Telkom SA Limited

An overview of 2004

The benefit of our performance

Telkom Delegation:

Chief Executive Officer: Sizwe Nxasana

Chief Executive Officer: Telkom Foundation: Nkethelenga Vokwana

Group Executive: Regulatory & Public Policy : Nkenke Kekana

Chief Financial Officer : Kaushik patel

Contents

Overview of Telkom’s Financial Performance

Investing in South Africa

Investing in our customers

Investing in people

Investing in the future

Section 1

Last year’s financial performance

4,042

9,009

2003 2004

Operating free cash flow1

In ZAR millions

Strong cash flow growth

123%

1. Operating cash flow (after net finance charges and taxation, before dividends) less investing cash flow

314

864

2003 2004

Headline earnings per shareIn ZAR cents

Excellent earnings growth

175%

Delivering strong growth

Year ended March 31

Group financial highlights for 2004

9%9% group revenue growth

40%40% group EBITDA margins

Group capex 13%13% of revenues

Group return on assets of 18%18% Net debt to equity of 61%61%Total dividend of 200 cents per share

Our investments are paying off

Achievements are a result of our investment, over a long period in:

• South Africa• Customers• People• The future

While our past investments enable us to grow, continuing investments will ensure a sustainable future

The ICT sector contributes 6% to the South African GDP

Section 2

Our investment in South Africa

Investing in South AfricaEmpowerment: Top Empowerment Company 2004

Procurement spend from April 2001 to March 2004:• Black owned companies: R4.9 billion• Black empowered/influenced: R9.3 billion

478 black owned/empowered and influenced-companies dependent on Telkom for business

• 3000 companies employing over 600 000 people and 60% of whom depend on Telkom for business

• Telkom’s Enterprise Development & Affirmative Procurement

ICT BEE Charter• Telkom has been actively involved, through the ICT Charter

Working Group, on the drafting on the ICT BEE Charter

Investing in South AfricaConnecting communities

Total access lines: more than 4,8 million

Prepaid fixed-lines: 855 406

Total number of payphones: 175 178

Working with Universal Service Area Licenced operators for universal access

Investing in South AfricaCreating wealth

Government38%

Thintana15%

Public47%

Total individual Khulisa shareholders: 54 260

Total Khulisa shares: 4 465 686

Total stokvels: 424 with 217 300 holding

Total shares through stokvels: 4 682 986

Original Price

Price at 22/10

Increase in value

Original price

Price at 22/10

Increase in value

R22,40 R84,50277%277%

R26,60 R84,50218%218%

Investing in South AfricaCreating wealth (continues)

Khulisa offer Retail shares (General offer)

Share price at close of business

Investing in South AfricaCommunity Builder of the Year 2004

Telkom Foundation spend: R40,5 millionFocus on:

Education & Training– Maths, science and technology

– Example: North West Science Competition and science kits to Nyanga Senior Secondary School near Engcobo, Eastern Cape

ICT planning– Network computer laboratories with Internet

– Example: Connecting 33 schools via V-Sat, including Matladi Project Shool in Limpopo

Empowerment– Women, children and people with disabilities

– Example: Stop Women Abuse Helpline and Thlamelang School for the Physically Disabled

General projects– Disaster relief

Investing in South AfricaBuilding the knowledge economy

Support Government’s objectives to create jobs and develop the economy

ICT Learnership & Graduate Progamme• In partnership with ISETT SETA• Call Centre Learnership: training 264 unemployed learners• Project Management Learnership: 100 Telkom employees• Graduate Development Programme: Internship @ Telkom during

studies

Centres of Excellence & School of Accounting

Bursary schemes: R11 million to 787 participants

Investing in South AfricaNational Pride

South African Olympic Team

South African Paralympic Team

Telkom Charity Cup

Proudly South African

Swimming South Africa

Provide infrastructure of 2004 National Elections

Section 3

Our investment in customers

Investing in our customersCreating a world class network

Extensive capital programme during period of exclusivity

• Total fixed-line capital investment: R41.7 billion over 5 years

• R27.9 billion for network modernisation and line roll-out

Network digitisation – 99.9%

State-of-the-art National Network Operations Centre (NNOC)

• Integrated surveillance and management centre

Investing in our customersCreating a world class network

Primary hosting site has no single point of failure

Capability of “standalone” operation  

Powered by dual, inline UPS generators

Protected by five levels of security Handle any communications

bandwidth specification required Fully scalable systems

environment

Investing in our customersCustomer benefits

0

200

400

600

800

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Residential Business 2MB

2002 2003 2004

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100

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Investing in our customersSatisfying the need for data

