Red flag raised for Telkom

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TelkomW Independent Newspapers. A Telkom advert. Photo: Leon Nicholas.

Matters have reached a critical point at Telkom as the company’s chief financial officer, Jacques Schindehutte, yesterday raised the red flag on the group’s dire profitability and the implications of the government’s delay in announcing options for the firm’s future.

Falling fixed-line revenues and a cost base that is fast catching up with revenue generation were some factors Telkom presented yesterday when it announced results for the six months to September.

It reported that operating expenditure increased by 1.6 percent to R15.6 billion during the half year, while group revenue declined 1.5 percent to R16.1bn.

While some of the problems were not new, Schindehutte said issues concerning costs had become acute and needed to be resolved within the next 12 months.

He warned that Telkom had not seen the worst. “The easy answer is the first half is not the worst it can get. The commercial viability of the company is at risk at the moment.”

Headline earnings a share dropped by 80.6 percent to 37.2c a share, partly due to an increase in the initial provision of R60 million for a competition penalty. The Competition Tribunal set the fine at R449m, which Telkom is appealing.

Schindehutte said: “Even if we strip out the fine it doesn’t dilute the core message that the group’s profitability is at risk.”

Chief executive Nombulelo Moholi said: “We can no longer afford to make mistakes.”

 

Schindehutte said Telkom would target property-related costs “in sync with the roll out of the new network”, which required less maintenance. He also said the company would review procurement.

Efficiencies would also be sought for labour and the cost of servicing rural areas, but he would not comment on the measures that would be taken regarding these costs.

Schindehutte said solutions could only be addressed once the company understood the implications of the government’s broadband roll-out and once the appointment of new leadership had been resolved.

He said if uncertainty remained, some areas of the country would be affected in terms of service delivery and this was clearly in contradiction with the government’s developmental plan.

Schindehutte said Telkom would, however, not be required to tap into the debt market within the next 18 months, but during this period needed to resolve its impasse with the government about Telkom’s developmental role while continuing as a listed firm. Management expected the board to resolve the matters by the end of the first quarter of next year.

Telkom’s new chairman, Jabu Mabuza, said both roles were “mutually exclusive”, however, the board was responsible for strategy. “The way I see it is the day shareholders give you strategy, they may as well come and run the company. We are not waiting for a strategy to be sent from government.”

Mabuza said the board would meet with the government to “share where we are” and with the company’s second-largest shareholder, the Public Investment Corporation, to discuss its governance concerns.

The board hoped to appoint at least two new members while it had not yet started to search for a chief executive.

“Clarity from government of course is necessary.

“What we expect to get from government is policy direction. Responsibility for the strategy sits with the board,” he said.

Telkom shares closed 2.2 percent higher at R16.



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