Maseko leads Telkom’s drive for turnaround

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BR Telkom 094 Independent Newspapers Telkom chief executive Sipho Maseko discusses strategy at his office in Pretoria. Photo: Simphiwe Mbokazi

Telkom has changed its fortunes significantly since chief executive Sipho Maseko took the reins on April 1 last year.

The old Telkom, known mostly for its failed acquisitions, dud projects, wasteful expenditure and poor leadership, has given way to a meaner, leaner organisation that has embarked on a multiphase turnaround strategy that is shifting its fortunes from the red.

Maseko took over the reins at a time when basic earnings had dropped by 45 percent, while headline earnings a share had tanked by 65 percent.

That year was arguably the most painful and chaotic for the partially state-owned group, which was evidenced by a more than 40 percent drop in its share price.

It resulted in former chairman Lazarus Zim stepping down and the unceremonious resignation of former chief executive Nombulelo “Pinky” Moholi, who was serving as the fifth chief executive in seven years at the time.

Maseko is Telkom’s sixth chief executive in nine years. In the sixteen months since he took over, Telkom’s share price has more than tripled from R14.80 to R52 on the JSE.

The company’s market capitalisation went up from about R10 billion in July last year to more than R26bn. This follows the initiation of the first phase of a turnaround strategy that consists of six chapters intended to get it out of a depressive state where revenue was pressurised by high costs and wasteful expenditure.

In the year-end results released last month, Maseko announced major plans to roll out fibre-to-the-home connectivity to more than 20 suburbs before the end of the year, and to deliver a fourth-generation high-speed wireless data standard, long term evolution (LTE), to a host of others countrywide.

Last month the company announced a partnership with the SA National Taxi Council, which will bring free wi-fi to taxi commuters travelling to various townships in Gauteng.

For the year to March, Telkom showed a profit after tax from continuing operations of R1.577 billion compared with R1.494bn previously.

Operating revenue increased 1.1 percent to R32.5bn, signalling a healthier balance sheet than in past years.

Gareth Mellon, the team leader for information and communication technology at Frost & Sullivan Africa, said the telecoms market was in the middle of major changes, with convergence in the industry producing a shift in competitive dynamics and a spate of mergers and acquisitions.

Telkom is the force behind a R2.6bn takeover of Business Connexion, a deal that has yet to be approved by the Competition Commission.

According to Mellon, Telkom’s activities over this period have been characterised by its willingness to confront the tough choices it faces – reducing high overhead costs, better utilising its infrastructure and repositioning itself within the local market.

“These commitments have certainly been well-received by investors,” he said.

Mellon added that if one considered the position Telkom was in just over a year ago, the strategy had certainly changed perceptions of the company’s position and the direction it was moving in.

“Some divisions of the company remain under significant pressure, but Maseko has been at pains to point out that the turnaround strategy requires a few years to produce meaningful results and that the company’s performance should be viewed as a whole. Saying that, the 2014 financial results were broadly positive and included a 2.1 percent reduction in operating costs,” he said.

Maseko said the company was far from completing its turnaround journey yet.

“The first chapter of our turnaround will be complete at the end of the current financial year. The story is that of six chapters over a two-year period where the first aim is to engage differently with regulatory and policy frameworks,” he said.

When Maseko took over as chief executive, the first step was to realise that although it was a dominant player in fixed-line operations, it lagged far behind and was 15 years late in entering the fast growing mobile space, which is dominated by MTN, Cell C and Vodacom.

With these dynamics at hand, Telkom’s mobile component has had to come up with innovative ways to manoeuvre around a duopoly market, and make the best of what Maseko calls “a horrible situation”.

Among the initiatives are a partnership between Telkom and MTN to share the former’s radio access network.

The transaction includes the potential extension of an existing agreement between the companies to include bilateral roaming, which will optimise costs and capital.

At the company’s investor day conference held in Centurion yesterday, Maseko said the focus would be to overcome four key challenges facing the company: fixed-line market declines, increased operating expenses, threats to its core business and performance challenges when pitted against its peers.

To underpin the company’s turnaround strategy going forward, Maseko said the business would be repositioned to achieve commercial sustainability through generating sustainable revenue streams and fulfilling a broader role in transforming the economic landscape.

After years of mayhem, the blue giant may finally realise its full potential if the current stock market indicators are anything to go by.

The shares gained 4 percent to close at R52 yesterday.



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