue 3,004 3,721 2,711

Non-current deferred revenue 1,021 1,128 997

Current portion of deferred revenue 1,983 2,593 1,714

Deferred expenses 557 583 55

Non-current deferred expenses 270 221 55

Current portion of deferred expenses 287 362 –

Included in non-current deferred expenses and revenue for the financial

year end March 31, 2008 and 2007 is Vodacom unactivated starter packs.

16. FINANCE LEASE RECEIVABLESThe Group provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated to

specific customers. The disclosed information relates to those arrangements which were assessed to be finance leases in terms of IAS17.

Total < 1 year 1 – 5 years > 5 years

Rm Rm Rm Rm

2009

Minimum lease payments

Lease payments receivable 360 142 219 –

Unearned finance income (85) (33) (53) –

Present value of minimum lease payments 275 109 166 –

Lease receivables 275 109 166 –

2008






2007










2007 2008 2009Rm Rm Rm

17. DEFERRED TAXATION (1,123) (1,374) (1,068)

Opening balance (587) (1,123) (1,374)Transferred to disposal group – – 281 Income statement movements (516) (219) 164

Temporary differences (515) (331) (152)(Underprovision)/overprovision prior year (1) 53 (138)Capital gains taxation asset – – 454 Change in taxation rate – 59 –

Business combinations (16) (65) (137)Foreign currency translation reserve and foreign equity revaluation (4) 33 (2)

The balance comprises: (1,123) (1,374) (1,067)

Capital allowances (3,325) (3,841) 3,210)Provisions and other allowances 1,719 2,008 1,416 Taxation losses 113 276 –Capital gains taxation asset – – 454 STC taxation credits 370 183 273

Deferred taxation balance is made up as follows: (1,123) (1,374) (1,067)

Deferred taxation assets 593 605 756 Deferred taxation liabilities (1,716) (1,979) (1,823)

Unutilised STC credits 2,958 1,830 2,730

Secondary taxation on companies (STC) is provided for a rate of10% on the amount by which dividends declared by Telkomexceeds dividends received. The deferred taxation asset is raised as it is probable that it will be utilised in future. The asset will be released as ataxation expense when dividends are declared.

The deferred taxation asset represents STC credits on past dividendsreceived that are available to be utilised against dividends declared.The deferred taxation asset also includes deferred taxation on temporarydifferences arising on investments that were classified as held for sale inthe period as well as STC credits on past dividends received.

18. INVENTORIES 1,093 1,287 1,974

Gross inventories 1,275 1,535 2,165 Write-down of inventories to net realisable value (182) (248) (191)

Inventories consist of the following categories: 1,093 1,287 1,974

Installation material, maintenance material and network equipment 811 895 1,051 Merchandise 282 392 923

Write-down of inventories to net realisable value 182 248 191

Opening balance 102 182 248 Transferred to disposal group – – (50)Charged to selling, general and administrative expenses 154 164 167 Inventories written-off (74) (98) (174)

Inventory levels as at March 31, 2009, 2008 and 2007 have increased due to the accelerated roll-out of the Next Generation Networkrequired to improve customer service, and the acquisition of merchandise for the W-CDMA roll-out.





2007 2008 2009Rm Rm Rm

19. TRADE AND OTHER RECEIVABLES 7,303 8,986 5,980

Trade receivables 6,557 7,695 4,698

Gross trade receivables 6,792 7,985 5,022

Impairment of receivables (235) (290) (324)

Prepayments and other receivables 746 1,291 1,282

Impairment allowance account for receivables 235 290 324

Opening balance 290 235 290

Charged to selling, general and administrative expenses 153 300 368

Receivables written-off (208) (245) (334)

Refer to note 13 for detailed credit risk analysis.

20. OTHER FINANCIAL ASSETS AND LIABILITIESOther financial assets consist of: 259 614 1,202

Held-to-maturity

Repurchase agreements – – 1,046

At fair value through profit or loss 259 614 156

Bills of exchange 98 – –

Interest rate swaps 16 9 4

Forward exchange contracts 145 589 152

Other financial assets – 16 –

Repurchase agreements

Telkom manages a portfolio of repurchase agreements in the South

African capital and money markets, with a view to generating additional

investment income on the favourable interest rates provided on these

transactions. Interest received from the borrower is based on the current

market related yield. There were no repurchase agreements held at

March 31, 2008 and 2007.

Bills of exchange

The fair value of bills of exchange has been calculated at with reference

to the Bond Exchange of South Africa quoted prices.

Other financial liabilities consist of: (229) (1,290) (228)

Non-current portion of other financial liabilities

Other (36) – –

Put option at fair value through profit or loss – (919) –

Current portion of other financial liabilities

At fair value through profit or loss (193) (371) (228)

Put option at fair value through profit or loss (125) (198) –

Interest rate swaps (26) – (72)

Forward exchange contracts (42) (173) (156)





2007 2008 2009Rm Rm Rm

21. NET CASH AND CASH EQUIVALENTS 308 (208) 1,282

Net cash and cash equivalents attributable to continuing operations 308 (208) 1,804

Cash shown as current assets 749 1,134 1,931

Cash and bank balances 649 664 1,361

Short-term deposits 100 470 570

Credit facilities utilised (441) (1,342) (127)

Net cash and cash equivalents attributable to disposal groups – – (522)

Cash at banks and short-term deposits attributable to disposal groups – – 580

Credit facilities utilised – – (1,102)

Undrawn borrowing facilities 8,658 7,565 6,237

The undrawn borrowing facilities are unsecured, when drawn bear interest at a rate that will be mutually agreed between the borrower

and lender at the time of drawdown, have no specific maturity date and are subject to annual review. The facilities are in place to ensure

liquidity. At March 31, 2009, R3,000 million of these undrawn facilities were committed by Telkom.

Borrowing powers

To borrow money, Telkom’s directors may mortgage or encumber Telkom’s property or any part thereof and issue debentures, whether

secured or unsecured, whether outright or as security for debt, liability or obligation of Telkom or any third party. For this purpose the

borrowing powers of Telkom are unlimited, but are subject to the restrictive financial covenants of the loan facilities indicated on note 28.





2007 2008 2009Rm Rm Rm

22. SHARE CAPITAL Authorised and issued share capital is made up as follows:

Authorised 10,000 10,000 10,000

999,999,998 ordinary shares of R10 each 10,000 10,000 10,000

1 class A ordinary share of R10 – – –

1 class B ordinary share of R10 – – –

Issued and fully paid 5,329 5,208 5,208

520,783,898 (2008: 520,784,184; 2007: 532,855,528)

ordinary shares of R10 each 5,329 5,208 5,208

1 (2008: 1; 2007: 1) class A ordinary share of R10 – – –

1 (2008: 1; 2007: 1) class B ordinary share of R10 – – –

The following table illustrates the movement within the number of shares issued:

Number of Number of Number of

shares shares shares

Shares in issue at beginning of year 544,944,901 532,855,530 520,784,186

Shares bought back and cancelled (12,089,371) (12,071,344) (286)

Shares in issue at end of year 532,855,530 520,784,186 520,783,900

Full details of the voting rights of ordinary, class A and class B shares are documented in the articles of association of Telkom.

Share buy-back

During the financial year Telkom bought back 286 ordinary shares at a total consideration of R30,425. The shares were bought back and

cancelled in order to allow Telkom shareholders to participate in the proposed unbundling of Vodacom Group on a one to one basis. This

reduced share capital by R2,860 and retained earnings by R27,565.

During the financial year ended March 31, 2008, Telkom bought back 12,071,344 ordinary shares at a total consideration of

R1,647 million. This reduced share capital by R121 million and retained earnings by R1,526 million.

During the financial year ended March 31, 2007, Telkom bought back 12,089,371 ordinary shares at a total consideration of

R1,596 million. This reduced share capital by R120 million, share premium by R1,342 million and retained earnings by R134 million.

Capital management

Refer to note 13 for detailed capital management disclosure.





2007 2008 2009Rm Rm Rm

23. TREASURY SHARE RESERVE (1,774) (1,638) (1,517)

This reserve represents amounts paid by Telkom to Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited, subsidiaries, for the acquisition of Telkom’s shares to be utilised in termsof the Telkom Conditional Share Plan (’TCSP’).

At March 31, 2009, 11,646,680 (2008: 10,493,141; 2007: 12,237,016) and 8,143,556 (2008: 10,849,058; 2007: 10,849,058) ordinary shares in Telkom, with a fair value of R1,229 million (2008: R1,377 million; 2007: R2,031 million) and R859 million (2008: R1,423 million; 2007: R1,801 million) are held as treasury shares by its subsidiaries Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited, respectively.

The shares held by Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited are reserved for issue in terms of the Telkom Conditional Share Plan (’TCSP’).

The reduction in the number of treasury shares is due to 1,552,029 (2008: 1,743,785; 2007: 450,505) shares that vested in terms of the TCSP during the year.

The fair value of these shares at the date of vesting was R228 million (2008: R301 million; 2007: R63 million).

24. SHARE-BASED COMPENSATION RESERVEThis reserve represents the cumulative grant date fair value of the equity-settled share-based payment transactions recognised in employee expenses during the vesting period of the equity instruments granted to employees in terms of the Telkom Conditional Share Plan (refer to note 30).

No consideration is payable on the shares issued to employees, but performance criteria will have to be met in order for the granted shares to vest. The ultimate number of shares that will vest may differ based on certain individual and Telkom performance conditions being met. The related compensation expense is recognised over the vesting period of shares granted, commencing on the grant date.

The following table illustrates the movement within the share-based compensation reserve:Balance at beginning of year 151 257 643 Net increase in equity 106 386 433

Employee cost 141 522 554 Vesting and transfer of shares (35) (136) (121)

Balance at end of year 257 643 1,076

At March 31, 2009 the estimated total compensation expense to be recognised over the vesting period was R1,824 million (2008:R2,151 million; 2007: R580 million), of which R554 million (2008: R522 million; 2007: R141 million) was recognised in employeeexpenses for the year.





2007 2008 2009

Rm Rm Rm

25. NON-DISTRIBUTABLE RESERVES 1,413 1,292 1,758

Opening balance 1,128 1,413 1,292

Transferred to disposal groups (4)

Movement during the year 285 (121) 470

Foreign currency translation reserve (net of taxation of R6 million

(2008: R6 million; 2007: R4 million) 46 521 (181)

Minority put option – (661) 661

Revaluation of an available-for-sale investment (net of taxation of R1 million) – 8 –

Available-for-sale financial asset

Life fund reserve (cell captive) 239 11 (10)

The balance comprises: 1,413 1,292 1,758

Foreign currency translation reserve (58) 463 286

Cell captive reserve 1,471 1,482 1,472

Available-for-sale investment – 8 –

Minority put option – (661) –

The Group has a consolidated cell captive, used as an investment to fund

Telkom’s post-retirement medical aid liability.

The earnings from the cell captive are recognised in the income statement

and then transferred to non-distributable reserves.

Gains and losses from changes in the fair value of available-for-sale

investments are recognised directly in equity until the financial asset

is disposed of.

26. RETAINED EARNINGS 26,499 27,310 28,852

Opening balance 22,904 26,499 27,310

Movement during year 3,729 2,337 1,542

Net profit for the year 8,646 7,975 4,171

Transfer to non-distributable reserves (refer to note 25) (239) (11) 10

Premium on acquisition of minority interest in Multi-Links – – 667

Dividend declared (refer to note 35) (4,678) (5,627) (3,306)

Shares bought back (refer to note 22) (134) (1,526) –

The balance comprises: 26,499 27,310 28,852

Company 21,906 22,484 24,323

Joint venture 4,762 5,697 6,132

Subsidiaries 786 428 223

Eliminations (955) (1,299) (1,826)





2007 2008 2009Rm Rm Rm

27. MINORITY INTEREST 284 522 853


Movement during the year (17) 238 331

Reconciliation: 284 522 853

Balance at beginning of year 301 284 522

Share of earnings 203 197 77

Acquisition of subsidiaries and minority interests (68) 77 –

Foreign currency translation reserves 14 29 16

Dividend declared (166) (65) (33)

Broad-based black economic empowerment transaction in Vodacom – – 271

28. INTEREST-BEARING DEBTNon-current interest-bearing debt 4,338 9,403 10,653

Total interest-bearing debt (refer to note 13) 10,364 15,733 18,275

Gross interest-bearing debt 12,549 17,839 19,851

Discount on debt instruments issued (2,185) (2,106) (1,576)

Less: Current portion of interest-bearing debt (6,026) (6,330) (7,622)

Local debt (5,772) (6,001) (7,546)

Locally registered Telkom debt instruments (4,432) – (2,000)

Commercial paper bills (1,339) (3,401) (5,546)

Short-term interest-free loans (1) – –

Call borrowings – (2,600) –

Foreign debt (193) (202) (40)

Finance leases (61) (124) (36)

Licence obligation – (3) –





2007 2008 2009Rm Rm Rm

28. INTEREST-BEARING DEBT (continued)Total interest-bearing debt is made up as follows: 10,364 15,733 18,275

(a) Local debt 8,131 12,923 16,660

Locally registered Telkom debt instruments 6,786 8,164 11,106

Name, maturity, rate p.a., nominal valueTK01, 2009, 10%, RNil (2008: RNil;

2007: R4,680 million) 4,432 – –TL12, 2012, 12.45%, R1,060 million (2008: RNil;

2007: RNil) – – 1,059 TL15, 2015, 11.9%, R1,160 million (2008: RNil;

2007: RNil) – – 1,159 TL20, 2020, 6%, R2,500 million (2008: R2,500 million;

2007: R2,500 million) 1,246 1,283 1,325 PP02, 2010, 0%, R430 million (2008: R430 million;

2007: R430 million) 264 304 349 PP03, 2010, 0%, R1,350 million (2008: R1,350 million;

2007: R1,350 million) 844 977 1,131 Call borrowings, 2009, 11.58%, RNil (2008: R2,600 million;

2007: RNil) – 2,600 –Term loans, 2010, 9.67%, R2,000 million (2008: R3,000 million;

2007: RNil) – 3,000 2,000 Syndicated loans, 2014, 11.46%, R4,100 million (2008: RNil;

2007: RNil) – – 4,083

Total interest-bearing debt is made up of R18,275 million debt at amortised cost (2008: R15,733 million debt at amortised cost; 2007: R10,266 million debt at amortised cost and R98 million debt at fair value through profit and loss).

Local bondsThe local Telkom bonds are unsecured, but a Side letter to the Subscription Agreement (as amended) of the TL20 bond contains a number of restrictive covenants, which, if not met, could result in the early redemption of the loan. The local bonds limit Telkom’s ability to create encumbrances on revenue or assets, and secure any indebtedness without securing the outstanding bonds equally and rateably with such indebtedness. The Term loan agreements limit Telkom’s ability to encumber, cede, assign, sell or otherwise dispose of a material portion of its assets without prior written consent of the Lenders, which will not be unreasonably withheld. The syndicated loan agreement contains restrictive covenants as well as restrictions on encumbrances, disposals, Group guarantees and Group loans.

Commercial paper bills 1,339 4,202 5,546 Rate p.a., nominal value2009, 11.44% (2008: 11.71%; 2007: 9.04%), R5,559 million (2008: R4,383 million; 2007: R1,350 million)

Asset Backed Arbitraged Securities (Proprietary) Limited – 500 –Licence obligation – 47 –Other debt 6 10 8





2007 2008 2009Rm Rm Rm

28. INTEREST-BEARING DEBT (continued)(b) Foreign debt 1,013 1,643 629

Maturity, rate p.a., nominal value 106 141 138

Euro: 2010 – 2025, 0.10% – 0.14% (2008: 0.10% – 0.14%;

2007: 0.10% – 0.14%), e11 million (2008: e11 million;

2007: e11 million)

Interest-bearing debt held in Vodacom disposal group 907 957 –

The local and foreign debt, for both the non-current and current portion,

is disclosed in note 9.2 in the disposal group.

Zenith Bank – 45 –

Multi-Links Telecommunications Limited took out a loan with Zenith Bank.

The original loan amounted to US$14 million against which full repayments

were made in 2009. The loan bore interest at LIBOR plus 3.5%.

FCMB loan – 87 –

Multi-Links Telecommunications Limited took out a FCMB loan.The original

loan amounted to naira 1,500 million against which full repayments were

made in 2009. The loan bore interest at 13%.

Export Development Bank of Canada – 82 157

Multi-Links Telecommunications Limited has a long-term funding facility in

place with Export Development Bank of Canada (EDC), through First Bank

of Nigeria plc. The original funding amounted to US$18 million against

which US$1,6 million repayments were made.The loan bears interest

at LIBOR plus 1.25%, and will be fully repaid during 2013.

Huawei Vendor Financing Facility (‘VFF’) – 319 323

Multi-Links Telecommunications Limited entered into a Bridge Financing

Agreement with Huawei Tech Investment Co. Limited for the supply of

telecommunications equipment and services. The original funding amounted

to US$41.6 million against which repayments of US$5 million have

already been made. The loan bears interest at LIBOR plus 2% and will

be repaid by 2012. The above arrangement is temporary until financing

facilities are obtained from China Development Bank.

PTA Bank and Barclays Bank – 12 11

Africa Online Group has taken out a loan with PTA Bank and Barclays

Bank to the value of US$1.5 million in total. Of this amount US$0.8 million

bears interest at LIBOR plus 6% and the remaining US$0.4 million bears

interest at 11.5%.

(c) Finance leases 1,220 1,167 986

The finance leases are secured by buildings with a carrying value of

R152 million (2008: R174 million; 2007: R197 million) and office

equipment with a book value of R6 million (2008: R14 million;

2007: R6 million) (refer to note 11). These amounts are repayable within

periods ranging from 1 to 12 years. Interest rates vary between 13.43%

and 37.78%.





2007 2008 2009Rm Rm Rm

28. INTEREST-BEARING DEBT (continued)Included in non-current and current debt is:Debt guaranteed by the South African Government 4,537 141 138 Telkom may issue or re-issue locally registered debt instruments in terms of the Post Office Amendment Act 85 of 1991. The borrowing powers of Telkom are set out as per note 21.

Repayments/refinancing of current portion of interest-bearing debtTelkom issued new local bonds, the TL12 and TL15 with a nominal value of R1,060 million and R1,160 million respectively and entered into Syndicated loan agreements with a nominal value of R4,100 million during the current year. Commercial Paper Bills with a nominal value of R11,025 million were issued and Commercial Paper debt with a nominal value of R9,849 million was repaid during the current year.

The repayment/refinancing of R7,622 million of the current portion of interest-bearing debt will depend on the market circumstances at the time of repayment.

Management believes that sufficient funding facilities will be available at the date of repayment/refinancing.

29. PROVISIONS 1,443 1,675 1,875

Employee related 3,005 3,186 3,169

Annual leave 413 438 428

Balance at beginning of year 356 413 438 Transferred to disposal groups – – (67)Charged to employee expenses 66 44 72 Leave paid (9) (19) (15)

Post-retirement medical aid (refer to note 30) 1,139 1,356 1,745

Balance at beginning of year 2,607 1,139 1,356 Interest cost 286 322 428 Current service cost 83 84 95 Expected return on plan asset (188) (257) (223)Actuarial loss 149 129 157 Termination settlement – – (5)Plan asset – initial recognition (1,720) – –Contributions paid (78) (61) (63)

Telephone rebates (refer to note 30) 282 287 325

Balance at beginning of year 198 282 287 Interest cost 19 22 39 Current service cost 4 3 6 Past service cost 76 2 2 Actuarial loss 5 – 14 Benefits paid (20) (22) (23)

Bonus 1,090 992 671

Balance at beginning of year 1,071 1,090 992 Transferred to disposal groups – – (397)Charged to employee expenses 965 797 577 Payment (946) (895) (501)





2007 2008 2009Rm Rm Rm

29. PROVISIONS (continued)Long-term incentive provision 81 113 –

Balance at beginning of year 61 81 113 Transferred to disposal groups – – (113)Charged to employee expenses 21 41 –Payment (1) (9) –

Non-employee related 533 670 856

Supplier dispute (refer to note 39) 527 569 664

Balance at beginning of year – 527 569

Charged to expenses 527 42 95

Warranty provision – – –

Balance at beginning of year 16 – –

Provision utilised (16) – –

Other 6 101 192

Less: Current portion of provisions (2,095) (2,181) (2,150)

Annual leave (402) (417) (425)

Post-retirement medical aid (186) (186) (227)

Telephone rebates (26) (26) (29)

Bonus (911) (921) (654)

Supplier dispute (527) (569) (664)

Other (43) (62) (151)

Annual leave

In terms of Telkom’s policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle, to a cap of 22 days

which must be taken within an 18 month leave cycle. The leave cycle is reviewed annually and is in accordance with legislation.

Bonus

The Telkom bonus scheme consists of performance bonuses which are dependent on achievement of certain financial and non-financial

targets. The bonus is to all qualifying employees payable bi-annually after Telkom’s results have been made public.

Supplier dispute

Telkom provided R664 million (2008: R569 million; 2007: R527 million) for its estimate of the probable liability as discussed in note 39.

The net movement in the provision of R95 million consists of finance charges and fair value movements.

Other

Included in other provisions is an amount provided for asset retirement obligations and the onerous lease obligation recognised in Telkom

Media.





30. EMPLOYEE BENEFITSThe Group provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund. Membership

of one of the funds is compulsory. In addition, certain retired employees receive medical aid benefits and a telephone rebate. The liabilities

for all of the benefits are actuarially determined in accordance with accounting requirements each year. In addition, statutory funding

valuations for the retirement and pension funds are performed at intervals not exceeding three years.

At March 31, 2009, the Group employed 25,445 employees (2008: 33,616; 2007: 33,047).

Actuarial valuations were performed by qualified actuaries to determine the benefit obligation, plan asset and service costs for the pension

and retirement funds for each of the financial periods presented.

The Telkom Pension Fund

The Telkom Pension Fund is a defined benefit fund that was created in terms of the Post Office Amendment Act 85 of 1991.

The latest actuarial valuation performed at March 31, 2009 indicates that the pension fund is in a surplus position of R94 million after

unrecognised losses. The recognition of the surplus is limited due to the application of the asset limitation criteria in IAS19 (revised).

With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the year ended March 31, 2007, a settlement

event occurred in the Telkom Pension Fund whereby 106 members were transferred to the Telkom Retirement Fund.

The funded status of the Telkom Pension Fund is disclosed below:

2007 2008 2009Rm Rm Rm


The net periodic pension costs includes the following components:

Interest and service cost on projected benefit obligations 22 21 21


Recognised actuarial loss/(gain) 9 (16) –


Asset limitation – 29 39

Net periodic pension expense recognised 33 5 29

Pension fund contributions (refer to note 5.1) 8 5 (1)

The status of the pension plan obligation is as follows:

At beginning of year 281 205 204

Interest and service cost 22 21 21

Employee contributions 2 2 2

Benefits paid (2) (3) (5)

Settlements (70) (15) (22)

Actuarial gain (28) (6) (1)

Benefit obligation at end of year 205 204 199

Plan assets at fair value:


Expected return on plan assets 19 27 28


Contributions 10 8 2


Actuarial gain/(loss) 75 10 (67)

Plan assets at end of year 284 311 247





2007 2008 2009Rm Rm Rm

30. EMPLOYEE BENEFITS (continued)The Telkom Pension Fund (continued)

Present value of funded obligation 205 204 199

Fair value of plan assets (284) (311) (247)

Fund surplus (79) (107) (48)

Unrecognised net actuarial gain/(loss) 25 23 (46)

Fund surplus (54) (84) (94)


Recognised net asset (54) (55) (55)


Actuarial return/(loss) on plan assets 75 10 (67)

Actual return/(loss) on plan assets 94 37 (39)

Principal actuarial assumptions were as follows:

Discount rate (%) 7.5 9.0 8.7

Yield on government bonds (%) 7.5 9.0 8.7

Long-term return on equities (%) 10.5 11.0 12.0

Long-term return on cash (%) 5.5 7.0 7.5

Expected return on plan assets (%) 9.7 9.8 10.5

Salary inflation rate (%) 6.0 7.5 7.2

Pension increase allowance (%) 2.9 4.3 4.0

The overall long-term expected rate of return on assets is 10.5%. This is

based on the portfolio as a whole and not the sum of the returns of

individual asset categories. The expected return takes into account the

asset allocation of the Telkom Pension Fund and expected long-term

return of these assets, of which South African equities and bonds

are the largest contributors.

The assumed rates of mortality are determined by reference to the

SA85-90 (Light) Ultimate table, as published by the Actuarial Society

of South Africa, for pre-retirement purposes and the PA(90) Ultimate

table, minus one year age rating as published by the Institute and

Faculty of Actuaries in London and Scotland, for retirement purposes.

Funding level per statutory actuarial valuation (%) 100.0 100.0 100.0

The number of employees registered under the Telkom Pension Fund 153 146 123

The fund portfolio consists of the following:

Equities (%) 74 54 57

Bonds (%) 5 5 25

Cash (%) 3 23 3

Foreign investments (%) 16 18 15

Insurance policies (%) 2 – –

The total expected contributions payable to the pension fund for the next financial year are R1 million.





30. EMPLOYEE BENEFITS (continued)The Telkom Retirement Fund

The Telkom Retirement Fund was established on July 1, 1995 as a hybrid defined benefit and defined contribution plan. Existing employees

were given the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the

Telkom Pension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the

government ceased to guarantee the deficit in the Telkom Retirement Fund. Subsequent to July 1, 1995 further transfers of existing employees

occurred.

The Telkom Retirement Fund is a defined contribution fund with regard to in-service members. On retirement, an employee is transferred

from the defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom

Retirement Fund. Moreover, all of the assets in the fund, including any potential excess, belong to the participants of the scheme. Telkom

is unable to benefit from the excess in the form of future reduced contributions or refunds.

Telkom guarantees any actuarial shortfall of the pensioner pool in the retirement fund. This liability is initially funded through assets of the

retirement fund. The latest actuarial valuation performed at March 31, 2009 indicates that the retirement fund is in a surplus funding position

of R1,549 million after unrecognised losses.

The Telkom Retirement Fund is governed by the Pension Funds Act 24 of 1956. In terms of section 37A of this Act, the pension benefits

payable to the pensioners cannot be reduced. If therefore the present value of the funded obligation were to exceed the fair value of plan

assets. Telkom would be required to fund the statutory deficit.

The information presented below is intended only to comply with the disclosure requirements of IAS19 (revised) and not to suggest that

Telkom has a potential asset with regard to this fund.

The funded status of the Telkom Retirement Fund is disclosed below:

2007 2008 2009Rm Rm Rm

The Telkom Retirement Fund

The net periodic retirement costs include the following components:



Recognised actuarial gain (145) – –

Net periodic pension expense not recognised (asset limitation) (322) (193) (180)

Retirement fund contributions (refer to note 5.1) 439 460 460

Benefit obligation:

At beginning of year 4,377 6,581 7,101

Interest 312 493 616

Benefits paid (486) (488) (520)

Liability for new pensioners 44 14 143

Actuarial loss/(gain) 2,334 501 (636)

Benefit obligation at end of year 6,581 7,101 6,704




Benefits paid (486) (488) (520)

Asset backing new pensioners’ liabilities 44 14 143

Actuarial gain/(loss) 1,641 118 (1,735)

Plan assets at end of year 7,661 7,991 6,675





2007 2008 2009Rm Rm Rm

30. EMPLOYEE BENEFITS (continued)The Telkom Retirement Fund (continued)

Present value of funded obligation 6,581 7,101 6,704

Fair value of plan assets (7,661) (7,991) (6,675)

Fund (surplus)/deficit (1,080) (890) 29

Unrecognised net actuarial loss (96) (478) (1,578)

Unrecognised net asset (1,176) (1,368) (1,549)


Actuarial gain/(loss) on plan assets 1,641 118 (1,735)

Actual gain/(loss) on plan assets 2,130 804 (939)

Included in the fair value of plan assets is:

Office buildings occupied by Telkom 371 596 619

Telkom bonds 21 10 –

Telkom shares 284 141 132

The Telkom Retirement Fund invests its funds in South Africa and internationally.

Twelve fund managers invest in South Africa and five of these managers

specialise in trades with bonds on behalf of the Retirement Fund. The

international investment portfolio consists of global equity and hedged funds.

2007 2008 2009








The overall long-term expected rate of return on assets is 10.7%. This is based on the portfolio as a whole and not the sum of the returns

of individual asset categories. The expected return takes into account the asset allocation of the Retirement Fund and expected long-term

return on these assets, of which South African equities, foreign investments and South African index-linked bonds are the largest contributors.





2007 2008 2009







Funding level per statutory actuarial valuation (%) 100 100 100

The number of pensioners registered under the Telkom Retirement Fund 14,451 14,255 13,617

The number of in-service employees registered under the Telkom

Retirement Fund 25,766 24,939 23,389


Equities (%) 59 70 55

Property (%) 2 2 –

Bonds (%) 19 11 5

Cash (%) 7 1 5


Index linked (%) – – 15

The total expected pension benefit payments for the year ending March 31, 2010 are R541,000.

Medical benefits

Telkom makes certain contributions to medical funds in respect of current and retired employees. The scheme is a defined benefit plan. The

expense in respect of current employees’ medical aid is disclosed in note 5.1. The amounts due in respect of post-retirement medical

benefits to current and retired employees have been actuarially determined and provided for as set out in note 29. Telkom has terminated

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

There are three major categories of members entitled to the post-retirement medical aid: pensioners who retired before 1994 (Pre-94); those

who retired after 1994 (Post-94); and the in-service members. The Post-94 and the in-service members’ liability is subject to a Rand cap,

which increases annually with the average salary increase.

Eligible employees must be employed by Telkom until retirement age to qualify for the post-retirement medical aid benefit. The most recent

actuarial valuation of the benefit was performed as at March 31, 2009.

Telkom has allocated certain investments to fund this liability as set out in note 14.





2007 2008 2009Rm Rm Rm

30. EMPLOYEE BENEFITS (continued)Medical benefits (continued)

Medical aid

Benefit obligation:





Termination settlement – – (5)

Benefits paid from plan assets (94) (125) (141)

Contributions paid by Telkom (78) (61) (63)



At beginning of year – 1,961 1,929

Plan asset – initial recognition 1,720 – –



Actuarial gain/(loss) 147 (164) (393)




Funded status 2,423 2,921 3,792

Unrecognised net actuarial loss (1,284) (1,565) (2,047)

Liability as disclosed in the balance sheet (refer to note 29) 1,139 1,356 1,745


Actuarial return on plan assets 147 (164) (393)

Actual return on plan assets 335 93 (170)

2007 2008 2009

Principal actuarial assumptions were as follows:Discount rate (%) 7.5 9.0 8.7



Medical inflation rate (%) 6.5 8.0 7.7

The assumed rates of mortality are determined by reference to the SA85-90

(Light) Ultimate table, as published by the Actuarial Society of South Africa,

for pre-retirement purposes and the PA(90) Ultimate table, minus one year

age rating as published by the Institute and Faculty of Actuaries in London

and Scotland, for retirement purposes.

Contractual retirement age 65 65 65

Average retirement age 60 60 60

Number of members 17,119 15,526 13,883

Number of pensioners 8,494 8,430 8,397





30. EMPLOYEE BENEFITS (continued)Medical benefits (continued)The valuation results are extremely sensitive to changes in the underlying assumptions. The following table provides an indication of theimpact of changing some of the valuation assumptions above:

The Trudon benefit obligation of R21 million has been excluded from the sensitivity analysis below.

Current assumption Decrease IncreaseRm Rm Rm

Medical cost inflation rate 7.7% -1.0% +1.0%

Benefit obligation 5,389 (736) 921 Percentage change (13.7)% 17.1%

Service cost and interest cost 2009/2010 555 (84) 108 Percentage change (15.1)% 19.5 %

Discount rate 8.7% -1.0% +1.0%

Benefit obligation 5,389 933 (734)Percentage change 17.3% (13.6)%

Service cost and interest cost 2009/2010 555 46 (37)Percentage change 8.3% (6.7)%

Post-retirement mortality rate PA(90) Ultimate-1 -10.0% +10.0%

Benefit obligation 5,389 221 (197)Percentage change 4.1% (3.7)%

Service cost and interest cost 2009/2010 555 23 (20)Percentage change 4.1% (3.6)%

2007 2008 2009

The fund portfolio consists of the following:Equities (%) 59 56 30Bonds (%) 3 2 2Cash and money market investments (%) 21 33 10Foreign investments (%) 9 9 9Insurance policies (%) 8 – 49

Telephone rebatesTelkom provides telephone rebates to its pensioners. The most recent actuarial valuation was performed as at March 31, 2009. Eligible employees must be employed by Telkom until retirement age to qualify for the telephone rebates. The scheme is a defined benefit plan.

2007 2008 2009Rm Rm Rm

The status of the telephone rebate liability is disclosed below:Benefit obligation opening balance 251 307 443 Service cost 4 3 6 Interest cost 19 22 39 Actuarial (gain)/loss (39) 133 19 Amendments 93 – –Benefits paid (21) (22) (23)

Present value of unfunded obligation 307 443 484 Unrecognised net actuarial loss and service cost* (25) (156) (159)

Liability as disclosed in the balance sheet (refer to note 29) 282 287 325

* The major increase in 2008 is attributable to the change in the rebate inflation rate.





2007 2008 2009

30. EMPLOYEE BENEFITS (continued)Telephone rebates (continued)



Rebate inflation rate (%) 0.0 4.0 4.0



The assumed rates of mortality are determined by reference

to the PA(90) Ultimate table, minus one year age rating as

published by the Institute and Faculty of Actuaries

in London and Scotland.



Telkom Conditional Share Plan

Telkom’s shareholders approved the Telkom Conditional Share Plan at the January 2004 Annual General Meeting. The scheme covers both

operational and management employees and is aimed at giving shares to Telkom employees, at a RNil exercise price, at the end of the

vesting period. The vesting period for the operational employees shares awarded in 2004 and 2005 is 0% in year one, 33% in each of

the three years thereafter, while the shares allocated in 2006 and 2007 together with management shares vest fully after three years.

Although the number of shares awarded to employees will be communicated at the grant date, the ultimate number of shares that vest may

differ based on certain performance conditions being met (refer to note 24).

The Telkom Board approved the fourth enhanced allocation of shares to employees as at September 24, 2007, with a grant date of

September 27, 2007, the day that the employees and Telkom shared a common understanding of the terms and conditions of the grant.

A total number of 6,089,810 shares were granted.

The Board has also approved an enhanced allocation for the November 2006 grant on September 4, 2007 with a grant date of

September 27, 2007. The number of additional shares granted with regard to the 2006 allocation is 4,966,860 shares.

The weighted average remaining vesting period for the shares outstanding as at March 31, 2009 is 0.71 years (2008: 1.25 years;

2007: 1.75 years).

2007 2008 2009

The following table illustrates the movement of the maximum number of

shares that will vest to employees for the August 2004 grant:

Outstanding at beginning of the year 2,414,207 1,883,991 420,590

Granted during the year 1,212 252 –

Forfeited during the year (80,923) (43,790) (3,985)

Vested during the year (450,505) (1,419,863) (416,605)

Outstanding at end of the year 1,883,991 420,590 –

The following table illustrates the movement of the maximum number of

shares that will vest to employees for the June 2005 grant:

Outstanding at beginning of the year 1,930,687 1,864,041 1,435,387

Granted during the year 1,005 3,469 52,954


Vested during the year – (323,946) (1,135,424)

Outstanding at end of the year 1,864,041 1,435,387 307,729





2007 2008 2009

30. EMPLOYEE BENEFITS (continued)Telkom Conditional Share Plan (continued)

The following table illustrates the movement of the maximum

number of shares that will vest to employees for the

November 2006 grant:

Outstanding at beginning of the year – 1,773,361 1,640,980

Granted during the year 1,825,488 833 –


Outstanding at end of the year 1,773,361 1,640,980 1,508,366


number of shares that will vest to employees relating to

the additional November 2006 grant:

Outstanding at beginning of the year – – 4,812,305

Granted during the year – 4,984,693 25,775

Forfeited during the year – (172,388) (389,357)

Outstanding at end of the year – 4,812,305 4,448,723


number of shares that will vest to employees for the

September 2007 grant:





The fair value of the shares granted have been calculated by an actuary using Black-Scholes-Merton model and the following values at

grant date:

August 8, June 23, November 2, September 4,

2004 2005 2006 2007

Grant Grant Grant Grant

Market share price (R) 77.50 111.00 141.25 173.00

Dividend yield (%) 2.60 3.60 3.50 3.50

2007 2008 2009

The principal assumptions used in calculating the

expected number of shares that will vest

are as follows:

Employee turnover (%) 5 5 9

Meeting specified performance criteria (%) 100 100 75





30. EMPLOYEE BENEFITS (continued)The amounts for the current and previous four years are as follows:

2005 2006 2007 2008 2009Rm Rm Rm Rm Rm

Telkom Pension FundDefined benefit obligation (186) (281) (205) (204) (199)Plan assets 231 243 284 311 247

Surplus/(deficit) 45 (38) 79 107 48 Asset limitation – – – (29) (39)Unrecognised actuarial loss/(gain) 89 118 (25) (23) 46

Unrecognised/recognised net asset 134 80 54 55 55

Experience adjustment on assets – – 75 10 (67)Experience adjustment on liabilities – – 25 (6) 1

Telkom Retirement FundDefined benefit obligation (4,020) (4,377) (6,581) (7,101) (6,704)Plan assets 4,477 5,973 7,661 7,991 6,675

Surplus/(deficit) 457 1,596 1,080 890 (29)Unrecognised actuarial gain/(loss) 312 (742) 96 478 1,578

Unrecognised net asset 769 854 1,176 1,368 1,549

Experience adjustment on assets* – – 1,641 118 (1,735)Experience adjustment on liabilities* – – 1,234 485 (645)

Medical benefitsDefined benefit obligation (3,079) (3,904) (4,384) (4,850) (5,410)Plan assets – – 1,961 1,929 1,618

Deficit (3,079) (3,904) (2,423) (2,921) (3,792)Unrecognised actuarial loss 649 1,297 1,284 1,565 2,047

Liability recognised (2,430) (2,607) (1,139) (1,356) (1,745)

Experience adjustment on assets – – 147 (164) (393)Experience adjustment on liabilities – – 28 193 246

Telephone rebatesDefined benefit obligation (177) (251) (307) (443) (484)Unrecognised actuarial (gain)/loss (2) 53 25 156 159

Liability recognised (179) (198) (282) (287) (325)

Experience adjustment on liabilities – – (25) 2 2

The experience adjustments on asset and liabilities for each of the financial periods ended March 31, 2005 and 2006 have not beendisclosed due to the fact that it was impractical to determine the information.

* During the March 31, 2007 year end Telkom actuaries performed a full valuation while for the March 31, 2006 year end a roll forward method was

used, as permitted under IAS19, to determine the present value of the benefit obligation and the fair value of the plan assets using the March 31, 2005

statutory valuation as a base applying the relevant assumptions determined by management to arrive at the present value of the benefit obligation, and

the fair value of the plan assets.

This change in estimate resulted in a movement to the actuarial loss of R700 million and the fair value of the plan assets of R350 million in respect of the

March 31, 2007 estimates. The remaining R1,291 million is a result of the actual investment returns exceeding the expected return for the March 31, 2007

year end.





2007 2008 2009Rm Rm Rm

31. TRADE AND OTHER PAYABLES 7,237 8,771 5,538

Trade payables 5,511 6,768 2,955

Finance cost accrued 22 39 156

Accruals and other payables 1,704 1,964 2,427

Accruals and other payables mainly represent amounts payable for

goods received, net of Value Added Taxation obligations.

