Johannesburg - While Telkom’s fixed line business continued to take a knock, it reported yesterday that its latest interim results indicated its mobile unit had helped to spur a jump in earnings, albeit off a low base.
Group net revenue increased 1.2 percent year on year to R13.45 billion for the six months to September.
It saw mobile services and subscription revenue increase by 40.5 percent to R1.2bn, while mobile data revenue increased 68.5 percent to R711 million and headline earnings per share, excluding one-off items, increased 13.9 percent to 280.6c.
Stabilise revenue
“We continued with our efforts to transform Telkom and stabilise revenue, while at the same time addressing the fixed and inefficient nature of our operating cost base,” Telkom chief executive Sipho Maseko said. “The challenges we faced during the period included increasing competition and a soft economy.”
Telkom is near the end of the first phase of a turnaround strategy that includes cutting jobs, outsourcing services – such as telephone directory printing – and selling some properties.
Earnings before interest, tax, depreciation and amortisation, excluding one-off items, improved 15.1 percent to R5bn, while operating expenses, excluding depreciation, decreased 2.3 percent to R9bn.
“On a normalised basis the results were good; they had good cost control and a healthy increase in data revenue, which led to good results,” Jean Pierre Verster, a portfolio manager at 36One Asset Management, said.
A key challenge for the company has included its fixed-line voice usage revenue, which fell 14.1 percent to R3.1bn, while interconnection revenue shed 17.9 percent to R598m.
The results caused Telkom’s shares on the JSE to climb by as much as 8.51 percent. The stock closed up 6.9 percent at R63.18, which valued the company at R33.3bn.
Capital expenditure rose by 20.4 percent to R2.3bn as Telkom expands its fibre and mobile networks. The company is also racing to develop its LTE or higher speed long-term evolution sites to compete with Vodacom and MTN.
Telkom is conducting a due diligence on Cell C.
“We are having a look. If our parameters are right we will be making the acquisition. We will not be reckless about it,” Maseko said.
Due diligence
“I haven’t had any offer rejected because I haven’t made one,” Maseko said. “I expressed an interest and I asked for due diligence. Based on the outcome of the due diligence, I will then be able to make an offer.”
Bloomberg reported last month that Oger Telecom had rejected Telkom’s R14bn offer for its 75 percent stake in South Africa’s third-biggest wireless phone operator.
“We are a number four player and Cell C is a number three player, and we think that getting these two together will make us deeply competitive in the future and that is why we are keen to explore that opportunity,” Maseko said.
Telkom, which is 40 percent owned by the government, launched a cellphone business five years ago to offset declining sales from its traditional operations. But that business faces a saturated market dominated by MTN and Vodacom.
Buying Cell C will give Telkom about 20 million cellphone users. However, the company is facing a consumer backlash due to slow network speeds.
Cell C labours under debts of e160m (R2.5bn) and last year agreed on a restructuring with bondholders, involving a three-year maturity extension to July 2018.
Telkom expects its cellphone unit to break even on an earnings before interest, taxes, depreciation and appreciation basis by the end of the financial year, as revenue from the division rose 41 percent to R1.2bn in the first half.
Mobile subscribers increased 11.5 percent to 2.3 million, while fixed-line customers gained 4.2 percent to 1 million.
* Additional reporting by Bloomberg and Reuters
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