Increased demand for data transmission and Internet access services

Investing in customersA fresh look @ products

Lifestyle-enhancing, value-adding and improved-convenience packages

The benefit of partnerships:• Improved service offerings• Superior technology

Investing in customersValue for money

Off-Peak

€ 0.00

€ 0.02

€ 0.04

€ 0.06

€ 0.08

€ 0.10

€ 0.12

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Local 3-minute calls

(Source: Tarifica, March 2004)

Prices are increased according to tariff regime – linked to CPI

Tarifica findings: Telkom rates are highly competitive and amongst the most affordable in the world

Rebalancing tariffs since 1997

Section 4

Our investment in people

Investing in PeopleReflecting society

Current situation:• Total of black employees: 56%• Total black management: 35%• Total female management: 19%

Our EE targets: 63%

42%36%

62%

41%35%

57%

35%31%

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10%

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30%

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Investing in peopleReflecting society: Promotions

57

%

43%

52

%

48%

68

%

32%

72

%

28%

72%

28%

73%

27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1998/1999 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004

Black White

Promotions in 2003/04: 73% blackRecruitment in 2003/04: 83% black

Investing in peopleReflecting society: Promotions

14%

86%

27%

73%

23%

77%

30%

70%

36%

64%

50%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1998/1999 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004

Female Male

Promotions in 2003/04: 50% femaleUp from only 14% in 1998

Investing in peopleA skilled workforce

1072 employees in leadership development programmes

Targeted Development Initiative aimed at females to accelerate technical development: 113 females in programme

Overall training in Telkom:• Total number of training days: 268 920• On average, 8 training days per employee• R390 million spent on training during past financial year

Investing in peopleCaring for our people

Initiated the Thuso Wellness Programme on 4 November

A result of Health Profile in 2003

Committed to strengthen health management strategy

First initiative: Combatting HIV/Aids• Voluntary Counselling Testing and Treatment Programme • Already more than 2500 employees in pilot voluntary testing• Programme will be country-wide• Future: Extend to spouses and dependants on employee’s

medical aid

Investing in peopleMaking ownership possible

Conditional share plan:• Maximum of 4% of issued share capital will be made available to

employees• Vesting after three years (over three-year period)

Share options (Diabo):• 2% at a strike price of R33.81• Four tranches from September 2003 to March 2006

Investing in peopleCreating alternative employment

Changing face of ICT landscape require different skills in different markets

Telkom’s Agency for Career Opportunities

Continuous consultation with unions

Investing in peopleManaging staff numbers responsibly

Current financial year: 1 869 affected positions

Three-year predicted number: 4 181 affected positions

Possible reductions likely to be driven largely by natural attrition and voluntary packages

Past five years: only 6.1% of total staff losses as a result of retrenchments

Investing in peopleBecoming an employer of choice

Measuring employee satisfaction to determine needs and areas of improvement

Develop and build on Corporate Culture to fit the requirements of our market

Create experience for customer through their interaction with our people

Section 5

Our investment in the future

Expansion beyond the borders

Aggressive mobile rollout in DRC Market share at 47%

Launched Vodacom Mozambique in Dec 2003

Opportunity for fixed-line to increase revenue from other African countries Traffic hubbing Network management Professional services Data services

93%93% growth in other African mobile customers

In thousands

306

773

1,492

2002 2003 2004Year ended March 31,

Accelerated managed liberalisation

Amended Telecommunications Act

Licencing of SNO

Carrier selection

Number portability

Further PSTS and reseller licences

VOIP (date to be determined by Minister)

Licencing of SNO

Carrier selection

Number portability

Further PSTS and reseller licences

VOIP

Legi

slat

ion

plan

Act

ual

2001 2002 2003 2004 2005 20062001 2002 2003 2004 2005 2006

New policy announcements on 2 September 2004 are in accordance with Telecommunications Act as Amended 2001New policy announcements on 2 September 2004 are in accordance with Telecommunications Act as Amended 2001

Investing in the futureOperating in a competitive landscape

Ministerial determinations:• Implementation of statutory provisions of

Telecommunications Act• Guard against a “big bang” approach to liberalisation• Minor implications on existing regulatory framework

Convergence Bill• Expect the Bill to be tabled in 2005• Urge for accelerated legislation• Expect to create clarity in future licencing regime

Viability of SNO and USALs

Consultation process

Interpretation of carrying of voice by VANs: may result in 300 potential public switched telephone service providers

Convergence legislation

Third National Operator and/or other serviced based licencees

Unclear how 2nd economy will benefit

Investing in the futureImpact of announcement on ICT sector

Concluding Remarks

Our achievements are a result of our investment, over a long period in:

• South Africa• Customers• People• The future

Telkom is a large player in the ICT environment and has contributed, and will continue to do so, in addressing poverty alleviation and underdevelopment in SA