32. RECONCILIATION OF PROFIT FOR THE YEAR TO CASH GENERATED FROM OPERATIONS*

Cash generated from operations 20,520 21,256 20,394


Finance charges and fair value movements 1,125 1,803 3,765

Taxation 4,731 4,704 3,681

Investment income (235) (197) (216)

Interest received from debtors (190) (257) (273)

Non-cash items 6,582 6,930 10,292

Depreciation, amortisation, impairment and write-offs 5,315 6,130 8,155

Cost of equipment disposed when recognising finance leases 240 88 71

Increase in provisions 1,107 857 1,387

Profit on disposal of property, plant and equipment and intangible assets (29) (147) (29)

Vodacom broad-based black economic empowerment charge – – 691

Profit on disposal of investment and subsidiaries (52) – –

Loss on disposal of property, plant and equipment and intangible assets 1 2 17

(Increase)/decrease in working capital (342) 101 (1,102)

Inventories (393) (354) (1,130)

Accounts receivable (758) (784) (812)

Accounts payable 809 1,239 840

33. FINANCE CHARGES PAID* (1,115) (1,077) (2,164)

Finance charges per income statement (1,125) (1,803) (3,765)

Non-cash items 10 726 1,601

Movements in interest accruals (119) 101 105

Net discount amortised 409 568 698

Capitalised finance leases – – 178

Capitalised foreign exchange – – 38

Fair value adjustment (338) (243) 183

Unrealised gain 58 300 399

* Cash flows includes the cash flows related to assets held for sale and disposal groups.





2007 2008 2009Rm Rm Rm

34. TAXATION PAID* (5,690) (4,277) (3,947)

Taxation payable at beginning of year (1,549) (74) (314)

Current taxation (excluding deferred taxation) (3,545) (3,807) (3,412)

Foreign currency translation reserve – (32) 2

Business combinations – – 2

Secondary taxation on companies (670) (678) (425)

Taxation payable at end of year 74 314 200

Reconciliation of net taxation liability at end of year** (74) (314) (200)

Income taxation receivable 520 9 125

Continuing operations 520 9 91

Disposal groups – – 34

Income taxation payable (594) (323) (325)

Continuing operations (594) (323) (50)

Disposal groups – – (275)

* Cash flows includes the cash flows related to assets held for sale and disposal groups.

** The split income taxation receivable and income taxation payable was split in 2009 to disclose the effect of the discontinued operations.

35. DIVIDEND PAID (4,784) (5,732) (3,336)

Dividend payable at beginning of year (4) (15) (20)

Declared during the year – Dividend on ordinary shares: (4,678) (5,627) (3,306)

Final dividend for 2006: 500 cents (2,599) – –

Special dividend for 2006: 400 cents (2,079) – –

Final dividend for 2007: 600 cents – (3,069) –

Special dividend for 2007: 500 cents – (2,558) –

Final dividend for 2008: 660 cents – – (3,306)

Dividends paid to minority interest (117) (110) (33)

Dividend payable at end of year 15 20 23





36. ACQUISITION AND DISPOSALS OF SUBSIDIARIES, JOINT VENTURES AND MINORITY INTERESTS36.1 Acquisitions

By Telkom 2007 2008 2009

Rm Rm Rm

Multi-Links Telecommunications Limited (Multi-Links Telecommunications) (25%)

Telkom International (Proprietary) Limited acquired 75% of the issued

share capital of Multi-Links Telecommunications Limited from Kenston

Investment Limited on May 1, 2007. Telkom also granted Kenston the

irrevocable right and option (put option) to require Telkom to acquire all

of the shares held by Kenston (25% shareholding) in Multi-Links, at any

time during the 90 day period following the second anniversary of the

effective date. On initial recognition, a liability of R661 million,

representing the higher of the transaction share price and the fair value,

was recognised under non-current other financial liabilities.

A corresponding debit was recognised in non-distributable reserves.

The put option was exercised on January 21, 2009 for R1,328 million

(US$130 million at US$1 = R10.2188). The liability was derecognised

and a corresponding credit consisting of R661 million reversal of equity

and R667 million relating to changes in the fair value of the put option

subsequent to initial recognition, was recognised directly in equity.

Put option – – 1,328

Africa Online Limited (Africa Online)

On February 23, 2007 Telkom acquired a 100% shareholding of Africa

Online from African Lakes Corporation for a total cost of R150 million,

with a resulting goodwill of R145 million.

Africa Online is an internet service provider active in Cote d’Ivoire, Ghana,

Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.

Africa Online is incorporated in the Republic of Mauritius.

At acquisition date the company was not IFRS compliant and thus no fair

value information based on IFRS was available.

The process of calculating a fair value of the identified assets, liabilities

and contingent liabilities has been finalised.

The fair value of the assets and liabilities acquired were determined as follows:

Fair value of intangible assets (licences R1 million, brand R42 million) 43 – –

Less: Deferred taxation raised on intangible assets (12) – –

Less: Net liabilities acquired (excluding fair value of intangible assets) (26) – –

Fair value of net assets acquired 5 – –

Goodwill 145 – –

Purchase price 150 – –

The goodwill has been allocated to the various cash-generating units (’CGU’) representative of the countries in which Africa Online Limited

operates.





2007 2008 2009Rm Rm Rm

36. ACQUISITION AND DISPOSALS OF SUBSIDIARIES, JOINT VENTURES AND MINORITY INTERESTS (continued)

36.1 Acquisitions (continued)By the Group’s subsidiariesMulti-Links Telecommunications Limited (’Multi-Links Telecommunications’) (75%)On May 1, 2007 Telkom acquired a 75% shareholding in Multi-Links Telecommunications through Telkom International, a wholly owned South African subsidiary, for a total cost of R1,985 million.

Multi-Links Telecommunications is a Nigerian Private Telecommunications Operator with a Unified Access Licence providing fixed, mobile, data, long distance and international telecommunications services throughout Nigeria. Multi-Links is domiciled and incorporated in Nigeria.

The purchase price allocation was completed during the 2008 financial year, and has resulted in goodwill being adjusted.

The following intangible assets were identified and valued at the end of the year:

Customer relationship – 61 –Licence – 36 –Brand – 105 –

Fair value of intangible assets – 202 –

The fair value of the assets and liabilities acquired were determined as follows:Net assets acquired (excluding fair value of intangible assets) – 236 –Fair value of intangible assets – 202 –Less: Contingencies recognised – (35) –Less: Deferred taxation raised on intangible assets – (65) –

Fair value of net assets acquired – 338 –Less: Minority interest – (80) –Goodwill – 1,727 –

Purchase price* – 1,985 –

* The purchase price was settled in cash.

Disposal group By the Group’s 50% joint venture, VodacomStorage Technology Services (Proprietary) Limited – – 69 Gateway – – 2,846 Smartphone SP (Proprietary) Limited and subsidiaries 168 468 –Smartcom (Proprietary) Limited 4 9 –Africell Cellular Services (Proprietary) Limited 40 – –InterConnect s.p.r.l 10 – –Cointel VAS (Proprietary) Limited 73 – –

DisposalsBy the Group’s 50% joint venture, VodacomIthuba Smartcall (Proprietary) Limited – – –Stand 13 Eastwood Road Dunkeld (Proprietary) Limited – 8 –





37. UNDRAWN BORROWING FACILITIES AND GUARANTEES37.1 Rand denominated facilities and guarantees

Telkom has general banking facilities of R6,226 million. The facilities are unsecured, when drawn bear interest at a rate linked to prime,

have no specific maturity date and are subject to annual review. R3,000 million of these undrawn facilities were committed.

37.2 Foreign denominated facilities and guarantees

2007 2008 2009

Guarantor Details Beneficiary Rm Rm Rm

Telkom SA Limited Punctual payment and performance by Various US$3 million – 23 26

Africa Online under the Trade Finance (2008:

Facility Agreement to various banks US$3 million)

First Bank of Nigeria plc Guarantee on lending facility from Export Nortel Networks US$18 million – 147 171

(on behalf of Multi-links Bank of Canada to Nortel Networks for Canada (2008:

Telecommunications the purchase of Telecommunications US$18 million)

Limited) equipment phases – 9a, 9b, 9c and 9d

Zenith Bank plc (on Guarantee payment to Gilat Satcom Gilat Satcom US$0.1 million – 1 1

behalf of Multi-links Limited in respect of interconnect Limited (2008:

Telecommunications service (standby letter of credit) US$0.1 million)

Limited)

Zenith Bank plc (on Support the bid award of the contract NCC US$0.1 million – 1 1

behalf of Multi-links for the submission of the proposal to (2008:

Telecommunications provide wire to Nigerian Telecommuni- US$0.1 million)

Limited) cations Services

Zenith Bank plc (on Issued in favour of Huawei Technology Huawei US$31 million – 250 294

behalf of Multi-links Investment Company Limited for the Technology (2008:

Telecommunications supply of core telecommunications Investment US$31 million)

Limited) services Company

Limited

Zenith Bank plc (on Issued in favour of Huawei Technology Huawei US$11 million – 88 104

behalf of Multi-links Investment Company Limited for the Technology (2008:

Telecommunications supply of core telecommunications Investment US$11 million)

Limited) services Company

Limited

– 510 597

Disposal group

Rand denominated facilities and guarantees

The Group exposure is 50% of the following items:

Vodacom has Rand denominated credit facilities totalling R15,675 million with R12,335 million utilised as at March 31, 2009. The

facilities that are uncommitted can also be utilised for loans to foreign entities and are subject to review at various dates (usually on an

annual basis). Certain of the facilities are still subject to the Group’s final acceptance.





37. UNDRAWN BORROWING FACILITIES AND GUARANTEES (continued)37.2 Foreign denominated facilities and guarantees

Rand denominated facilities and guarantees (continued)2007 2008 2009

Guarantor Details Beneficiary Rm Rm Rm

Vodacom (Proprietary) All guarantees individually less than Various 3 2 2 Limited R2 million

Vodacom Service All guarantees individually less than Various 3 3 2 Provider Company R2 million(Proprietary) Limited

Vodacom Service Guarantee in respect of receipt of SA Insurance 27 32 35 Provider Company independent intermediaries of premiums Association (Proprietary) Limited on behalf of short-term insurers and for benefit

Lloyd’s underwriters, and relating to of insurersshort-term insurance business carried on in RSA. Renewable annually

Smartcom (Proprietary) Guarantees for salary bank account Various 3 – –Limited and debit orders

Cointel VAS (Proprietary) Guarantees for operating lease Various 1 – –Limited and debit orders

Vodacom (Proprietary) Letter of undertaking in respect of land Attorneys 7 17 33 Limited

Vodacom Properties Lease guarantees Various – – 3 No.2 (Proprietary) Limited

44 54 75

The Group exposure is 50% of the following items:Vodacom Congo (RDC) s.p.r.l. has various facilities of US$31 million which was fully utilised as at March 31, 2009. VodacomInternational Limited has a revolving term loan of US$180 million which was fully utilised at March 31, 2009. Vodacom Lesotho(Proprietary) Limited has overdraft facilities with various banks of M25 million of which M13 million was utilised at March 31, 2009.Vodacom Tanzania Limited has medium-term loans for US$47 million and TZS54,000 million of which US$40 million and TZSNil wasutilised at March 31, 2009. Foreign currency term facilities are predominantly US Dollar based, at various maturities and are utilised forbridging and short-term working capital needs.

2007 2008 2009Guarantor Details Beneficiary Rm Rm Rm

Vodacom Group Guarantees issued for the obligation of Standard Bank US$180 million 1,312 1,463 1,735 (Proprietary) Limited Vodacom International Limited’s term plc and RMB (2008:

loan facility*# International US$180 million;(Dublin) Limited 2007:

US$180 million)

1,312 1,463 1,735

* Foreign denominated guarantees amounting to R1,735 million (2008: R1,463 million; 2007: R1,312 million) issued in support of Vodacom Congo (RDC)

s.p.r.l. are included as liabilities in the disposal group held for sale.

# The Group is in compliance with the covenants attached to the term loan facility.

Companies within the Group have provided the following guarantees:Vodacom (Proprietary) Limited provides an unlimited guarantee for borrowings entered into by Vodacom Group (Proprietary) Limited.





2007 2008 2009Rm Rm Rm

38. COMMITMENTSCapital commitments

Capital commitments authorised 11,167 15,198 7,928

Fixed-line 7,000 7,000 6,991

Mobile 4,159 5,211 –


Other 8 2,632 90

Commitments against authorised capital expenditure 1,099 3,504 1,393

Fixed-line 506 652 539

Mobile 591 800 –


Other 2 1,697 7

Authorised capital expenditure not yet contracted 10,068 11,694 6,535

Fixed-line 6,494 6,348 6,452

Mobile 3,568 4,411 –

Multi-Links – – –

Other 6 935 83

Capital commitments comprise commitments for property, plant and

equipment and software included in Intangible assets.

Management expects these commitments to be financed from

proceeds of the Vodacom sale.

2010 FIFA World Cup commitments

The FIFA World Cup commitment is an executory contract which requires Telkom to develop the fixed-line components of the necessary

telecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of the fixed-line

telecommunications related products and services and, where applicable, the services of qualified personnel necessary for the planning,

management, delivery, installation and de-installation, operation, maintenance and satisfactory functioning of these products and services.

Furthermore as a National Supporter. Telkom owns a tier 3 sponsorship that grants Telkom a package of advertising, promotional and

marketing rights that are exercisable within the borders of South Africa. Telkom entered into a barter transaction in return for which it has

an outstanding commitment to FIFA of R243 million (2008: R260 million) as at March 31, 2009. This has been recognised in intangible

assets (note 12) and has been included in the disclosure note.

Total <1 year 1 – 5 years >5 years

Rm Rm Rm Rm

Operating lease commitments and receivables

2009

Land and buildings 583 290 281 12

Rental receivable on buildings (271) (99) (170) (2)

Vehicles 1,137 261 876 –

Equipment 15 6 9 –

Customer premises equipment receivables (87) (48) (39) –

Total 1,377 410 957 10





38. COMMITMENTS (continued)Total <1 year 1 - 5 years >5 years

Rm Rm Rm Rm

Operating lease commitments and receivables (continued)2008Land and buildings 2,061 341 913 807 Rental receivable on buildings (266) (94) (169) (3)Transmission and data lines 709 134 490 85 Vehicles 1,444 233 1,211 –Equipment 13 10 3 –Sport and marketing contracts 680 282 395 3 Customer premises equipment receivables (84) (45) (39) –

Total 4,557 861 2,804 892

2007Land and buildings 1,465 289 771 405 Rental receivable on buildings (269) (91) (174) (4)Transmission and data lines 262 68 159 35 Vehicles 573 568 5 –Equipment 23 6 17 –Sport and marketing contracts 441 164 275 2 Customer premises equipment receivables (57) (30) (27) –

Total 2,438 974 1,026 438

Customer premises equipment receivableThe disclosed information relates to those arrangements which were assessed to be operating leases in terms of IAS17.

Operating leasesThe Group leases certain buildings, vehicles and equipment. The majority of the lease terms negotiated for equipment-related premises are10 years with other leases signed for five and three years. The majority of the leases contain an option clause entitling Telkom to renewthe lease agreements for a period usually equal to the main lease term.

The minimum lease payments under these agreements are subject to annual escalations, which range from 6% to 15%.

Penalties in terms of the lease agreements are only payable should Telkom vacate a premises and negotiate to terminate the leaseagreement prior to the expiry date, in which case the settlement payment will be negotiated in accordance with the market conditions ofthe premises. Future minimum lease payments under operating leases are included in the above note. Onerous leases for buildings, ofwhich Telkom has no further use, no possibility of sub-lease and no option to cancel, are provided for in full and included in other provisions(refer to note 29).

The master lease agreement for vehicles was for a period of five years and then extended for an additional three years which resulted inthe lease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operatinglease commitments for vehicles are based on the new agreement which expires on March 31, 2013.

In accordance with this agreement Telkom is not allowed to lease any similar vehicle as specified in the contract from any other serviceprovider during the five year period except for the rentals at airport which are utilised in cases of subsistence and travel as well as vehicleswhich are not part of the agreement.

The agreement is structured to have no lease increases on vehicles that are continually leased from the lessor. If a vehicle is, however,replaced by a new similar vehicle, the lease costs of the newest vehicle will increase by the Consumer Price Index. All leased vehicles are,however, subject to any variance in the interest rate fluctuations and are adjusted as and when the adjustments are announced by the SouthAfrican Reserve Bank. The leases of individual vehicles are renewed annually.

The master lease agreements for office equipment are with two suppliers with initial periods of 36 months effective from November 25,2005. Upon expiry of the initial lease agreement on November 25, 2008, an extension of the lease was negotiated until November 24,2009. In terms of these agreements the leases of individual equipment shall be valid for 36 months at a fixed fee for the entire period.





38. COMMITMENTS (continued)Total <1 year 1 – 5 years >5 years

Rm Rm Rm Rm

Finance lease commitments2009BuildingMinimum lease payments 1,654 113 546 995 Finance charges (822) (112) (426) (284)

Finance lease obligation 832 1 120 711

EquipmentMinimum lease payments 7 5 2 –Finance charges (2) (1) (1) –

Finance lease obligation 5 4 1 –

VehiclesMinimum lease payments 187 47 140 –Finance charges (38) (15) (23) –


2008BuildingMinimum lease payments 2,198 257 791 1,150 Finance charges (1,031) (152) (496) (383)

Finance lease obligation 1,167 105 295 767

EquipmentMinimum lease payments 16 4 12 –Finance charges (2) – (2) –


VehiclesMinimum lease payments 242 48 194 –Finance charges (59) (20) (39) –


2007BuildingMinimum lease payments 2,412 227 853 1,332 Finance charges (1,198) (166) (540) (492)

Finance lease obligation 1,214 61 313 840

EquipmentMinimum lease payments 6 – 6 –Finance charges – – – –

Finance lease obligation 6 – 6 –

Finance leasesFinance leases on vehicles relates to the lease of Swap bodies. The lease term for the Swap bodies is April 2008 to April 2013.

A major portion of the finance leases relates to the sale and lease-back of the Group’s office buildings. The lease term negotiated for thebuildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation of 10% p.a. Telkomhas the right to sublet part of the buildings. In case of breach of contract, the lessor is entitled to cancel the lease agreement and claimdamages.

Finance leases on equipment mainly relates to office equipment. The lease term negotiated for the finance leases is for a period of threeyears ending in 2011.





2007 2008 2009Rm Rm Rm

39. CONTINGENCIESThird parties 28 27 18

Fixed-line 19 18 18

Mobile 4 4 –

Multi-Links – – –

Other 5 5 –

Third parties

These amounts represent sundry disputes with suppliers that are not individually significant and that the Group does not intend to settle.

Supplier dispute

Telcordia instituted arbitration proceedings against Telkom in March 2001 before a single arbitrator of the International Court of Arbitration,

operating under the auspices of the International Chamber of Commerce. Telcordia is seeking to recover approximately US$130 million

for monies outstanding and damages, plus costs and interest at a rate of 15.5% per year which was increased by Telcordia to

US$172 million in the 2007 financial year and subsequently decreased to US$128 million in the 2008 financial year. The arbitration

proceeding relates to the cancellation of an agreement entered into between Telkom and Telcordia during June 1999 for the development

and supply of an integrated end-to-end customer assurance and activation system by Telcordia.

In September 2002, the arbitrator found that Telkom had wrongfully repudiated the contract and a partial award was issued by the

arbitrator in favour of Telcordia. Telkom subsequently filed an application in the South African High Court to review and set aside the partial

award. On November 27, 2003, the South African High Court set aside the partial award and issued a cost order in favour of Telkom.

On May 3, 2004, the South African High Court dismissed an application by Telcordia for leave to appeal and ordered Telcordia to pay

the legal costs of Telkom.

On November 29, 2004 the Supreme Court of Appeals granted Telcordia leave to appeal. Telcordia filed a notice of appeal and also

petitioned the United States District Court for the District of Columbia to confirm the partial award, which petition was dismissed, along

with a subsequent appeal. Following the dismissal of the appeal, Telcordia filed a similar petition in the United States District Court of New

Jersey. The United States District Court of New Jersey also dismissed Telcordia’s petition, reaffirming the decision of the United States District

Court of Columbia. Telcordia appealed this dismissal, which was later dismissed by the Appeals Court of New Jersey.

The appeal by Telcordia in the Supreme Court of Appeals was set down for and heard on October 30 and October 31, 2006. Following

the successful upholding of the appeal, Telkom filed an application for leave to appeal to the Constitutional Court on only the issue revolving

around the Supreme Court of Appeals’ failure to recognise Telkom’s rights of access to the courts under the South African Arbitration Act.

The Constitutional Court has since dismissed Telkom’s appeal with costs. The Constitutional Court judgment brought finality to the dispute

over the merits of Telcordia’s claim against Telkom and the parties reconvened the arbitration in May 2007 to deal with the amount of

damages to which Telcordia is entitled.

Two hearings were held at the International Dispute Resolutions Centre (IDRC). The first hearing was held in London on May 21, 2007

and was a ’directions hearing’, in terms of which the parties consented to a ruling by the arbitrator setting out a consolidated list of

proposals and issues to form part of the damages hearing.

The second hearing was held in London at the IDRC on June 25 and 26, 2007 and dealt with the application by Telcordia for the striking

out of part of Telkom’s defence on the basis that Telkom had raised issues in its defence that had already been heard by the arbitrator prior

to his partial award. This application was dismissed by the arbitrator. The arbitrator also made a ruling compelling Telcordia to provide

certain particulars requested by Telkom with regard to the claims by Telcordia. In his ruling, the arbitrator also set out a list of issues for

determination of the damages.





39. CONTINGENCIES (continued)Supplier dispute (continued)The mediation took place in London in February and April of 2008 without success. In the interim the parties agreed to the appointmentby the arbitrator of a third party expert to deal with the technical issues in relation to the software that was required to be provided byTelcordia, who will make a recommendation to the arbitrator in dealing with the amount of the claims. A further hearing was held beforethe arbitrator in October 2008 during which the arbitrator permitted Telkom to amend its statement of defence. Further hearings were heldbefore the software expert in November 2008 and he has made his report available.

The parties have now agreed that the whole question of “integration” of the software will be done at an experts only hearing (no lawyers)before Mr P Burns, a software expert in Johannesburg during October 2009. The hearings before the software expert will have an impacton the quantum of the other claims. The arbitrator has confirmed that the final hearing will be from January 25 to February 10, 2010, inJohannesburg.

Although Telkom is currently unable to predict the exact amount that it may eventually be required to pay Telcordia, it has made provisionsfor estimated liabilities in respect of the Telcordia claim in the sum of US$70 million (R664 million), including interest and legal fees. Telkomwill be required to fund any payments to Telcordia from cash flows or the incurrence of debt and the amount of any damages aboveTelkom’s provision would increase Telkom’s liabilities and decrease its net profit, which could have a material adverse effect on its financialcondition, cash flows and results of operations.

A provision has been raised based on management’s best estimate of the probable payments in this regard.

2007 2008 2009Rm Rm Rm

Supplier dispute liability included in current portion of provisions 527 569 664*

The provision has not increased from March 31, 2007, except for foreign exchange movements.* US$70 million (2008: US$70 million; 2007: US$70 million).

Competition CommissionTelkom is party to a number of legal and arbitration proceedings filed by parties with the South African Competition Commission alleginganti-competitive practices described below. If Telkom were found to have committed prohibited practices as contained in the CompetitionAct, 1998, as amended. Telkom could be required to cease these practices, divest these businesses and be fined a penalty of up to 10%of Telkom’s annual turnover, excluding the turnover of subsidiaries and joint ventures, for each complaint for the financial years prior to thedates of the complaints. The Competition Commission has to date not imposed the maximum penalty on any offender.

On July 31, 2008, Telkom received a summons issued by the Competition Commission requesting information in connection withinvestigations being conducted by the Competition Commission into five complaints against Telkom described in greater detail below by theInternet Service Association, MWEB, Internet Solutions and Verizon SA Limited. The summons was subsequently withdrawn by the CompetitionCommission following an agreement with Telkom in a co-operative process with the Competition Commission as part of the CompetitionCommission’s ongoing investigations into these complaints. The investigation is expected to be finalised in the 2009 calendar year.

As competition continues to increase, Telkom expects that we will become involved in an increasing number of disputes regarding thelegality of services and products provided by Telkom and third parties. These disputes may range from court lawsuits to complaints lodgedby or against Telkom with various regulatory bodies. Telkom is currently unable to predict the amount that it may eventually be required topay in these proceedings. However, Telkom has not included provisions for any of these claims in our financial statements. In addition,Telkom might need to spend substantial amounts defending or prosecuting these claims even if it is ultimately successful. If Telkom is requiredto cease these practices, divest from the relevant businesses or pay significant fines, Telkom’s business and financial condition could bematerially and adversely affected and its revenue and net profit could decline. Telkom may be required to fund any penalties or damagesfrom cash flows or drawings on our credit facilities, which could cause its indebtedness to increase.

Independent Cellular Services Provider Association of South Africa (ICSPA)In 2002, the ICSPA filed a complaint against Telkom at the Competition Commission in terms of the Competition Act, alleging that Telkomhad entered into contracts with large corporations, providing large discounts with the effect of discouraging the corporates from using the’premicell’ device installed by their members. ICSPA also alleged various contraventions of the Competition Act by Telkom. Telkom providedthe Competition Commission with certain information requested. Telkom also referred the Competition Commission to its High Courtapplication in respect of utilisation of the ’premicell’ device. The Competition Commission declined to refer the matter to the CompetitionTribunal. ICSPA then referred the matter to the Competition Tribunal on September 18, 2003. Telkom filed its answering affidavit onNovember 28, 2003. ICSPA has taken no further action since then.





39. CONTINGENCIES (continued)Competition Commission (continued)

The South African Value Added Network Services (SAVA)

On May 7, 2002, the South African Value Added Network Services Providers’ Association, an association of VANS providers, filed

complaints against Telkom at the Competition Commission of the Republic of South Africa under the South African Competition Act, 89 of

1998, alleging, among other things, that Telkom was abusing its dominant position in contravention of the Competition Act, 89 of 1998,

and that it was engaged in price discrimination. The Competition Commission determined, among other things, that several aspects of

Telkom’s conduct contravened the Competition Act, 89 of 1998, and referred certain of the relevant complaints to the Competition Tribunal

for adjudication. The referred complaints deal with Telkom’s alleged refusal to provide telecommunications facilities to certain VANS

providers to construct their networks, refusal to lease access facilities to VANS providers, provision of bundled and cross subsidised

competitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged refusal to peer with

certain VANS providers.

Telkom brought an application for review against the Competition Commission and the Competition Tribunal in the South African High

Court, in respect of the decision by the Competition Commission to refer the matters to the Competition Tribunal. Telkom is of the view that

the Competition Tribunal does not have jurisdiction to adjudicate these matters and argued that ICASA has the requisite jurisdiction. In the

review application, Telkom also sought to set aside the decision by the Competition Commission to refer the complaints to the Competition

Tribunal on the basis that the Competition Commission was biased, that the referral was out of time and that the Competition Commission

had not adhered to the memorandum of understanding between it and ICASA. Only the Competition Commission opposed the application

and filed an answering affidavit.

The main complaint at the Competition Commission was held over pending the outcome of the review application.

The application for review was heard on April 24 and 25, 2008. The South African High Court judge set aside the decision of the

Competition Commission to refer the SAVA complaints and the Omnilink complaint against Telkom discussed below to the Competition

Tribunal. The decision was made based on three grounds, namely that:

• the Competition Commission failed to comply with the peremptory provisions of the memorandum of understanding between the

Competition Commission and ICASA;

• the referral was out of time, on the basis that the agreements with the complainants to extend the time which the Competition Commission

was allowed to investigate the complaints were invalid; and

• the Competition Commission’s reliance on a report by the Link Centre created reasonable apprehension of bias, since some of the

complainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complainants in

the SAVA complaints.

The judge did not make a decision on the question of jurisdiction (ie, whether ICASA or the Competition Tribunal has the jurisdiction to

deal with competition matters in the electronic communications industry).

On July 3, 2008 the Competition Commission filed an application for leave to appeal the decision of the High Court on the basis that the

judge erred on the issue of bias as well as his finding that issues surrounding the extension of time to investigate the issues constitutes a

ground for review. Telkom then filed an application for leave to cross-appeal on July 11, 2008. The main basis of Telkom’s cross-appeal

is that Telkom believes that the judge erred in failing to make a decision as to whether ICASA or the Competition Commission and

Competition Tribunal should deal with this type of complaint. The application for leave to appeal as well as the application for leave to

cross-appeal were granted by the Pretoria High Court on October 9, 2008. The parties are attending to the filing of the record of

proceedings before the High Court as well as the parties’ heads of argument, after which the Registrar of the Supreme Court of Appeal

will inform the parties of the date for the hearing. The main complaint before the Competition Tribunal will continue to be held over pending

the outcome of the appeal and cross-appeal.

This matter is not expected to be finalised within the 2010 financial year.






Omnilink

On August 22, 2002 Omnilink filed a complaint against Telkom at the Competition Commission alleging that Telkom was abusing its

dominance by discriminating in its price for Diginet services as against those charged to VANS and the price charged to customers who

apply for a Telkom VPN solution. The Competition Commission conducted an enquiry and subsequently referred the complaint, together

with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt with together with the SAVA matter

discussed previously.

Orion/Telkom (Standard Bank and Edcon): Competition Tribunal

In April 2003, Orion filed a complaint against Telkom, Standard Bank and Edcon at the Competition Commission concerning Telkom’s

discounts offered on public switched telecommunication services to corporate customers. In terms of the rules of the Competition

Commission, the Competition Commission, who acts as an investigator, had one year to investigate the complaint. Orion, simultaneously

with the filing of the complaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an

interim order interdicting and restraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s Cellsaver

discount plan.

The Competition Commission completed its investigation and decided that there was no prima facie evidence of any contravention of the

Competition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allows

for parties to refer matters to the Competition Tribunal themselves. Telkom has not yet filed its answering affidavit in the main complaint

before the Competition Tribunal. To date there have been no further developments on this matter.

The Internet Service Providers Association (ISPA)

In December 2005, the ISPA, an association of ISPs, filed complaints against Telkom at the Competition Commission regarding alleged

anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to SAIX, the prices offered by TelkomInternet,

the alleged delay in provision of facilities to ISPs and the alleged favourable installation timelines offered to TelkomInternet customers. The

Competition Commission has formally requested Telkom to provide it with certain records of orders placed for certain services, in an attempt

to first investigate the latter aspects of the complaint. Telkom provided the Competition Commission with the information.

MWEB and Internet Solutions (IS)

On June 29, 2005, MWEB and Internet Solutions, or IS, jointly lodged a complaint with the Competition Commission against Telkom and

also requested interim relief at the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing

for ADSL retail products and its IP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of

SAIX bandwidth for ADSL users of other internet service providers, the architecture of Telkom’s ADSL access route and the manner in which

internet service providers can only connect to Telkom’s edge service router via IP Connect as well as alleged excessive pricing for bandwidth

on Telkom’s international undersea cable. The application for interim relief at the Competition Tribunal dealt with allegations that Telkom

should maintain the peering link between IS and Telkom in terms of its current peering agreement, and demanded that Telkom treat the

traffic generated by ADSL customers of MWEB as traffic destined for the peering link and that Telkom upgrade its peering link to

accommodate the increased ADSL traffic emanating from MWEB and maintain a maximum of 65% utilisation. Telkom filed its answering

affidavit, and is awaiting IS and MWEB’s replying affidavit.

Since then, Telkom has entered into a new peering agreement with IS and has responded to numerous documentation and information

requests from the Competition Commission. To date neither MWEB nor IS has filed a replying affidavit in the interim relief application.






MWEB

On June 5, 2007, MWEB brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner

in which Telkom provides wholesale ADSL internet connections. MWEB requested the Competition Tribunal to grant an order of interim

relief against Telkom to charge MWEB a wholesale price for the provision of ADSL internet connections which is not higher than the lowest

retail price. MWEB further applied for an order that Telkom implement the migration of end customers from Telkom PSTS ADSL access to

MWEB without interruption of the service. Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the

matter in its answering affidavit filed at the Competition Tribunal. Telkom still had to “plead over” as to the merits of the matter. Telkom also

filed an application in the Transvaal Provincial Division of the South African High Court on July 3, 2007 for an order declaring that the

Competition Tribunal does not have jurisdiction to hear the application for interim relief made to it by MWEB.

The application before the High Court was set down for hearing during the first quarter of the 2009 financial year. The parties however

entered into settlement negotiations, which resulted in the withdrawal of the interim relief application at the Competition Tribunal by MWEB

as well as a withdrawal of the jurisdictional challenge filed at the South African High Court by Telkom. The parties are in further

negotiations.

Verizon SA Limited (Verizon)

Verizon filed a complaint against Telkom on March 22, 2007 alleging that Telkom charges an excessive price on services rendered to

Verizon thereby inducing Verizon’s customers not to deal with Verizon, engages in exclusionary conduct through “margin squeeze” in

offering prices to end-users which are lower than the prices at which it sells rights of access to its infrastructure on a wholesale basis to

Verizon, and that Telkom engages in price discrimination against Verizon.

Internet Solutions (IS)

IS filed a complaint against Telkom at the Competition Commission during December 2007. The complaint alleges abusive conduct by

Telkom. IS specifically alleges that Telkom is charging excessive prices that bear no reasonable relation to the economic value of the goods

or services, that Telkom has raised the wholesale cost to downstream competitors, while also reducing the downstream retail price to clients;

engaging in margin squeeze, that Telkom has introduced a series of bundled products (namely Telkom Closer Products) that limit the ability

of rivals in particular markets to compete effectively, and Telkom is offering discriminatory prices in relation to a number of infrastructural

and service items that IS is compelled to purchase from Telkom.

While that complaint was being investigated by the Competition Commission IS brought an application to the Competition Commission

for interim relief requesting: that Telkom be ordered to charge IS a wholesale price for telecommunication facilities to provide virtual private

network services to its customers no higher than the lowest retail price for such connection charged to Telkom’s VPN Supreme customers

and ordering that the costs of the application be paid by Telkom.

Telkom opposed the application of by IS at the Competition Tribunal although it is unable to finalise its opposing papers due to difficulties

associated with the manner in which IS claimed confidentiality over the application. No further activity has taken place with regard to the

interim relief application to date.






Telecom and Broadcasting (Proprietary) Limited (Maredi)

Maredi

Maredi served a notice of motion on Telkom, Ericsson SA and Telsaf Data (Pty) Ltd on January 8, 2009. The matter relates to a tender

published by Telkom for the supply of point-to-point split mount microwave equipment. Maredi, Telsaf, Ericsson and a fourth company,

Mobax, were shortlisted. The tender was awarded by Telkom to Telsaf and Ericsson.

Maredi applied for a court order, with a court hearing date set for February 3, 2009, requesting that the court prevent Telkom from entering

into a contract with Ericsson and Telsaf or either party, and from ordering goods or services from Ericsson and Telsaf pursuant to the tender.

Maredi also requested an order that the court review and set aside the award of the tender to Telsaf and Ericsson or either of the

aforementioned parties, and refer the tender back to Telkom in order for Telkom to reconsider its award. Maredi alleged that there were

certain irregularities in the tender process in that Telkom did not follow fair procedures by failing to comply with its own mandatory

procedural requirements, that Telkom acted arbitrarily and in bad faith, that Telkom was biased in favour of Ericsson and that Ericsson should

have been disqualified as it failed to meet Telkom’s critical criteria as set out in the tender.

Numerous allegations in the application, including accusations against certain members of the Procurement Review Council and allegations

by Maredi of compliance by them to the technical critical criteria, were refuted by Telkom. Telkom and Ericsson opposed the application

and filed their respective opposing affidavits. Telsaf did not oppose the application. The matter was ultimately set down for hearing on

February 20, 2009 and Maredi’s application was dismissed with costs. However, Maredi is proceeding with a review application in the

ordinary course and Telkom is opposing the application.

Telkom is not currently able to predict when these disputes may be resolved or the amount that Telkom may eventually be required to pay,

however, Telkom has not included provisions for all of these claims in our consolidated financial statements. In addition, Telkom may need

to spend substantial amounts defending or prosecuting these claims even if Telkom is ultimately successful. If Telkom were to lose these or

future legal and arbitration proceedings, Telkom could be prohibited from engaging in certain business activities and could be required to

pay substantial penalties and damages, which could cause Telkom’s revenue and net profit to decline and have a material adverse impact

on the business and financial condition. Telkom may be required to fund any penalties or damages from cash flows or drawings on our

credit facilities, which could cause Telkom’s indebtedness to increase.

Telkom is party to various additional proceedings and lawsuits in the ordinary course of our business, which management does not believe

will have a material adverse impact.

Negative working capital ratio

At each of the financial years ended March 31, 2009, 2008 and 2007 the Group had a negative working capital ratio. A negative

working capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from

operating cash flows, new borrowings and borrowings available under existing credit facilities.





40. DIRECTORS’ INTERESTSST Arnold, RJ Huntley, E Spio-Garbrah, KST Matthews and VB Lawrence, five of Telkom’s Board members, are the South African

Government’s representatives on Telkom’s Board of directors. At March 31, 2009, the Government held 39.76% (2008: 39.42%; 2007:

38.83%) of Telkom’s shares.

B Molefe is a Public Investment Corporation (PIC) representative on Telkom’s Board of directors. As at March 31, 2009 the PIC held

15.63% (2008: 15.23%, 2007: 15.27%) of Telkom’s shares.

Beneficial Non-beneficial

Direct Indirect Direct Indirect

Directors’ shareholding (Number of shares)

2009

Executive

RJ September 90,815 1,820 – –

PG Nelson 19,182 –

Total 109,997 1,820 – –

Non-executive

PG Joubert – 15,000 – –

D Barber – 1,200 – –

– 16,200 – –

2008

Executive

RJ September 7,155 – – –

Total 7,155 – – –

Non-executive

At March 31, 2008 there were no non-executive directors’ shareholdings.

2007

Non-executive

TF Mosololi 455 – – –

Total 455 – – –

The directors’ shareholding changed between the balance sheet date and the date of issue of the financial statements and this has been

reflected in the above information.

2007 2008 2009

Rm Rm Rm

Directors’ emoluments 7 36 20

Executive

For services as directors 4 31 15

Non-executive






40. DIRECTORS’ INTEREST (continued)Directors’ emoluments (continued)

Performance Fringe andFees Remuneration bonus other benefits Total

R R R R R

2009Emoluments per director:Non-executive 5,028,084 – – – 5,028,084

ST Arnold 1,030,000 – – – 1,030,000 B du Plessis 498,000 – – – 498,000 PSC Luthuli 642,000 – – – 642,000 KST Matthews 441,000 – – – 441,000 B Molefe 159,551 – – – 159,551 AG Rhoda 124,001 – – – 124,001 RJ Huntley 533,000 – – – 533,000 Dr E Spio-Garbrah** 622,750 – – – 622,750 Dr VB Lawrence** 359,000 – – – 359,000 DD Barber 293,667 – – – 293,667 PG Joubert 302,778 – – – 302,778

Executive – 4,530,912 2,289,947 7,848,357 14,669,216

RJ September CEO* – 3,555,800 1,841,396 7,430,452 12,827,648 PG Nelson CFO* – 975,112 448,551 417,905 1,841,568

Total emoluments – paid by Telkom 5,005,747 4,530,912 2,289,947 7,848,357 19,674,963


ST Arnold 1,124,373 – – – 1,124,373 B du Plessis 393,967 – – – 393,967 MJ Lamberti – – – – – PSC Luthuli 502,117 – – – 502,117 TD Mahloele 357,684 – – – 357,684 KST Matthews 501,217 – – – 501,217 TF Mosololi 174,960 – – – 174,960 M Mostert*** 229,433 – – – 229,433 DD Tabata 250,583 – – – 250,583 YR Tenza 305,633 – – – 305,633 PL Zim 5,333 – – – 5,333 B Molefe 20,497 – – – 20,497 A Rhoda 14,286 – – – 14,286 RJ Huntley 193,833 – – – 193,833 Dr E Spio-Garbrah** 273,841 – – – 273,841 Dr VB Lawrence** 286,176 – – – 286,176

Executive – 14,489,833 3,436,308 13,244,896 31,171,037

R September* – 2,453,757 3,436,308 13,218,772 19,108,837

CEO – 1,016,524 3,436,308 10,438,538 14,891,370 Acting CEO – 1,437,233 – 2,780,234 4,217,467

LRR Molotsane* – 12,036,076 – 26,124 12,062,200






40. DIRECTORS’ INTEREST (continued)Directors’ emoluments (continued)


R R R R R

2007

Emoluments per director:

Non-executive 2,641,168 – – – 2,641,168

NE Mtshotshisa 463,050 – – – 463,050

ST Arnold 353,719 – – – 353,719

TCP Chikane 32,670 – – – 32,670

B du Plessis 213,367 – – – 213,367

PSC Luthuli 205,417 – – – 205,417

TD Mahloele 166,667 – – – 166,667

KST Matthews 109,643 – – – 109,643

TF Mosololi 214,417 – – – 214,417

M Mostert 232,417 – – – 232,417

DD Tabata 175,367 – – – 175,367

YR Tenza 321,767 – – – 321,767

PL Zim 152,667 – – – 152,667

Executive – 2,272,785 – 1,653,202 3,925,987

LRR Molotsane* – 2,272,785 – 1,653,202 3,925,987

Total emoluments – paid by Telkom 2,641,168 2,272,785 – 1,653,202 6,567,155

*Included in fringe and other benefits is a pension contribution for LRR Molotsane of RNil (2008: R4,690; 2007: R295,462), RJ September of R462,254(2008: R280,261; 2007: RNil) and PG Nelson of R125,765 (2008: RNil; 2007: RNil) at March 31, 2009 paid to the Telkom Retirement Fund.

