Integrated Report - Telkom

1 Refers readers to other sections within the Integrated reportRefers readers to online informationHow to access our information:Available onlineThe following icons assist in navigation:This icon indicates where non-financial information was externally assuredIntegrated Reportfor the year ended 31 March 2017 Our online Integrated Report for the year ended 31 March 2017 in pdf format and interactive html overview of our businessIntegrated performance snapshot 08 Our Report s basis of preparation 10 Who is Telkom 12 Transparency and accountabilityCorporate governance Report 101 Remuneration Report 107 Group financial statementsCondensed consolidated annual financial statements 130 Value creationHow our leadership supports 25value-creation Value creation 38 What is material in our value creation process 40 Our value-creation strategy 56 PerformanceFinancial capital 66 Productive capital 71 Intellectual capital 74 Human capital 76 Social and

2 Relationship capital 89 Natural capital 940104050203071001282464 AppendicesShareholder information 158 Notice of AGM 16006156 The information contained in this document is also available on Telkom s investor relations website South Africa SOC Ltd(Registration number: 1991/005476/30)JSE share code: TKG ISIN: ZAE000044897 Group company secretaryEphy MotlhammeTransfer secretariesComputershare Investor Services (Pty) LtdPO Box 61051, Marshalltown, 2107 SponsorThe Standard Bank of South Africa LimitedStandard Bank Centre30 Baker Street, Rosebank, 2196 Board of directorsJA Mabuza (chairman), SN Maseko (group chief executive officer), DJ Fredericks (group chief financial officer), SL Botha, GW Dempster, N Kapila, I Kgaboesele, K Kweyama, KW Mzondeki, F Petersen-Lurie, RG Tomlinson, LL von Zeuner, Dr H Tour Give us feedbackWe welcome feedback on our reporting for the financial year ended 31 March 2017.

3 Please send any suggestions for our Integrated Report 2018 to investor relations at generationADSL asymmetrical digital subscriber lineAGMannual general meetingASAadditional share awardsB-BBEE broad-based black economic empowermentBCOEB usiness Code of EthicsBSSbusiness support systemBYMB right Young Mindscapexcapital expenditureCDPC arbon Disclosure ProjectCEOchief executive officerCFOchief financial officerCPIC onsumer Price IndexCSIcorporate social investmentCSRcorporate social responsibilityDoAdelegation of authorityDTID epartment of Trade and IndustryDWDM dense wavelength division multiplexingEBITDA earnings before interest, taxation,depreciation and amortisationEEemployment equityERMenterprise risk managementESDenterprise and supplier developmentESOPE mployee Share Ownership Planexcoexecutive committeeFCFfree cash flowFLDPF emale Leadership Development ProgrammeFSPforfeitable share planFTTB fibre to the businessFTTC fibre to the cabinetFTTH fibre to the homeGCEO group chief executive officerGCFO group chief financial officerGDPgross domestic productHEPS headline earnings per shareHVAC heating.

4 Ventilation and air conditioningICASAI ndependent Communications Authority of South AfricaICTinformation and communicationstechnologyIFRSI nternational Financial Reporting StandardsIFTindependent field technicianI oTInternet of ThingsIIRCI nternational Integrated Reporting CouncilISOI nternational Standards OrganisationITinformation technologyITUI nternational Telecommunications UnionJSEJ ohannesburg Securities ExchangeKPIkey performance indicatorLEDlight emitting diodeLT Elong-term evolutionLT Ilong-term incentiveMOImemorandum of incorporationnomconominations committeeNPSnet promoter scoreOHSoccupational health & safetyOSSoperations support systemPATprofit after taxPVphoto voltaicremcoremuneration committeeROAreturn on assetsSMEsmall and medium-sized enterprisesSTIshort-term incentiveSVOS smart virtual office solutionsTA STelkom Audit ServicesTSRtotal shareholder returnVERP voluntary early retirement packageVSPvoluntary severance packageWOAN wholesale open-access networkWTCWeThinkCode601 An overview of our business01 An overview of our businessIntegrated performance snapshot 08 Our Report s basis of preparation 10 Who is Telkom 1279 Integrated performance snapshot40 970R MILLIONFY2017 Financial capital37 325R MILLIONFY2016 REVENUEH umancapitalNaturalcapitalLOST TIME INJURY MILLIONFY2016 FIBRE TO THEPREMISES106R MILLIONFY2017128R MILLIONFY2016 INVESTMENTIN FUTUREMAKERS680 and relationship capital*52R MILLIONFY201747R MILLIONFY2016 INVESTMENT IN Telkom SUBSCRIBERS2 986FY2017FY2016 MOBILE 84720