** Foreign directors.

*** In the absence of an internal corporate finance division, and pending the structuring and staffing thereof, the Telkom Board resolved that it was in the

best interest of the Company and shareholders to deploy the highest quality skills currently resident in Telkom, to evaluate, structure and make

recommendations to the Board on major transactions. During 2008, Dr Mostert led all efforts in this regard and was remunerated accordingly. Moreover,

in compliance with the principles of good governance, the Board took legal advice and established that there was no conflict of interest arising out of

this involvement in the transaction evaluated.





2007 2008 2009Rm Rm Rm

41. SEGMENT INFORMATIONEliminations represent the inter-segmental transactions that have been

eliminated against segment results. The mobile segment represents the

Group’s joint venture Vodacom.

Business segment

Consolidated operating revenue 32,441 33,611 35,940

Fixed-line 32,345 32,572 33,659

Elimination (772) (830) (817)


Other 873 1,040 1,214

Elimination (5) (16) (16)

Discontinued operations 19,178 22,674 26,174

Mobile 20,573 24,089 27,594

Elimination (1,494) (1,519) (1,531)

Other 106 108 123


Consolidated other income 338 472 343



Other 50 61 64

Discontinued operations 46 62 129

Mobile 42 56 119

Other 4 6 10

Consolidated operating expenses 23,028 25,014 29,895

Fixed-line 24,083 24,962 29,849

Elimination (1,505) (1,709) (3,624)


Elimination – 56 469

Other 512 928 801



Mobile 15,185 17,898 21,704

Elimination (745) (805) (876)

Other 77 245 607






2007 2008 2009Rm Rm Rm

41. SEGMENT INFORMATION (continued)Consolidated operating profit 9,751 9,069 6,388

Fixed-line 8,596 8,107 4,334

Elimination 687 793 2,562

Multi-Links – (97) (522)

Elimination – (56) (469)

Other 411 173 477

Elimination 57 149 6


Mobile 5,430 6,247 6,009

Elimination (749) (714) (655)

Other 33 (131) (474)


Consolidated investment income 199 168 181

Fixed-line 3,041 3,975 2,807

Elimination (2,850) (3,832) (2,646)

Multi-Links – 7 5

Other 8 18 15


Mobile 37 27 33

Other – 2 2

Consolidated finance charges 857 1,556 2,843

Fixed-line 857 1,277 1,464

Multi-Links – (4) 1,201


Other – 318 353



Mobile 269 240 921

Other – 7 1

Consolidated taxation 2,803 2,647 1,660

Fixed-line 2,652 2,630 560

Elimination – – 825

Multi-Links – (131) 141

Elimination – – (24)

Other 151 148 158





2007 2008 2009Rm Rm Rm

41. SEGMENT INFORMATION (continued)Discontinued operations 1,928 2,057 2,021

Mobile 1,918 2,055 2,023

Other 10 2 (2)

Minority interests 94 123 26

Multi-Links – 12 (96)

Other 94 111 122


Mobile 109 73 51

Other – 1 –

Profit attributable to equity holders of Telkom 6,196 4,911 2,040

Fixed-line 8,128 8,175 5,117

Elimination (2,163) (3,039) (909)

Multi-Links – 33 (1,763)


Other 174 (386) (141)



Mobile 3,171 3,906 3,047

Elimination (749) (714) (655)

Other 23 (139) (471)


Consolidated assets 57,426 68,259 59,712

Fixed-line 44,224 47,829 54,593

Elimination (1,547) (1,604) (1,167)

Mobile 14,026 16,743 –

Elimination (353) (278) –

Multi-Links – 2,451 5,834


Other 1,188 3,283 1,285

Elimination (112) (165) 27

Disposal group – – 23,215

Mobile 23,412

Elimination (269)

Other 94

Elimination (22)





2007 2008 2009Rm Rm Rm

41. SEGMENT INFORMATION (continued)Investments 1,461 1,499 1,383

Fixed-line 1,621 4,917 10,910

Elimination (341) (3,607) (9,540)

Mobile 181 176 –

Other – 13 13

Disposal group – –

Mobile 194

Other financial assets 259 614 1,202

Fixed-line 230 445 1,200

Mobile 28 169 –

Other 1 – 2

Disposal group

Mobile – – 73

Total assets 59,146 70,372 85,779

Consolidated liabilities 15,951 19,689 14,247

Fixed-line 10,154 11,892 13,002

Elimination (458) (495) (514)



Mobile 7,416 8,871 –

Elimination (1,468) (1,542) –

Other 374 332 165

Elimination (67) (8) 295


Mobile 9,611

Elimination (1,128)

Other 15

Interest-bearing debt 10,364 15,733 18,275

Fixed-line 9,082 13,362 17,704

Mobile 1,278 1,815 –


Other 4 24 21


Mobile 7,052

Other –





2007 2008 2009Rm Rm Rm

41. SEGMENT INFORMATION (continued)Other financial liabilities 229 1,290 228


Mobile 158 204 –

Other 13 919 2

Disposal group

Mobile – – 48

Taxation liabilities 594 323 50

Fixed-line – 7 12

Mobile 556 290 –

Other 38 26 38

Disposal group – – 275

Mobile 275

Other –


Other segment information

Capital expenditure for property, plant and equipment 8,648 10,108 8,725

Fixed-line 5,545 6,044 5,866

Mobile 3,069 2,475 –

Multi-Links – 1,312 2,754

Other 34 277 105


Mobile 2,979

Other 34

Capital expenditure for intangible assets 1,598 1,791 906

Fixed-line 1,049 749 824

Mobile 539 985 –

Multi-Links – – 37

Other 10 57 45

Disposal group – – 590

Mobile 590

Other –

Depreciation and amortisation 3,316 3,621 4,458

Fixed-line 3,298 3,470 4,037



Other 18 32 50






2007 2008 2009Rm Rm Rm

41. SEGMENT INFORMATION (continued)Discontinued operations 1,703 1,980 2,373

Mobile 1,681 1,955 2,341

Other 22 25 32

Impairment and asset write-offs 284 514 822



Other – 229 39


Mobile 12 15 57

Other – – –

Workforce reduction expense – Fixed-line 24 3 8

Geographical segment

Consolidated operating revenue 32,441 33,611 35,940

South Africa 32,428 32,671 33,847

Other African countries 29 956 2,093

Elimination (16) (16) –

Disposal group 19,178 22,674 26,174

South Africa 17,130 19,997 22,298

Other African countries 2,070 2,697 3,932


Consolidated operating profit 9,751 9,069 6,388

South Africa 9,744 9,254 7,435

Other African countries 18 (169) (533)


Disposal group 4,719 5,413 5,089

South Africa 4,622 5,089 4,726

Other African countries 276 414 400


Consolidated assets 59,146 70,372 62,297

South Africa 56,797 63,772 57,056

Other African countries 3,489 8,785 6,101

Eliminations (1,140) (2,185) (860)





2007 2008 2009Rm Rm Rm

41. SEGMENT INFORMATION (continued)Disposal group – – 23,482

South Africa 20,693

Other African countries 9,597

Elimination (6,808)

Capital expenditure for property, plant and equipment and intangible assets 10,246 11,899 9,631

South Africa 9,459 9,780 6,735

Other African countries 787 2,119 2,896


South Africa 2,443

Other African countries 1,213

Elimination (53)

’South Africa’, which is also the country of domicile for Telkom, comprises the segment information relating to Telkom and its South African

subsidiaries as well as Vodacom’s South African-based mobile communications network, the segment information of its service providers is

included in the disposal group.

‘Other African countries’ comprises Telkom’s subsidiaries Africa Online Limited and Multi-Links Telecommunications Limited as well as

Vodacom’s mobile communications network in Tanzania, Lesotho, the Democratic Republic of the Congo and Mozambique.





42. RELATED PARTIESDetails of material transactions and balances with related parties not disclosed separately in the consolidated annual financial statementswere as follows:

2007 2008 2009Rm Rm Rm

With joint venture:Vodacom Group (Proprietary) LimitedRelated party balancesTrade receivables 61 51 61 Trade payables (353) (346) (325)

Related party transactionsRevenue (755) (816) (891)Expenses 1,494 1,525 1,533 Audit fees 3 3 2 Revenue includes interconnect fees and lease and installation of transmission lines.Expenses mostly represent interconnect expenses.

With shareholders:Public Investment CorporationThere were no material transactions between Telkom and thePublic Investment Corporation.

GovernmentRelated party balancesTrade receivables 271 326 386

Related party transactionsRevenue (2,458) (2,623) (2,767)

With entities under common control:Major public entitiesRelated party balancesTrade receivables 59 28 52 Trade payables (6) (25) (3)

The outstanding balances are unsecured and will be settled in cash in the ordinary course of business.

Related party transactionsRevenue (435) (486) (446)Expenses 238 243 212 Rent received (29) (21) (20)Rent paid 27 22 19

Key management personnel compensation:(Including directors’ emoluments)Related party transactionsShort-term employee benefits 116 155 62 Post-employment benefits 4 4 6 Termination benefits – 27 –Equity compensation benefits 8 29 39 Other long-term benefits 17 – –

The fair value of the shares that vested in the current year is R11 million (2008: R12 million; 2007: RNil).

Terms and conditions of transactions with related partiesThe sales to and purchases from related parties of telecommunication services are made at arm’s length prices. Except as indicated above,outstanding balances at the year end are unsecured, interest-free and settlement occurs in cash. Apart from the bank guarantee to theamount not exceeding R23 million provided to Africa Online Limited, there have been no guarantees provided or received for related partyreceivables or payables.





43. INTEREST IN MATERIAL SUBSIDIARIESCountry of incorporation: RSA – Republic of South Africa; TZN – Tanzania; LES – Lesotho; MZ – Mozambique; DRC – Democratic Republicof Congo; MAU – Mauritius; NIG – Nigeria; GUE – Guernsey.

Nature of business: C – Cellular; S – Satellite; MSC – Management services company; PROP – Property company; OTH – Other.

* Dormant at March 31, 2008.

Interest in issued

Issued share capital ordinary share capital

Country of 2007 2008 2009 2007 2008 2009

incorporation % % %

Directory advertising

Trudon (Proprietary) Limited (formerly trading as TDS Directory

Operations (Proprietary) Limited) RSA R100,000 R100,000 R100,000 64.9 64.9 64.9

Other group entities

Rossal No 65 (Proprietary) Limited RSA R100 R100 R100 100 100 100

Acajou Investments (Proprietary) Limited RSA R100 R100 R100 100 100 100

Africa Online Limited MAU US$1,000 US$1,000 US$1,000 100 100 100

Multi-Links Telecommunications Limited NIG – NGN300,000,000 NGN300,000,000 – 75 100

Telkom Management Services (Proprietary) Limited RSA – – R100 – – 100

Intekom (Proprietary) Limited RSA R10,001,000 R10,001,000 R10,001,000 100 100 100

Q-Trunk (Proprietary) Limited RSA R10,001,000 R10,001,000 R10,001,000 100 100 100

Telkom International (Proprietary) Limited RSA R100 R100 R100 100 100 100

The aggregate net loss of the nine subsidiaries is

R2,168 million (2008: R186 million) and profit of

(2007: R564 million)

Disposal group

Telkom Media (Proprietary) Limited RSA R100 R100 R100 100 100 100

Swiftnet (Proprietary) Limited RSA R25,000,000 R5,000,000 R5,000,000 100 100 100

Vodacom has an interest in the following companies

(Group share: 50% of the interest in ordinary share

capital as indicated):

Cellular network operators

Vodacom (Proprietary) Limited (C) RSA R100 R100 R100 100 100 100

Vodacom Lesotho (Proprietary) Limited (C) LES M4,180 M4,180 M4,180 88.3 88.3 88.3

Vodacom Tanzania Limited (C) TZN TZS10,000 TZS10,000 TZS10,000 65 65 65

VM, S.A.R.L. (C) MZ US$60,000,000 US$60,000,000 US$60,000,000 98 90 90

Vodacom Congo (RDC) s.p.r.l. (C) DRC US$1,000,000 US$1,000,000 US$1,000,000 51 51 51

Service providers

Vodacom Service Provider Company (Proprietary) Limited (C) RSA R20 R20 R20 100 100 100

Smartphone SP (Proprietary) Limited (C)* RSA R20,000 R20,000 R20,000 70 100 100

Smartcom (Proprietary) Limited (C)* RSA R1,000 R1,000 R1,000 61.7 100 100

Cointel VAS (Proprietary) Limited (C)* RSA R10,204 R10,204 R10,204 70 100 100

Other significant subsidiaries of the Group’s Joint Venture

Vodacom Service Provider Holdings Company (Proprietary)

Limited (MSC)* RSA R1,020 R1,023 R1,023 100 100 100

Vodacom Satellite Services (Proprietary) Limited (OTH)* RSA R100 R100 R100 100 100 100

GSM Cellular (Proprietary) Limited (OTH)* RSA R1,200 R1,200 R1,200 100 100 100

Vodacom Venture No.1 (Proprietary) Limited (OTH)* RSA R810 R810 R810 100 100 100

Vodacom Equipment Company (Proprietary) Limited (OTH)* RSA R100 R100 R100 100 100 100

Vodacare (Proprietary) Limited* (OTH) RSA R100 R100 R100 100 100 100





43. INTEREST IN MATERIAL SUBSIDIARIES (continued)Interest in issued

Issued share capital ordinary share capital

Country of 2007 2008 2009 2007 2008 2009

incorporation % % %

Vodacom International Holdings (Proprietary) Limited (MSC) RSA R100 R100 R100 100 100 100

Vodacom International Limited (MSC) MAU US$100 US$100 US$100 100 100 100

Vodacom Properties No.1 (Proprietary) Limited (PROP) RSA R100 R100 R100 100 100 100

Vodacom Properties No.2 (Proprietary) Limited (PROP) RSA R1,000 R1,000 R1,000 100 100 100

Stand 13 Eastwood Road Dunkeld West (Proprietary)

Limited (PROP) RSA R100 – – 70 – –

Ithuba Smartcall (Proprietary) Limited (OTH) RSA R100 – – 36.4 – –

Smartcall Smartlife (Proprietary) Limited (OTH) RSA R100 – – 63 – –

Vodacom Tanzania Limited (Zanzibar) (OTH)* TZN TZS10,000 TZS10,000 TZS10,000 99 99 99

Joycell Shops (Proprietary) Limited (OTH)* RSA R100 R100 R100 100 100 100

Marble Gold Investments (Proprietary) Limited (OTH) * RSA R100 R100 R100 100 100 100

Vodacom Ventures (Proprietary) Limited (OTH) RSA R120 R120 R120 100 100 100

Skyprops 134 (Proprietary) Limited (PROP) RSA R100 R100 R100 100 100 100

Storage Technology Services (Proprietary) Limited RSA – – R136 – – 51

Gateway Telecommunications Plc UK – – £49,567,569 – – 100

Gateway Communications Africa (UK) Limited UK – – £1 – – 100

Gateway Communications SA BLG – – e62,000 – – 100

Gateway Telecoms Integrated Services Limited NIG – – NGN1,250,000 – – 100

GS Telecom Limited GUE – – US$193 – – 100

Indebtedness of Telkom subsidiary companies Rm Rm Rm

Intekom (Proprietary) Limited RSA – – – – – (23)

Q-Trunk (Proprietary) Limited RSA – – – 30 26 22

Rossal No 65 (Proprietary) Limited RSA – – – – 30 (342)

Acajou Investments (Proprietary) Limited RSA – – – – – 285

Africa Online Limited MAU – – – – 74 236

Multi-Links Telecommunications Limited NIG – – – – 841 5,225

Telkom International (Proprietary) Limited RSA – – – – 1,985 1,985

Disposal group

Swiftnet (Proprietary) Limited RSA – – – – – 10

Telkom Media (Proprietary) Limited RSA – – – – 326 470





44. SIGNIFICANT EVENTSTelkom RenaissanceOn November 14, 2008, Telkom’s Board of directors approved the new organisation structure which is designed to fit Telkom’s defendand growth strategy. The new structure is effective April 1, 2009 and is being managed through a project called Telkom Renaissance.

The Group has been restructured into three operating Business Units namely Telkom South Africa, Telkom International and Telkom DataCentre Operations. The Telkom Renaissance initiative will occur over the next 24 months to ensure that all the necessary remodelling,reorganising, revitalising and re-engineering happens in order to make the new structure function optimally.

This initiative is a complete transformation of the way Telkom focuses on servicing its customers and creating value for its stakeholders. It isa positive, purposeful change towards a more accountable and competitive company. This change is a necessary part of Telkom’s strategyto maintain and grow market share in South Africa whilst building a strong footprint on the African continent.

Capability ManagementTelkom will seek to manage costs and address service delivery constraints by realigning its structure and resources to better match itstransforming information, communications and technology business.

The transformation of the communications industry and increasing market and competitive pressure has put communication companies suchas Telkom under increasing revenue and expense constraints while being required to improve customer service. As a result CapabilityManagement is designed to ensure that the capabilities needed to succeed in a converged communications market are established throughthe optimal utilisation of external as well as internal capabilities, extracting efficiencies, where possible, through scale of a rapidly maturingretail and wholesale market and better organised functional areas in a more deregulated and liberalised communications market.Capability Management includes the internal consolidation of certain functional areas and the optimisation of strategic supplier and serviceprovider relationships improving performance in other functional areas.

Capability Management will be concerned with assisting in addressing the margin and service delivery pressures by reassessing theoperational service delivery methodology currently deployed with a view of increasing flexibility, reducing expense while improving servicedelivery across the Telkom Group.

Given the challenges Telkom faces in rolling out broadband, converged and data services, maintaining our legacy network and expandingour operations across the African continent, employees’ skills and performance must be aligned with our strategy to ensure financial,operational and transformational targets, customer expectations and shareholder expectations are met.

The immediate objective therefore is to remodel service delivery. This is one of the strategic initiatives under Project Renaissance and willfocus on the following:

• Identify and assess existing capabilities;

• Establish a Telkom Group Capability Inventory;

• Determine future capability requirements;

• Identify and develop a set of optimal service delivery options for achieving current and future strategic objectives; and

• Enable Telkom South Africa, Telkom International and Telkom Data Centre Operations to:– Improve resource efficiency;– Improve capital productivity; and– Improve service delivery.

A memorandum of understanding was entered into between Telkom and organised labour which included issues such as the deferment ofthe Managed Services Partner outsourcing project implementation post April 2009 and the establishment of a Restructuring Forum whereall restructuring initiatives will be debated between the parties concerned.

Telkom Management Services (Proprietary) Limited (TMS)TMS was registered as a company during August 2008. Telkom’s Board approved the establishment of TMS as a part of Telkom’s strategicplan to grow revenue and expand geographic reach.

Appointment of directorOn November 10, 2008 Telkom announced the appointment of Mr Peter Nelson as Chief Financial Officer and director in Telkom witheffect from December 8, 2008.





45. SUBSEQUENT EVENTSDividendsThe Telkom Board declared an ordinary dividend of 115 cents (2008: 660 cents, 2007: 600 cents) per share and a special dividendof 260 cents (2008: Nil cents, 2007: 500 cents) per share on June 19, 2009, payable on July 20, 2009 to shareholders registered onJuly 17, 2009.

Acquisition of MWEB Africa Limited and majority equity stake in MWEB Namibia (Proprietary) LimitedOn November 10, 2008, Telkom International (Proprietary) Limited, a wholly owned subsidiary of Telkom, announced it has entered intoagreements to acquire 100% of MWEB Africa Limited ("MWEB Africa") and 75% of MWEB Namibia (Proprietary) Limited (“MWEB Namibia”). The purchase price for the MWEB Africa Group including AFSAT and MWEB Namibia is US$55 million(approximately R498 million) with a deferred payment of US$14.18 million due when the profits of MWEB Group for the year endedMarch 31, 2009 are finalised. These shareholdings will be acquired from Multichoice Africa Limited and MIH Holdings Limitedrespectively, which are members of the Naspers Limited Group.

MWEB Africa is an internet services provider in sub-Saharan Africa (excluding South Africa) which also provides network access servicesin some countries and is headquartered in Mauritius with operations in Namibia, Nigeria, Kenya, Tanzania, Uganda and Zimbabwe, anagency arrangement in Botswana and distributors in 26 sub-Saharan African countries.

The acquisition of MWEB is part of the Group’s strategy of growing its broadband and solidifying its market position through acquisitions.

Based on an independent valuation, the MWEB Africa Group does not have any significant contingent liabilities at acquisition date.

The only possible contingent liability, the AFSAT bonus scheme, is reasonably quantified and included in the balance sheet of MWEB AfricaGroup at March 31, 2009.

The purchase price of US$69.168 million was determined as follows:

• Namibian cash-generating unit for US$1.5 million;

• Mauritian cash-generating unit for US$53.5 million; and

• US$14.18 million deferred until the profits of the MWEB Group for the year ended March 31, 2009 are finalised.

The successful conclusion of the agreements being entered into is subject to conditions precedent, including regulatory approvals beingobtained in certain African jurisdictions.

Subsequent to year end, on April 21, 2009, the conditions precedent to the sale were fulfilled.

The acquisition will have the following effect on the Group’s assets and liabilities on acquisition:Carrying amounts Fair values

Rm Rm

Fixed assets 43 43Intangible assets 138 209Deferred taxation asset 2 2Cash and cash equivalents 75 75Trade and other receivables 26 26Inventory 16 16Deferred taxation liability (18) (19)Taxation (4) (4)Trade and other payables (69) (69)

Fair value of net assets acquired 209 279Minority interests (2) (2)

Net asset value 207 277Goodwill on acquisition – 352

Purchase price* – 629Capitalised transaction costs – 3

Total cash consideration – 632

* Of the R629 million purchase price, R498 million has been settled. The outstanding amount of US$14.18 million (approximately R105 million) is deferred

payment.





45. SUBSEQUENT EVENTS (continued)The goodwill from the acquisition is partially attributable to the following:

• Certain licences that could not be valued separately from the MWEB Group as no secondary licensing market exists, but contribute

significantly to goodwill as the MWEB business’s would cease to exist without the licence rights.

• The skills and technical talent of the acquired business’s workforce, and the synergies expected to be achieved from integrating the

acquiree into the Group’s existing internet service provision.

• The goodwill is also attributable to the MWEB Group’s position as Africa’s largest satellite-based internet service provider in Sub-Saharan

Africa.

There was RNil revenue in the consolidated annual financial statements.

AT&T strategic agreement

On April 16, 2009, Telkom and AT&T, the global communications leader, entered into a strategic agreement which aims to extend AT&T’s

global networking reach to sub-Saharan Africa and boost Telkom’s strategy to grow a strong ICT footprint on the African continent. The

agreement will allow both companies to explore ways to provide global seamless communication and technology solutions and services

to multinational customers, either based in or seeking to extend their operations in sub-Saharan Africa.

Under the terms of the memorandum of understanding, the two companies will begin work towards definitive agreements that would:

• directly connect the Telkom regional network and the AT&T global network;

• deliver a wider geographic footprint of telecommunication services, in both sub-Saharan Africa and other global points;

• enhance mobile service capabilities for corporate customers in sub-Saharan Africa;

• extend global VPN (Virtual Private Network) services to support the state of art network requirements of customers either headquarteredin or seeking to expand sites in sub-Saharan Africa;

• explore other potential opportunities in areas such as Telepresence, hosting and professional services; and

• expand the existing global wholesale voice services relationship between Telkom Group and AT&T.

Telkom Media (Proprietary) Limited (Telkom Media)

On August 31, 2006 Telkom created a new subsidiary, Telkom Media (Proprietary) Limited, with a black economic empowerment (’BEE’)

shareholding. ICASA awarded Telkom Media a commercial satellite and cable subscription broadcast licence on September 12, 2007.

On March 31, 2008, the Telkom Board took a decision to substantially reduce its investment in Telkom Media and as such Telkom Media

reduced its operational expenses and commitments to a minimum. Telkom Media did not meet the held for sale criteria at year end as

management were unable to sell the disposal group for its expected price and therefore decided to abandon it.

Subsequent to year end Telkom was approached by potential buyers of Telkom’s interest in Telkom Media and negotiations with the potential

buyer were concluded. On May 4, 2009, Telkom sold its 75% interest in Telkom Media to Shenzhen Media South Africa (Proprietary)

Limited for a nominal amount.

Disposal and unbundling of stake in Vodacom

In 2008 Telkom announced a decision to dispose of its entire shareholding in Vodacom through selling 15% of its shareholding to

Vodafone, a wholly owned subsidiary of Vodafone Group plc, and unbundling its remaining 35% shareholding to its shareholders pursuant

to a listing of Vodacom on the main board of JSE Limited.

On May 18, 2009 Vodacom was successfully listed on the main board of JSE Limited and a special divided of R19 was distributed to all

Telkom shareholders. Telkom successfully completed the unbundling of Vodacom shares to its shareholders on May 25, 2009.





45. SUBSEQUENT EVENTS (continued)Bookbuilding of Vodacom Group (Proprietary) Limited shares

On June 2, 2009 Telkom announced the successful completion of the accelerated bookbuilding of Vodacom shares, raising R1,540 million

for "ineligible shareholders". The directors of Telkom, in consultation with Vodafone, determined that Telkom shareholders in the United States

of America would be regarded as "ineligible shareholders" for the unbundling of Vodacom shares to shareholders of Telkom, which was

completed on May 25, 2009, and would therefore not receive Vodacom shares in such distributions.

The proceeds from the offering, net of applicable fees, expenses, taxes and charges, will be distributed to the "ineligible shareholders" in

proportion to their entitlement to Vodacom shares.

New York Stock Exchange listing

Given the current global economic climate and the absolute necessity for Telkom to reduce its cost profile, the Board has decided to delist

from the New York Stock Exchange. Maintaining a listing in the United States of America is expensive and takes considerable management

time. The methodology employed and discipline gained from Sarbanes-Oxley reporting requirements will be retained to ensure strict

governance compliance and transparent financial reporting.

Telkom is comfortable that the Johannesburg Stock Exchange provides sufficient access to capital for both South African and global

investors. Telkom intends to maintain a level 1 American Depository Receipt programme to facilitate over-the-counter- trading in the United

States of America.

Telkom Communications International (Proprietary) Limited

The Abacus Financial Services (Mauritius) Limited issued a notice under section 265 (5) of the Companies Act 1984 that Telkom

Communications International (Proprietary) Limited has been dissolved with effect from May 12, 2009.

Other matters

The directors are not aware of any other matter or circumstance since the financial year ended March 31, 2009 and the date of this

report, or otherwise dealt with in the financial statements, which significantly affects the financial position of the Group and the results of

its operations.

46. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTEDThe Group has not early adopted the following standards, interpretations and amendments that have been issued and are not yet effective:

IFRS1 First-time Adoption of International Financial Reporting Standards: Cost of an Investment in a Subsidiary, Jointly Controlled Entity

or Associate (amended)

This amendment is effective for annual periods beginning on or after January 1, 2009. This standard is amended to allow an entity, in its

separate financial statements, to determine the cost of investments in subsidiaries, jointly controlled entities or associates (in its opening IFRS

financial statements) as one of the following amounts:

• Cost determined in accordance with IAS27

• At the fair value of the investment at the date of the transition to IFRS, determined in accordance with IAS39 Financial Instruments:

Recognition and Measurement

• The previous GAAP carrying amount of the investment at the date of transition to IFRS

This determination is made for each investment, rather than being a policy decision.

The amendment does not have an impact on the annual financial statements.





46. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)IFRS2 Share-Based Payment: Vesting Conditions and Cancellations (amended)

This amendment is effective for annual periods beginning on or after January 1, 2009. The amendments to IFRS2 Share-Based Payment

clarifies the definition of vesting conditions and the accounting treatment of cancellations by the counterparty to a share-based arrangement.

The amendment will not have a material impact on the consolidated financial statements.

IFRS2 Share-Based Payment: Group Cash-Settled Share-Based Payment Arrangements (amended)

This amendment is effective for annual periods beginning on or after January 1, 2010. The amendment clarifies how an individual

subsidiary in a group should account for some share-based payment arrangements in its own financial statements. The amendment will not

have a material impact on the Company’s/Group’s financial statements.

IFRS3 Business Combinations (revised)

The revisions are effective for annual periods beginning on or after 1 July 2009 .The revised standard still applies the acquisition method

of accounting for business combinations, with some significant changes. For example, all payments to purchase a business are to be

recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income

statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair

value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed.

The impact of the revised standard is being evaluated.

IFRS7 Financial Instruments: Disclosures (amended)

The interpretation is applicable for annual periods beginning on or after January 1, 2009. The amendment requires enhanced disclosures

about fair value measurements and liquidity risk. The impact of the amendment is being evaluated.

IFRS8 Operating Segments

This standard is effective for annual periods beginning on or after January 1, 2009. The standard requires operating segments to be

identified on the basis of internal reports about components of the entity that are regularly reviewed by the chief operating decision maker

in order to allocate resources to the segment and to assess its performance. The impact of this standard is currently being evaluated.

IFRIC9 Reassessment of Embedded Derivatives (amended)

The amendment is effective for annual periods ending on or after June 30, 2009. The amendment clarifies that on reclassification of a

financial asset out of the ’fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary,

separately accounted for in financial statements. The amendment will not have an impact on the consolidated financial statements as the

Group does not have material embedded derivatives.

IFRIC13 Customer Loyalty Programmes

The interpretation is effective for annual periods beginning on or after July 1, 2008. The interpretation requires loyalty award credits granted

to customers in connection with a sales transaction to be accounted for as a separate component of the sales transaction. The consideration

received in the sales transaction would, therefore, be allocated between the loyalty award credits and the other components of the sale.

The interpretation is not relevant to the Group’s operations because none of the Group entities operate any loyalty programmes.

Where the cost of fulfilling the awards is expected to exceed the consideration received, the Group will have to recognise an onerous

contract liability. The impact of this interpretation is being evaluated.

IFRIC15 Agreements for the Construction of Real Estate

The interpretation is effective for annual periods beginning on or after January 1, 2009. The aim of this interpretation is to determine

whether an agreement for the construction of real estate is within the scope of IAS11 Construction Contracts or IAS18 Revenue.

This interpretation is not relevant to the Group’s operations as the Group does not construct real estates.





46. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)IFRIC16 Hedges of a Net Investment in a Foreign Operation

The interpretation is effective for annual periods beginning on or after October 1, 2008. The interpretation provides guidance in respect

of hedges of foreign currency gains and losses on a net investment in a foreign operation. This includes the fact that net investment hedging

relates to differences in functional currency and not presentation currency, and hedging instruments may be held anywhere in the Group.

The interpretation will not have an impact on the consolidated annual financial statements.

IFRIC17 Distributions of Non-Cash Assets to Owners

The interpretation is effective for annual periods beginning on or after July 1, 2009. The interpretation provides guidance on how an entity

should account for non-cash distributions to its owners and/or distributions that give owners a choice of receiving either non-cash assets or

a cash alternative. The impact of this interpretation is being evaluated.

IFRIC18 Transfer of Assets from Customers

The interpretation is effective for annual periods beginning on or after July 1, 2009. The interpretation clarifies the requirements of IFRSs

for agreements in which an entity receives from a customer an item of property, plant and equipment (’PPE’) that the entity must then use

either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services. The

interpretation also provides guidance where an entity receives cash from a customer that must be used only to acquire or construct an item

of PPE in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services. The

impact of this interpretation is currently being evaluated.

IAS1 Presentation of Financial Statements (revised)

The revised standard is effective for annual periods beginning on or after January 1, 2009.

IAS1R introduces a statement of comprehensive income with two optional formats and refers to the balance sheet and cash flow statement

by different names: the ’statement of financial position’ and ’statement of cash flows’, respectively. The revision to the standard will result in

changes in the way the consolidated annual financial statements are presented.

IAS7 Cash Flow Statement: Consequential Amendments Arising from Amendments to IAS16

The amendment is effective for annual periods beginning on or after January 1, 2009. IAS7 as amended requires cash receipts and

payments relating to purchase, rental and sale of property, plant and equipment held for rental to be treated as cash flows from operating

activities. The impact of this amendment is being evaluated.

IAS23 Borrowing Costs (revised)

The revised standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or

after January 1, 2009. The revised standard requires all borrowing costs that are directly attributable to the acquisition, construction or

production of qualifying assets to be capitalised. The Group does not expect the adoption of the standard to have a material impact.

IAS27 Consolidated and Separate Financial Statements (revised)The revisions are effective for annual periods beginning on or after July 1, 2009. The revised standard requires the effects of all transactionswith non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwillor gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured tofair value, and a gain or loss is recognised in profit or loss. The impact of the revised standard is being evaluated.

IAS27 Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

(amended)

The amended standard is effective for annual periods beginning on or after January 1, 2009. The amended standard is for the following

changes in respect of the holding company’s separate financial statements:

• The deletion of the ’cost method’. Making the distinction between pre- and post- acquisition profits is no longer required. All dividends

will be recognised in profit or loss. However, the payment of such dividends requires the entity to consider whether there is an indicator

of impairment; and

• In cases of reorganisations where a new parent is inserted above an existing parent of the group (subject to meeting specific

requirements), the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary rather than its fair

value. The impact of this amended standard is currently being evaluated.





46. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)Amendment to IAS32 Financial Instruments Presentation and IAS1 Presentation of Financial Statements, Puttable Financial Instruments

The amendment is effective for periods beginning January 1, 2009. The amendments classify puttable financial instruments, or components

of instruments, that impose on the entity an obligation to deliver to another party a pro-rata share of the net assets of the entity only on

liquidation, as equity, provided they have particular features and meet specific conditions. The impact of this amendment is being

evaluated.

IAS39 Financial Instruments: Recognition and Measurement (amended)


financial asset out of the ’fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary,

separately accounted for in financial statements. The amendment will not have an impact on the financial statements as Telkom does not

have material embedded derivatives.

IAS39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items (amended)

The amendment to the standard is effective for annual periods beginning on or after July 1, 2009. The amendment clarifies that an entity

is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. The

amendment will not have an impact on the financial statements as Telkom does not apply hedge accounting.

Changes as a result of the annual improvements project

A number of standards were amended as a result of the annual improvements project of the IASB in May 2008 effective for annual periods

beginning on or after January 1, 2009, with the exception of IFRS5 which is effective for annual periods beginning on or after July 1,

2009. These standards were as follows:

IFRS5 Non-Current Assets Held for Sale and Discontinued Operations

IAS1 Presentation of Financial Statements – Non-Current/Current Classification of Derivatives

IAS16 Property, Plant and Equipment

IAS19 Employee Benefits

IAS20 Government Grants

IAS23 Borrowing Costs – Components of Borrowing Costs

IAS27 Consolidated and Separate Financial Statements

IAS28 Investments in Associates

IAS29 Financial Reporting in Hyperinflationary Economies

IAS31 Interests in Joint Ventures

IAS36 Impairment of Assets

IAS38 Intangible Assets


IAS40 Investment Property

IAS41 Agriculture

The Group will adopt the changes to these standards during the 2010 financial year with the exception of IFRS5, which will be adopted

during the 2011 financial year. The Group is currently evaluating the effects of the improvements.



fixedTelkom fins (group) NEW 8/12/09 6:29 PM Page 248

fixedbbuussiinneessss sshhoowwssrreessiilliieennccee

Company financial statementsCompany income statement 250Company balance sheet 251Company statement of changes in equity 252Company cash flow statement 253Notes to the Company annual financial statements 254

CompanyFinancial

Information6



2007 2008 2009

Notes Rm Rm Rm

Total revenue 3.1 35,818 36,641 37,058

Operating revenue 3.2 32,340 32,571 33,659

Other income 4 655 498 524

Operating expenses 24,089 24,953 29,837

Employee expenses 5.1 7,077 7,386 7,990

Payments to other operators 5.2 6,461 6,902 7,536

Selling, general and administrative expenses 5.3 3,970 3,904 6,580

Service fees 5.4 2,236 2,410 2,760

Operating leases 5.5 762 619 613

Depreciation, amortisation, impairment and write-offs 5.6 3,583 3,732 4,358

Operating profit 8,906 8,116 4,346

Investment income 6 3,202 3,739 2,907

Finance charges and fair value movements 7 1,027 1,289 1,460

Interest 1,142 1,499 1,655

Foreign exchange and fair value movement gain (115) (210) (195)

Profit before taxation 11,081 10,566 5,793

Taxation 8 2,690 2,599 516


Company income statementfor the three years ended March 31, 2009

Telkom fins (company) NEW 8/12/09 6:58 PM Page 250


2007 2008 2009

Notes Rm Rm Rm

ASSETSNon-current assets 37,533 43,360 50,796

Property, plant and equipment 9 32,614 35,273 37,345

Intangible assets 10 3,502 3,806 3,988

Investments 11 887 3,883 7,693

Finance lease receivables 13 136 160 166

Deferred taxation 14 340 183 1,549

Deferred expenses 25 54 55 55

Current assets 7,754 8,763 10,090

Inventories 15 839 873 1,331

Income tax receivable 31 519 – 91

Current portion of finance lease receivables 13 71 105 109

Trade and other receivables 17 5,920 6,859 6,420

Other financial assets 18 229 443 1,198

Cash and cash equivalents 19 176 483 941

Assets held for sale and discontinued operations 16 – – 34

Total assets 45,287 52,123 60,920

EQUITY AND LIABILITIESCapital and reserves 25,714 26,693 29,086

Share capital 20 5,329 5,208 5,208

Treasury share reserve 21 (1,778) (1,642) (1,521)

Share-based compensation reserve 22 257 643 1,076

Retained earnings 21,906 22,484 24,323

Non-current liabilities 6,580 11,181 14,766

Interest-bearing debt 23 3,308 7,336 10,193

Provisions 24 1,203 1,445 1,830

Deferred revenue 26 739 870 996

Deferred taxation 14 1,330 1,530 1,747

Current liabilities 12,993 14,249 17,068

Trade and other payables 27 4,333 4,923 5,424

Shareholders for dividend 32 15 20 23

Current portion of interest-bearing debt 23 5,775 6,026 7,511

Current portion of provisions 24 1,706 1,640 1,953

Current portion of deferred revenue 26 1,107 1,424 1,826

Income tax payable 31 – 7 –

Other financial liabilities 18 57 168 225

Credit facilities utilised 19 – 41 106


Total equity and liabilities 45,287 52,123 60,920

Company balance sheetat March 31, 2009



Treasury Share-based

Share Share share compensation Retained

capital premium reserve reserve earnings Total

Rm Rm Rm Rm Rm Rm

Balance at April 1, 2006 5,449 1,342 (1,786) 151 18,534 23,690

Total income and expense for the year – – – – 8,391 8,391

Dividend declared (refer to note 32) – – – – (4,885) (4,885)

Payment made for treasury shares – – (27) – – (27)

Increase in share-based compensation

reserve (refer to note 22) – – – 141 – 141

Shares vested and re-issued (refer to

note 22) – – 35 (35) – –

Shares bought back and cancelled

(refer to note 20) (120) (1,342) – – (134) (1,596)

Balance at March 31, 2007 5,329 – (1,778) 257 21,906 25,714






note 22) – – 136 (136) – –

Shares bought back and cancelled

(refer to note 20) (121) – – – (1,526) (1,647)

Balance at March 31, 2008 5,208 – (1,642) 643 22,484 26,693






note 22) – – 121 (121) – –

Balance at March 31, 2009 5,208 – (1,521) 1,076 24,323 29,086

Company statement of changes in equityfor the three years ended March 31, 2009



Restated Restated

2007 2008 2009

Notes Rm Rm Rm

Cash flows from operating activities 6,383 8,172 9,948

Cash receipts from customers 32,109 32,375 34,239

Cash paid to suppliers and employees (19,449) (19,713) (22,212)

Cash generated from operations 28 12,660 12,662 12,027

Interest received 385 390 343

Dividends received 29 2,950 3,536 3,242

Finance charges paid 30 (886) (842) (466)

Taxation paid 31 (3,852) (1,716) (1,764)

Cash generated from operations before dividend paid 11,257 14,030 13,382

Dividend paid 32 (4,874) (5,858) (3,434)

Cash flows from investing activities (6,662) (9,994) (12,129)

Proceeds on disposal of property, plant and equipment and

intangible assets 4 164 21

Additions to property, plant and equipment and intangible

assets (6,598) (6,763) (6,428)

Expansions to property, plant and equipment and intangible

assets (2,409) (4,142) (3,344)

Maintenance to property, plant and equipment and

intangible assets (3,189) (2,621) (3,084)

Acquisition of subsidiary and minority interest in subsidiary 11 (150) – (1,339)

Loans to subsidiaries – (3,395) (4,383)

Loans repaid by subsidiaries 82 – –

Cash flows from financing activities (2,777) 2,088 2,574

Loans raised 5,624 23,878 18,168

Loans repaid (6,843) (20,204) (14,649)

Shares bought back and cancelled (1,596) (1,647) –

Decrease/(increase) in net financial assets 38 61 (945)

Net (decrease)/increase in cash and cash equivalents (3,056) 266 393

Net cash and cash equivalents at beginning of the year 3,232 176 442

Net cash and cash equivalents at end of the year 19 176 442 835

Company cash flow statementfor the three years ended March 31, 2009



1. CORPORATE INFORMATIONTelkom SA Limited (the Company) is a company incorporated

and domiciled in the Republic of South Africa (’South Africa’)

whose shares are publicly traded. The Company’s main

objective and main business is to supply telecommunication,

broadcasting, multimedia, technology, information and other

related information technology services to the general public.

The principal activities of the Company’s services and products

include:

• fixed-line subscription and connection services to post-paid,

prepaid and private payphone customers using PSTN (Public

Switched Telephone Network) lines, including ISDN

(Integrated Service Digital Network) lines, and the sale of

subscription based value-added voice services and customer

premises equipment rental and sales;

• fixed-line traffic services to post-paid, prepaid and payphone

customers, including local, long distance, fixed-to-mobile,

international outgoing and international voice-over-internet

protocol traffic services;

• interconnection services, including terminating and transiting

traffic from South African mobile operators, as well as from

international operators and transiting traffic from mobile to

international destinations;

• fixed-line data and internet services, including domestic and

international data transmission services, such as point-to-point

leased lines, ADSL (Asymmetrical Digital Subscriber Line)

services, packet-based services, managed data networking

services and internet access and related information

technology services; and

• W-CDMA (Wideband Code Division Multiple Access), a

3G next generation network, including fixed voice services,

data services and nomadic voice services.

These separate annual financial statements are prepared in

compliance with the South African Companies Act, 1973. In

addition, the Group presents consolidated financial statements

which include all subsidiaries, special purpose entities and joint

ventures, which are included in these financial statements as

investments.

2. SIGNIFICANT ACCOUNTING POLICIESBasis of preparation

The financial statements comply with the International Financial

Reporting Standards (IFRS) of the International Accounting

Standards Board (IASB) and the Companies Act of South Africa,

1973.

The financial statements are prepared on the historical cost

basis, with the exception of certain financial instruments which

are measured at fair value and share-based payments which are

measured at grant date fair value. Details of the Company’s

significant accounting policies are set out below, and are

consistent with those applied in the previous financial year

except for the following:

• The Company has adopted certain amendments to IAS39

and IFRS7, and adopted IFRIC12 and IFRIC14, which

are applicable for annual periods beginning on or after

January 1, 2008.

The principal effects of these changes are discussed below.

Adoption of amendments to standards and new

interpretations


and IFRS7 Financial Instruments: Disclosures –

Reclassification of Financial Assets (amended)

The amendments which are effective on or after July 1, 2008,

permit an entity to reclassify non-derivative financial assets (other

than those designated at fair value through profit or loss by the

entity upon initial recognition) out of the fair value through profit

or loss category in particular circumstances. The amendments

also permit an entity to transfer from the available-for-sale

category to the loans and receivables category a financial asset

that would have met the definition of loans and receivables (if

the financial asset had not been designated as available-for-

sale), if the entity has the intention and ability to hold that

financial asset for the foreseeable future. The amendments do

not have an impact on the annual financial statements.

IFRIC12 Service Concession Arrangements

The interpretation which is effective for annual periods

beginning on or after January 1, 2008, sets out general

principles on recognising and measuring the obligations and

related rights in service concession arrangements from an

operator’s perspective. This interpretation does not have an

impact on the annual financial statements.

IFRIC14 The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and their Interaction

The interpretation which is effective for annual periods

beginning on or after January 1, 2008, provides guidance on

assessing the limit in IAS19 on the amount of the surplus that can

be recognised as an asset. It also explains how the pension

asset or liability may be affected by a statutory or contractual

minimum funding requirement. This interpretation does not have

any impact on the annual financial statements, as the Company

is not subject to minimum funding requirements.

Notes to the annual financial statements for the three years ended March 31, 2009




assumptions

The preparation of financial statements requires the use of

estimates and assumptions that affect the reported amounts of

assets and liabilities and disclosure of contingent assets and

liabilities at the date of the financial statements and the reported

amounts of revenue and expenses during the reporting periods.

Although these estimates and assumptions are based on

management’s best knowledge of current events and actions that

the Company may undertake in the future, actual results may

ultimately differ from those estimates and assumptions.

The presentation of the results of operations, financial position

and cash flows in the financial statements of the Company is

dependent upon and sensitive to the accounting policies,

assumptions and estimates that are used as a basis for the

preparation of these financial statements. Management has

made certain judgements in the process of applying the

Company’s accounting policies. These, together with the key

estimates and assumptions concerning the future, and other key

sources of estimation uncertainty at the balance sheet date, are

as follows:

Revenue recognition

To reflect the substance of each transaction, revenue recognition

criteria are applied to each separately identifiable component

of a transaction. In order to account for multiple-element revenue

arrangements in developing its accounting policies, the

Company considered the guidance contained in the United

States Financial Accounting Standards Board (FASB) Emerging

Issues Task Force No 00-21 Revenue Arrangements with

Multiple Deliverables. Judgement is required to separate those

revenue arrangements that contain the delivery of bundled

products or services into individual units of accounting, each

with its own earnings process, when the delivered item has

stand-alone value and the undelivered item has fair value.

Further judgement is required to determine the relative fair values

of each separate unit of accounting to be allocated to the total

arrangement consideration. Changes in the relative fair values

could affect the allocation of arrangement consideration

between the various revenue streams.

Judgement is also required to determine the expected customer

relationship period. Any changes in these assessments may

have a significant impact on revenue and deferred revenue.

Property, plant and equipment and intangible assets

The useful lives of assets are based on management’s

estimation. Management considers the impact of changes in

technology, customer service requirements, availability of

capital funding and required return on assets and equity to

determine the optimum useful life expectation for each of the

individual categories of property, plant, equipment and

intangible assets. Due to the rapid technological advancement

in the telecommunications industry as well as the Company’s

plan to migrate to a next generation network over the next few

years, the estimation of useful lives could differ significantly on

an annual basis due to unexpected changes in the roll-out

strategy. The impact of the change in the expected useful life of

property, plant and equipment is described more fully in note

5.6. The estimation of residual values of assets is also based on

management’s judgement whether the assets will be sold or

used to the end of their useful lives and what their condition will

be like at that time.

For intangible assets that incorporate both a tangible and

intangible portion, management uses judgement to assess which

element is more significant to determine whether it should be

treated as property, plant and equipment or intangible assets.

Asset retirement obligations

Management judgement is exercised when determining whether

an asset retirement obligation exists, and in determining the

present value of expected future cash flows and discount rate

when the obligation to dismantle or restore the site arises, as

well as the estimated useful life of the related asset.


intangible assets

Management is required to make judgements concerning the

cause, timing and amount of impairment as indicated on notes

9 and 10. In the identification of impairment indicators,

management considers the impact of changes in current

competitive conditions, cost of capital, availability of funding,

technological obsolescence, discontinuance of services and

other circumstances that could indicate that an impairment

exists. The Company applies the impairment assessment to its

separate cash-generating units. This requires management to

make significant judgements concerning the existence of

impairment indicators, identification of separate cash-generating

units, remaining useful lives of assets and estimates of projected

cash flows and fair value less costs to sell. Management

judgement is also required when assessing whether a previously

recognised impairment loss should be reversed.

Notes to the annual financial statements (continued)





assumptions (continued)


intangible assets (continued)

Where impairment indicators exist, the determination of the

recoverable amount of a cash-generating unit requires

management to make assumptions to determine the fair value

less costs to sell and value in use. Key assumptions on which

management has based its determination of fair value less costs

to sell include the existence of binding sale agreements, and for

the determination of value in use include the weighted average

cost of capital, projected revenues, gross margins, average

revenue per customer, capital expenditure, expected customer

bases and market share. The judgements, assumptions and

methodologies used can have a material impact on the fair

value and ultimately the amount of any impairment.

Impairment of other financial assets

At each balance sheet date management assesses whether

there are indicators of impairment of financial assets, including

equity investments. If such evidence exists, the estimated present

value of the future cash flows of that asset is determined.

Management judgement is required when determining the

expected future cash flows. To determine whether any decline in

fair value of available-for-sale investments is prolonged, reliance

is placed on an assessment by management regarding the

future prospects of the investee. In measuring impairments,

quoted market prices are used, if available, or projected

business plan information from the investee is used for those

financial assets not carried at fair value.

Impairment of receivables

An impairment is recognised on trade receivables that are

assessed to be impaired (refer to notes 12 and 17). The

impairment is based on an assessment of the extent to which

customers have defaulted on payments already due and an

assessment on their ability to make payments based on their

credit worthiness and historical write-offs experience. Should the

assumptions regarding the financial condition of the customer

change, actual write-offs could differ significantly from the

impaired amount.

Leases

The determination of whether an arrangement is, or contains a

lease is based on whether, at the date of inception, the fulfilment

of the arrangement is dependent on the use of a specific asset

or assets or the arrangement conveys a right to use the asset.

Leases in which a significant portion of the risks and rewards of

ownership are retained by the lessor are classified as operating

leases. Payments made under operating leases (net of any

incentives received from the lessor) are charged to the income

statement on a straight-line basis over the period of the lease.


all the risks and rewards incidental to ownership.

Deferred taxation assetManagement judgement is exercised when determining theprobability of future taxable profits which will determine whetherdeferred tax assets should be recognised or derecognised. Therealisation of deferred tax assets will depend on whether it ispossible to generate sufficient taxable income, taking intoaccount any legal restrictions on the length and nature of thetaxation asset. When deciding whether to recognise unutilisedtaxation credits, management needs to determine the extent thatthe future obligation is likely to be available for set-off. In theevent that the assessment of future payments and future utilisationchanges, the change in the recognised deferred tax asset mustbe recognised in profit or loss.

TaxationThe taxation rules and regulations in South Africa within whichthe Company operates are highly complex and subject tointerpretation. Additionally, for the foreseeable future,management expects South African taxation laws to furtherdevelop through changes in South Africa’s existing taxationstructure as well as clarification of the existing taxation lawsthrough published interpretations and the resolution of actual taxcases (refer to notes 8 and 14).

Management has made a judgement that all outstandingtaxation credits relating to secondary taxation on companies(STC) will be available for utilisation before the taxation regimechange, from STC to withholding taxation, is effective.

The Company is regularly subject to evaluation by the SouthAfrican taxation authorities of its historical income taxation filingsand in connection with such reviews disputes can arise with thetaxing authorities over the interpretation or application of certaintaxation rules to the business of the Company. These disputesmay not necessarily be resolved in a manner that is favourablefor the Company. Additionally the resolution of the disputescould result in an obligation for the Company that exceedsmanagement’s estimate. The Company has historically filed,and continues to file, all required income taxation returns.Management believes that the principles applied in determiningthe Company’s taxation obligations are consistent with theprinciples and interpretations of the South African taxation laws.

Deferred taxation rateManagement makes judgements on the taxation rate applicablebased on the Company’s expectations at balance sheet date onhow the asset is expected to be recovered or the liability isexpected to be settled.






assumptions (continued)Employee benefitsThe Company provides defined benefit plans for certain post-employment benefits. The Company’s net obligation in respectof defined benefits is calculated separately for each plan byestimating the amount of future benefits earned in return forservices rendered. The obligation and assets related to each ofthe post-retirement benefits are determined through an actuarialvaluation. The actuarial valuation relies heavily on assumptionsas disclosed in note 25. The assumptions determined bymanagement make use of information obtained from theCompany’s employment agreements with staff and pensioners,market related returns on similar investments, market relateddiscount rates and other available information. The assumptionsconcerning the expected return on assets and expected changein liabilities are determined on a uniform basis, consideringlong-term historical returns and future estimates of returns andmedical inflation expectations. In the event that further changesin assumptions are required, the future amounts of post-employment benefits may be affected materially.

The discount rate reflects the average timing of the estimateddefined benefit payments. The discount rate is based on long-term South African government bonds with the longest maturityperiod as reported by the Bond Exchange of South Africa. Thediscount rate is expected to follow the trend of inflation.

The overall expected rate of return on assets is determinedbased on the market prices prevailing at that date, applicableto the period over which the obligation is to be settled.

Telkom provides equity compensation to its employees in theform of the Telkom Conditional Share Plan. The related expenseand reserve are determined through an actuarial valuationwhich relies heavily on assumptions. The assumptions includeemployee turnover percentages and whether specifiedperformance criteria will be met. Changes to these assumptionscould affect the amount of expense ultimately recognised in thefinancial statements. An actuarial valuation relies heavily on theactual plan experience assumptions as disclosed in note 25.

Provisions and contingent liabilitiesManagement judgement is required when recognising andmeasuring provisions and when measuring contingent liabilitiesas set out in notes 24 and 35 respectively. The probability thatan outflow of economic resources will be required to settle theobligation must be assessed and a reliable estimate must bemade of the amount of the obligation. Provisions are discountedwhere the effect of discounting is material based onmanagement’s judgement. The discount rate used is the rate thatreflects current market assessments of the time value of money

and, where appropriate, the risks specific to the liability, all ofwhich requires management judgement. The Company isrequired to recognise provisions for claims arising from litigationwhen the occurrence of the claim is probable and the amountof the loss can be reasonably estimated. Liabilities provided forlegal matters require judgements regarding projected outcomesand ranges of losses based on historical experience andrecommendations of legal counsel. Litigation is howeverunpredictable and actual costs incurred could differ materiallyfrom those estimated at the balance sheet date.

Held-to-maturity financial assetsManagement has reviewed the Company’s held-to-maturityfinancial assets in the light of its capital management andliquidity requirements and has confirmed the Company’s positiveintention and ability to hold those assets to maturity.

Summary of significant accounting policiesOperating revenueThe Company provides fixed-line and data communicationservices and communication-related products. The Companyprovides such services to business, residential and payphonecustomers. Revenue represents the fair value of fixed ordeterminable consideration that has been received or is receivable.

Revenue for services is measured at amounts invoiced tocustomers and excludes Value Added Tax.

Revenue is recognised when there is evidence of an arrangement,collectability is probable, and the delivery of the product orservice has occurred. In certain circumstances, revenue is split intoseparately identifiable components and recognised when therelated components are delivered in order to reflect the substanceof the transaction. The value of components is determined usingverifiable objective evidence. The Company does not providecustomers with the right to a refund.

Dealer incentivesThe Company provides incentives to its retail payphone carddistributors as trade discounts. Incentives are based on salesvolume and value. Revenue for retail payphone cards is recordedas traffic revenue, net of these discounts as the cards are used.

Subscriptions, connections and other usageThe Company provides telephone and data communicationservices under post-paid and prepaid payment arrangements.Revenue includes fees for installation and activation, which aredeferred and recognised over the expected customerrelationship period. Costs incurred on first time installations thatform an integral part of the network are capitalised anddepreciated over the expected average customer relationshipperiod. All other installation and activation costs are expensedas incurred.





2. SIGNIFICANT ACCOUNTING POLICIES (continued)Summary of significant accounting policies (continued)Operating revenue (continued)Subscriptions, connections and other usage (continued)Post-paid and prepaid service arrangements includesubscription fees, typically monthly fees, which are recognisedover the subscription period.

Revenue related to sale of communication equipment, productsand value-added services is recognised upon delivery andacceptance of the product or service by the customer.

Traffic (domestic, fixed-to-mobile and international)PrepaidPrepaid traffic service revenue collected in advance is deferredand recognised based on actual usage or upon expiration ofthe usage period, whichever comes first. The terms andconditions of certain prepaid products allow the carry over ofunused minutes. Revenue related to the carry over of unusedminutes is deferred until usage or expiration.

PayphonesPayphone service coin revenue is recognised when the serviceis provided.

Payphone service card revenue collected in advance is deferredand recognised based on actual usage or upon expiration ofthe usage period, whichever comes first.

Post-paidRevenue related to local, long distance, network-to-network,roaming and international call connection services is recognisedwhen the call is placed or the connection provided.

InterconnectionInterconnection revenue for call termination, call transit andnetwork usage is recognised as the traffic flow occurs.

DataThe Company provides data communication services underpost-paid and prepaid payment arrangements. Revenueincludes fees for installation and activation, which are deferredover the expected average customer relationship period. Costsincurred on first time installations that form an integral part of thenetwork are capitalised and depreciated over the life of theexpected average customer relationship period. All otherinstallation and activation costs are expensed as incurred. Post-paid and prepaid service arrangements include subscriptionfees, typically monthly fees, which are recognised over thesubscription period.

Directory services

Included in other revenue are directory services. Revenue is

recognised when printed directories are released for

distribution, as the significant risks and rewards of ownership

have been transferred to the buyer. Electronic directories’

revenue is recognised on a monthly basis, as earned.

Sundry revenue

Sundry revenue is recognised when the economic benefit flows

to the Company and the earnings process is complete.

Interest on debtors’ accounts

Interest is raised on overdue accounts by using the effective

interest rate method and recognised in the income statement.

Marketing

Marketing costs are recognised as an expense as incurred.

Incentives

Incentives paid to service providers and dealers for products

delivered to the customer are expensed as incurred. Incentives

paid to service providers and dealers for services delivered are

expensed in the period that the related revenue is recognised.

Distribution incentives paid to service providers and dealers for

exclusivity are deferred and expensed over the contractual

relationship period.

Investment income

Dividends from investments are recognised on the date that the

Company is entitled to the dividend. Interest is recognised on a

time proportionate basis taking into account the principal

amount outstanding and the effective interest rate.

Taxation

Current taxation

The charge for current taxation is based on the results for the

year and is adjusted for non-taxable income and non-deductible

expenditure. Current taxation is measured at the amount

expected to be paid to the taxation authorities, using taxation

rates and laws that have been enacted or substantively enacted

by the balance sheet date.

Deferred taxation

Deferred taxation is accounted for using the balance sheet

liability method on all temporary differences at the balance

sheet date between taxation bases of assets and liabilities and

their carrying amounts for financial reporting purposes.






Taxation (continued)

Deferred taxation (continued)

Deferred taxation is not provided on the initial recognition of

goodwill or initial recognition of assets or liabilities which is not

a business combination and at the time of the transaction affects

neither accounting nor taxable profit or loss.

A deferred taxation asset is recognised to the extent that it is

probable that future taxable profits will be available against

which the associated unused taxation losses, unused taxation

credits and deductible temporary differences can be utilised.

The carrying amount of deferred taxation assets is reviewed at

each balance sheet date and is reduced to the extent that it is

no longer probable that the related taxation benefit will be

realised. In respect of deductible temporary differences

associated with investments in subsidiaries, associates and

interest in joint ventures, deferred income tax assets are

recognised only to the extent that it is probable that temporary

differences will reverse in the foreseeable future and taxable

profit will be available against which temporary differences can

be utilised.

Deferred taxation relating to items recognised directly in equity

is recognised in equity and not in the income statement.

Deferred taxation assets and liabilities are measured at the

taxation rates that are expected to apply to the period when the

asset is realised or the liability is settled, based on taxation rates

(and taxation laws) that have been enacted or substantively

enacted by the balance sheet date.

Deferred taxation assets and deferred taxation liabilities are

offset, if a legally enforceable right exists to set off current

taxation assets against current taxation liabilities and the

deferred taxes relate to the same taxable entity and the same

taxation authority.

Secondary taxation on companies

Secondary taxation on companies (’STC’) is provided for at a

rate of 10% (12.5% before October 1, 2007) on the amount

by which dividends declared by the Company exceed

dividends received. Deferred taxation on unutilised STC credits

is recognised to the extent that STC payable on future dividend

payments is likely to be available for set-off.

Property, plant and equipment

At initial recognition acquired property, plant and equipment

are recognised at their purchase price, including import duties

and non-refundable purchase taxes, after deducting trade

discounts and rebates. The recognised cost includes any directly

attributable costs for preparing the asset for its intended use.

The cost of an item of property, plant and equipment is

recognised as an asset if it is probable that the future economic

benefits associated with the item will flow to the Company and

the cost of the item can be measured reliably.

Property, plant and equipment is stated at historical cost less

accumulated depreciation and any accumulated impairment

losses. Each component of an item of property, plant and

equipment with a cost that is significant in relation to the total

cost of the item is depreciated separately. Depreciation is

charged from the date the asset is available for use on a

straight-line basis over the estimated useful life and ceases at the

earlier of the date that the asset is classified as held for sale or

the date the asset is derecognised. Idle assets continue to attract

depreciation.

The estimated useful life of individual assets and the

depreciation method thereof are reviewed on an annual basis

at balance sheet date. The depreciable amount is determined

after taking into account the residual value of the asset. The

residual value is the estimated amount that the Company would

currently obtain from the disposal of the asset, after deducting

the estimated cost of disposal, if the asset were already of the

age and in the condition expected at the end of its useful life.

The residual values of assets are reviewed on an annual basis

at balance sheet date.

Assets under construction represents freehold buildings,

operating software, network and support equipment and

includes all direct expenditure as well as related borrowing

costs capitalised, but excludes the costs of abnormal amounts of

waste material, labour or other resources incurred in the

production of self-constructed assets.

Freehold land is stated at cost and is not depreciated. Amounts

paid by the Company on improvements to assets which are held

in terms of operating lease agreements are depreciated on a

straight-line basis over the shorter of the remaining useful life of

the applicable asset or the remainder of the lease period.

Where it is reasonably certain that the lease agreement will be

renewed, the lease period equals the period of the initial

agreement plus the renewal periods.






Property, plant and equipment (continued)The estimated useful lives assigned to groups of property, plantand equipment are:

Years

Freehold buildings 15 to 40Leasehold buildings 7 to 25Network equipment:

Cables 20 to 40Switching equipment 2 to 18Transmission equipment 5 to 18Other 1 to 20

Support equipment 5 to 13Furniture and office equipment 2 to 15Data processing equipment and software 3 to 10

Other 2 to 20

An item of property, plant and equipment is derecognised upondisposal or when no future economic benefits are expected fromits use or disposal. Any gain or loss arising on derecognition ofthe asset (calculated as the difference between the net disposalproceeds and the carrying amount of the asset) is included inthe income statement in the year the asset is derecognised.

Assets held under finance leases are depreciated over theirexpected useful lives on the same basis as owned assets or,where shorter, the term of the relevant lease if there is noreasonable certainty that the Company will obtain ownership bythe end of the lease term.

Intangible assetsAt initial recognition acquired intangible assets are recognised attheir purchase price, including import duties and non-refundablepurchase taxes, after deducting trade discounts and rebates. Therecognised cost includes any directly attributable costs for preparingthe asset for its intended use. Internally generated intangible assetsare recognised at cost comprising all directly attributable costsnecessary to create and prepare the asset to be capable ofoperating in the manner intended by management. Licences,software, trademarks, copyrights and other intangible assets arecarried at cost less accumulated amortisation and any accumulatedimpairment losses. Amortisation commences when the intangibleassets are available for their intended use and is recognised on astraight-line basis over the assets’ expected useful lives. Amortisationceases at the earlier of the date that the asset is classified as heldfor sale and the date that the asset is derecognised.

The residual value of intangible assets is the estimated amountthat the Company would currently obtain from the disposal ofthe asset, after deducting the estimated cost of disposal, if theasset were already of the age and in the condition expected at

the end of its useful life. Due to the nature of the asset theresidual value is assumed to be zero unless there is acommitment by a third party to purchase the asset at the end ofits useful life or when there is an active market that is likely toexist at the end of the asset’s useful life, which can be used toestimate the residual values. The residual values of intangibleassets and their useful lives are reviewed on an annual basis atbalance sheet date.

Intangible assets with indefinite useful lives and intangible assetsnot yet available for use are tested for impairment annuallyeither individually or at the cash-generating unit level. Suchintangibles are not amortised. The useful life of an intangibleasset with an indefinite life is reviewed annually to determinewhether indefinite life assessment continues to be supportable. Ifnot, the change in the useful life assessment from indefinite tofinite is made on a prospective basis.

Assets under construction represent application and other non-integral software and includes all direct expenditure as well asrelated borrowing costs capitalised, but excludes the costs ofabnormal amounts of waste material, labour or other resourcesincurred in the production of self-constructed assets.

Intangible assets are derecognised when they have beendisposed of or when the asset is permanently withdrawn from useand no future economic benefit is expected from its disposal. Anygains or losses on the retirement or disposal of assets arerecognised in the income statement in the year in which they arise.

The expected useful lives assigned to intangible assets are:

Years

Licences 5 to 30Software 2 to 10Trademarks, copyrights and other including FIFA brand 1 to 15

Asset retirement obligationsAsset retirement obligations related to property, plant andequipment and intangible assets are recognised at the presentvalue of expected future cash flows when the obligation todismantle or restore the site arises. The increase in the relatedasset’s carrying value is depreciated over its estimated usefullife. The unwinding of the discount is included in financecharges and fair value movements. Changes in themeasurement of an existing liability that result from changes inthe estimated timing or amount of the outflow of resourcesrequired to settle the liability, or a change in the discount rate,are accounted for as increases or decreases to the original costof the recognised assets. If the amount deducted exceeds thecarrying amount of the asset, the excess is recognisedimmediately in profit and loss.






Non-current assets held for sale

Non-current assets and disposal groups are classified as held

for sale if their carrying amount will be recovered through a sale

transaction rather than through continuing use. This condition is

regarded as met only when the sale is highly probable and the

asset (or disposal group) is available for immediate sale in its

present condition. Management must be committed to the sale,

which should be expected to qualify for recognition as a

complete sale within one year from the date of classification.

Assets are no longer depreciated when they are classified into

this category.

Non-current assets (and disposal groups) classified as held for

sale are measured at the lower of the assets’ previous carrying

amount and fair value less costs to sell.

Impairment of property, plant and equipment and

intangible assets

The Company regularly reviews its non-financial assets and

cash-generating units for any indication of impairment. When

indicators, including changes in technology, market, economic,

legal and operating environments occur and could result in

changes of the asset’s or cash-generating unit’s estimated

recoverable amount, an impairment test is performed.

The recoverable amount of assets or cash-generating units is

measured using the higher of the fair value less costs to sell and

its value in use, which is the present value of projected cash

flows covering the remaining useful lives of the assets.

Impairment losses are recognised when the asset’s carrying

value exceeds its estimated recoverable amount. Where

applicable, the recoverable amount is determined for the cash-

generating unit to which the asset belongs.

Previously recognised impairment losses are reviewed annually

for any indication that it may no longer exist or may have

decreased. If any such indication exists, the recoverable amount

of the asset is estimated. Such impairment losses are reversed

through the income statement if the recoverable amount has

increased as a result of a change in the estimates used to

determine the recoverable amount, but not to an amount higher

than the carrying amount that would have been determined (net

of depreciation or amortisation) had no impairment loss been

recognised in prior years.

Repairs and maintenance

The Company expenses all costs associated with repairs and

maintenance, unless it is probable that such costs would result in

increased future economic benefits flowing to the Company,

and the costs can be reliably measured.

Borrowing costs

Financing costs directly associated with the acquisition or

construction of assets that require more than three months to

complete and place in service are capitalised at interest rates

relating to loans specifically raised for that purpose, or at the

weighted average borrowing rate where the general pool of

Company borrowings was utilised. Other borrowing costs are

expensed as incurred.

Deferred revenue and expenses

Activation revenue and costs are recognised in accordance with

the principles contained in Emerging Issues Task Force Issue

No 00-21, Revenue Arrangements with Multiple Deliverables

(’EITF 00-21’), issued in the United States. This results in

activation revenue and costs up to the amount of the deferred

revenue being deferred and recognised systematically over the

expected duration of the customer relationship because it is

considered to be part of the customers’ ongoing rights to

telecommunication services and the operator’s continuing

involvement. Any excess of the costs over revenues is expensed

immediately.

Subsidiaries and joint venture

Investments in subsidiaries, special purpose entities and joint

ventures are carried at cost and adjusted for any impairment

losses.

Inventories

Installation material, maintenance and network equipment

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

weighted average basis and estimated net realisable value.

Merchandise inventories are stated at the lower of cost,

determined on a first-in first-out (’FIFO’) basis and estimated net

realisable value. Write-down of inventories arises when, for

example, goods are damaged or when net realisable value is

lower than carrying value.

Financial instruments

Recognition and initial measurement

All financial instruments are initially recognised at fair value,

plus, in the case of financial assets and liabilities not at fair

value through profit or loss, transaction costs that are directly

attributable to the acquisition or issue. Financial instruments are

recognised when the Company becomes a party to their

contractual arrangements. All regular way transactions are

accounted for on settlement date. Regular way purchases or

sales are purchases or sales of financial assets that require

delivery of assets within the period generally established by

regulation or convention in the marketplace.






Financial instruments (continued)

Subsequent measurement

Subsequent to initial recognition, the Company classifies

financial assets as ’at fair value through profit or loss’, ’held-to-

maturity investments’, ’loans and receivables’, or ’available-for-

sale'. Financial liabilities are classified ’at fair value through

profit or loss’ or ’other financial liabilities’. The measurement of

each is set out below and presented in a table in note 12.

The fair value of financial assets and liabilities that are actively

traded in financial markets is determined by reference to quoted

market prices at the close of business on the balance sheet date.

Where there is no active market, fair value is determined using

valuation techniques such as discounted cash flow analysis.

Financial assets at fair value through profit or loss

The Company classifies financial assets that are held for trading

in the category ’financial assets at fair value through profit or

loss’. Financial assets are classified as held for trading if they

are acquired for the purpose of selling in the future. Derivatives

not designated as hedges are also classified as held for trading.

On remeasurement to fair value the gains or losses on held for

trading financial assets are recognised in net finance charges

and fair value movements for the year.

Gains and losses arising from changes in the fair value of the

’financial assets at fair value through profit or loss’ category are

presented in the income statement within ’finance charges and

fair value movements’ in the period which they arise.

Held-to-maturity financial assets

The Company classifies non-derivative financial assets with fixed

or determinable payments and fixed maturity dates as held-to-

maturity when the Company has the positive intention and

ability to hold to maturity. These assets are subsequently

measured at amortised cost. Amortised cost is computed as the

amount initially recognised minus principal repayments, plus or

minus the cumulative amortisation using the effective interest

method. This calculation includes all fees paid or received

between parties to the contract. For investments carried at

amortised cost, gains and losses are recognised in net profit or

loss when the investments are sold or impaired.

Loans and receivables

Loans and receivables are non-derivative financial assets with

fixed or determinable payments that are not quoted in an active

market. Such assets are carried at amortised cost using the

effective interest method. Trade receivables are subsequently

measured at the original invoice amount where the effect of

discounting is not material.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative assets

that are designated as available-for-sale, or are not classified in

any of the three preceding categories. Equity instruments are all

treated as available-for-sale financial instruments. After initial

recognition, available-for-sale financial assets are measured at

fair value, with gains and losses being recognised as a

separate component of equity, net of taxation. Dividend income

is recognised in the income statement as part of other income

when the Company’s right to receive payment is established.

Changes in the fair value of monetary items denominated in a

foreign currency and classified as available-for-sale are

analysed between translation differences resulting from changes

in amortised cost of the security and other changes in carrying

amount of the item. The translation differences on monetary

items are recognised in profit or loss, while translation

differences on non-monetary securities are recognised in equity.

Changes in the fair value of monetary and non-monetary items

classified as available-for-sale are recognised directly in equity.

When an investment is derecognised or determined to be

impaired, the cumulative gain or loss previously recorded in

equity is recognised in profit or loss.

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as ‘at fair value through profit

or loss’ (’FVTPL’) where the financial liability is held for trading.

A financial liability is classified as held for trading:

• if it is acquired for the purpose of settling in the near term; or

• if it is a derivative that is not designated and effective as a

hedging instrument.

Financial liabilities at a FVTPL are stated at fair value, with any

resultant gains or losses recognised in profit or loss. The net gain

or loss recognised in profit or loss incorporates any interest paid

on the financial liability.


Other financial liabilities are subsequently measured at

amortised cost using the effective interest rate method, with

interest expense recognised in finance charges and fair value

movements, on an effective interest rate basis.

The effective interest rate is the rate that accurately discounts

estimated future cash payments through the expected life of the

financial liability or, where appropriate, a shorter period.







Financial guarantee contracts

Financial guarantee contracts are subsequently measured at the

higher of the amount determined in accordance with IAS37

Provisions, Contingent Liabilities and Contingent Assets or the

amount initially recognised less, when appropriate, cumulative

amortisation, recognised in accordance with IAS18 Revenue.

Cash and cash equivalents

Cash and cash equivalents are measured at amortised cost. This

comprises cash on hand, deposits held on call and term

deposits with an initial maturity of less than three months when

entered into.

For the purpose of the cash flow statement, cash and cash

equivalents consist of cash and cash equivalents defined above,

net of credit facilities utilised.

Capital and money market transactions

New bonds and commercial paper bills issued are subsequently

measured at amortised cost using the effective interest rate

method.

Bonds issued where the Company is a buyer and seller of last

resort are carried at fair value. The Company does not actively

trade in bonds.

Derecognition

A financial instrument or a portion of a financial instrument will

be derecognised and a gain or loss recognised when the

Company’s contractual rights expire, financial assets are

transferred or financial liabilities are extinguished. On

derecognition of a financial asset or liability, the difference

between the consideration and the carrying amount on the

settlement date is included in finance charges and fair value

movements for the year. For available-for-sale assets, the fair

value adjustment relating to prior revaluations of assets is

transferred from equity and recognised in finance charges and

fair value movements for the year.

Bonds and commercial paper bills are derecognised when the

obligation specified in the contract is discharged. The difference

between the carrying value of the bond and the amount paid to

extinguish the obligation is included in finance charges and fair


Impairment of financial assets

At each balance sheet date an assessment is made of whether

there are any indicators of impairment of a financial asset or a

group of financial assets based on observable data about one

or more loss events that occurred after the initial recognition of

the asset or the group of assets. In the case of equity securities

classified as available-for-sale, a significant or prolonged

decline in the fair value of the security below its cost is

considered as an indicator that the securities are impaired. For

loans and receivables carried at amortised cost, if there is

objective evidence that an impairment loss has been incurred,

the amount of the loss is measured at the difference between the

asset’s carrying amount and the present value of estimated future

cashflows. The carrying amount of the asset is reduced through

the use of an allowance account and the amount of the loss is

recognised in the income statement.

If any such evidence exists for available-for-sale assets, the

cumulative loss – measured as the difference between the

acquisition cost and the current fair value, less any impairment

loss on that financial asset previously recognised in profit or loss

– is removed from equity and recognised in the income

statement. Impairment losses recognised in the income statement

on equity instruments are not reversed through the income

statement. The recoverable amount of financial assets carried at

amortised cost is calculated as the present value of expected

future cash flows discounted at the original effective interest rate

of the asset.

If, in a subsequent period, the amount of the impairment loss for

financial assets decreases and the decrease can be related

objectively to an event occurring after the impairment was

recognised, the previously recognised impairment loss is

reversed except for those financial assets classified as available-

for-sale and carried at cost that are not reversed. Any

subsequent reversal of an impairment loss is recognised in the

income statement, to the extent that the carrying value of the

asset does not exceed its amortised cost at the reversal date.

Reversals in respect of equity instruments classified as available-

for-sale are not recognised in profit and loss. Reversals of

impairment losses on debt instruments classified as available-for-

sale are reversed through the income statement, if the increase

in fair value of the instrument can be objectively related to an

event occurring after the impairment loss was recognised

through the income statement.

Embedded derivatives

The Company assesses whether an embedded derivative is

required to be separated from the host contract and accounted

for as a derivative when it first becomes party to the contract.

The Company reassesses the contract when there is a change

in the terms of the contract which significantly modifies the cash

flows that would otherwise be required under the contract.







Financial instruments: Disclosures

The Company groups its financial instruments into classes of

similar instruments and where disclosure is required, it discloses

them by class. It also discloses information about the nature and

extent of risks arising from its financial instruments (refer to

note 12).

Foreign currencies

The functional and presentation currency of the Company is the

South African Rand (ZAR).

Transactions denominated in foreign currencies are measured at

the rate of exchange at transaction date. Monetary items

denominated in foreign currencies are remeasured at the rate of

exchange at settlement date or balance sheet date, whichever

occurs first. Exchange differences on the settlement or translation

of monetary assets and liabilities are included in finance

charges and fair value movements in the period in which they

arise. Non-monetary items that are measured in terms of

historical cost in a foreign currency are translated using the

exchange rates as at the dates of the initial transactions. Non-

monetary items measured at fair value in a foreign currency are

translated using the exchange rates at the date when the fair

value is determined.

Treasury shares

Where the Company acquires, or in substance acquires, its

own shares, such shares are measured at cost and disclosed as

a reduction of equity. No gain or loss is recognised in profit or

loss on the purchase, sale, issue or cancellation of the

Company’s own equity instruments. Such shares are not

remeasured for changes in fair value.

Where the Company chooses or is required to buy equity

instruments from another party to satisfy its obligations to its

employees under the share-based payment arrangement by

delivery of its own shares, the transaction is accounted for as

equity-settled. This applies regardless of whether the employee’s

rights to the equity instruments were granted by the Company

itself or by its shareholders or was settled by the Company itself

or its shareholders.

Leases


all the risks and rewards incidental to ownership. All other

leases are classified as operating leases.

Where the Company enters into a service agreement as a

supplier or a customer that depends on the use of a specific

asset, and conveys the right to control the use of the specific

asset, the arrangement is assessed to determine whether it

contains a lease. Once it has been concluded that an

arrangement contains a lease, it is assessed against the criteria

in IAS17 to determine if the arrangement should be recognised

as a finance lease or operating lease.

The land and buildings elements of a lease of land and

buildings are considered separately for the purposes of lease

classification unless it is impractical to do so.

LesseeOperating lease payments are recognised in the income

statement on a straight-line basis over the lease term.

Assets acquired in terms of finance leases are capitalised at the

lower of fair value and the present value of the minimum lease

payments at inception of the lease and depreciated over the

lesser of the useful life of the asset and the lease term. The

capital element of future obligations under the leases is included

as a liability in the balance sheet. Lease finance costs are

amortised in the income statement over the lease term using the

interest rate implicit in the lease. Where a sale and leaseback

transaction results in a finance lease, any excess of sale

proceeds over the carrying amount is deferred and recognised

in the income statement over the term of the lease.

LessorOperating lease revenue is recognised in the income statement

on a straight-line basis over the lease term.