5 341FY2017FY2016FY2017FY2016422 CENTS PER SHAREFY2017270 CENTS PER SHAREFY2016 DIVIDENDPER SHAREFY2017FY201612 147R MILLION11 477R MILLIONDATA PER PER SHAREHEADLINE EARNINGSPER SHARE (HEPS) 654R MILLION6 040R 498R MILLION2 528R MILLIONMOBILE FEMALEEMPLOYEES5 8965 663R MILLIONFY2017FY2016 ELECTRICITYCONSUMPTIONFY2017FY2016 TOTAL CARBONFOOTPRINTFY2017 WATERCONSUMPTION**1 496 619 255 522 commentary, messaging and indicators in this Report exclude voluntary early retirement packages (VERPs) and voluntary severance packages (VSPs) of R66 million and the related tax impact of R13 million. The comparative numbers exclude VERPs and VSPs of R2 193 million and the related tax impact of R517 million.* This excludes BCX and Trudon** Comparative not provided due to change in methodology1001 An overview of our businessTelkom Integrated Report 201711JA Mabuza (chairman)SL BothaGW Dempster KW MzondekiN KapilaI KgaboeseleK KweyamaDr H Tour F Petersen-Lurie RG TomlinsonLL von Zeuner SN Maseko (group chief executive officer (GCEO))DJ Fredericks (group chief financial officer (GCFO))Our Report s basis of preparationOur 2017 Integrated Report aims to provide our stakeholders with insight on how we create value through our strategy, governance and performance and provide a view of our prospects.

6 To keep our Report concise, we focus on material themes that substantively affect our ability to create value for our Report is primarily prepared for our providers of financial capital and other stakeholders at large. It also serves as Telkom s communication on progress to the United Nations Global Compact in terms of human rights, labour, the environment, and our anti-corruption scope and boundaryThis Report covers the period 1 April 2016 to 31 March 2017. It addresses our divisions, Openserve and Telkom Consumer, and our subsidiaries, BCX and Trudon, unless otherwise stated. Effective from 1 April 2017, we formed a wholly owned subsidiary, Gyro, that is responsible for managing our masts and towers, as well as property development and property management services on behalf of the group.

7 This new subsidiary is included in our group operating structure on page the purpose of assurance of non-financial indicators, Trudon has been excluded on the basis of immateriality. The external assurance focused on the South African operations of Telkom company and must be noted that BCX is made up of numerous small companies that we are gradually incorporating on our journey towards full disclosure. Refer to page 96 for full disclosure of the findings by an independent assurer. Material matters determination processWe define our material matters as the factors that will substantively affect our ability to create value for our stakeholders over time. Refer to page 53 for our material themes and how we respond to them. Our process to determine material themes is on page assurance We adopted a combined assurance approach, which coordinates Telkom Audit Services (TAS), other independent assurers and risk management activities across the group.

8 Refer to page 102 for details of our combined assurance approach. Our Integrated Report was reviewed and approved by the executive committee (exco), audit committee and the & Young Inc (EY) and Nkonki Inc are joint external auditors who provided assurance over our consolidated annual financial statements and expressed an unqualified opinion (refer to page 10 of the consolidated annual financial statements) available ESG Assurance provided assurance over certain non-financial indicators relating to the sustainability elements of the Report (refer to the assurance statement) available online. Assured indicators are indicated with this icon throughout the suiteOur reporting suite, where they can be found online, our reporting frameworks, and a summary of the assurance of the reports, are outlined in the table looking statements Certain statements in this document may constitute forward looking statements.

9 Such statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the group to be materially different from the future results, performance or achievements expressed or implied by such forward looking statements. The group undertakes no obligation to update publicly or release any revisions to these forward looking statements to reflect events or circumstances after the date of this document, or to reflect the occurrence of anticipated events. These were not reviewed or reported on by the group s Telkom board acknowledges its responsibility for ensuring the integrity of this Integrated Report . The board confirms that it collectively reviewed the Report s contents and leveraged off the assurance obtained from our various internal and external assurance providers, including assessments on risk and internal controls.

10 The board is of the view that Telkom s Integrated Report addresses key material matters to its stakeholders decision-making. The board approved the Report on 3 July in preparing this Report We use the International Integrated Reporting Council s (IIRC) Integrated Reporting <IR> Framework as well as the United Nations Global Reporting Initiative G4 Sustainability Reporting Guidelines in compiling this Report . This Report shows the connection between our strategy, material themes, governance, performance and prospects. We apply the lens of the six capitals to ensure we provide a balanced view of our value creation. We renamed manufactured capital to productive response to our stakeholders feedback, we introduced a strategy section in the Report (page 60), articulating our new operating model which is effective from 1 April providerIntegrated Report > IIRC <IR> Framework> King Report on Corporate Governance for South Africa 2009 (King III)> Companies Act of South Africa, 71 of 2008, as amended (Companies Act)> Management oversight> Audit committee> BoardConsolidated annual financial statements*> International Financial Reporting Standards (IFRS)