Assets held under a finance lease are recognised in the balance

sheet and presented as a receivable at an amount equal to the

net investment in the lease. The recognition of finance income

is based on a pattern reflecting a constant periodic rate of return

on the net investment in the finance lease.

Employee benefitsPost-employment benefitsThe Company provides defined benefit and defined contribution

plans for the benefit of employees. These plans are funded by

the employees and the Company, taking into account

recommendations of the independent actuaries. The post-

retirement telephone rebate liability is unfunded.

Defined contribution plansThe Company’s funding of the defined contribution plans is

charged to employee expenses in the same year as the related

service is provided.






Employee benefits (continued)

Defined benefit plans

The Company provides defined benefit plans for pension,

retirement, post-retirement medical aid benefits and telephone

rebates to qualifying employees. The Company’s net obligation

in respect of defined benefits is calculated separately for each

plan by estimating the amount of future benefits earned in return

for services rendered.

The amount recognised in the balance sheet represents the

present value of the defined benefit obligations, calculated by

using the projected unit credit method, as adjusted for

unrecognised actuarial gains and losses, unrecognised past

service costs and reduced by the fair value of the related plan

assets. The amount of any surplus recognised and reflected as

a defined benefit asset is limited to unrecognised actuarial

losses and past service costs plus the present value of available

refunds and reductions in future contributions to the plan. To the

extent that there is uncertainty as to the entitlement to the surplus,

no asset is recognised. No gain is recognised solely as a result

of an actuarial loss or past service cost in the current period and

no loss is recognised solely as a result of an actuarial gain or

past service cost in the current period.

Actuarial gains and losses are recognised as employee

expenses when the cumulative unrecognised gains and losses

for each individual plan exceed 10% of the greater of the

present value of the Company’s obligation and the fair value of

plan assets at the beginning of the year. These gains or losses

are amortised on a straight-line basis over 10 years for all the

defined benefit plans, except gains or losses related to the

pensioners in the Telkom Retirement Fund or unless the standard

requires faster recognition. For the Telkom Retirement Fund

pensioners, the cumulative unrecognised actuarial gains and

losses in excess of the 10% corridor at the beginning of the year

are recognised immediately.

Past service costs are recognised immediately to the extent that

the benefits are vested, otherwise they are recognised on a

straight-line basis over the average period the benefits become

vested.

Leave benefits

Annual leave entitlement is provided for over the period that the

leave accrues and is subject to a cap of 22 days.

Workforce reduction

Workforce reduction expenses are payable when employment

is terminated before the normal retirement age or when an

employee accepts voluntary redundancy in exchange for

benefits. Workforce reduction benefits are recognised when the

entity is demonstrably committed and it is probable that the

expenses will be incurred. In the case of an offer made to

encourage voluntary redundancy, the measurement of

termination benefits is based on the number of employees

expected to accept the offer.

Share-based compensation

The grants of equity instruments, made to employees in terms of

the Telkom Conditional Share Plan, are classified as equity-

settled share-based payment transactions. The expense relating

to the services rendered by the employees, and the

corresponding increase in equity, is measured at the fair value

of the equity instruments at their date of grant based on the

market price at grant date, adjusted for the lack of entitlement to

dividends during the vesting period. This compensation cost is

recognised over the vesting period, based on the best available

estimate at each balance sheet date of the number of equity

instruments that are expected to vest.

Short-term employee benefits

The cost of all short-term employee benefits is recognised during

the year the employees render services, unless the Company

uses the services of employees in the construction of an asset

and the benefits received meet the recognition criteria of an

asset, at which stage it is included as part of the related

property, plant and equipment or intangible asset item.

Provisions

Provisions are recognised when the Company has a present

obligation (legal or constructive) as a result of a past event, it is

probable that an outflow of resources will be required to settle

the obligation, and a reliable estimate can be made of the

amount of the obligation. Provisions are reviewed at each

balance sheet date and adjusted to reflect the current best

estimate. Where the effect of the time value of money is

material, the amount of the provision is the present value of the

expenditures expected to be required to settle the obligation.





2007 2008 2009

Rm Rm Rm

3. REVENUE3.1 Total revenue 35,818 36,641 37,058

Operating revenue 32,340 32,571 33,659

Other income (excluding profit on disposal of property, plant and

equipment, intangible assets and investments, refer to note 4) 276 331 492

Investment income (refer to note 6) 3,202 3,739 2,907

3.2 Operating revenue 32,340 32,571 33,659

Subscriptions, connections and other usage 6,286 6,330 6,614

Traffic 16,740 15,949 15,323

Domestic (local and long distance) 7,563 6,327 5,670

Fixed-to-mobile 7,646 7,557 7,420

International (outgoing) 988 986 933

Subscription based calling plans 543 1,079 1,300

Interconnection 1,639 1,757 2,084

Data 7,489 8,308 9,310

Sundry revenue 186 227 328

4. OTHER INCOME 655 498 524

Other income (included in Total revenue, refer to note 3) 276 331 492

Interest received from trade receivables 181 211 214

Other interest 8 37 189

Sundry income 87 83 89

Profit on disposal of property, plant and equipment and intangible

assets 15 167 32

Profit on disposal of investment 364 – –

The increase in the current year’s other interest is a result of the

increase in loans to subsidiaries (refer to note 11).





2007 2008 2009

Rm Rm Rm

5. OPERATING EXPENSESOperating expenses comprise:

5.1 Employee expenses 7,077 7,386 7,990

Salaries and wages 5,076 5,519 5,742

Medical aid contributions 377 407 404

Retirement contributions 439 460 460

Post-retirement pension and retirement fund (refer to note 25) 33 5 29




Actuarial gain (136) (16) –


Asset limitation 322 222 220

Post-retirement medical aid (refer to note 25) 329 277 455










Share-based compensation expense (refer to note 22 and 25) 141 522 554

Other benefits* 1,274 969 1,021

Employee expenses capitalised (696) (800) (736)

* Other benefits include annual leave, performance incentive, service bonuses, skills development and workforce reduction expenses.

5.2 Payments to other operators 6,461 6,902 7,536

Payments to other network operators consist of expenses in

respect of interconnection with other network operators.

5.3 Selling, general and administrative expenses 3,970 3,904 6,580

Selling and administrative expenses 1,329 1,108 3,428

Maintenance 1,900 1,996 2,293

Marketing 604 583 574

Bad debts (refer to note 17) 137 217 285

Included in the current year’s selling and administrative expenses, a total impairment loss of R2,178 million (2008: R229 million;

2007: RNil) has been recognised on investments.





2007 2008 2009

Rm Rm Rm

5. OPERATING EXPENSES (continued)5.4 Service fees 2,236 2,410 2,760

Facilities and property management 1,140 1,221 1,261 Consultancy services 209 160 324 Security and other 833 978 1,122 Auditors’ remuneration 54 51 53

Audit services 53 51 50

Company auditors 47 46 46

Current year 47 43 46 Prior year underprovision – 3 –

Other auditors – current year 6 5 4

Other services 1 – 3

Included in the current year’s consultancy services is an amount of R177 million relating to services rendered in respect of the transaction to dispose of the Company’s stake in Vodacom Group (Proprietary) Limited.

The increase in the current year’s security and other costs is mainly attributable to the new contract negotiated to secure the copper network in the Company’s drive to cutting down on cable thefts.

5.5 Operating leases 762 619 613

Land and buildings 131 142 166 Equipment 79 49 58 Vehicles 552 428 389

5.6 Depreciation, amortisation and write-offs 3,583 3,732 4,358

Depreciation of property, plant and equipment (refer to note 9) 2,994 3,062 3,398 Amortisation of intangible assets (refer to note 10) 305 408 638 Write-offs of property, plant and equipment and intangible assets 284 262 322

Included in the current year’s amortisation of intangible assets is an amount of R134 million relating to the FIFA brand intangible asset.

In recognition of the changed usage patterns of certain items of property, plant and equipment and intangible assets, the Company revised their remaining useful lives as at March 31. The assets affected were individual items of Network equipment, Data processing equipment, Support equipment, Freehold land and buildings and Intangible assets. The revised estimated useful lives of these assets as set out below, resulted in a decrease of the current year depreciation and amortisation charges of R11,4 million (2008: R196 million; 2007: R942 million).

Previous life Revised lifeYears Years

Property, plant and equipmentOther 2 – 15 2 – 20





2007 2008 2009

Rm Rm Rm

6. INVESTMENT INCOME 3,202 3,739 2,907

Interest income 196 142 160

Dividend income from joint venture 2,700 2,970 2,600

Dividend income from subsidiaries 306 627 147

Included in investment income is an amount of R160 million

(2008: R142 million; 2007: R196 million) which relates to

interest earned from financial assets not measured at fair value

through profit or loss.

7. FINANCE CHARGES AND FAIR VALUE MOVEMENTS 1,027 1,289 1,460

Finance charges on interest-bearing debt 1,142 1,499 1,655

Local debt 1,303 1,675 1,818

Finance charges capitalised (161) (176) (163)

Foreign exchange gains and losses and fair value movements (115) (210) (195)

Foreign exchange losses/(gains) 58 116 (318)

Fair value adjustments on derivative instruments (173) (326) 123

Capitalisation rate 14.8% 12.6% 12.4%

Included in finance charges is an amount of R1,655 million (2008: R1,499 million; 2007: R1,142 million) which relates to interest paid

on financial liabilities not measured at fair value through profit or loss.





2007 2008 2009

Rm Rm Rm

8. TAXATION 2,690 2,599 516

South African normal company taxation 1,874 1,879 1,510

Current taxation 1,907 1,879 1,540

Overprovision for prior year (33) – (30)

Deferred taxation 521 357 (1,150)

Temporary differences – normal company taxation 561 255 111

Temporary difference – secondary taxation on companies

(’STC’) taxation credits (raised)/utilised (41) 157 (87)

Capital gains taxation (’CGT’) – – (1,280)

Change in taxation rate – (55) –

Underprovision in prior year 1 – 106

Secondary taxation on companies 295 363 156

Reconciliation of taxation rate % % %

Effective rate 24.2 24.6 8.9

South African normal rate of taxation 29.0 29.0 28.0

Adjusted for: (4.8) (4.4) (19.1)

Change in taxation rate – (0.5) –

Exempt income (8.3) (10.6) (13.9)

Disallowable expenditure 1.5 1.8 13.8

STC taxation credits (raised)/utilised (0.4) 1.5 (1.5)

STC taxation charge 2.7 3.4 2.7

CGT asset – – (22.1)

Other – – 0.6

Net (overprovision)/underprovision for prior year (0.3) – 1.3

The Company has historically filed, and continues to file, all required income taxation returns. Management believes that the principles

applied in determining the Company’s taxation obligations are consistent with the principles and interpretations of South African taxation

laws.

Included in the current year’s deferred taxation expense is an amount of R1,280 million relating to the deferred taxation on the CGT

base cost of the investments which are held for sale.

The decrease in the deferred taxation expense is mainly due to the temporary difference on CGT as well as the decrease in STC

taxation credits.

South African normal rate of taxation has decreased from 29% to 28% effective from the March 31, 2009 financial year.





2007 2008 2009

Accumulated Carrying Accumulated Carrying Accumulated Carrying

Cost depreciation value Cost depreciation value Cost depreciation value


9. PROPERTY, PLANT AND EQUIPMENTFreehold land

and buildings 4,381 (1,829) 2,552 4,581 (1,988) 2,593 4,886 (2,128) 2,758

Leasehold

buildings 496 (299) 197 534 (348) 186 519 (355) 164

Network

equipment 49,780 (25,774) 24,006 52,952 (27,366) 25,586 57,438 (29,470) 27,968

Support

equipment 3,584 (2,209) 1,375 3,863 (2,377) 1,486 3,916 (2,479) 1,437

Furniture and

office

equipment 345 (236) 109 372 (265) 107 387 (286) 101

Data processing

equipment and

software 4,758 (3,022) 1,736 4,951 (3,103) 1,848 5,041 (3,309) 1,732

Under

construction 2,530 – 2,530 3,362 – 3,362 2,907 – 2,907

Other 456 (347) 109 476 (371) 105 694 (416) 278

66,330 (33,716) 32,614 71,091 (35,818) 35,273 75,788 (38,443) 37,345

Fully depreciated assets with a cost of R155 million (2008: R498 million; 2007: R1,225 million) were derecognised in the 2009 financial

year. This has reduced both the cost and accumulated depreciation of property, plant and equipment.

Property, plant and equipment with a carrying value of R158 million (2008: R188 million; 2007: R203 million) are pledged as security.

Details of the loans are disclosed in note 23.





9. PROPERTY, PLANT AND EQUIPMENT (continued)The carrying amounts of property, plant and equipment can be reconciled as follows:

Carrying Carrying value at Write-offs value at

beginning and end of year Additions Transfers reversals Disposals Depreciation of year

Rm Rm Rm Rm Rm Rm Rm

2009Freehold land and buildings 2,593 258 81 (5) (2) (167) 2,758 Leasehold buildings 186 2 – – – (24) 164 Network equipment 25,586 2,830 2,292 (141) (71) (2,528) 27,968 Support equipment 1,486 127 118 (12) – (282) 1,437Furniture and office equipment 107 7 8 – – (21) 101 Data processing equipment and software 1,848 145 63 (4) – (320) 1,732Under construction 3,362 2,281 (2,627) (109) – – 2,907Other 105 216 14 (1) – (56) 278

35,273 5,866 (51) (272) (73) (3,398) 37,345

2008Freehold land and buildings 2,552 198 22 (3) (8) (168) 2,593 Leasehold buildings 197 7 30 – – (48) 186 Network equipment 24,006 2,693 1,308 (96) (88) (2,237) 25,586 Support equipment 1,375 257 117 (7) – (256) 1,486 Furniture and office equipment 109 26 1 – – (29) 107 Data processing equipment and software 1,736 268 161 (14) – (303) 1,848 Under construction 2,530 2,588 (1,725) (31) – – 3,362 Other 109 7 10 – – (21) 105

32,614 6,044 (76) (151) (96) (3,062) 35,273

2007Freehold land and buildings 2,610 102 (8) 17 – (169) 2,552 Leasehold buildings 240 – – – (14) (29) 197 Network equipment 23,253 2,599 847 (190) (240) (2,263) 24,006 Support equipment 1,134 352 105 (13) – (203) 1,375 Furniture and office equipment 104 11 5 – – (11) 109 Data processing equipment and software 1,779 303 (48) (9) – (289) 1,736 Under construction 1,316 2,163 (912) (37) – – 2,530 Other 52 16 72 (1) – (30) 109

30,488 5,546 61 (233) (254) (2,994) 32,614

Full details of land and buildings are available for inspection at the registered offices of the Company.

The Company does not have temporarily idle property, plant and equipment.

A major portion of this capital expenditure relates to the expansion of existing networks and services. An extensive build programme thatprovides capacity for growth in services, with focus on the Next Generation Network technologies, has resulted in an increase in property,plant and equipment additions which is expected to continue over the next few years.

Included in the current year’s additions in the other category is an amount of R179 million (2008: R31 million; 2007: RNil) that relatesto finance leases.

An amount of R71 million (2008: R88 million; 2007: R240 million) under property, plant and equipment disposals relates to thereclassification of Customer Premises Equipment at the start of the lease. These disposals are as a result of the Company entering into aleasing arrangement.





2007 2008 2009

Accumulated Carrying Accumulated Carrying Accumulated Carrying

Cost amortisation value Cost amortisation value Cost amortisation value


10. INTANGIBLE ASSETSTrademarks, copyrightsand FIFA brand 52 (52) – 197 (59) 138 457 (203) 254 Software 5,306 (2,913) 2,393 6,239 (3,312) 2,927 7,031 (3,785) 3,246 Under construction 1,109 – 1,109 741 – 741 488 – 488

6,467 (2,965) 3,502 7,177 (3,371) 3,806 7,976 (3,988) 3,988

The carrying amounts of intangible assets can be reconciled as follows:Carrying Carrying value at value at

beginning end of year Additions Transfers Write-offs Disposals Amortisation of year

Rm Rm Rm Rm Rm Rm Rm

2009Trademarks, copyrights and FIFA brand 138 260 – – – (144) 254Software 2,927 207 607 (1) – (494) 3,246Under construction 741 357 (555) (55) – – 488

3,806 824 52 (56) – (638) 3,988

2008Trademarks and copyrights – 144 – – – (6) 138 Software 2,393 250 688 (2) – (402) 2,927 Under construction 1,109 353 (612) (109) – – 741

3,502 747 76 (111) – (408) 3,806

2007Software 1,804 323 575 (4) – (305) 2,393 Under construction 1,063 729 (636) (47) – – 1,109

2,867 1,052 (61) (51) – (305) 3,502

There are no intangible assets whose title is restricted, or that have been pledged as security for liabilities at March 31, 2009.

Intangible assets that are material to the Company consist of Software, Copyrights and Trademarks whose average remaining amortisationperiod is 5.6 years (2008: 5.9 years; 2007: 6.58 years).

No intangible asset has been assessed as having an indefinite useful life.





2007 2008 2009

Rm Rm Rm

11. INVESTMENTS 887 3,883 7,693

Special purpose entity – cell captiveCost 535 535 535 Subsidiaries 352 3,348 7,158

Trudon (formerly TDS Directory Operations) (Proprietary) Limited64.90% shareholding at cost 167 167 167 Swiftnet (Proprietary) Limited**100% shareholding at cost 25 25 – Rossal No 65 (Proprietary) Limited – – – 100% shareholding at cost (R100) – – – Acajou Investments (Proprietary) Limited100% shareholding at cost (R100) – – – Intekom (Proprietary) Limited100% shareholding at cost 10 10 10 Q-Trunk (Proprietary) Limited – – –

100% shareholding at cost 10 10 10 Loan 30 26 22 Impairment (40) (36) (32)

Telkom Media (Proprietary) Limited** – 109 –

75% shareholding at cost (R2,868) – – – Loan – 326 – Impairment of loan – (217) –

Africa Online Limited 150 212 275

100% shareholding at cost 150 150 150 Impairment of investment – (12) (97)Loan – 74 222

Multi-Links Telecommunications Limited* – 840 5,595

25% shareholding at cost – – 1,339 Impairment of investment – – (969)Loan – 840 5,225

Telkom Communications International (Proprietary) Limited 100% shareholding at cost (R12) – – – Telkom International (Proprietary) Limited* – 1,985 1,111

100% shareholding at cost (R100) – – – Loan – 1,985 1,985 Impairment of loan – – (874)Available-for-saleUnlisted investmentRascom0.69% (2008: 0.69%; 2007: 0.69%) interest in Regional African Satellite Communications Organisation, headquartered in Abidjan, Ivory Coast, at cost – – –

Cost 1 1 1 Impairment (1) (1) (1)IncorporationThe subsidiaries and joint venture are all incorporated in the Republic of South Africa, with the exception of Telkom CommunicationsInternational (Proprietary) Limited and Africa Online Limited that are incorporated in the Republic of Mauritius, and Multi-LinksTelecommunications (Proprietary) Limited, which is incorporated in Nigeria.

* The 75% shareholding in Multi-Links Telecommunications Limited is an indirect investment through Telkom International (Proprietary) Limited.** The investments Swiftnet (Proprietary) Limited and Telkom Media (Proprietary) Limited are both classified as assets held for sale in the 2009 financial year

in terms of IFRS5. (Refer to note 16.)

The aggregate directors’ valuation of the above investments is R321 million (2008: R7,658 million; 2007: R6,690 million) based on netasset values.





12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Risk management

Exposure to continuously changing market conditions has made management of financial risk critical for the Company. Treasury policies,

risk limits and control procedures are continuously monitored by the Board of Directors through its audit and risk committee.

The Company holds or issues financial instruments to finance its operations, for the temporary investment of short-term funds and to manage

currency and interest rate risks. In addition, financial instruments such as trade receivables and payables arise directly from the Company’s

operations.

The Company finances its operations primarily by a mixture of issued share capital, retained earnings, long-term and short-term loans. The

Company uses derivative financial instruments to manage its exposure to market risks from changes in interest and foreign exchange rates.

The derivatives used for this purpose are principally interest rate swaps and forward exchange contracts. The Company does not speculate

in derivative instruments.

The table below sets out the classification of financial assets and liabilities:

At fair

value

through Financial

profit liabilities

or loss at Loans Available Total

held for amortised Held-to- and for carrying Fair

trading cost maturity receivables sale value value

Notes Rm Rm Rm Rm Rm Rm Rm

Classes of financial instruments

per balance sheet

2009

Assets 154 – 1,044 15,062 34 16,294 16,460

Trade and other receivables* 17 – – – 6,153 – 6,153 6,153

Investments 11 – – – 7,693 – 7,693 7,693

Finance lease receivable 13 – – – 275 – 275 275

Assets held for sale and

discontinued operations 16 – – – – 34 34 200

Other financial assets 154 – 1,044 – – 1,198 1,198

Repurchase agreements 18 – – 1,044 – – 1,044 1,044

Interest rate swaps 18 4 – – – – 4 4

Forward exchange contracts 18 150 – – – – 150 150

Cash and cash equivalents 19 – – – 941 – 941 941

Liabilities (225) (23,257) – – – (23,482) (24,555)





Other financial liabilities (225) – – – – (225) (225)

Interest rate swaps 18 (72) – – – – (72) (72)

Forward exchange contracts 18 (153) – – – – (153) (153)

(71) (23,257) 1,044 15,062 34 (7,188) (8,095)





12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)At fair value

through Financial profit or liabilities at Total

loss held amortised Held-to- Loans and Available carrying Fair for trading cost maturity receivables for sale value value


Classes of financial instruments per balance sheet2008Assets 443 – – 11,224 – 11,667 11,667

Trade and other receivables* 17 – – – 6,593 – 6,593 6,593 Investments 11 – – – 3,883 – 3,883 3,883 Finance lease receivable 13 – – – 265 – 265 265 Other financial assets 443 – – – – 443 443

Forward exchange contracts 18 443 – – – – 443 443


Liabilities (168) (18,346) – – – (18,514) (19,029)

Interest bearing debt 23 – (13,362) – – – (13,362) (13,877)Trade and other payables 27 – (4,923) – – – (4,923) (4,923)Shareholders for dividend 32 – (20) – – – (20) (20)Credit facilities utilised 19 – (41) – – – (41) (41)Other financial liabilities (168) – – – – (168) (168)

Forward exchange contracts 18 (168) – – – – (168) (168)

275 (18,346) – 11,224 – (6,847) (7,362)

Classes of financial instruments per balance sheet2007Assets 229 – – 7,025 – 7,254 7,254

Trade and other receivables* 17 – – – 5,755 – 5,755 5,755 Investments 11 – – – 887 – 887 887 Finance lease receivable 13 – – – 207 – 207 207 Other financial assets 229 – – – – 229 229

Bills of exchange 18 98 – – – – 98 98 Forward exchange contracts 18 131 – – – – 131 131


Liabilities (155) (13,333) – – – (13,488) (14,849)

Interest bearing debt 23 (98) (8,985) – – – (9,083) (10,444)Trade and other payables 27 – (4,333) – – – (4,333) (4,333)Shareholders for dividend 32 – (15) – – – (15) (15)Credit facilities utilised 19 – – – – – – –Other financial liabilities (57) – – – – (57) (57)

Interest rate swaps 18 (26) – – – – (26) (26)Forward exchange contracts 18 (31) – – – – (31) (31)

74 (13,333) – 7,025 – (6,234) (7,595)






12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

12.1. Fair value of financial instruments

Carrying value of all financial instruments noted in the balance sheet approximates fair value except as disclosed below.

The estimated net fair values as at March 31, 2009, have been determined using available market information and appropriate valuation

methodologies as outlined below. This value is not necessarily indicative of the amounts that the Company could realise in the normal course

of business.

Derivatives are recognised at fair value.

The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cash flow analysis is

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

The carrying value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate

their fair value due to the short-term maturities of these instruments.

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

payments discounted at market interest rates, as a result they differ from carrying values.

The fair values of listed investments are based on quoted market prices.

12.2 Interest rate risk management

Interest rate risk arises from the repricing of the Company’s forward cover and floating rate debt as well as incremental funding or new

borrowings and the refinancing of existing borrowings.

The Company’s policy is to manage interest cost through the utilisation of a mix of fixed and floating rate debt. In order to manage this mix

in a cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated

peak additional borrowings, the Company makes use of interest rate derivatives as approved in terms of the Company policy limits. Fixed

rate debt represents approximately 64.86% (2008: 57.03%; 2007: 98.83%) of the total debt. The debt profile of mainly fixed rate debt

has been maintained to limit the Company’s exposure to interest rate increases given the size of the Company’s debt portfolio. There were

no changes in the policies and processes for managing and measuring the risk from the previous period.

The table below summarises the interest rate swaps outstanding as at March 31:

Weighted

average

Notional coupon

Average amount rate

maturity Currency Rm %

2009


Pay fixed 2-5 years ZAR 2,000 10.84

2008


Pay fixed – – – –

2007


Pay fixed < 1 year ZAR 1,000 14.67

Pay fixed

The floating rate is based on the three months JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage

interest rate risk on debt instruments.





12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.3. Credit risk management

Credit risk is the risk due to uncertainty in a counterparty’s ability to meet its obligations as they fall due.

Credit risk arises from derivative contracts entered into with financial institutions with a rating of A1 or better. The Company is not exposed

to significant concentrations of credit risk. Credit limits are set on an individual basis. The maximum exposure to the Company from

counterparties in respect of derivative contracts is a net favourable position of R29 million (2008: R289 million; 2007: R103 million). No

collateral is required when entering into derivative contracts. Credit limits are reviewed on an annual basis or when information becomes

available in the market. The Company limits the exposure to any counterparty and exposures are monitored daily. The Company expects

that all counterparties will meet their obligations.

With regard to credit risk arising from other financial assets of the Company, which comprises held-to-maturity investments, financial assets

held at fair value through profit or loss, loans and receivables and available-for-sale assets (other than equity investments), the Company’s

exposure to credit risk arises from a potential default by a counterparty, with a maximum exposure equal to the carrying amount of these

instruments.

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each type of customer. Management reduces

the risk of irrecoverable debt by improving credit management through credit checks and limits. To reduce the risk of counterparty failure,

limits are set based on the individual ratings of counterparties by well-known ratings agencies. Trade receivables comprise a large

widespread customer base, covering residential, business, government, wholesale, global and corporate customer profiles.

Credit checks are performed on all customers, other than prepaid customers, on application for new services on an ongoing basis where

appropriate.

The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other

receivables. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets as well

as expected future cash flows. Refer to note 17.

The Company has provided a financial guarantee to Africa Online Limited for bank loans. At March 31, 2009 there was R26 million

(2008: R23 million; 2007: RNil) outstanding.

Telkom guarantees a certain portion of employees’ housing loans. The amount guaranteed differs depending on facts such as employment

period and salary rates. When an employee leaves the employment of Telkom, any housing debt guaranteed by Telkom is settled before

any pension payout can be made to the employee. The Company recognises a provision when it becomes probable that a guarantee will

be called. There is no provision outstanding in respect of these contingencies. The maximum amount of the guarantee in the event of the

default is R12 million. The fair value of the guarantee at March 31, 2009 was RNil (2008: RNil; 2007: RNil).

Given the deterioration of credit markets, stricter objectives, policies and processes were applied for managing and measuring the risk than

in the previous period.






The maximum exposure to credit risk for financial assets at the reporting date by type of customer was:

Carrying amount

2007 2008 2009

Rm Rm Rm


Business and residential 1,924 1,824 1,870

Global, corporate and wholesale 1,701 1,950 1,921

Government 318 368 444

Other 41 334 209

Impairment of trade receivables (153) (160) (205)

Derivatives 229 443 154

Loans receivable – 3,008 6,558

Other receivables* 1,924 2,277 1,914

5,984 10,044 12,865

* Excluding prepayments.

The ageing of trade receivables at the reporting date was:

2007 2008 2009

Rm Rm Rm

Not past due/current 3,250 3,654 3,361

Ageing of past due but not impaired

21 to 60 days 290 320 379

61 to 90 days 70 83 92

91 to 120 days 41 55 62

120+ days 180 204 345

3,831 4,316 4,239

The ageing in the allowance for the impairment of trade

receivables at reporting date was:

Ageing of impaired trade receivables:

Current defaulted 24 26 23

21 to 60 days 21 25 29

61 to 90 days 14 23 18

91 to 120 days 13 16 28

120+ days 81 70 107

153 160 205

The movement in the allowance for impairment in respect of trade receivables during the year is disclosed in note 17.

Included in the allowance for doubtful debts are individually impaired receivables with a balance of R49 million (2008: R32 million; 2007:

R49 million) which have been identified as being unable to service their debt obligation. The impairment recognised represents the

difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The

Company does not hold any collateral over these balances.

During the 2009 year end the Company renegotiated the terms of trade receivables amounting to R1.9 million from a long outstanding

customer. No impairment losses were recognised.





12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.4. Liquidity risk management

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to

liquidity risk as a result of uncertain cash flows as well as capital commitments of the Company. Liquidity risk is managed by Telkom’s

Corporate Finance division in accordance with policies and guidelines formulated by Telkom’s executive committee. In terms of its borrowing

requirements the Company ensures that sufficient facilities exist to meet its immediate obligations. In terms of its long-term liquidity risk, the

Company maintains a reasonable balance between the period over which assets generate funds and the period over which the respective

assets are funded. Short-term liquidity gaps may be funded through repurchase agreements and commercial paper bills.

There were no material changes in the exposure to liquidity risk and its objectives, policies and processes for managing and measuring

the risk during the 2009 financial year.

The table below summarises the maturity profile of the Company’s financial liabilities based on undiscounted contractual cash flow at the

balance sheet date:

Contractual

Carrying cash < 6 6 – 12 1 – 2 2 – 5

amount flows months months years years > 5 years


2009



finance leases) 23 16,720 18,297 5,059 2,500 1,815 5,167 3,756

Credit facilities utilised 19 106 106 106 – – – –

Trade and other payables 27 5,424 5,528 5,399 129 – – –

Finance lease liabilities 34 984 1,846 82 82 171 516 995


Other financial liabilities 18 225 235 147 6 82 – –

Interest rate swaps 72 82 – – 82 – –

Forward exchange contracts 153 153 147 6 – – –

23,459 26,012 10,793 2,717 2,068 5,683 4,751

2008



finance leases) 23 12,505 14,403 4,882 1,200 3,900 1,823 2,598

Credit facilities utilised 19 41 41 41 – – – –


Finance lease liabilities 34 857 1,794 64 62 123 395 1,150



Forward exchange contracts 18 168 168 83 85 – – –

18,494 21,329 9,679 1,661 4,023 2,218 3,748





12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.4. Liquidity risk management (continued)

Contractual

Carrying cash < 6 6 – 12 1 – 2 2 – 5

amount flows months months years years > 5 years


2007



finance leases) 23 8,231 10,416 1,350 4,680 – 1,806 2,580


Finance lease liabilities 34 852 1,903 59 61 137 356 1,290


Other financial liabilities 18 57 57 51 6 – – –

Interest rate swaps 26 26 26 – – – –

Forward exchange contracts 31 31 25 6 – – –

13,473 16,709 5,347 5,193 137 2,162 3,870

12.5. Foreign currency exchange rate risk management

The Company manages its foreign currency exchange rate risk by economically hedging all identifiable exposures via various financial

instruments suitable to the Company’s risk exposure.

Forward exchange contracts have been entered into to reduce the foreign currency exposure on the Company’s operations and liabilities.

The Company also enters into foreign forward exchange contracts to economically hedge interest expense and purchase and sale

commitments denominated in foreign currencies (primarily United States dollars and euros). The purpose of the Company’s foreign currency

hedging activities is to protect the Company from the risk that the eventual net cash flows will be adversely affected by changes in exchange

rates.

There were no changes in the exposure to foreign currency exchange rate risk and its objectives, policies and processes for managing and

measuring the risk from the previous period.





12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.5. Foreign currency exchange rate risk management (continued)

The following table details the foreign forward exchange contracts outstanding at year end:

Foreign

contract Forward


To buy m Rm Rm

2009

Currency

US$ 155 1,477 14

Euro 92 1,205 (24)

Other 36 69 (3)

2,751

2008

Currency

US$ 123 915 107

Euro 173 1,923 319

Other 40 166 17

3,004

2007

Currency

US$ 165 1,209 2

Euro 102 991 12

Other 68 80 2

2,280

To sell

2009

Currency

US$ 99 947 (22)

Euro 35 485 28

Other 21 43 4

1,475

2008

Currency

US$ 78 593 (67)

Euro 69 803 (98)

Other 22 105 (2)

1,501

2007

Currency

US$ 122 994 88

Euro 50 483 (5)

Other 31 40 1

1,517





12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.5. Foreign currency exchange rate risk management (continued)

The Company has various monetary assets and liabilities in currencies other than the Company’s functional currency. The following table

represents the net currency exposure (net carrying amount of foreign denominated monetary assets and liabilities) of the Company

according to the different foreign currencies.

United

States

Euro Dollar Other

Rm Rm Rm

2009



South African rand 203 6,097 19

2008



South African rand 219 1,117 51

2007



South African rand 282 90 70

Currency swaps

There were no currency swaps in place at March 31, 2009, 2008 and 2007.





12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.6 Sensitivity analysis

Interest rate risk

The following table illustrates the sensitivity to a reasonably possible change in the interest rates, with all other variables held constant:


Other Other

movements movements


Rm Rm Rm Rm

Classes of financial instruments per balance sheet

2009

Assets


Investments 56 – (56)


Repurchase agreements 10 – (10) –


Liabilities

Interest-bearing debt (62) 62



42 – (42) –

2008

Assets


Investments 9 – (9) –

Liabilities


(43) – 43 –






Interest rate risk (continued)


Other Other

movements movements


Rm Rm Rm Rm

2007

Assets


Liabilities

Interest-bearing debt 1 – – –



7 – (6) –

Foreign exchange currency risk

The following table illustrates the sensitivity to a reasonably possible change in the exchange rates, with all other variables held constant.



Other Other

movements movements


Rm Rm Rm Rm

Classes of financial instruments per balance sheet

2009

Assets




Forward exchange contract 1 – (1)

Liabilities





640 – (640) –






Foreign exchange currency risk (continued)



Other Other

movements movements


Rm Rm Rm Rm

2008

Assets





Liabilities




Forward exchange contract (153) – 153 –

174 – (174) –

2007

Assets




Liabilities





45 – (45) –

2007 2008 2009

R R R

12.7. Exchange rate table (closing rate)

United States dollar 7.248 8.132 9.484

Euro 9.649 12.854 12.617

Pound Sterling 14.189 16.166 13.555

Swedish krona 1.033 1.370 1.153

Japanese yen 0.061 0.082 0.097





12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)12.8. Capital management

The Board’s policy is to maintain a strong capital base so as to sustain investor, creditor, market confidence and future development of the

business. Capital comprises equity attributable to equity holders of the Company. The Company monitors capital using net debt to EBITDA

ratio. The Company’s policy is to keep the net debt to EBITDA ratio of between 1 and 2 times. Included in net debt are interest-bearing

debts, credit facilities and other financial liabilities, less cash and cash equivalents and other financial assets.

Telkom plans on continuing its share buy-back strategy based on certain criteria, including market conditions, availability of cash and other

investment opportunities and needs.

All of Telkom’s issued and outstanding ordinary shares, including the class A ordinary share and the class B ordinary share, rank equal for

dividends. No dividend may be declared to a holder of the class A ordinary share or class B ordinary share, unless the same dividend is

declared to holders of all ordinary shares. Telkom’s current dividend policy aims to provide shareholders with a competitive return on their

investment, while assuring sufficient reinvestment of profits to enable us to achieve our strategy. Telkom may revise its dividend policy from

time to time. The determination to pay dividends, and the amount of the dividends, will depend upon, among other things, the earnings,

financial position, capital requirements, general business conditions, cash flows, net debt levels and share buy-back plans.

The Company has access to financing facilities, the total unused amount of which is R6,226 million at the balance sheet date.

There were no changes in the Company’s approach to capital management during the year.

The Company is not subject to externally imposed capital requirements.

The net debt to EBITDA ratio is as follows:

2007 2008 2009

Rm Rm Rm

Non-current portion of interest-bearing debt 3,308 7,336 10,193

Current portion of interest -bearing debt 5,775 6,026 7,511

Other financial liabilities 57 168 225

Less: Cash and cash equivalents (176) (483) (941)

Plus: Credit facilities utilised – 41 106

Less: Other financial assets (229) (443) (1,198)

Net debt 8,735 12,645 15,896

EBITDA 12,489 11,848 8,704

Net debt to EBITDA ratio 0.70 1.07 1.83





13. FINANCE LEASE RECEIVABLESThe Company provides voice and non-voice services to its customers, which make use of router and PABX equipment that is dedicated to

specific customers. The disclosed information relates to certain customer arrangements which were assessed to be finance leases in terms

of IAS17.

Total < 1 year 1 – 5 years > 5 years

Rm Rm Rm Rm

2009






2008






2007










2007 2008 2009

Rm Rm Rm

14. DEFERRED TAXATION (990) (1,347) (198)

Opening balance (469) (990) (1,347)

Income statement movements (521) (357) 1,149

Temporary differences (520) (412) 1,255

Capital allowances (467) (446) (310)

Provisions and other allowances (94) 191 199

Capital gains taxation asset – – 1,279

Secondary taxation credits raised/(utilised) 41 (157) 87

Underprovision prior year (1) – (106)

Change in taxation rate – 55 –

The balance comprises: (990) (1,347) (198)

Capital allowances (2,527) (2,870) (3,181)

Provisions and other allowances 1,197 1,340 1,434

Capital gains taxation asset – – 1,279

STC taxation credits 340 183 270

Deferred taxation balance is made up as follows: (990) (1,347) (198)

Deferred taxation assets 340 183 1,549

Deferred taxation liabilities (1,330) (1,530) (1,747)

Unutilised STC credits 2,718 1,830 2,700

Secondary taxation on companies (STC) is provided for at a rate of 10% on the amount by which dividends declared by the Company

exceeds dividends received. The deferred taxation asset is raised as it is probable that it will be utilised in future. The asset will be released

as a taxation expense when dividends are declared.

The deferred taxation asset represents STC credits on past dividends received that are available to be utilised against dividends declared.

The deferred taxation asset also includes deferred tax on capital gains tax (CGT) base cost of the Vodacom Group (Proprietary) Limited

and Swiftnet (Proprietary) Limited (Swiftnet) investments that will be utilised against the future CGT liability on the Vodacom and Swiftnet

transactions. It is considered probable that these credits will be utilised in the future. The asset will be released as a taxation expense when

dividends are declared and when the CGT liability arises.

The deferred taxation liability increased mainly due to the increase in the difference between the carrying value and taxation value of

assets, as a result of the change in the estimate of useful lives of assets.





2007 2008 2009

Rm Rm Rm

15. INVENTORIES 839 873 1,331

Gross inventories 972 1,072 1,522

Write-down of inventories to net realisable value (133) (199) (191)

Inventories consist of the following categories: 839 873 1,331

Installation material, maintenance material and

network equipment 771 827 1,048

Merchandise 68 46 284

Write-down of inventories to net realisable value 133 199 191


Charged to selling, general and administrative expenses 152 164 167

Inventories written-off (82) (98) (174)

Inventory levels as at March 31, 2009, 2008 and 2007 have

increased due to the accelerated roll-out of the Next Generation

Network required to improve customer service, and the

acquisition of merchandise for the W-CDMA roll-out.

16. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS 34

16.1 Assets held for sale 34

Joint venture

Vodacom Group (Proprietary) Limited (Vodacom) –

50% shareholding at cost (R50)

In the current financial year the Company announced a decision

to dispose of its entire shareholding in Vodacom through selling

15% of its shareholding to Vodafone, a wholly owned subsidiary

of Vodafone Group Plc and unbundling its remaining 35% stake

to its shareholders pursuant to a listing of Vodacom on the main

board of the JSE Limited. The decision was taken in line with the

Company’s strategy to unlock shareholder value.

This investment is reclassified as held-for-sale in terms of IFRS5

as all the requirements for being classified as held-for-sale are met.

Subsidiary

Swiftnet (Proprietary) Limited (Swiftnet) 34

100% shareholding at cost 25

Loan 9

In February 2009, Telkom’s management took a decision to dispose of its 100% investment in Swiftnet, trading under the name Fastnet

Wireless Services. Swiftnet has been classified as held for sale as all criteria for this classification have been met.





16. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (continued)16.2 Discontinued operations

SubsidiaryTelkom Media (Proprietary) Limited

On August 31, 2006, Telkom created a new subsidiary, Telkom Media (Proprietary) Limited with a black economic empowerment (BEE)shareholding. ICASA awarded Telkom Media a commercial satellite and cable subscription broadcast licence on September 12, 2007.

On March 31, 2008, the Telkom Board took a decision to substantially reduce its investment in Telkom Media and as such Telkom Mediareduced its operational expenses and commitments to a minimum.

Telkom Media was classified as held for sale in September 2008 interim financial statements. At year end the investment did not meet theheld for sale criteria as management was unable to sell the investment for its expected price and therefore decided to abandon it.

2007 2008 2009Rm Rm Rm

17. TRADE AND OTHER RECEIVABLES 5,920 6,859 6,420


Gross trade receivables 3,984 4,476 4,444 Impairment of receivables (153) (160) (205)

Prepayments and other receivables 2,089 2,543 2,181

Impairment allowance account for receivables 153 160 205

Opening balance 184 153 160 Charged to selling, general and administrative expenses 137 217 285 Receivables written-off (168) (210) (240)

Refer to note 12 for detailed credit risk analysis.

18. OTHER FINANCIAL ASSETS AND LIABILITIES 229 443 1,198 Other financial assets consist of:

Held-to-maturityRepurchase agreements – – 1,044 At fair value through profit or loss 229 443 154

Bills of exchange 98 – – Derivative instruments (refer to note 12) 131 443 154

Repurchase agreementsThe Company manages a portfolio of repurchase agreements in the South African capital and money markets, with a view to generating additional investment income on the favourable interest rates provided on these transactions. Interest received from the borrower is based on the current market related yield. There were no repurchase agreements held at March 31, 2008 and 2007.

Bills of exchangeThe fair value of bills of exchange has been calculated with reference to the Bond Exchange of South Africa quoted prices.

Derivative instrumentsDerivative assets at fair value consists of interest rate swaps of R4 million (2008: RNil; 2007: RNil) and forward exchange contracts of R150 million (2008: R443 million; 2007: R131 million).

Other financial liabilities consist of:At fair value through profit or lossDerivative instruments (57) (168) (225)

Derivative liabilities at fair value consists of interest rate swaps of R72 million (2008: RNil; 2007: R26 million) and forward exchangecontracts of R153 million (2008: R168 million; 2007: R31 million).





2007 2008 2009

Rm Rm Rm

19. CASH AND CASH EQUIVALENTSCash shown as current assets 176 483 941

Cash and bank balances 76 83 601

Short-term deposits 100 400 340

Credit facilities utilised – (41) (106)

Net cash and cash equivalents 176 442 835

Undrawn borrowing facilities 6,566 5,894 6,226

The undrawn borrowing facilities are unsecured when drawn, bear interest at a rate that will be mutually agreed between the borrower

and lender at the time of drawdown, have no specific maturity date, are subject to annual review and are in place to ensure liquidity. At

March 31, 2009, R3,000 million of these undrawn facilities were committed.

Borrowing powers

To borrow money, Telkom’s directors may mortgage or encumber Telkom’s property or any part thereof and issue debentures, whether

secured or unsecured, whether outright or as security for debt, liability or obligation of Telkom or any third party. For this purpose the

borrowing powers of Telkom are unlimited, but are subject to restrictive financial covenants of the loan facility as indicated on note 23.





2007 2008 2009

Rm Rm Rm

20. SHARE CAPITAL Authorised and issued share capital and share premium are

made up as follows:

Authorised 10,000 10,000 10,000

999,999,998 ordinary shares of R10 each 10,000 10,000 10,000

1 class A ordinary share of R10 – – –

1 class B ordinary share of R10 – – –

Issued and fully paid 5,329 5,208 5,208

520,783,898 (2008: 520,784,184; 2007: 532,855,528)

ordinary shares of R10 each 5,329 5,208 5,208

1 (2008: 1; 2007: 1) class A ordinary share of R10 – – –

1 (2008: 1; 2007: 1) class B ordinary share of R10 – – –

The following table illustrates the movement in the number of shares issued:

Number of Number of Number of

shares shares shares

Shares in issue at beginning of year 544,944,901 532,855,530 520,784,186

Shares bought back and cancelled (12,089,371) (12,071,344) (286)

Shares in issue at end of year 532,855,530 520,784,186 520,783,900

Full details of the voting rights of ordinary, class A and class B shares are documented in the articles of association of the Company.

Share buy-back

During the financial year Telkom bought back 286 ordinary shares at a total consideration of R30,425. The shares were bought back and

cancelled in order to allow Telkom shareholders to participate in the proposed unbundling of Vodacom Group on a one to one basis. This

reduced share capital by R2,860 and retained earnings by R27,565.

During the year ended March 31, 2008 Telkom bought back 12,071,344 ordinary shares at a total consideration of R1,647 million.

This reduced share capital by R121 million and retained earnings by R1,526 million.

During the year ended March 31, 2007, Telkom bought back 12,089,371 ordinary shares at a total consideration of R1,596 million.

This reduced share capital by R120 million, share premium by R1,342 million and retained earnings by R134 million.

Capital management

Refer to note 12 for detailed capital management disclosure.





2007 2008 2009

Rm Rm Rm

21. TREASURY SHARE RESERVE (1,778) (1,642) (1,521)

This reserve represents amounts paid by Telkom to Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited, subsidiaries, for the acquisition of the Company’s shares to be utilised in terms of the Telkom Conditional Share Plan (TCSP).

Treasury sharesAt March 31, 2009, 11,646,680 (2008: 10,493,141; 2007: 12,237,016) and 8,143,556 (2008: 10,849,058; 2007: 10,849,058) ordinary shares in Telkom, with a fair value of R1,229 million (2008: R1,377 million; 2007: R2,031 million) and R859 million (2008: R1,423 million; 2007: R1,801 million) are held as treasury shares by its subsidiaries Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited, respectively.

The shares held by Rossal No 65 (Proprietary) Limited and Acajou Investments (Proprietary) Limited are reserved for issue in terms of the TCSP.

The decrease in the number of treasury shares is due to 1,552,029 (2008: 1,743,375; 2007: 450,505) shares that vested in terms of the TCSP during the current financial year.

The fair value of these shares at the date of vesting was R228 million (2008: R301 million; 2007: R59 million).

22. SHARE-BASED COMPENSATION RESERVEThis reserve represents the cumulative grant fair value of the equity-settled share-based payment transactions recognised in employee expenses over the vesting period of the equity instruments granted to employees in terms of the Telkom Conditional Share Plan (refer to note 25).

No consideration is payable on the shares issued to employees, but performance criteria will have to be met in order for the granted shares to vest. The ultimate number of shares that will vest may differ based on certain individual and Telkom performance conditions being met. The related compensation expense is recognised over the vesting period of the shares granted, commencing on the grant date.

The following table illustrates the movement within the share-based compensation reserve:

Balance at beginning of year 151 257 643 Net increase in equity 106 386 433

Employee cost 141 522 554 Vesting and transfer of shares (35) (136) (121)

Balance at end of year 257 643 1,076

At March 31, 2009 the estimated total compensation expense to be recognised over the vesting period was R1,824 million (2008:R2,151 million; 2007: R580 million), of which R554 million (2008: R522 million; 2007: R141 million) was recognised in employeeexpenses for the year.







2007 2008 2009

Rm Rm Rm

23. INTEREST-BEARING DEBTNon-current interest-bearing debt 3,308 7,336 10,193

Total interest-bearing debt (refer to note 12) 9,083 13,362 17,704

Gross interest-bearing debt 10,416 14,403 18,296

Discount on debt instruments issued (2,185) (1,898) (1,576)

Finance leases 852 857 984

Less: Current portion of interest-bearing debt (5,775) (6,026) (7,511)

Local debt (5,771) (6,000) (7,476)

Locally registered Telkom debt instruments (4,432) – –

Call borrowings – (2,600) –

Term loans – – (2,000)

Commercial paper bills (1,339) (3,400) (5,476)

Foreign debt – – –

Finance leases (4) (26) (35)

Total interest-bearing debt is made up as follows: 9,083 13,362 17,704

(a) Local debt 8,125 12,365 16,582

Locally registered Telkom debt instruments 6,786 8,164 11,106

Name, maturity, rate p.a., nominal value

TK01, 2008, 10%, RNil (2008: RNil; 2007: R4,680 million) 4,432 – –

TL12, 2012, 12.45%, R1,060 million (2008: RNil;

2007: RNil) – – 1,059

TL15, 2015, 11.9%, R1,160 million (2008: RNil;

2007: RNil) – – 1,159

TL20, 2020, 6%, R2,500 million (2008: R2,500 million;

2007: R2,500 million) 1,246 1,283 1,325

PP02, 2010, 0%, R430 million (2008: R430 million;

2007: R430 million) 264 304 349

PP03, 2010, 0%, R1,350 million (2008: R1,350 million;

2007: R1,350 million) 844 977 1,131

Call borrowings, 2009, 11.58%, RNil (2008: R2,600 million;

2007: RNil) – 2,600 –

Term loans, 2010, 9.67%, R2,000 million (2008: R3,000 million;

2007: RNil) – 3,000 2,000

Syndicated loans, 2014, 11.46%, R4,100 million (2008: RNil;

2007: RNil) – – 4,083

Total interest-bearing debt is made up of R17,704 million debt at amortised cost (2008: R13,362 million debt at amortised cost; 2007:

R8,985 million debt at amortised cost and R98 million debt at fair value through profit or loss).



2007 2008 2009

Rm Rm Rm

23. INTEREST-BEARING DEBT (continued)Local bondsThe local Telkom bonds are unsecured, but a Side letter to the Subscription Agreement (as amended) of the TL20 bond contains a number of restrictive covenants which, if not met, could result in the early redemption of the loan.The local bonds limit Telkom’s ability to create encumbrances on revenue or assets, and secure any indebtedness without securing the outstanding bonds equally and rateably with such indebtedness. The term loan agreements limit Telkom’s ability to encumber, cede, assign, sell or otherwise dispose of a material portion of its assets without prior written consent of the Lenders, which will not be unreasonably withheld. The syndicated loan agreement contains restrictive covenants as well as restrictions on encumbrances, disposals, Group guarantees and Group loans.

Commercial paper bills 1,339 4,201 5,476 Rate p.a., nominal value2009, 11.44% (2008: 11.71%; 2007: 9.04%), R5,559 million(2008: R4,383 million; 2007: R1,350 million)

(b) Foreign debt 106 140 138 Maturity, rate p.a., nominal valueEuro: 2010 – 2025, 0.10% – 0.14% (2008: 0.10% – 0.14%; 2007: 0.10% – 0.14%), e11 million (2008: e11 million; 2007: e11 million)

(c) Finance leases 852 857 984 The finance leases are secured by buildings with a carrying value of R152 million (2008: R174 million; 2007: R197 million) and office equipment with a book value of R6 million (2008: R14 million;2007: R6 million) (refer to note 9). These amounts are repayable within periods ranging from 1 to 11 years. Interest rates vary between 13.43% and 37.78%.

Included in non-current and current debt is:Debt guaranteed by the South African Government 4,537 140 138

The Company may issue or re-issue locally registered debt instruments in terms of the Post Office Amendment Act 85 of 1991. Theborrowing powers of the Company are set out as per note 19.

Repayments/refinancing of current portion of interest-bearing debtThe Company issued new local bonds, the TL12 and TL15 with a nominal value of R1,060 million and R1,160 million respectively andentered into a syndicated loan agreement with a nominal value of R4,100 million during the current year. Commercial Paper Bills with anominal value of R11,025 million were issued and Commercial Paper debt with a nominal value of R9,849 million was repaid during thecurrent year.

The R7,559 million nominal value of current portion of interest-bearing debt as at March 31, 2009 is expected to be repaid/refinancedfrom proceeds of the Vodacom sale.

Management believes that sufficient funding facilities will be available at the date of repayment/refinancing.





2007 2008 2009

Rm Rm Rm

24. PROVISIONS 1,203 1,445 1,830

Employee related 2,351 2,477 3,079

Annual leave 363 364 415


Charged to employee expenses 53 10 66

Leave paid (6) (9) (15)

Post-retirement medical aid (refer to note 25) 1,120 1,336 1,723

Balance at beginning of year 2,589 1,120 1,336






Plan asset – initial recognition (1,720) – –

Contributions paid (78) (61) (63)








Bonus 586 490 616


Charged to employee expenses 656 473 577

Payments made (707) (569) (451)

Non-employee related 558 608 704

Supplier dispute (refer to note 35) 527 569 664

Balance at beginning of year – 527 569

Net movements 527 42 95

Other 31 39 40

Less: Current portion of provisions (1,706) (1,640) (1,953)

Annual leave (363) (364) (415)

Post-retirement medical aid (185) (185) (224)

Telephone rebates (26) (26) (29)

Bonus (586) (490) (616)

Supplier dispute (refer to note 35) (527) (569) (664)

Other (19) (6) (5)





24. PROVISIONS (continued)Annual leave

In terms of the Company’s policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle, to a cap of

22 days which must be taken within an 18 month leave cycle. The leave cycle is reviewed annually and is in accordance with legislation.

Bonus

The bonus scheme consists of performance bonuses which are dependent on achievement of certain financial and non-financial targets.

The bonus is payable to all qualifying employees bi-annually after the Company’s results have been made public.

Supplier dispute

The Company provided R664 million (2008: R569 million; 2007: R527 million) for its estimate of the probable liability as discussed in

note 35. The net movement in the provision of R95 million consists of finance charges and fair value movements.

Other

Included in other provisions is an amount provided for asset retirement obligations.

25. EMPLOYEE BENEFITSThe Company provides benefits for all its permanent employees through the Telkom Pension Fund and the Telkom Retirement Fund.

Membership to one of the funds is compulsory. In addition, certain retired employees receive medical aid benefits and a telephone rebate.

The liabilities for all of the benefits are actuarially determined in accordance with accounting requirements each year. In addition, statutory

funding valuations for the retirement and pension funds are performed at intervals not exceeding three years.

At March 31, 2009, the Company employed 23,520 employees (2008: 24,879; 2007: 25,864).

Actuarial valuations were performed by qualified actuaries to determine the benefit obligation, plan asset and service costs for the pension

and retirement funds for each of the financial periods presented.


The Telkom Pension Fund is a defined benefit fund that was established in terms of the Post Office Amendment Act 85, of 1991.

The latest actuarial valuation performed at March 31, 2009 indicates that the pension fund is in a surplus position of R94 million after

unrecognised gains. The recognition of the surplus is limited due to the application of the asset limitation criteria in IAS19 (revised).

With effect from July 1, 1995, the Telkom Pension Fund was closed to new members. During the year ended March 31, 2007 a settlement

event occurred in the Telkom Pension Fund whereby 106 members were transferred to the Telkom Retirement Fund. The funded status of the

Telkom Pension Fund is disclosed below.





2007 2008 2009

Rm Rm Rm

25. EMPLOYEE BENEFITS (continued)The Telkom Pension Fund




Recognised actuarial loss/(gain) 9 (16) –



Net periodic pension expense recognised 33 5 29

Pension fund contributions (refer to note 5.1) 8 5 (1)

The status of the pension plan obligation is as follows:


Interest and service cost 22 21 21

Employee contributions 2 2 2



Actuarial gain (28) (6) (1)

Benefit obligation at end of year 205 204 199





Contributions 10 8 2


Actuarial gain/(loss) 75 10 (67)

Plan assets at end of year 284 311 247





2007 2008 2009

Rm Rm Rm

25. EMPLOYEE BENEFITS (continued)The Telkom Pension Fund (continued)

Present value of funded obligation 205 204 199

Fair value of plan assets (284) (311) (247)

Fund surplus (79) (107) (48)

Unrecognised net actuarial gain/(loss) 25 23 (46)

Net surplus (54) (84) (94)


Recognised net asset (54) (55) (55)


Actuarial return/(loss) on plan assets 75 10 (67)

Actual return/(loss) on plan assets 94 37 (39)









The overall long-term expected rate of return on assets is 10.5%.

This is based on the portfolio as a whole and not the sum of the

returns of individual asset categories. The expected return takes

into account the asset allocation of the Telkom Pension Fund

and expected long-term return of these assets, of which South

African equities and bonds are the largest contributors.

The assumed rates of mortality are determined by reference to

the SA85-90 (Light) Ultimate table, as published by the Actuarial

Society of South Africa, for pre-retirement purposes and the PA(90)

Ultimate table, minus one year age rating as published by the

Institute and Faculty of Actuaries in London and Scotland, for

retirement purposes.

Funding level per statutory actuarial valuation (%) 100.0 100.0 100.0

The number of employees registered under the Telkom Pension Fund 153 146 123


Equities (%) 74 54 57

Bonds (%) 5 5 25

Cash (%) 3 23 3


Insurance policies (%) 2 – –

The total expected contributions payable to the pension fund for the next financial year are R1 million.







25. EMPLOYEE BENEFITS (continued)The Telkom Retirement Fund

The Telkom Retirement Fund was established on July 1, 1995 as a hybrid defined benefit and defined contribution plan. Existing employees

were given the option to either remain in the Telkom Pension Fund or to be transferred to the Telkom Retirement Fund. All pensioners of the

Telkom Pension Fund and employees who retired after July 1, 1995 were transferred to the Telkom Retirement Fund. Upon transfer the

Government ceased to guarantee the deficit in the Telkom Retirement Fund. Subsequent to July 1, 1995 further transfers of existing

employees occurred.

The Telkom Retirement Fund is a defined contribution fund with regard to in-service members. On retirement, an employee is transferred

from the defined contribution plan to a defined benefit plan. Telkom, as a guarantor, is contingently liable for any deficit in the Telkom

Retirement Fund. Moreover, all of the assets in the Fund, including any potential excess, belong to the participants of the scheme. The

Company is unable to benefit from the excess in the form of future reduced contributions.

Telkom guarantees any actuarial shortfall of the pensioner pool in the retirement fund. This liability is initially funded through assets of the

retirement fund. The latest actuarial valuation performed at March 31, 2009 indicates that the retirement fund is in a surplus funding position

of R1,549 million after unrecognised losses.

The Telkom Retirement Fund is governed by the Pension Funds Act 24 of 1956. In terms of section 37A of this Act, the pension benefits

payable to the pensioners cannot be reduced. If therefore the present value of the funded obligation were to exceed the fair value of plan

assets, Telkom would be required to fund the statutory deficit.

The information presented below is intended only to comply with the disclosure requirements of IAS19 (revised) and not to suggest that the

Company has a potential asset with regard to this Fund.

The funded status of the Telkom Retirement Fund is disclosed below:

2007 2008 2009

Rm Rm Rm

Telkom Retirement Fund




Recognised actuarial gain (145) – –

Net periodic pension expense not recognised (asset limitation) (322) (193) (180)

Retirement fund contributions (refer to note 5.1) 439 460 460

Benefit obligation:



Benefits paid (486) (488) (520)

Liability for new pensioners 44 14 143

Actuarial loss/(gain) 2,334 501 (636)





Benefits paid (486) (488) (520)

Asset backing new pensioners’ liabilities 44 14 143

Actuarial gain/(loss) 1,641 118 (1,735)






2007 2008 2009

Rm Rm Rm




Fund (surplus)/deficit (1,080) (890) 29

Unrecognised net actuarial loss (96) (478) (1,578)

Unrecognised net asset (1,176) (1,368) (1,549)


Actuarial gain/(loss) on plan assets 1,641 118 (1,735)

Actual gain/(loss) on plan assets 2,130 804 (939)

Included in the fair value of plan assets is:

Office buildings occupied by Telkom 371 596 619

Telkom bonds 21 10 –

Telkom shares 284 141 132

The Telkom Retirement Fund invests its funds in South Africa and

internationally. Twelve fund managers invest in South Africa and

five of these managers specialise in trades with bonds on behalf

of the Retirement Fund. The international investment portfolio

consists of global equity and hedged funds.








The overall long-term expected rate of return on assets is 10.7%. This is

based on the portfolio as a whole and not the sum of the returns of

individual asset categories. The expected return takes into account the

asset allocation of the Telkom Retirement Fund and expected long-

term return on these assets, of which South African equities, foreign

investments and South African index-linked bonds are the largest contributors.


SA85-90 (Light) Ultimate table, as published by the Actuarial Society of

South Africa, for pre-retirement purposes and the PA(90) Ultimate table,

minus one year age rating as published by the Institute and Faculty of

Actuaries in London and Scotland, for retirement purposes.

Funding level per statutory actuarial valuation (%) 100 100 100

The number of pensioners registered under the Telkom Retirement Fund 14,451 14,255 13,617

The number of in-service employees registered under the Telkom

Retirement Fund 25,766 24,939 23,389





2007 2008 2009

Rm Rm Rm



Equities (%) 59 70 55

Property (%) 2 2 –

Bonds (%) 19 11 5

Cash (%) 7 1 5


Index linked (%) – – 15

The expected pension benefits payments for the year ending March 31, 2010 are R541,000.

Medical benefits

The Company makes certain contributions to medical funds in respect of current and retired employees. The scheme is a defined benefit

plan. The expense in respect of current employees’ medical aid is disclosed in note 5.1. The amounts due in respect of post-retirement

medical benefits to current and retired employees have been actuarially determined and provided for as set out in note 24. The Company

has terminated future post-retirement medical benefits in respect of employees joining after July 1, 2000.

There are three major categories of members entitled to the post-retirement medical aid: pensioners who retired before 1994 (Pre-94); those

who retired after 1994 (Post-94); and the in-service members. The Post-94 and the in-service members’ liability is subject to a Rand cap,

which increases annually with the average salary increase.

Eligible employees must be employed by Telkom until retirement age to qualify for the post-retirement medical aid benefit. The most recent

actuarial valuation of the benefit was performed as at March 31, 2009.

The Company has allocated certain investments to fund this liability as set out in note 11.

2007 2008 2009

Rm Rm Rm

Medical aid

Benefit obligation:







Contributions paid by the Company (78) (61) (63)



2007 2008 2009

Rm Rm Rm



At beginning of year – 1,961 1,929

Plan asset – initial recognition 1,720 – –



Actuarial gain/(loss) 147 (164) (393)




Fund deficit 2,405 2,902 3,771

Unrecognised net actuarial loss (1,285) (1,566) (2,048)

Liability as disclosed in the balance sheet (refer to note 24) 1,120 1,336 1,723


Actuarial return on plan assets 147 (164) (393)

Actual gain/(loss) on plan assets 335 93 (170)





Medical inflation rate (%) 6.5 8.0 7.7


















The valuation results are sensitive to changes in the underlying assumptions. The following table provides an indication of the impact of

changing some of the valuation assumptions:

Current

assumption Decrease Increase

Rm Rm Rm

Medical cost inflation rate 7.7% -1.0% +1.0%

Benefit obligation 5,389 (736) 921

Percentage change (13.7)% 17.1%

Service cost and interest cost 2009/2010 555 (84) 108

Percentage change (15.1)% 19.5%

Discount rate 8.7% -1.0% +1.0%

Benefit obligation 5,389 933 (734)

Percentage change 17.3% (13.6)%

Service cost and interest cost 2009/2010 555 46 (37)


Post-retirement mortality rate PA(90) ultimate- 1 -10.0% +10.0%

Benefit obligation 5,389 221 (197)


Service cost and interest cost 2009/2010 555 23 (20)


2007 2008 2009


Equities (%) 59 56 30

Bonds (%) 3 2 2

Cash and money market investments (%) 21 33 10


Insurance policies (%) 8 – 49


25. EMPLOYEE BENEFITS (continued)Telephone rebates

The Company provides telephone rebates to its pensioners. The most recent actuarial valuation was performed at March 31, 2009.

Eligible employees must be employed by the Company until retirement age to qualify for the telephone rebates. The scheme is a defined

benefit plan.

The status of the telephone rebate liability is disclosed below:

2007 2008 2009

Rm Rm Rm

Benefit obligation opening balance 251 307 443

Service cost 4 3 6


Actuarial (gain)/loss (39) 133 19

Amendments 93 – –


Present value of unfunded obligation 307 443 484

Unrecognised net actuarial loss and past service cost (25) (156) (159)

Liability as disclosed in the balance sheet (refer to note 24) 282 287 325



Rebate inflation rate (%) – 4.0 4.0




standard published mortality table PA (90) Ultimate standard tables,

as published by the Institute and Faculty of Actuaries in London

and Scotland, rated down one year to value the pensioners.



Telkom Conditional Share Plan

Telkom’s shareholders approved the Telkom Conditional Share Plan at the January 2004 Annual General Meeting. The scheme covers both

operational and management employees and is aimed at giving shares to Telkom employees, at a RNil exercise price, at the end of the

vesting period. The vesting period for the operational employees awarded in 2004 and 2005 is 0% in year one and 33% in each of the

three years thereafter, while the shares allocated in 2006 and 2007 together with management shares vest fully after three years.

Although the number of shares awarded to employees will be communicated at the grant date, the ultimate number of shares that vest may

differ based on certain performance conditions being met.

The Telkom Board approved the fourth enhanced allocation of shares to employees as at September 4, 2007, with a grant date of

September 27, 2007, the day that the employees and the Company shared a common understanding of the terms and conditions of the

grant. A total number of 6,089,810 shares were granted.

The Board has also approved an enhanced allocation for the November 2006 grant on September 4, 2007 with a grant date of

September 27, 2007. The number of additional shares granted with regard to the 2006 allocation is 4,966,860 shares.









The weighted average remaining vesting period for the shares outstanding as at March 31, 2009 is 0.71 years (2008: 1.25 years;

2007: 1.75 years).

2007 2008 2009

The following table illustrates the movement of the maximum number

of shares that will vest to employees for the August 2004 grant:

Outstanding at beginning of the year 2,414,207 1,883,991 420,590

Granted during the year 1,212 252 –


Vested during the year (450,505) (1,419,863) (416,605)

Outstanding at end of the year 1,883,991 420,590 –


of shares that will vest to employees for the June 2005 grant:

Outstanding at beginning of the year 1,930,687 1,864,041 1,435,387

Granted during the year 1,005 3,469 52,954


Vested during the year – (323,946) (1,135,424)

Outstanding at end of the year 1,864,041 1,435,387 307,729


of shares that will vest to employees for the November 2006 grant:

Outstanding at beginning of the year – 1,773,361 1,640,980

Granted during the year 1,825,488 833 –


Outstanding at end of the year 1,773,361 1,640,980 1,508,366


of shares that will vest to employees relating to the additional

November 2006 grant:






of shares that will vest to employees for the September 2007 grant:







The fair value of the shares granted have been calculated by an actuary using the Black-Scholes-Merton model and the following values

at grant date:

August 8, June 23, November 2, September 4,

2004 2005 2006 2007

Grant Grant Grant Grant

Market share price (R) 77.50 111.00 141.25 173.00

Dividend yield (%) 2.60 3.60 3.50 3.50

2007 2008 2009

Rm Rm Rm

The principal assumptions used in calculating the expected number

of shares that will vest are as follows:

Employee turnover (%) 5 5 9

Meeting specified performance criteria (%) 100 100 75

The amounts for the current and previous four years are as follows:

2005 2006 2007 2008 2009

Rm Rm Rm Rm Rm

Telkom Pension Fund

Defined benefit obligation (186) (281) (205) (204) (199)

Plan assets 231 243 284 311 247

Surplus/(deficit) 45 (38) 79 107 48

Asset limitation – – – (29) (39)

Unrecognised actuarial loss/(gain) 89 118 (25) (23) 46

Recognised net asset 134 80 54 55 55

Experience adjustment on assets 75 10 (67)

Experience adjustment on liabilities 28 (6) 1

Telkom Retirement Fund

Defined benefit obligation (4,020) (4,377) (6,581) (7,101) (6,704)

Plan assets 4,477 5,973 7,661 7,991 6,675

Surplus/(deficit) 457 1,596 1,080 890 (29)

Unrecognised actuarial gain/(loss) 312 (742) 96 478 1,578

Unrecognised net asset 769 854 1,176 1,368 1,549

Experience adjustment on assets* 1,641 118 (1,735)

Experience adjustment on liabilities* 1,234 485 (645)








2005 2006 2007 2008 2009

Rm Rm Rm Rm Rm

25. EMPLOYEE BENEFITS (continued)Medical benefits

Defined benefit obligation (3,057) (3,889) (4,366) (4,831) (5,389)

Plan assets – – 1,961 1,929 1,618

Deficit (3,057) (3,889) (2,405) (2,902) (3,771)

Unrecognised actuarial loss 648 1,300 1,285 1,566 2,048

Liability recognised (2,409) (2,589) (1,120) (1,336) (1,723)

Experience adjustment on assets 147 (164) (393)

Experience adjustment on liabilities 28 193 246

Telephone rebates

Defined benefit obligation (177) (251) (307) (443) (484)

Unrecognised actuarial (gain)/loss (2) 53 25 156 159

Liability recognised (179) (198) (282) (287) (325)

Experience adjustment on liabilities (25) 2 2

The experience adjustments on assets and liabilities for each of the financial periods ended March 31, 2005 and 2006 have not been

disclosed due to the fact that it was impractical to determine the information.

* During the March 31, 2007 year end Telkom actuaries performed a full valuation while for the March 31, 2006 year end a roll forward method was used,

as permitted under IAS19, to determine the present value of the benefit obligation and the fair value of the plan assets using the March 31, 2005 statutory

valuation as a base applying the relevant assumptions determined by management to arrive at the present value of the benefit obligation, and the fair value

of plan assets.

This change in estimate resulted in a movement to the actuarial loss of R700 million and the fair value of the plan assets of R350 million in respect of the

March 31, 2007 estimates. The remaining R1,291 million is a result of the actual investment returns exceeding the expected return for the March 31, 2007

year end.

2007 2008 2009

Rm Rm Rm

26. DEFERRED REVENUE 1,846 2,294 2,822

Non-current deferred revenue 739 870 996

Current portion of deferred revenue 1,107 1,424 1,826

Included in deferred revenue is profit on the sale and leaseback of certain Telkom buildings of R107 million, consisting of a non-current

portion of R96 million (2008: R107 million; 2007: R118 million) and a current portion of R11 million (2008: R11 million; 2007:

R11 million). A profit of R11 million per annum is recognised in income on a straight-line basis, over the period of the lease ending 2019

(refer to note 34).


2007 2008 2009

Rm Rm Rm

27. TRADE AND OTHER PAYABLES 4,333 4,923 5,424

Trade payables 2,761 3,267 3,035

Finance cost accrued 22 39 156

Accruals and other payables 1,550 1,617 2,233

Accruals and other payables mainly represent amounts payable

for goods received, net of Value Added Tax obligations and

licence fees.

Included in accruals and other payables are amounts owed

to Rossal No 65 (Proprietary) Limited of R342 million

(2008: RNil; 2007: R148 million) and Intekom (Proprietary) Limited

of R23 million (2008: R13 million; 2007: R5 million).

28. RECONCILIATION OF PROFIT FOR THE YEAR TO CASH GENERATED FROM OPERATIONS

Cash generated from operations 12,660 12,662 12,027


Finance charges and fair value movements 1,027 1,289 1,459

Taxation 2,690 2,599 516

Investment income (3,202) (3,739) (2,906)

Interest received from debtors (189) (248) (404)

Non-cash items 4,565 4,637 7,981

Depreciation, amortisation and write-offs 3,583 3,732 4,358

Cost of equipment disposed when recognising finance leases 240 88 71

Recognition of the FIFA brand intangible asset from deferred revenue – – (261)

Increase in provisions 1,103 757 1,439

Profit on disposal of property, plant and equipment and intangible

assets (15) (167) (32)

Profit on disposal of investment (364) – –

Interest received from subsidiaries – – 221

Loss on disposal of property, plant and equipment and intangible

assets 1 2 6

Impairment of investments and loans 17 225 2,179

(Increase)/decrease in working capital (622) 157 104

Inventories (459) (202) (627)

Accounts receivable (319) (196) 848

Accounts payable 156 555 (117)








2007 2008 2009

Rm Rm Rm

29. DIVIDEND RECEIVED 2,950 3,536 3,242

Dividend income per income statement (refer to note 6) 3,006 3,597 2,747

Dividend accrued for the previous year 1,479 1,535 1,595

Dividend accrued for the current year (1,535) (1,596) (1,100)

Dividend received consists of: 2,950 3,536 3,242

Dividend received from joint venture 2,650 2,825 3,095

Dividend received from subsidiaries 300 711 147

30. FINANCE CHARGES PAID (886) (842) (466)

Finance charges per income statement (1,027) (1,289) (1,460)

Non-cash items 141 447 994

Movements in interest accruals (81) 49 255

Net discount amortised 409 568 698

Fair value adjustment (172) (275) (29)

Unrealised (loss)/gain (15) 105 70

31. TAXATION PAID (3,852) (1,716) (1,764)

Taxation (payable)/receivable at beginning of year (1,164) 519 (7)

South African normal company taxation (excluding deferred taxation) (1,874) (1,879) (1,510)

Secondary taxation on companies (295) (363) (156)

Taxation (payable)/receivable at end of year (519) 7 (91)

32. DIVIDEND PAID (4,874) (5,858) (3,435)

Dividend payable at beginning of year (4) (15) (20)

Declared during the year – dividend on ordinary shares: (4,885) (5,863) (3,438)

Final dividend for 2006: 500 cents (2,714) – –

Special dividend for 2006: 400 cents (2,171) – –

Final dividend for 2007: 600 cents – (3,198) –

Special dividend for 2007: 500 cents – (2,665) –

Final dividend for 2008 : 660 cents (3,438)

Dividend payable at end of year 15 20 23


33. ACQUISITION OF MINORITY INTEREST IN SUBSIDIARYMulti-Links Telecommunications (Proprietary) Limited (Multi-Links)

Telkom acquired 75% of the issued share capital of Multi-Links Telecommunications Limited through Telkom International (Proprietary) Limited,

from Kenston Investment Limited on May 1, 2007. Telkom also granted Kenston the irrevocable right and option (put option) to require

Telkom to acquire all of the shares held by Kenston (25% shareholding) in Multi-Links, at any time during the 90 day period following

the second anniversary of the effective date. The put option was exercised on January 21, 2009 for R1,328 million (US$130 million at

US$1 = R10,2188).

2007 2008 2009

Rm Rm Rm

34. COMMITMENTSCapital commitments

Capital commitments authorised 7,000 7,000 6,991

Commitments against authorised capital expenditure 507 652 539

Authorised capital expenditure not yet contracted 6,493 6,348 6,452

Capital commitments comprise commitments for property, plant and equipment and software included in intangible assets.

Management expects these commitments to be financed from proceeds of Vodacom sale.

2010 FIFA World Cup commitments

The FIFA World Cup commitment is an executory contract which requires the Company to develop the fixed-line components of the

necessary telecommunications infrastructure needed to broadcast this event to the world. This encompasses the provisioning of the fixed-

line telecommunications related products and services and, where applicable, the services of qualified personnel necessary for the

planning, management, delivery, installation and de-installation, operation, maintenance and satisfactory functioning of these products and

services. Furthermore as a National Supporter, Telkom owns a tier 3 sponsorship that grants Telkom a package of advertising, promotional

and marketing rights that are exercisable within the borders of South Africa. Telkom entered into a barter transaction in return for which it

has an outstanding commitment to FIFA of R243 million (2008: R260 million). This has been recognised in intangible assets (note 10).









Rm Rm Rm Rm

34. COMMITMENTS (continued)Operating lease commitments and receivables

2009

Cash flow



Vehicles 1,137 261 876 –


Customer premises equipment receivable 88 49 39 –

Total cash flow 1,401 375 1,016 10

The above figures represent actual cash flows relating

to operating leases expected during the periods

specified. However, due to the straight-lining effect of

operating leases, the amounts that would be recognised

in the income statement in the periods specified, would

be as follows:

Income statement



Vehicles 1,137 261 876 –


Customer premises equipment receivable 88 49 39 –

Total to be recognised in the income statement 1,389 372 1,008 9

Vehicles, equipment and customer premises equipment

have no fixed annual escalation, therefore the cash

flows and income statement recognition would be

the same.

2008

Cash flow



Vehicles 1,430 226 1,204 –


Customer premises equipment receivable (84) (45) (39) –

Total cash flow 1,459 238 1,223 (2)

Income statement



Vehicles 1,430 226 1,204 –



Total to be recognised in the income statement 1,443 232 1,212 (1)



Rm Rm Rm Rm

34. COMMITMENTS (continued)Operating lease commitments and receivables (continued)

2007

Cash flow



Vehicles 564 564 – –



Total cash flow 632 583 52 (3)

Income statement



Vehicles 564 564 – –



Total to be recognised in the income statement 613 578 37 (2)

Operating leases

The Company leases certain buildings, vehicles and equipment. The majority of the lease terms negotiated for equipment-related premises

are ten years with other leases signed for five and three years. The majority of the leases normally contain an option clause entitling Telkom

to renew the lease agreements for a period usually equal to the main lease term.

The minimum lease payments under these agreements are subject to annual escalations, which range from 6% to 15%.

Penalties in terms of the lease agreements are only payable should Telkom vacate the premises and negotiate to terminate the lease

agreement prior to the expiry date, in which case the settlement payment will be negotiated in accordance with the market conditions of

the premises. Future minimum lease payments under operating leases are included in the note above. Onerous leases for buildings, of

which the Company has no further use, no possibility of sub-lease and no option to cancel, are provided for in full and included in other

provisions, refer to note 24.

The master lease agreement for vehicles was for a period of five years and then extended for an additional three years which resulted in

the lease expiring on March 31, 2008. During August 2007 new terms were negotiated and approved and as a result the operating

lease commitments for vehicles are based on the new agreement which expires on March 31, 2013.

In accordance with this agreement Telkom is not allowed to lease any similar vehicle as specified in the contract from any other service

provider during the five year period except for the rentals at airports which are utilised in cases of subsistence and travel as well as vehicles

which are not part of the agreement.

The agreement is structured to have no lease increases on vehicles that are continually leased from the lessor. If a vehicle is, however,

replaced by a new similar vehicle, the lease costs of the newest vehicle will increase by the Consumer Price Index. All leased vehicles are,

however, subject to any variance in the interest rate fluctuations and are adjusted as and when the adjustments are announced by the South

African Reserve Bank. The leases of individual vehicles are renewed annually.








34. COMMITMENTS (continued)Operating leases (continued)

The master lease agreements for office equipment are with two suppliers with initial periods of 36 months effective from November 25,

2005. Upon expiry of the initial lease agreement on November 25, 2008, an extension of the lease was negotiated until November 24,

2009. In terms of these agreements the leases of individual equipment shall be valid at a fixed fee for the entire period.


Rm Rm Rm Rm

Finance lease commitments

Vehicles

2009

Minimum lease payments 187 47 140 –

Finance charges (38) (15) (23) –


2008




Buildings

2009

Minimum lease payments 1,652 111 545 995

Finance charges (822) (111) (426) (284)

Finance lease obligation 830 – 119 711

2008

Minimum lease payments 1,778 126 502 1,150

Finance charges (936) (114) (439) (383)

Finance lease obligation* 842 12 63 767

2007

Minimum lease payments 1,897 120 487 1,290

Finance charges (1,051) (116) (446) (489)

Finance lease obligation 846 4 41 801

Equipment

2009




*These prior year figures have been restated to include the finance lease obligation with regard to the Campus property.


Total <1 year 1 - 5 years >5 years

Rm Rm Rm Rm

34. COMMITMENTS (continued)Finance lease commitments (continued)

Equipment (continued)

2008

Minimum lease payments 16 – 16 –

Finance charges (2) – (2) –


2007

Minimum lease payments 6 – 6 –

Finance charges – – – –


Finance leases

Finance leases on vehicles relates to the lease of Swap bodies. The lease term for the Swap bodies is April 2008 to April 2013.

A major portion of the finance leases on buildings relates to the sale and lease-back of the Company’s office buildings. The lease term

negotiated for the buildings is for a period of 25 years ending 2019. The minimum lease payments are subject to an annual escalation

of 10% p.a. Telkom has the right to sublet part of the buildings. In case of breach of contract, the lessor is entitled to cancel the lease

agreement and claim damages.

Finance charges accruing on one of the Company’s building leases exceed the lease payments for the next three years. Minimum lease

payments for the next five years do not result in any income accruing to the Company.

Finance leases on equipment mainly relates to office equipment. The lease term negotiated for the finance leases is for the period of three

years ending in 2011.

35. CONTINGENCIESSupplier dispute

Telcordia instituted arbitration proceedings against Telkom in March 2001 before a single arbitrator of the International Court of Arbitration,

operating under the auspices of the International Chamber of Commerce. Telcordia is seeking to recover approximately US$130 million

for monies outstanding and damages, plus costs and interest at a rate of 15.5% per year which was increased by Telcordia to

US$172 million in the 2007 financial year and subsequently decreased to US$128 million in the 2008 financial year. The arbitration

proceeding relates to the cancellation of an agreement entered into between Telkom and Telcordia during June 1999 for the development

and supply of an integrated end-to-end customer assurance and activation system by Telcordia.

In September 2002, the arbitrator found that Telkom had wrongfully repudiated the contract and a partial award was issued by the

arbitrator in favour of Telcordia. Telkom subsequently filed an application in the South African High Court to review and set aside the partial

award.

On November 27, 2003, the South African High Court set aside the partial award and issued a cost order in favour of Telkom. On

May 3, 2004, the South African High Court dismissed an application by Telcordia for leave to appeal and ordered Telcordia to pay the

legal costs of Telkom.

On November 29, 2004, the Supreme Court of Appeals granted Telcordia leave to appeal. Telcordia filed a notice of appeal and also

petitioned the United States District Court for the District of Columbia to confirm the partial award, which petition was dismissed, along

with a subsequent appeal. Following the dismissal of the appeal, Telcordia filed a similar petition in the United States District Court of New

Jersey. The United States District Court of New Jersey also dismissed Telcordia’s petition, reaffirming the decision of the United States District

Court of Columbia. Telcordia appealed this dismissal, which was later dismissed by the Appeals Court of New Jersey.








35. CONTINGENCIES (continued)Supplier dispute (continued)

The appeal by Telcordia in the Supreme Court of Appeals was set down for and heard on October 30 and October 31, 2006. Following

the successful upholding of the appeal, Telkom filed an application for leave to appeal to the Constitutional Court on only the issue revolving

around the Supreme Court of Appeals’ failure to recognise Telkom’s rights of access to the courts under the South African Arbitration Act.

The Constitutional Court has since dismissed Telkom’s appeal with costs. The Constitutional Court judgment brought to finality the dispute

over the merits of Telcordia’s claim against Telkom and the parties reconvened the arbitration in May 2007 to deal with the amount of

damages to which Telcordia is entitled.

Two hearings were held at the International Dispute Resolutions Centre, or IDRC. The first hearing was held in London on May 21, 2007

and was a ’directions hearing’, in terms of which the parties consented to a ruling by the arbitrator setting out a consolidated list of

proposals and issues to form part of the damages hearing.

The second hearing was held in London at the IDRC on June 25 and 26, 2007 and dealt with the application by Telcordia for the striking

out of part of Telkom’s defence on the basis that Telkom had raised issues in its defence that had already been heard by the arbitrator prior

to his partial award. This application was dismissed by the arbitrator. The arbitrator also made a ruling compelling Telcordia to provide

certain particulars requested by Telkom with regard to the claims by Telcordia. In his ruling, the arbitrator also set out a list of issues for

determination of the damages.

The mediation took place in London in February and April of 2008 without success. In the interim the parties have agreed to the

appointment by the arbitrator of a third party expert to deal with the technical issues in relation to the software that was required to be

provided by Telcordia, who will make a recommendation to the arbitrator in dealing with the amount of the claims. A further hearing was

held before the arbitrator in October 2008 during which the arbitrator permitted Telkom to amend its statement of defence. Further hearings

were held before the software expert in November 2008 and he has made his report available. Further hearings took place before the

arbitrator in April 2009.

The parties have now agreed that the whole question of “integration” of the software will be done at an experts only hearing (no lawyers)

before Mr P Burns, a software expert in Johannesburg during October 2009. The hearings before the software expert will have an impact

on the quantum of the other claims. The arbitrator has confirmed that the final hearing will be from January 25 to February 10, 2010 in

Johannesburg.

Although Telkom is currently unable to predict the exact amount that it may eventually be required to pay Telcordia, it has made provisions

for estimated liabilities in respect of the Telcordia claim in the sum of US$70 million (R664 million), including interest and legal fees. Telkom

will be required to fund any payments to Telcordia from cash flows or the incurrence of debt and the amount of any damages above

Telkom’s provision would increase Telkom’s liabilities and decrease its net profit, which could have a material adverse effect on its financial

condition, cash flows and results of operations.

A provision has been raised based on management’s best estimate of the probable payments in this regard.

2007 2008 2009

Rm Rm Rm

Supplier dispute liability included in current portion of provisions 527 569 664*

The provision has increased from March 31, 2007 due to exchange rate movements.

* US$70 million (2008: US$70 million; 2007 US$70 million).


35. CONTINGENCIES (continued)Competition Commission

Telkom is a party to a number of legal and arbitration proceedings filed by parties with the South African Competition Commission alleging

anti-competitive practices described below. If Telkom were found to have committed prohibited practices as contained in the Competition

Act, 1998, as amended, Telkom could be required to cease these practices, divest these businesses and be fined a penalty of up to 10%

of Telkom’s annual turnover, excluding the turnover of subsidiaries and joint ventures, for each complaint for the financial years prior to the

dates of the complaints. The Competition Commission has to date not imposed the maximum penalty on any offender.

On July 31, 2008, Telkom received a summons issued by the Competition Commission requesting information in connection with

investigations being conducted by the Competition Commission into five complaints against Telkom described in greater detail below by

the Internet Service Association, MWEB, Internet solutions and Verizon SA Limited. The summons was subsequently withdrawn by the

Competition Commission following on agreement with Telkom in a co-operative process with the Competition Commission as part of the

Competition Commission’s ongoing investigations into these complaints. The investigation is expected to be finalised in the 2009 calendar

year.

As competition continues to increase, we expect that we will become involved in an increasing number of disputes regarding the legality

of services and products provided by us and third parties. These disputes may range from court lawsuits to complaints lodged by or against

us with various regulatory bodies. We are currently unable to predict the amount that we may eventually be required to pay in these

proceedings, however, we have not included provisions for any of these claims in our financial statements. In addition, we may need to

spend substantial amounts defending or prosecuting these claims even if we are ultimately successful. If Telkom is required to cease these

practices, divest itself of the relevant businesses or pay significant fines, Telkom’s business and financial condition could be materially

adversely affected and its revenue and net profit could decline. We may be required to fund any penalties or damages from cash flows

or drawings on our credit facilities, which could cause our indebtedness to increase.

Independent Cellular Services Provider Association of South Africa (ICSPA)

In 2002, the ICSPA filed a complaint against Telkom at the Competition Commission in terms of the Competition Act, alleging that Telkom

had entered into contracts with large corporations, providing large discounts with the effect of discouraging the corporates from using the

‘premicell’ device installed by their members. ICSPA also alleged various contraventions of the Competition Act by Telkom. Telkom provided

the Competition Commission with certain information requested. Telkom also referred the Competition Commission to its High Court

application in respect of utilisation of the ‘premicell’ device. The Competition Commission declined to refer the matter to the Competition

Tribunal. ICSPA then referred the matter to the Competition Tribunal on September 18, 2003. Telkom filed its answering affidavit on

November 28, 2003. ICSPA has taken no further action since then.

The South African Value Added Network Services (SAVA)

On May 7, 2002, the South African Value Added Network Services Providers’ Association, an association of VANS providers, filed

complaints against Telkom at the Competition Commission of the Republic of South Africa under the South African Competition Act, 89 of

1998, alleging, among other things, that Telkom was abusing its dominant position in contravention of the Competition Act, 89 of 1998,

and that it was engaged in price discrimination. The Competition Commission determined, among other things, that several aspects of

Telkom’s conduct contravened the Competition Act, 89 of 1998, and referred certain of the relevant complaints to the Competition Tribunal

for adjudication. The referred complaints deal with Telkom’s alleged refusal to provide telecommunications facilities to certain VANS

providers to construct their networks, refusal to lease access facilities to VANS providers, provision of bundled and cross subsidised

competitive services with monopoly services, discriminatory pricing with regard to leased line services and alleged refusal to peer with

certain VANS providers.









The South African Value Added Network Services (SAVA) (continued)

Telkom brought an application for review against the Competition Commission and the Competition Tribunal in the South African High

Court, in respect of the decision by the Competition Commission to refer the matters to the Competition Tribunal. Telkom is of the view that

the Competition Tribunal does not have jurisdiction to adjudicate these matters and argued that ICASA has the requisite jurisdiction. In the

review application, Telkom also sought to set aside the decision by the Competition Commission to refer the complaints to the Competition

Tribunal on the basis that the Competition Commission was biased, that the referral was out of time and that the Competition Commission

had not adhered to the memorandum of understanding between it and ICASA. Only the Competition Commission opposed the application

and filed an answering affidavit.

The main complaint at the Competition Commission was held over pending the outcome of the review application.

The application for review was heard on April 24 and 25, 2008. The South African High Court judge set aside the decision of the

Competition Commission to refer the SAVA complaints and the Omnilink complaint against Telkom discussed below to the Competition

Tribunal. The decision was made based on three grounds, namely that:

• the Competition Commission failed to comply with the peremptory provisions of the memorandum of understanding between the

Competition Commission and ICASA;

• the referral was out of time, on the basis that the agreements with the complainants to extend the time which the Competition Commission

was allowed to investigate the complaints were invalid; and

• the Competition Commission’s reliance on a report by the Link Centre created reasonable apprehension of bias, since some of the

complainants contribute financially to the Link Centre and the Link Centre’s advisory board includes employees of the complainants in

the SAVA complaints.

The judge did not make a decision on the question of jurisdiction (ie, whether ICASA or the Competition Tribunal has the jurisdiction to

deal with competition matters in the electronic communications industry).

On july 3, 2008, the Competition Commission filed an application for leave to appeal the decision of the High Court on the basis that

the judge erred on the issue of bias as well as his finding that issues surrounding the extension of time to investigate the issues constitutes

a ground for review. Telkom then filed an application for leave to cross-appeal on July 11, 2008. The main basis of Telkom’s cross-appeal

is that Telkom believes that the judge erred in failing to make a decision as to whether ICASA or the Competition Commission and

Competition Tribunal should deal with this type of complaint. The application for leave to appeal as well as the application for leave to

cross-appeal were granted by the Pretoria High Court on October 9, 2008. The parties are attending to the filing of the record of

proceedings before the High Court as well as the parties’ heads of argument, after which the Registrar of the Supreme Court of Appeal

will inform the parties of the date for the hearing. The main complaint before the Competition Tribunal will continue to be held over pending

the outcome of the appeal and cross-appeal.

This matter is not expected to be finalised within the 2010 financial year.

Omnilink

On August 22, 2002, Omnilink filed a complaint against Telkom at the Competition Commission alleging that Telkom was abusing its

dominance by discriminating in its price for Diginet services as against those charged to VANS and the price charged to customers who

apply for a Telkom VPN solution. The Competition Commission conducted an enquiry and subsequently referred the complaint, together

with the SAVA complaint, to the Competition Tribunal for adjudication. This matter is currently being dealt with together with the SAVA matter

discussed above.



Orion/Telkom (Standard Bank and Edcon): Competition Tribunal

In April 2003, Orion filed a complaint against Telkom, Standard Bank and Edcon at the Competition Commission concerning Telkom’s

discounts offered on public switched telecommunication services to corporate customers. In terms of the rules of the Competition

Commission, the Competition Commission, who acts as an investigator, had one year to investigate the complaint. Orion simultaneously

with the filing of the complaint, also filed an application against Telkom, Standard Bank and Edcon at the Competition Tribunal, for an

interim order interdicting and restraining Telkom from offering Orion’s corporate customers reduced rates associated with Telkom’s Cellsaver

discount plan.

The Competition Commission completed its investigation and decided that there was no prima facie evidence of any contravention of the

Competition Act. Orion however referred the matter to the Competition Tribunal in terms of section 51 of the Competition Act, which allows

for parties to refer matters to the Competition Tribunal themselves. Telkom has not yet filed its answering affidavit in the main complaint

before the Competition Tribunal. To date there have been no further developments on this matter.

The Internet Service Providers Association (ISPA)

In December 2005, the ISPA, an association of ISPs, filed complaints against Telkom at the Competition Commission regarding alleged

anti-competitive practices on the part of Telkom. The complaints deal with the cost of access to SAIX, the prices offered by TelkomInternet,

the alleged delay in provision of facilities to ISPs and the alleged favourable installation timelines offered to TelkomInternet customers. The

Competition Commission has formally requested Telkom to provide it with certain records of orders placed for certain services, in an attempt

to first investigate the latter aspects of the complaint. Telkom provided the Competition Commission with the information.

MWEB and Internet Solutions (IS)

On June 29, 2005, MWEB and Internet Solutions, or IS, jointly lodged a complaint with the Competition Commission against Telkom and

also requested interim relief at the Competition Tribunal. The complaint at the Competition Commission mainly deals with Telkom’s pricing

for ADSL retail products and its IP Connect products, the termination of the peering link between Telkom and IS, the wholesale pricing of

SAIX bandwidth for ADSL users of other internet service providers, the architecture of Telkom’s ADSL access route and the manner in which

internet service providers can only connect to Telkom’s edge service router via IP Connect as well as alleged excessive pricing for bandwidth

on Telkom’s international undersea cable. The application for interim relief at the Competition Tribunal dealt with allegations that Telkom

should maintain the peering link between IS and Telkom in terms of its current peering agreement, and demanded that Telkom treat the

traffic generated by ADSL customers of MWEB as traffic destined for the peering link and that Telkom upgrade its peering link to

accommodate the increased ADSL traffic emanating from MWEB and maintain a maximum of 65% utilisation. Telkom filed its answering

affidavit, and is awaiting IS and MWEB’s replying affidavit.

Since then, Telkom has entered into a new peering agreement with IS and has responded to numerous documentation and information

requests from the Competition Commission. To date neither MWEB nor IS has filed a replying affidavit in the interim relief application.

MWEB

On June 5, 2007, MWEB brought an application against Telkom for interim relief at the Competition Tribunal with regard to the manner

in which Telkom provides wholesale ADSL internet connections. MWEB requested the Competition Tribunal to grant an order of interim

relief against Telkom to charge MWEB a wholesale price for the provision of ADSL internet connections which is not higher than the lowest

retail price. MWEB further applied for an order that Telkom implement the migration of end customers from Telkom PSTS ADSL access to

MWEB without interruption of the service. Telkom raised the objection that the Competition Tribunal does not have jurisdiction to hear the

matter in its answering affidavit filed at the Competition Tribunal. Telkom still had to “plead over” as to the merits of the matter. Telkom also

filed an application in the Transvaal Provincial Division of the South African High Court on July 3, 2007 for an order declaring that the

Competition Tribunal does not have jurisdiction to hear the application for interim relief made to it by MWEB.









MWEB (continued)

The application before the High Court was set down for hearing during the first quarter of the 2009 financial year. The parties however

entered into settlement negotiations, which resulted in the withdrawal of the interim relief application at the Competition Tribunal by MWEB

as well as a withdrawal of the jurisdictional challenge filed at the South African High Court by Telkom. The parties are in further

negotiations.

Verizon SA Limited (Verizon)

Verizon filed a complaint against Telkom on March 22, 2007 alleging that Telkom charges an excessive price on services rendered to

Verizon, thereby inducing Verizon’s customers not to deal with Verizon, engages in exclusionary conduct through “margin squeeze” in

offering prices to end-users which are lower than the prices at which it sells rights of access to its infrastructure on a wholesale basis to

Verizon, and that Telkom engages in price discrimination against Verizon.

Internet Solutions (IS)

IS filed a complaint against Telkom at the Competition Commission during December 2007. The complaint alleges abusive conduct by

Telkom. IS specifically alleges that Telkom is charging excessive prices that bear no reasonable relation to the economic value of the goods

or services, that Telkom has raised the wholesale cost to downstream competitors, while also reducing the downstream retail price to clients;

engaging in margin squeeze, that Telkom has introduced a series of bundled products (namely Telkom Closer Products) that limit the ability

of rivals in particular markets to compete effectively, and Telkom is offering discriminatory prices in relation to a number of infrastructural

and service items that IS is compelled to purchase from Telkom.

While that complaint was being investigated by the Competition Commission, IS brought an application to the Competition Commission

for interim relief requesting: that Telkom be ordered to charge IS a wholesale price for telecommunication facilities to provide virtual private

network services to its customers no higher than the lowest retail price for such connection charged to Telkom’s VPN Supreme customers

and ordering that the costs of the application be paid by Telkom.

Telkom opposed the application by IS at the Competition Tribunal although it is unable to finalise its opposing papers due to difficulties

associated with the manner in which IS claimed confidentiality over the application. No further activity has taken place with regard to the

interim relief application to date.

Maredi Telecom and Broadcasting (Proprietary) Limited (Maredi)

Maredi served a notice of motion on Telkom, Ericsson SA and Telsaf Data (Pty) Limited on January 8, 2009. The matter relates to a tender

published by Telkom for the supply of point-to-point split mount microwave equipment. Maredi, Telsaf, Ericsson and a fourth company,

Mobax, were shortlisted. The tender was awarded by Telkom to Telsaf and Ericsson.



Maredi Telecom and Broadcasting (Proprietary) Limited (Maredi) (continued)

Maredi applied for a court order, with a court hearing date set for February 3, 2009, requesting that the court prevent Telkom from entering

into a contract with Ericsson and Telsaf or either party, and from ordering goods or services from Ericsson and Telsaf pursuant to the tender.

Maredi also requested an order that the court review and set aside the award of the tender to Telsaf and Ericsson or either of the

aforementioned parties, and refer the tender back to Telkom in order for Telkom to reconsider its award. Maredi alleged that there were

certain irregularities in the tender process in that Telkom did not follow fair procedures by failing to comply with its own mandatory

procedural requirements, that Telkom acted arbitrarily and in bad faith, that Telkom was biased in favour of Ericsson and that Ericsson should

have been disqualified as it failed to meet Telkom’s critical criteria as set out in the tender.

Numerous allegations in the application, including accusations against certain members of the Procurement Review Council and allegations

by Maredi of compliance by them to the technical critical criteria, were refuted by Telkom. Telkom and Ericsson opposed the application

and filed their respective opposing affidavits. Telsaf did not oppose the application. The matter was ultimately set down for hearing on

February 20, 2009 and Maredi’s application was dismissed with costs. However, Maredi is proceeding with a review application in the

ordinary course and Telkom is opposing the application.

Telkom is not currently able to predict when these disputes may be resolved or the amount that it may eventually be required to pay,

however, it has not included provisions for all of these claims in its annual financial statements. In addition, Telkom may need to spend

substantial amounts defending or prosecuting these claims even if it was ultimately successful. If Telkom were to lose these or future legal

and arbitration proceedings, it could be prohibited from engaging in certain business activities and could be required to pay substantial

penalties and damages, which could cause its revenue and net profit to decline and have a material adverse impact on its business and

financial condition. Telkom may be required to fund any penalties or damages from cash flows or drawings on its credit facilities, which

could cause its indebtedness to increase.

Telkom is party to various additional proceedings and lawsuits in the ordinary course of its business, which management does not believe

will have a material adverse impact on Telkom.

Negative working capital ratio

At each of the financial periods ended March 31, 2009, 2008 and 2007 the Company had a negative working capital ratio. A negative

working capital ratio arises when current liabilities are greater than current assets. Current liabilities are intended to be financed from

operating cash flows, new borrowings and borrowings available under existing credit facilities.








36. DIRECTORS’ INTERESTSST Arnold, RJ Huntley, E Spio-Garbrah, KST Matthews and VB Lawrence, five of Telkom’s Board members, are the South African

Government’s representative on Telkom’s Board of Directors. At March 31, 2009, the Government held 39.76% (2008: 39.42%, 2007:

38.83%) of Telkom’s shares.

B Molefe is a Public Investment Corporation (‘PIC’) representative on Telkom’s Board of Directors. As at March 31, 2009 the PIC held

15.63% (2008: 15.23%, 2007: 15.27%) of Telkom’s shares.

Beneficial Non-beneficial

Direct Indirect Direct Indirect

Directors’ shareholding (Number of shares)

2009

Executive

RJ September 90,815 1,820 – –

PG Nelson 19,182 – – –

109,997 1,820 – –

Non-executive

PG Joubert – 15,000 – –

D Barber – 1,200 – –

– 16,200 – –

2008

Executive

RJ September 7,155 – – –

Total 7,155 – – –

2007

Non-executive

TF Mosololi 455 – – –

Total 455 – – –

The directors’ shareholding changed between the balance sheet date and the date of issue of the financial statements and this has been

reflected in the above information.

2007 2008 2009

Rm Rm Rm

Directors’ emoluments 7 36 20

Executive


Non-executive



36. DIRECTORS’ INTERESTS (continued)Directors’ emoluments (continued)


R R R R R2009Emoluments per director:Non-executive 5,028,084 – – – 5,028,084

ST Arnold 1,030,000 – – – 1,030,000 B du Plessis 498,000 – – – 498,000 PSC Luthuli 642,000 – – – 642,000 KST Matthews 441,000 – – – 441,000 B Molefe 159,551 – – – 159,551AG Rhoda 124,001 – – – 124,001 RJ Huntley 533,000 – – – 533,000 Dr E Spio-Garbrah** 622,750 – – – 622,750 Dr VB Lawrence** 359,000 – – – 359,000 DD Barber 293,667 – – – 293,667 PG Joubert 302,778 – – – 302,778

Executive – 4,530,912 2,289,947 7,848,357 14,669,216

RJ September* – 3,555,800 1,841,396 7,430,452 12,827,648 PG Nelson* – 975,112 448,551 417,905 1,841,568



ST Arnold 1,124,373 – – – 1,124,373 B du Plessis 393,967 – – – 393,967 MJ Lamberti – – – – – PSC Luthuli 502,117 – – – 502,117 TD Mahloele 357,684 – – – 357,684 KST Matthews 501,217 – – – 501,217 TF Mosololi 174,960 – – – 174,960 M Mostert *** 229,433 – – – 229,433 DD Tabata 250,583 – – – 250,583 YR Tenza 305,633 – – – 305,633 PL Zim 5,333 – – – 5,333 B Molefe 20,497 – – – 20,497 A Rhoda 14,286 – – – 14,286 RJ Huntley 193,833 – – – 193,833 Dr E Spio-Garbrah** 273,841 – – – 273,841 Dr VB Lawrence** 286,176 – – – 286,176

Executive – 14,489,833 3,436,308 13,244,896 31,171,037

RJ September* – 2,453,757 3,436,308 13,218,772 19,108,837

CEO – 1,016,524 3,436,308 10,438,538 14,891,370 Acting CEO – 1,437,233 – 2,780,234 4,217,467

LRR Molotsane* – 12,036,076 – 26,124 12,062,200









36. DIRECTORS’ INTERESTS (continued)Directors’ emoluments (continued)

Performance Fringe and

Fees Remuneration bonus other benefits Total

R R R R R

2007

Emoluments per director:

Non-executive 2,641,168 – – – 2,641,168

NE Mtshotshisa 463,050 – – – 463,050

ST Arnold 353,719 – – – 353,719

TCP Chikane 32,670 – – – 32,670

B du Plessis 213,367 – – – 213,367

PSC Luthuli 205,417 – – – 205,417

TD Mahloele 166,667 – – – 166,667

K Matthews 109,643 – – – 109,643

TF Mosololi 214,417 – – – 214,417

M Mostert 232,417 – – – 232,417

DD Tabata 175,367 – – – 175,367

YR Tenza 321,767 – – – 321,767

PL Zim 152,667 – – – 152,667

Executive – 2,272,785 – 1,653,202 3,925,987

LRR Molotsane* – 2,272,785 – 1,653,202 3,925,987

Total emoluments – paid

by Telkom 2,641,168 2,272,785 – 1,653,202 6,567,155

* Included in fringe and other benefits is a pension contribution for LRR Molotsane of RNil (2008: R4,690; 2007: R295,462), RJ September of

R462,254 (2008: R280,261; 2007: RNil) and PG Nelson of R126,765 (2008: RNil; 2007: RNil) at March 31, 2009 paid to the Telkom Retirement

Fund.

** Foreign directors.

*** In the absence of an internal corporate finance division, and pending the structuring and staffing thereof, the Telkom Board resolved that it was in the best

interest of the Company and the shareholders to deploy the highest quality skills currently resident in Telkom, to evaluate, structure and make

recommendations to the Board on major transactions. During 2008 M Mostert led all efforts in this regard and was remunerated accordingly. Moreover

in compliance with the principles of good governance, the Board took legal advice and established that there was no conflict of interest arising out of

his involvement in the transaction evaluated.


37. RELATED PARTIESDetails of material transactions and balances with related parties not disclosed separately in the annual financial statements were as

follows:

2007 2008 2009

Rm Rm Rm

With joint venture:

Vodacom Group (Proprietary) Limited

Related party balances

Trade receivables 122 99 121

Dividend receivable 1,450 1,595 1,100

Trade payables (706) (691) (650)

Related party transactions

Revenue (1,510) (1,632) (1,781)

Expenses 2,974 3,050 3,066

Dividend received (2,700) (2,970) (2,600)

Audit fees 6 5 4

Revenue includes interconnect fees and lease and installation

of transmission lines.

Expenses mostly represent interconnect expenses.

With shareholders:

Public Investment Corporation

There were no material transactions between the Company and

the Public Investment Corporation.

Government




Revenue (2,458) (2,623) (2,767)

With subsidiaries:

Trudon Proprietary Limited (formerly trading as TDS Directory

Operations (Proprietary) Limited)




Dividend receivable 84 – –


Revenue (57) (59) (62)

Expenses 12 20 15

Dividend received (149) (120) (47)








2007 2008 2009

Rm Rm Rm

37. RELATED PARTIES (continued)With subsidiaries: (continued)

Swiftnet (Proprietary) Limited


Trade receivables – – 1


Loan from subsidiary – – 10


Revenue (16) (18) (17)

Expenses – – 1

Income includes data calls and billing fees.

Rossal No 65 (Proprietary) Limited


Accruals and other payables (148) – (342)

Loan to subsidiary – 30 –

The loan is unsecured, interest-free and has no fixed repayment

terms. The loan has been subordinated in favour of other creditors.


Dividend paid 110 115 59


Acajou Investments (Proprietary) Limited


(Accruals and other payables)/receivables (98) – 285


Dividend paid 98 119 72


Intekom (Proprietary) Limited


Accruals and other payables (5) (13) (23)


Expenses 7 8 10

Q-Trunk (Proprietary) Limited


Loan to subsidiary 30 26 22

Impairment of loan (30) (26) (22)

The loan is unsecured, interest-free and has

no fixed repayment terms. The loan has been

subordinated in favour of other creditors.


Expenses 6 6 6





2007 2008 2009

Rm Rm Rm


Special purpose entity – cell captive


Investment – sinking fund (refer to note 11) 535 535 535


Investment income (19) – –

Africa Online Limited (Africa Online)


Loan to subsidiary – 74 236


Trade payables – (4) –


Revenue – (4) –

Investment income – (2) (11)

The loan is unsecured and bears interest at 3 month

US$ LIBOR plus 5%. The loan has no fixed repayment terms.

Multi-Links Telecommunications (Proprietary) Limited (Multi-Links)


Loan to subsidiary – 840 5,225


Trade payables – (21) –


Revenue – (21) (55)

Investment income – (34) (178)

The loan is unsecured and bears interest at 3 month US$ LIBOR

plus 5%. The loan may be prepaid in full or in whole, provided

that each part prepayment may not be less than US$1 million.

The advances must be repaid on May 1, 2009, July 1,

2009 and January 29, 2010.

Telkom International (Proprietary) Limited


Loan to subsidiary – 1,985 1,985

Impairment of loan – – (874)

The loan has been used to purchase a 75% shareholding in

Multi-Links Telecommunications (Proprietary) Limited. The loan

is unsecured and has no fixed repayment term.





2007 2008 2009

Rm Rm Rm


Telkom Media (Proprietary) Limited


Loan to subsidiary – 326 471

Impairment of loan – (217) (471)

The loan is interest-free and has no repayment terms.

Telkom Foundation


Expenses 54 58 54

With entities under common control:

Major public entities




The outstanding balances are unsecured and will be settled in

cash in the ordinary course of business.


Revenue (400) (485) (445)

Expenses 206 201 180

Rent received (29) (21) (20)

Rent paid 18 18 19

Income with major public entities for the year ended March 31,

2007 has been restated due to additional BAN numbers being

included in our calculation of income with major public entities.

The effect of this is only on the disclosure of the related party

note and has a RNil effect on the Company’s profit.

Key management personnel compensation:

(Including directors’ emoluments)


Short-term employee benefits 108 114 54

Post-employment benefits 3 3 5

Termination benefits – 27 –

Equity compensation benefits 8 24 36

The fair value of the shares that vested in the current

year is R11 million (2008: R12 million; 2007: RNil).





37. RELATED PARTIES (continued)Terms and conditions of transactions with related parties

The sales to and purchases from related parties of telecommunication services are made at arm’s length prices. Except as indicated above,

outstanding balances at the year end are unsecured, interest-free (except for interest charged on overdue telephone accounts) and settlement

occurs in cash. Apart from the bank guarantee to the amount not exceeding R23 million (US$3 million) provided to Africa Online Limited,

there have been no guarantees provided or received for related party receivables or payables. Except as indicated above for the year

ended March 31, 2009, the Company has not impaired any amounts owed by related parties (2008: RNil; 2007: RNil). This assessment

is undertaken each financial year through examining the financial position of the related party and the market in which the related party

operates.

38. SIGNIFICANT EVENTSTelkom Renaissance

On November 14, 2008, Telkom’s Board of Directors approved the new organisation structure which is designed to fit Telkom’s defend

and growth strategy. The new structure is effective April 1, 2009 and is being managed through a project called Telkom Renaissance.

The Group has been restructured into three operating Business Units namely Telkom South Africa, Telkom International and Telkom Data

Centre Operations. The Telkom Renaissance initiative will occur over the next 24 months to ensure that all the necessary remodelling,

reorganising, revitalising and re-engineering happens in order to make the new structure function optimally.

This initiative is a complete transformation of the way Telkom focuses on servicing its customers and creating value for its stakeholders. It is

a positive, purposeful change towards a more accountable and competitive company. This change is a necessary part of Telkom’s strategy

to maintain and grow market share in South Africa whilst building a strong footprint on the African continent.

Capability Management

Telkom will seek to manage costs and address service delivery constraints by realigning its structure and resources to better match its

transforming information, communications and technology business.

The transformation of the communications industry and increasing market and competitive pressure has put communication companies such

as Telkom under increasing revenue and expense constraints while being required to improve customer service. As a result capability

management is designed to ensure that the capabilities needed to succeed in a converged communications market are established through

the optimal utilisation of external as well as internal capabilities, extracting efficiencies, where possible, through scale of a rapidly maturing

retail and wholesale market and better organised functional areas in a more deregulated and liberalised communications market.

Capability management includes the internal consolidation of certain functional areas and the optimisation of strategic supplier and service

provider relationships improving performance in other functional areas.

Capability Management will be concerned with assisting in addressing the margin and service delivery pressures by reassessing the

operational service delivery methodology currently deployed with a view of increasing flexibility, reducing expense while improving service

delivery across Telkom.

Given the challenges Telkom faces in rolling out broadband, converged and data services, maintaining our legacy network and expanding

our operations across the African continent, employees’ skills and performance must be aligned with our strategy to ensure financial,

operational and transformational targets, customer expectations and shareholder expectations are met.

The immediate objective therefore is to remodel service delivery. This is one of the strategic initiatives under Project Renaissance and will

focus on the following:

• Identify and assess existing capabilities;

• Establish a Telkom Capability Inventory;

• Determine future capability requirements;

• Identify and develop a set of optimal service delivery options for achieving current and future strategic objectives; and





38. SIGNIFICANT EVENTS (continued)Capability Management (continued)• Enable Telkom South Africa, Telkom International and Telkom Data Centre Operations to:

– Improve resource efficiency;– Improve capital productivity; and– Improve service delivery.

A memorandum of understanding was entered into between Telkom and organised labour which included issues such as the deferment ofthe Managed Services Partner outsourcing project implementation post April 2009 and the establishment of a restructuring forum where allrestructuring initiatives will be debated between the parties concerned.

Telkom Management Services (Proprietary) Limited (TMS)TMS was registered as a company during August 2008. Telkom’s Board approved the establishment of TMS as a part of Telkom’s strategicplan to grow revenue and expand geographic reach.

Appointment of directorOn November 10, 2008, Telkom announced the appointment of Mr Peter Nelson as Chief Financial Officer and director of the Companywith effect from December 8, 2008.

39. SUBSEQUENT EVENTSDividendsThe Telkom Board declared an ordinary dividend of 115 cents (2008: 660 cents, 2007: 600 cents) per share and a special dividendof 260 cents (2008: Nil cents, 2007: 500 cents) per share on June 19, 2009, payable on July 20, 2009 to shareholders registered onJuly 17, 2009.

Acquisition of MWEB Africa Limited and majority equity stake in MWEB Namibia (Proprietary) LimitedOn November 10, 2008, Telkom International (Proprietary) Limited, a wholly owned subsidiary of Telkom, announced it had entered intoagreements to acquire 100% of MWEB Africa Limited (‘MWEB Africa’) and 75% of MWEB Namibia (Proprietary) Limited (’MWEBNamibia‘) . The purchase price for the MWEB Africa Group including AFSAT and MWEB Namibia is US$55 million (approximately R498million) with a deferred payment of US$14,18 million due when the profits of MWEB Group for the year ended March 31, 2009 arefinalised. These shareholdings will be acquired from Multichoice Africa Limited and MIH Holdings Limited respectively, which are membersof the Naspers Limited Group.

MWEB Africa is an internet services provider in sub-Saharan Africa (excluding South Africa) which also provides network access servicesin some countries and is headquartered in Mauritius with operations in Namibia, Nigeria, Kenya, Tanzania, Uganda and Zimbabwe, anagency arrangement in Botswana and distributors in 26 sub-Saharan African countries.

The acquisition of MWEB is part of the Group’s strategy of growing its broadband and solidifying its market position through acquisitions.

The successful conclusion of the agreements being entered into is subject to conditions precedent, including regulatory approvals beingobtained in certain African jurisdictions.

Subsequent to year end, on April 21, 2009, the conditions precedent to the sale were fulfilled.

AT&T strategic agreementOn April 16, 2009, Telkom and AT&T, the global communications leader, entered into a strategic agreement which aims to extend AT&T’sglobal networking reach to sub-Saharan Africa and boost Telkom’s strategy to grow a strong ICT footprint on the African continent. Theagreement will allow both companies to explore ways to provide global seamless communication and technology solutions and servicesto multinational customers, ether based in or seeking to extend their operations in sub-Saharan Africa.

Under the terms of the memorandum of understanding, the two companies will begin work towards definitive agreements that would

• directly connect the Telkom regional network and the AT&T global network;

• deliver a wider geographic footprint of telecommunication services, in both sub-Saharan Africa and other global points;

• enhance mobile service capabilities for corporate customers in sub-Saharan Africa;

• extend global VPN (Virtual Private Network) services to support the state of art network requirements of customers either headquarteredin or seeking to expand sites in sub-Saharan Africa;

• explore other potential opportunities in areas such as Telepresence, hosting and professional services; and

• expand the existing global wholesale voice services relationship between Telkom Group and AT&T.





39. SUBSEQUENT EVENTS (continued)Telkom Media (Proprietary) Limited (Telkom Media)

On August 31, 2006, Telkom created a new subsidiary, Telkom Media (Proprietary) Limited, with a black economic empowerment (‘BEE’)

shareholding. ICASA awarded Telkom Media a commercial satellite and cable subscription broadcast licence on September 12, 2007.

On March 31, 2008, the Telkom Board took a decision to substantially reduce its investment in Telkom Media and as such Telkom Media

reduced its operational expenses and commitments to a minimum. Telkom Media did not meet the held for sale criteria at year end as

management were unable to sell the disposal group for its expected price and therefore decided to abandon it.

Subsequent to year end Telkom was approached by potential buyers of Telkom’s interest in Telkom Media and negotiations with the potential

buyer were concluded. On May 4, 2009, Telkom sold its 75% interest in Telkom Media to Shenzhen Media South Africa (Proprietary)

Limited for a nominal amount.

Disposal and unbundling of stake in VodacomIn 2008 Telkom announced a decision to dispose of its entire stake in Vodacom through selling of 15% of its stake to Vodafone, a whollyowned subsidiary of Vodafone Group plc and unbundling its remaining 35% stake to its shareholders pursuant to a listing of Vodacom onthe main board of JSE Limited.

On May 18, 2009 Vodacom was successfully listed on the main board of the JSE Limited and a special dividend of R19 was distributedto all Telkom shareholders. Telkom successfully completed the unbundling of Vodacom shares to its shareholders on May 25, 2009.

Bookbuilding of Vodacom Group (Proprietary) Limited sharesOn June 2, 2009, Telkom announced the successful completion of the accelerated bookbuilding of Vodacom shares, raising R1,540 millionfor "ineligible shareholders". The directors of Telkom, in consultation with Vodafone, determined that Telkom shareholders in the United Statesof America would be regarded as "ineligible shareholders" for the unbundling of Vodacom shares to shareholders of Telkom, which wascompleted on May 25, 2009, and would therefore not receive Vodacom shares in such distributions.

The proceeds from the offering, net of applicable fees, expenses, taxes and charges, will be distributed to the "ineligible shareholders" inproportion to their entitlement to Vodacom shares.

New York Stock Exchange listingGiven the current global economic climate and the absolute necessity for Telkom to reduce its cost profile, the Board has decided to delistfrom the New York Stock Exchange. Maintaining a listing in the United States of America is expensive and takes considerable managementtime. The methodology employed and discipline gained from Sarbanes-Oxley reporting requirements will be retained to ensure strictgovernance compliance and transparent financial reporting.

Telkom is comfortable that the Johannesburg Stock Exchange provides sufficient access to capital for both South African and globalinvestors. Telkom intends to maintain a level 1 American Depository Receipt programme to facilitate over-the-counter- trading in the UnitedStates of America.

Telkom Communications International (Proprietary) LimitedThe Abacus Financial Services (Mauritius) Limited issued a notice under section 265 (5) of the Companies Act 1984 that TelkomCommunications International (Proprietary) Limited has been dissolved with effect from May 12, 2009.

Other mattersThe directors are not aware of any other matter or circumstance since the financial year ended March 31, 2009 and the date of thisreport, or otherwise dealt with in the financial statements, which significantly affects the financial position of the Company and the resultsof its operations.





40. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTEDThe Company has not early adopted the following standards, interpretations and amendments that have been issued and are not yet

effective:

IFRS1 First-time Adoption of International Financial Reporting Standards: Cost of an Investment in a Subsidiary, Jointly Controlled Entity

or Associate (amended)

This amendment is effective for annual periods beginning on or after January 1, 2009. This standard is amended to allow an entity, in its

separate financial statements, to determine the cost of investments in subsidiaries, jointly controlled entities or associates (in its opening IFRS

financial statements) as one of the following amounts:

• Cost determined in accordance with IAS27

• At the fair value of the investment at the date of the transition to IFRS, determined in accordance with IAS39 Financial Instruments:

Recognition and Measurement

• The previous GAAP carrying amount of the investment at the date of transition to IFRS

This determination is made for each investment, rather than being a policy decision.

The amendment does not have an impact on the annual financial statements.

IFRS2 Share-based Payment: Vesting Conditions and Cancellations (amended)

This amendment is effective for annual periods beginning on or after January 1, 2009. The amendments to IFRS2 Share-based Payment

clarifies the definition of vesting conditions and the accounting treatment of cancellations by the counterparty to a share-based arrangement.

The amendment will not have a material impact on the Company’s financial statements.

IFRS2 Share-Based Payment: Group Cash-Settled Share-Based Payment Arrangements (amended)

This amendment is effective for annual periods beginning on or after January 1, 2010. The amendment clarifies how an individual

subsidiary in a group should account for some share-based payment arrangements in its own financial statements. The amendment will not

have a material impact on the Company’s financial statements.

IFRS3 Business Combinations (revised)

The revisions are effective for annual periods beginning on or after July 1, 2009 .The revised standard still applies the acquisition method

of accounting for business combinations, with some significant changes. For example, all payments to purchase a business are to be

recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income

statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value

or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The

revised standard will not have an impact on the annual financial statements.

IFRS7 Financial Instruments: Disclosures (amended)

The interpretation is applicable for annual periods beginning on or after January 1, 2009. The amendment requires enhanced disclosures

about fair value measurements and liquidity risk. The impact of the amendment is being evaluated.

IFRS8 Operating Segments

This standard is effective for annual periods beginning on or after January 1, 2009. The standard requires operating segments to be

identified on the basis of internal reports about components of the entity that are regularly reviewed by the chief operating decision maker

in order to allocate resources to the segment and to assess its performance. The impact of this standard is currently being evaluated.

IFRIC9 Reassessment of Embedded Derivatives (amended)


financial asset out of the ‘fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary,







40. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)IFRIC13 Customer Loyalty ProgrammesThe interpretation is effective for annual periods beginning on or after July 1, 2008. The interpretation requires loyalty award credits granted

to customers in connection with a sales transaction to be accounted for as a separate component of the sales transaction. The consideration

received in the sales transaction would, therefore, be allocated between the loyalty award credits and the other components of the sale.

IFRIC13 is not relevant to the Company’s operations because none of the Company’s companies operate any loyalty programmes.

Where the cost of fulfilling the awards is expected to exceed the consideration received, the entity will have to recognise an onerous

contract liability. The impact of this amendment is being evaluated.

IFRIC15 Agreements for the Construction of Real Estate

The interpretation is effective for annual periods beginning on or after January 1, 2009. The aim of this interpretation is to determine

whether an agreement for the construction of real estate is within the scope of IAS11 Construction Contracts or IAS18 Revenue.

This interpretation is not relevant to the Company’s operations as the Company does not construct real estates.

IFRIC16 Hedges of a Net Investment in a Foreign Operation

The interpretation is effective for annual periods beginning on or after October 1, 2008. The interpretation provides guidance in respect

of hedges of foreign currency gains and losses on a net investment in a foreign operation. This includes the fact that net investment hedging

relates to differences in functional currency and not presentation currency, and hedging instruments may be held anywhere in the Group.

The interpretation will not have an impact on the Company’s financial statements.

IFRIC17 Distributions of Non-Cash Assets to Owners

The interpretation is effective for annual periods beginning on or after July 1, 2009. The interpretation provides guidance on how an entity

should account for non-cash distributions to its owners and/or distributions that give owners a choice of receiving either non-cash assets or

a cash alternative. The impact of the amendment is being evaluated.

IFRIC 18 Transfer of Assets from Customers

The interpretation is effective for annual periods beginning on or after July 1, 2009.

IFRIC18 clarifies the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant and

equipment (‘PPE’) that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access

to a supply of goods or services. The IFRIC also provides guidance where an entity receives cash from a customer that must be used only

to acquire or construct an item of PPE in order to connect the customer to a network or provide the customer with ongoing access to a

supply of goods or services. The impact of this interpretation is currently being evaluated.

IAS1 Presentation of Financial Statement (revised)

The revised standard is effective for annual periods beginning on or after January 1, 2009.

IAS1R introduces a statement of comprehensive income with two optional formats and refers to the balance sheet and cash flow statement

by different names: the ‘statement of financial position’ and ‘statement of cash flows’, respectively. The revision to the standard will result

in changes in the way the annual financial statements are presented.

IAS7 Cash Flow Statement: Consequential Amendments arising from Amendments to IAS16

The amendment is effective for annual periods beginning on or after January 1, 2009. IAS7 as amended requires cash receipts and

payments relating to purchase, rental and sale of property, plant and equipment held for rental to be treated as cash flows from operating

activities. The impact of this amendment is being evaluated.

IAS23 Borrowing Costs (revised)The revised standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on orafter January 1, 2009. The revised standard requires all borrowing costs that are directly attributable to the acquisition, construction orproduction of qualifying assets to be capitalised. The Company does not expect the adoption of the standard to have a material impact.





40. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)IAS27 Consolidated and Separate Financial Statements (revised)The revisions are effective for annual periods beginning on or after July 1, 2009. The revised standard requires the effects of all transactionswith non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwillor gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured tofair value, and a gain or loss is recognised in profit or loss. The impact of the revised standard is being evaluated.

IAS27 Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate(amended)The amended standard is effective for annual periods beginning on or after January 1, 2009. The amended standard is for the followingchanges in respect of the holding company’s separate financial statements:

• The deletion of the ‘cost method’. Making the distinction between pre- and post-acquisition profits is no longer required. All dividendswill be recognised in profit or loss. However, the payment of such dividends requires the entity to consider whether there is an indicatorof impairment; and

• In cases of reorganisations where a new parent is inserted above an existing parent of the Group (subject to meeting specificrequirements), the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary rather than its fairvalue. The impact of this amended standard is currently being evaluated.

Amendment to IAS32 Financial Instruments Presentation and IAS1 Presentation of Financial Statements, Puttable Financial Instruments

The amendment is effective for periods beginning January 1, 2009. The amendments classify puttable financial instruments, or components

of instruments, that impose on the entity an obligation to deliver to another party a pro-rata share of the net assets of the entity only on

liquidation, as equity, provided they have particular features and meet specific conditions. The impact of this amended standard is being

evaluated.

IAS39: Financial Instruments: Recognition and Measurement (amended)


financial asset out of the ‘fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary,



IAS39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items (amended)

The amendment to the standard is effective for annual periods beginning on or after July 1, 2009. The amendment clarifies that an entity

is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. The

amendment will not have an impact on the financial statements as Telkom does not apply hedge accounting.





40. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)Changes as a result of the annual improvements project

A number of standards were amended as a result of the annual improvements project of the IASB in May 2008 effective for annual periods

beginning on or after January 1, 2009, with the exception of IFRS5 which is effective for annual periods beginning on or after July 1,

2009. These standards were as follows:

IFRS5 Non-Current Assets Held for Sale and Discontinued Operations

IAS1 Presentation of Financial Statements

IAS16 Property, Plant and Equipment

IAS19 Employee Benefits

IAS20 Accounting for Government Grants and Disclosure of Government Assistance

IAS23 Borrowing Costs

IAS27 Consolidated and Separate Financial Statements

IAS28 Investments in Associates

IAS29 Financial Reporting in Hyperinflationary Economies

IAS31 Interests in Joint Ventures

IAS36 Impairment of Assets

IAS38 Intangible Assets


IAS40 Investment Property

IAS41 Agriculture.

The Company will adopt the changes to these standards during the 2010 financial year with the exception of IFRS5, which will be adopted

during the 2011 financial year. The Company is currently evaluating the effects of the amendments.



Number of

shareholders % Holdings %

Range of shareholders

1 – 100 shares 68,789 71.69 2,392,802 0.46

101 – 1 000 shares 24,353 25.38 6,839,429 1.31

1 001 – 10 000 shares 2,031 2.12 5,683,371 1.09

10 001 – 50 000 shares 380 0.40 9,281,138 1.78

50 001 – 100 000 shares 157 0.16 11,252,414 2.16

100 001 – 1 000 000 shares 217 0.23 59,384,767 11.40

1 000 001 and more shares 33 0.03 425,949,977 81.80

95,960 100.00 520,783,898 100.00

Type of shareholder

Banks 147 0.15 56,436,518 10.84

Close corporations 163 0.17 236,071 0.05

Empowerment 1 0.00 37,506,809 7.20

Endowment funds 232 0.24 734,227 0.14

Individuals 91,625 95.48 11,570,245 2.22

Insurance companies 78 0.08 26,072,715 5.01

Investment companies 67 0.07 13,538,084 2.60

Medical aid schemes 20 0.02 437,317 0.08

Mutual funds 422 0.44 40,790,503 7.83

Nominees and trusts 2,438 2.54 2,869,011 0.55

Other corporations (including the Government of the

Republic of South Africa) 126 0.13 207,218,515 39.79

Own holdings 2 0.00 19,790,236 3.80

Retirement funds 350 0.36 101,615,937 19.51

Private companies 263 0.27 1,583,493 0.30

Public companies 25 0.03 375,871 0.07

Share trusts 1 0.00 8,346 0.00

95,960 100.00 520,783,898 100.00

Geographical holdings by owner

South Africa 95,522 99.54 447,187,584 85.87

United States 128 0.13 51,178,233 9.83

United Kingdom 99 0.10 15,573,222 2.99

Europe 65 0.07 5,506,841 1.06

Other 146 0.15 1,338,018 0.26

95,960 100.00 520,783,898 100.00

Beneficial shareholders of more than 2%

The government of the Republic of South Africa 207,038,058 39.76

Black Ginger 33 (Proprietary) Limited 46,604,996 8.95

Public Investment Corporation 34,773,817 6.67

Elephant Consortium NewShelf 772 (Proprietary) Limited 37,506,809 7.20

Liberty Group 18,151,712 3.49

Rossal No 65 (Proprietary) Limited Equities 11,646,680 2.24

355,722,072 68.31

Shareholder analysisat March 31, 2009


Holdings %

Public and non-public shareholders

Non-public shareholders 260,388,774 50.78

The Government of the Republic of South Africa 207,038,058 39.76

Empowerment 37,506,809 7.20

Government buffer account 9,461 0.00

Diabo share trust 8,346 0.00

Telkom Treasury Stock 19,790,236 3.80

Executive and non-executive directors* 83,544 0.02

Subsidiaries directors* 24,098 0.00

Public shareholders

Institutional and retail investors 256,323,346 49.22

520,783,898 100.00

* Director holdings consists of direct and indirect holdings.

The information above is based on registered shareholders, except where only beneficial shareholders’ information was available.

Shareholder analysis continued

at March 31, 2009




3GThe generic term, 3G, is used to denote the next generation of mobile

systems designed to support high-speed data transmission (144 Kbps

and higher) and Internet Protocol (IP)-based services in fixed, portable

and mobile environments. As envisaged by the ITU, the 3G system will

integrate different service coverage zones and be a global platform

and the necessary infrastructure for the distribution of converged

service, whether mobile or fixed, voice or data, telecommunications,

content or computing.

ADSL (ASYMMETRICAL DIGITAL SUBSCRIBER LINE)ADSL is a broadband access standard which uses existing copper lines

to offer high-speed digital connections over the local loop. ADSL

transmits data asymmetrically, meaning that the bandwidth usage is

much higher in one direction than the other. ADSL provides greater

bandwidth from the exchange to the customer (ie. downloading) than

from the customer to the exchange (ie. sending).

ARPUVodacom’s average monthly revenue per customer, or ARPU, is

calculated by dividing the average monthly revenue during the period

by the average monthly total reported customer base during the period.

ARPU excludes revenue from equipment sales, other sales and services

and revenue from national and international users roaming on

Vodacom’s networks.

ATM (ASYNCHRONOUS TRANSFER MODE)ATM is a high-speed Wide Area Network (WAN), connection-

oriented, packet-switching data communications protocol that allows

voice, data and video to be delivered across existing local and Wide

Area Networks. ATM divides data into cells and can handle data

traffic in bursts. It is asynchronous, in that the stream of cells from one

particular user is not necessarily continuous.

BANDWIDTHBandwidth is a measure of the quantity of signals that can travel over

a transmission medium such as copper or a glass fibre strand. It is the

available space available to carry a signal. The greater the

bandwidth, the greater the information carrying capacity. Bandwidth is

measured in bits per second.

BROADBANDBroadband is a method of measuring the capacity of different types of

transmission. Digital bandwidth is measured in the rate of bits

transmitted per second (bps). For example, an individual ISDN channel

has a bandwidth of 64 Kbps, meaning that it transmits 64,000 bits

(digital signals) every second.

CAGRCompound Annual Growth Rate.

CARRIER PRE-SELECTIONCarrier pre-selection is usually initiated by the telecoms Regulator.

It enables individuals to choose which telecom will carry their traffic

(mainly long distance) by a signalling contract rather than having to

dial extra digits.

CDMA (CODE DIVISION MULTIPLE ACCESS)CDMA is one of many technologies for digital transmission of radio

signals between, for example, mobile telephones and radio base

stations. In CDMA, which is a spread-spectrum modulation technology,

each call is assigned a unique “pseudorandom” sequence of

frequency shifts that serve as a code to distinguish it. The mobile phone

is then instructed to decipher only a particular code to pluck, as it were,

the right conversation off the air.

CIRCUITA circuit is a connection or line between two points. This connection

can be made through various media, including copper, coaxial cable,

fibre or microwave. A telephone exchange is a circuit switch.

DECT (DIGITAL ENHANCED CORDLESSTELECOMMUNICATIONS)DECT is the standard for cordless telephones. DECT phones

communicate using the PSTN (public switched telephone network)

through a small base station in the home or office and have a working

radius of between 50 and 300 metres.

EBITDAEBITDA represents profit for the year before taxation, finance charges,

investment income and depreciation, amortisation, impairment and

write-offs.

EDGE (ENHANCED DATA FOR GSM EVOLUTION)EDGE is a technology designed to enhance GSM and TDMA systems

with respect to data rates and is widely considered to be the GSM

evolution beyond GPRS. It enhances the data capabilities of GSM and

TDMA systems by altering the RF modulation scheme to allow greater

data rates per time slot. Because it uses a different modulation

technique across the air-interface, EDGE requires different mobile

terminals/ handsets than those designed for the GSM air-interface.

EFFECTIVE TAX RATEThe effective tax rate is the tax charge in the income statement divided

by pre-tax profit.

ETHERNETEthernet is a protocol that defines how data is transmitted to and

received from LANs. It is the most prevalent LAN protocol, with speeds

of up to 10 Mbps.

Definitions


EVDO (EVOLUTION-DATA OPTIMISED OR EVOLUTION-DATA ONLY)EVDO is a telecommunications standard for the wireless transmission of

data through radio signals, typically for broadband Internet access.

It uses multiplexing techniques including code division multiple access

(CDMA) as well as time division multiple access (TDMA) to maximise

both individual user’s throughput and the overall system throughput.

FIBRE OPTICSFibre optics is where messages or signals are sent via light rather than

electrical signals down a very thin strand of glass. Light transmission

enables much higher data rates than conventional wire, coaxial cable

and many forms of radio. Signals travel at the speed of light and do

not generate nor are subject to interference.

FIBRE RINGSFibre rings have come to be used in many fibre networks as it provides

more network resiliency: if there is a failure along a route and a ring is

broken, the direction of the traffic can be reversed and the traffic will

still reach its final destination.

FIXED ACCESS LINESFixed access lines are comprised of public switched

telecommunications network lines, or PSTN lines, including integrated

services digital network channels, or ISDN channels, and public and

private payphones, but excluding internal lines in service.

FIXED ACCESS LINES PER EMPLOYEETo calculate the number of access lines per employee the total number

of access lines is divided by the number of employees at the end of the

period.

FIXED-LINE PENETRATIONFixed-line penetration or teledensity is based on the total number of

telephone lines in service at the end of the period per 100 persons in

the population of South Africa. Population is the estimated South

African population at the mid-year in the periods indicated as

published by Statistics South Africa, a South African Government

department.

FIXED-LINE TRAFFICFixed-line traffic, other than international outgoing mobile traffic,international interconnection traffic and international Voice over InternetProtocol traffic, is calculated by dividing traffic operating revenue forthe particular category by the weighted average tariff for suchcategory during the relevant period. Fixed-line international outgoingmobile traffic and international interconnection traffic are based on thetraffic registered through the respective exchanges and reflected ininternational interconnection invoices. International Voice over InternetProtocol traffic is based on the traffic reflected in invoices.

FRAME RELAYFrame relay is a widely implemented telecommunications service

designed for cost-efficient data transmission for data traffic between

local area networks and between end-points in a wide area network.

The network effectively provides a permanent circuit, which means that

the customer sees a continuous, dedicated connection, but does not

pay for a full-time leased line.

GPRS (GENERAL PACKET RADIO SERVICE)GPRS is a packet rather than a circuit-based technology. GPRS allows

for faster data transmission speed to both GSM and TDMA (IS-136)

networks. GPRS is a packet-switched technology that overlays the

circuit-switched GSM network. The service can be introduced to

cellular networks by infrastructure.

GSM (GLOBAL SYSTEM FOR MOBILE)GSM is a second generation digital mobile cellular technology using

a combination of frequency division multiple access (FDMA) and time

division multiple access (TDMA). GSM operates in several frequency

bands: 400 MHz, 900 MHz and 1800 MHz. On the TDMA side,

there are eight timeslots or channels carrying calls, which operate on

the same frequency. Unlike other cellular systems, GSM provides a

high degree of security by using subscriber identity module (SIM) cards

and GSM encryption.

HSDPAHigh Speed Downlink Packet Access.

IASInternational Accounting Standards.

IFRSInternational Financial Reporting Standards.

INTERCONNECTIONInterconnection refers to the joining of two or more networks. Networks

need to interconnect to enable traffic to be transmitted to and from

destinations. The amounts paid and received by the operators vary

according to distance, time, the direction of traffic, and the type of

networks involved.

INTEREST COVERInterest cover is calculated by dividing EBIT by the net interest charge

in the income statement. It is a measure of income gearing.

ISDN (INTEGRATED SERVICES DIGITAL NETWORK)ISDN is a data communications standard used to transmit digital

signals over ordinary copper telephone cables. This is one technology

for overcoming the “last mile” of copper cables from the local

exchange to the subscribers premises, which has proved a bottleneck

for Internet access, for example. ISDN allows to carry voice and data

simultaneously, in each of at least two channels capable of carrying

64 Kbps. It provides up to 128 Kbps and a total capacity of 144

Kbps exist.

ITU (INTERNATIONAL TELECOMMUNICATIONS UNION)ITU is the global technical standard-setting body for

telecommunications services.

Definitions continued




LAN (LOCAL AREA NETWORK)A LAN is a group of devices that communicate with each other within

a limited geographic area, such as an office.

LEASED LINEA leased line is a telecommunications transmission circuit that is

reserved by a communications provider for the private use of a

customer.

LIBORLondon Interbank Offer Rate.

LOCAL LOOPThe local loop is the final connection between the exchange and the

home or office. It is also known as the last mile.

MICROWAVEMicrowave is radio transmission using very short wavelengths.

MMS (MULTIMEDIA MESSAGING SERVICES)MMS is a service developed jointly together with 3GPP, allows users

to combine sounds with images and text when sending messages,

much like the text-only SMS.

MOBILE CHURNVodacom’s churn is calculated by dividing the average monthly number

of disconnections during the period by the average monthly total

reported customer base during the period.

MOBILE PENETRATIONVodacom calculates penetration, or teledensity, based on the total

number of customers at the end of the period per 100 persons in the

population of South Africa. Population is the estimated South African

population at the mid-year in the periods indicated as published by

Statistics South Africa, a South African Governmental department.

MOBILE TRAFFICVodacom’s traffic comprises total traffic registered on Vodacom’s

network, including bundled minutes, outgoing international roaming

calls and calls to free services, but excluding national and incoming

international roaming calls.

MOU (MOBILE MINUTES OF USE)Vodacom’s average monthly minutes of use per customer, or average

MOU, is calculated by dividing the average monthly minutes during

the period by the average monthly total reported customer base during

the period. MOU excludes calls to free services, bundled minutes and

data minutes.

NET DEBTNet debt is all interest-bearing debt finance (long-term and short-term)

less cash and marketable securities.

NET DEBT TO TOTAL EQUITYNet debt to total equity is a measure of book leverage (gearing): net

debt in the balance sheet divided by total equity (the sum of

shareholders’ funds plus minority interests).

NGN (NEXT GENERATION NETWORK)A Next Generation Network is a packet-based network able to

provide services including telecommunication services and able to

make use of multiple broadband, QoS-enabled transport technologies.

It offers unrestricted access by users to different service providers.

OPERATING FREE CASH FLOWOperating free cash flow is defined as cash flow from operating

activities, after interest and taxation, before dividends paid, less cash

flow from investing activities.

PACKET SWITCHINGPacket switching is designed specifically for data traffic, as it cuts the

information up into small packets, which are each sent across the

network separately and are then reassembled at the final destination.

This allows more users to share a given amount of bandwidth. X.25,

ATM and frame relay are all packet switching techniques.

POP (POINT OF PRESENCE)A POP is a service provider’s location for connecting to users.

Generally, POPs refer to the location where people can dial into the

provider’s computer. Most providers have several POPs to allow low-

cost local access via telephone lines.

PSTN (PUBLIC SWITCHED TELEPHONE NETWORK)The PSTN is a collection of interconnected voice telephone networks,

either for a given country or the whole world. It is the sum of the parts.

It was originally entirely analog, but now increasingly digital (indeedin many developed countries digitisation has reached 100%), thesenetworks can be either state-owned or commercially owned. PSTN isdistinct from closed private networks (although these may interconnectto the PSTN) and from public data networks (PDN).

REVENUE PER FIXED ACCESS LINERevenue per fixed access line is calculated by dividing total fixed-line

revenue during the period, excluding data and directories and other

revenue, by the average number of fixed access lines during the

period.

RICARegulation of Interception of Communication and Provision of

Communication- related Information Act.

ROA (RETURN ON ASSETS)Return on Assets is calculated by dividing net profit (annualised) by total

assets.




ROE (RETURN ON EQUITY)Return on Equity is calculated by dividing net income by the average

of the shareholders’ funds.

SDH (SYNCHRONOUS DIGITAL HIERARCHY)SDH is used in most modern systems, where multimedia can be

transmitted at high speeds. The networks are shaped in a ring, so that

if there is a problem, the traffic can be redirected in the other direction

and the caller will not detect the interruption.

SMS (SHORT MESSAGE SERVICE)SMS refers to short, usually text-based messages sent by or to a

wireless subscriber. They are not delivered to the recipient instantly and

have some degree of transmission time delay. SMS messages are

usually limited to total character lengths of 140 to 160 characters.

SWITCHA switch is a computer that acts as a conduit and director of traffic. It

is a means of sharing resources as a network.

TOTAL INTEREST-BEARING DEBTTotal interest-bearing debt is defined as short- and long-term interest-

bearing debt, including credit facilities, finance leases and other

financial liabilities.

UMTS (UNIVERSAL MOBILE TELECOMMUNICATIONSSYSTEM)UMTS is the Western European name for the 3G WCDMA standard

adopted as an evolutionary path by the GSM world. However, it

utilises the radio spectrum in a fundamentally different manner than

GSM. UMTS is based on DCMA technology and the GSM standard

is based on TDMA technology.

VOIP (VOICE OVER INTERNET PROTOCOL)Voice over Internet Protocol is a protocol enabling voice calls to be

made over the Internet. Rather than a dedicated circuit being set up

between the caller and receiver, as with ordinary phone calls, the

voice conversation is digitised and transmitted over Internet Protocol

using packet-switched data networks.

WAN (WIDE AREA NETWORK)A WAN comprises LANs in different geographic locations that are

connected, often over the public network.

WAP (WIRELESS APPLICATION PROTOCOL)WAP is an application environment designed to bridge the gap

between the mobile and Internet worlds. It is a set of communication

protocols for wireless devices designed to provide vendor-neutral and

technology- neutral access to the Internet and advanced

telecommunications services.

W-CDMA (WIDEBAND CODE DIVISION MULTIPLE ACCESS)W-CDMA is a 3G mobile network that supports services like high-

speed Internet access, video and high quality voice transmission.

WIMAXWiMAX is a standard for extending broadband wireless access to new

locations and over longer distances. The technology is expected to

enable multimedia applications with wireless connectivity and typically

with a range of up to 30 km. It is a standard for fixed wireless access

with substantially higher bandwidth capabilities than cellular networks.

The emergence of further enhancements to the standard will enable

nomadic data communications across an entire metropolitan area

network linking homes and businesses to the core telecommunications

network. WiMAX can be viewed as a technology complementing

existing ADSL broadband offerings.




Many of the statements included in this annual report, as well as oral

statements that may be made by us or by officers, directors or

employees acting on behalf of us, constitute or are based on forward

looking statements within the meaning of the U.S. Private Securities

Litigation Reform Act of 1995, specifically Section 27A of the U.S.

Securities Act of 1933, as amended, and Section 21E of the U.S.

Securities Exchange Act of 1934, as amended. All statements, other

than statements of historical facts, including, among others, statements

regarding our mobile and other strategies, future financial position and

plans, objectives, capital expenditures, projected costs and

anticipated cost savings and financing plans, as well as projected

levels of growth in the communications market, are forward looking

statements. Forward looking statements can generally be identified by

the use of terminology such as “may”, “will”, “should”, “expect”,

“envisage”, “intend”, “plan”, “project”, “estimate”, “anticipate”,

“believe”, “hope”, “can”, “is designed to” or similar phrases, although

the absence of such words does not necessarily mean that a statement

is not forward looking.

These forward looking statements involve a number of known and

unknown risks, uncertainties and other factors that could cause our

actual results and outcomes to be materially different from historical

results or from any future results expressed or implied by such forward

looking statements. Among the factors that could cause our actual

results or outcomes to differ materially from our expectations are those

risks identified in the Sustainability report – Enterprise Risk Management

– Risk factors, including, but not limited to, the effect of global

economic and financial conditions on us, any changes to our mobile

strategy and our inability to successfully implement such strategy and

organisational changes thereto, our ability to turn around Multi-Links’s

financial performance; increased competition in the South African

communications and data communications markets; our ability to

implement our strategy of transforming from basic voice and data

connectivity to fully converged solutions, developments in the regulatory

environment; continued mobile growth and reductions in Telkom’s net

interconnect margins; Telkom’s ability to expand its operations and

make investments and acquisitions in other African countries and the

general economic, political, social and legal conditions in South Africa

and in other countries where Telkom invests; our ability to improve and

maintain our management information and other systems; our ability to

attract and retain key personnel and partners; our ability to replace

revenue, profits and cash flows previously received from Vodacom with

revenue, profits and cash flows from our existing and new businesses;

our negative working capital; changes in technology and delays in the

implementation of new technologies; our ability to reduce theft,

vandalism, network and payphone fraud and lost revenue to non-

licensed operators; the amount of damages Telkom is ultimately

required to pay to Telcordia Technologies Incorporated; the outcome of

regulatory, legal and arbitration proceedings, including tariff

approvals, and the outcome of Telkom’s hearings before the

Competition Commission and others; any requirements that we

unbundle the local loop, our ability to negotiate favourable terms, rates

and conditions for the provision of interconnection services and

facilities leasing services or if ICASA finds that we have significant

market power or otherwise imposes unfavourable terms and conditions

on us; our ability to implement and recover the substantial capital and

operational costs associated with carrier preselection, number

portability and the monitoring, interception and customer registration

requirements contained in the South African Regulation of Interception

of Communications and Provisions of Communication-Related

Information Act and the impact of these requirements on our business;

Telkom’s ability to comply with the South African Public Finance

Management Act and South African Public Audit Act and the impact of

the Municipal Property Rates Act; fluctuations in the value of the Rand

and inflation rates; the impact of unemployment, poverty, crime, HIV

infection, labour laws and labour relations, exchange control

restrictions and power outages in South Africa; and other matters not

yet known to us or not currently considered material by us.

We caution you not to place undue reliance on these forward looking

statements. All written and oral forward looking statements attributable

to us, or persons acting on our behalf, are qualified in their entirety by

these cautionary statements. Moreover, unless we are required by law

to update these statements, we will not necessarily update any of these

statements after the date of this annual report, either to conform them

to actual results or to changes in our expectations.

Special note regarding forward-looking statements


Telkom SA Limited

(Incorporated in the Republic of South Africa)

(Registration number 1991/005476/06

(JSE and NYSE share code: TKG)

ISIN: ZAE000044897)

(Telkom or the Company)

Notice is hereby given that the seventeenth annual general meeting of members will be held on Wednesday 16 September 2009 in The Bill

Gallagher Room, Sandton Convention Centre, Maude Street, Sandton, South Africa at 10:00 to conduct the following business:

1. To receive and consider the annual financial statements for the year ended 31 March 2009.

2. To elect Mr DD Barber as a director who in terms of the articles of association retires by rotation. Being eligible, Mr Barber is available for

re-election. His profile may be found on page 29 of the annual report.

3. To re-appoint Ernst & Young Inc as auditors of the Company, to hold office until the conclusion of the next annual general meeting of the

Company and to note that the individual registered auditor who will undertake the audit during the financial year ending 31 March 2010

is Mr R Hillen.

SPECIAL BUSINESSTo consider and if deemed fit, pass the following special resolutions:

Special resolution number 1

It is resolved that the Company’s articles of association be and are hereby amended as follows –

1. In article 1.1.1.58 in line 4 the words “and the Company’s subsidiaries expressly include Vodacom and its subsidiaries” are deleted

2. Article 1.1.1.66 is deleted.

Reason for and effect of special resolution number 1:

The reason for and effect of special resolution number 1 is to clean up the Articles by deleting all references in the Articles that are no longer

applicable, namely references to Vodacom, as Vodacom is no longer an associate company of the Company.

Special resolution number 2

RESOLVED THAT the directors of the Company be and are hereby authorised to approve the purchase by the Company, or by any of its

subsidiaries, of the Company’s ordinary shares subject to the provisions of the Companies Act, 1973, as amended, and the Listings Requirements

of JSE Limited (JSE) provided that:

a) the general authority granted to the directors shall be valid only until the Company’s next annual general meeting and shall not extend beyond

15 (fifteen) months from the date of this resolution;

b) any general purchase by the Company and/or any of its subsidiaries of the Company’s ordinary shares in issue shall not in aggregate in

any one financial year exceed 20% (twenty percent) of the Company’s issued ordinary share capital at the time that the authority is granted;

c) no acquisition may be made at a price more than 10% (ten percent) above the weighted average of the market value of the ordinary share

for the 5 (five) business days immediately preceding the date of such acquisition;

d) the repurchase of the ordinary shares are effected through the order book operated by the JSE trading system and done without any prior

understanding or arrangement between the Company and the counter party (reported trades are prohibited);

e) the Company may only appoint one agent at any point in time to effect any repurchase(s) on the Company’s behalf;

f) the Company or its subsidiary may not repurchase ordinary shares during a prohibited period;

g) the general authority may be varied or revoked by special resolution of the members prior to the next annual general meeting of the Company;

and

Notice of annual general meeting




h) should the Company or any subsidiary cumulatively repurchase, redeem or cancel 3% (three percent) of the initial number of the Company’s

ordinary shares in terms of this general authority and for each 3% (three percent) in aggregate of the initial number of that class acquired

thereafter in terms of this general authority, and announcement shall be made in terms of the Listings Requirements of the JSE.”

Having considered the effect on the Company of the maximum repurchase under this general authority, the directors are of the opinion that:

• the Company and the Group will be able in the ordinary course of business to pay its debts for a period of 12 (twelve) months after the date

of this notice of annual general meeting;

• the assets of the Company and the Group will be in excess of the liabilities of the Company and the Group for a period of 12 (twelve) months

after the date of this notice of annual general meeting which assets and liabilities have been valued in accordance with the accounting

policies used in the audited financial statements of the Group for the year ended March 31, 2009;

• the share capital and reserves of the Company and the Group will be adequate for the ordinary business purposes for a period of 12 (twelve)

months after the date of this notice of annual general meeting; and

• the working capital of the Company and Group are considered adequate for ordinary business purposes for a period of 12 (twelve) months

after the date of this notice of annual general meeting.

The Board will ensure that the Company’s sponsor provides the JSE with the necessary report on the adequacy of the working capital of the

Company and its subsidiaries in terms of the JSE Listings Requirements prior to the commencement of any share repurchase in terms of this special

resolution.

Reasons for and effect of special resolution number 2:

The reason for this special resolution is to grant the Company’s directors a renewable general authority or permit a subsidiary Company to acquire

ordinary shares of the Company. The effect of this special resolution is to confer a general authority on the directors of the Company to repurchase

ordinary shares of the Company which are in issue from time to time.

The Board has considered the impact of a repurchase of up to 20% (twenty percent) of the Company’s shares, being the maximum permissible

under a general authority in terms of the JSE Listings Requirements. Should the opportunity arise and should the directors deem it in all respects to

be advantageous to the Company to repurchase such shares, it is deemed appropriate that the directors be authorised to repurchase the

Company’s shares.

Additional disclosures required in terms of the JSE Listings Requirements

Directors and management – refer to pages 28 to 32 of the annual report.

Major shareholders – refer to page 3 of the annual report.

Directors’ interests in securities – refer to page 229 of the annual report.

Share capital of the Company – refer to page 196 of the annual report.

Directors’ responsibility statement

The directors, whose names appear on pages 28 and 29 of the annual report collectively and individually accept full responsibility for the accuracy

of the information pertaining to this special resolution and certify to the best of their knowledge and belief there are no facts that have been omitted

which would make any statement false or misleading and that all reasonable enquiries to ascertain such facts have been made and that this special

resolution contains all information required by the Listings Requirements of the JSE.

Litigation statement

The directors, whose names appear on pages 28 and 29 of the annual report , are not aware of any legal or arbitration proceedings, including

proceedings that are pending or threatened other than what has been disclosed on page 223, that may have or have had in the previous twelve

months a material effect on the Group’s financial position.

Material change

Other than the facts and developments reported on in the annual report which was posted to shareholders [with this notice/or similar wording],

there have been no material changes in the affairs or financial position of the Company and its subsidiaries since the date of signature of the

annual financial statements and the date of this notice.


VOTING AND PROXIESOrdinary shareholders are entitled to attend, speak and vote at the annual general meeting.

Ordinary shareholders may appoint a proxy to attend, speak and vote in their stead. A proxy need not be a shareholder of the Company.

Shareholders holding dematerialised shares, but not in their own name, must furnish their Central Securities Depositary Participant (CSDP) or broker

with their instructions for voting at the annual general meeting. If your CSDP or broker, as the case may be, does not obtain instructions from you,

it will be obliged to act in terms of your mandate furnished to it, or if the mandate is silent in this regard, complete the relevant form of proxy

attached.

Unless you advise your CSDP or broker, in terms of the agreement between you and your CSDP or broker by the cut off time stipulated therein,

that you wish to attend the annual general meeting or send a proxy to represent you at this annual general meeting, your CSDP or broker will

assume that you do not wish to attend the annual general meeting or send a proxy.

If you wish to attend the annual general meeting or send a proxy, you must request your CSDP or broker to issue the necessary letter of authority

to you. Shareholders holding dematerialised shares in their own name, or holding shares that are not dematerialised, and who are unable to

attend the annual general meeting and wish to be represented thereat, must complete the relevant form of proxy attached in accordance with the

instructions therein and lodge it with or mail it to the transfer secretaries.

Forms of proxy should be forwarded to reach the transfer secretaries, Computershare Investor Services (Pty) Ltd by no later than 10:00 on Tuesday

15 September 2009.

The completion of a form of proxy will not preclude a shareholder from attending the annual general meeting.

By order of the Board

Per: ML Lephadi

Group Secretary

10 July 2009


Notice of annual general meeting continued



Telkom SA Limited

(Incorporated in the Republic of South Africa)

(Registration number 1991/005476/06

(JSE and NYSE share code: TKG)

ISIN: ZAE000044897)

(Telkom or the Company)

(For completion by certificated shareholders and own-name dematerialised shareholders . Members entitled to attend and vote at the annual

general meeting may appoint one or more proxies to attend ,vote and speak at the annual general meeting in his stead.Such proxy/ies

need not be a member/s of Telkom.)

For use at the seventeenth annual general meeting of shareholders of Telkom to be held on Wednesday 16 September 2009 in The Bill Gallagher

Room, Sandton Convention Centre, Maude Street, Sandton, South Africa, South Africa at 10:00

I/We (name in BLOCK LETTERS)

Of (address in BLOCK LETTERS)

Being a member/members of the Company holding ordinary shares in the Company,

do hereby appoint:

of

or failing him/her

of

or

of

or failing him/her, the Chairman of the annual general meeting as my/our proxy to represent me/us at the annual general meeting to be held on

Wednesday 16 September 2009 at 10:00 or at any adjournment thereof, as follows:

For Against Abstain

1. To receive and adopt the annual financial statements for the year

ended 31 March 2009

2. To re-elect Mr DD Barber as a director in terms of the company’s articles of association

3. To re-appoint Ernst & Young Inc as auditors of the company, to hold office until the

conclusion of the next annual general meeting

4. Special resolution number 1

5. Special resolution number 2

and generally to act as my/our proxy at the said annual general meeting.

(Indicate with an “x” or the relevant number of shares, in the applicable space, how you wish your votes to be cast.)

Unless otherwise directed the proxy will vote as he/she thinks fit.

Signed at this day of 2009

Signature of member assisted by (where applicable)

Please read the notes on the reverse side hereof.

Form of proxy



1. A member entitled to attend and vote at the annual general meeting may appoint one or more proxies to attend, vote and speak in his/her

stead at the annual general meeting. A proxy need not be a member of the Company.

2. A shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the space(s) provided, with or

without deleting “the Chairman of the annual general meeting”, but any such deletion or insertion must be initialled by the shareholder. Any

insertion or deletion not complying with the aforegoing will be declared not to have been validly effected. The person whose name stands

first on this form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose

names follow. In the event that no names are

3. A shareholder’s instructions to the proxy must be indicated by the insertion of an “X” or the relevant number of votes exercisable by that

shareholder in the appropriate box provided. An “X” in the appropriate box indicates the maximum number of votes exercisable by that

shareholder. Failure to comply with the above will be deemed to authorise the proxy to vote or abstain from voting at the annual general

meeting as he/she deems fit in respect of all the shareholder’s votes exercisable thereat. A shareholder or his/her proxy is not obliged to use

all the votes exercisable by the shareholder or by his/her proxy, but the total of the votes cast and in respect of which abstention is recorded,

may not exceed the maximum number of votes exercisable by the shareholder or by his/her proxy

4. To be effective, completed forms of proxy must be lodged with the company’s South African transfer secretaries, Computershare Investor

Services (Proprietary) Limited, no less than 24 hours before the time appointed for the holding of the annual general meeting, excluding

Saturdays, Sundays and public holidays. As the annual general meeting is to be held at 10:00 on Wednesday, 16 September 2009 forms

of proxy must be lodged no later than 10:00 on Tuesday, 15 September 2009.

5. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the annual general meeting and

speaking and voting in person thereat instead of any proxy appointed in terms hereof.

6. The Chairman of the annual general meeting may reject or accept any form of proxy which is not completed and/or received other than in

compliance with these notes.

7. Any alteration to this form, of proxy other than a deletion of alternatives, must be initialled by the signatory.

8. Documentary evidence establishing the authority of the person signing this form of proxy in a representative or other legal capacity must be

attached to this form of proxy unless previously recorded by the Company or the transfer secretaries or waived by the Chairman of the annual

general meeting.

9. Where there are joint holders of shares:

• any one holder may sign this form of proxy; and

• the vote of the senior shareholder (for that purpose, seniority will be determined by the order in which the names of the shareholders appear

in the Company’s register) who tenders a vote (whether in person or by proxy) will

10. This form of proxy is not for completion by those shareholders who have dematerialised their shares (other than those whose shareholding is

recorded in their own name in the sub-register maintained by their Central Securities Depository Participant (CSDP). Such shareholders should

provide their CSDP, broker or nominee with their voting instructions.

South African transfer secretaries

Computershare Investor Services (Proprietary) Limited

Ground Floor, 70 Marshall Street

Johannesburg, South Africa, 2001

(PO Box 61051, Marshalltown, 2107)

Notes


directors’ responsibility statement - sharedata · 2011. 4. 4. · 140 telkom annual report 2009...

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