Johannesburg - Telkom is getting possibly the broadest make-over in its history with its sights over the next three years set on targets intended “to move [Telkom] from a position of decline to stabilisation”, chief executive Sipho Maseko said yesterday, while delivering a set of half-year results that convinced analysts of the parastatal’s positive divergence strategy.
The plan rests on the ability of Telkom to trim down costs, which has been a historical challenge for Africa’s largest fixed-line services provider, and implement new strategies effectively.
Maseko has been attacking costs aggressively during the months following his appointment in April. Yesterday he said Telkom aimed to reduce its external spend by 15 percent this year and by another 15 percent next year.
The company is implementing a multi-year cost sustainability programme, which will include the shrinking of the management structure by three layers and negotiations for suppliers to provide discounts of up to 15 percent. Suppliers would also be required to show Telkom their own cost efficiency programmes, Maseko said. Telkom’s property portfolio and leases continue to be reviewed.
The growth trajectory includes an intention to resume dividend payouts from 2015.
Maseko said the focus was on stabilising group revenues, which reflect the continued decline in turnover from fixed-line voice over the next two years and to emphasise growth of the revenues from the third year.
Telkom is in discussion with other parties regarding options for its mobile business.
“The capital appetite will effectively be less and it will cost us less,” Maseko said, declining to elaborate.
The company shaved 9 percent off its headcount of more than 20 000 staff following the completion of a voluntary severance package process during the six months to September. Telkom reduced its fleet by 7 percent and travel in the company has declined by 10 percent year on year, according to acting chief financial officer Deon Fredericks.
The earnings before interest, tax, depreciation and amortisation (Ebitda) margin was projected to grow between 1 percent and 2 percent annually during the period.
Operating expenses increased 2.4 percent to R12.4 billion during the six months to September. Employee expenses increased 3.6 percent to R4.9bn.
From a strategic point of view, Telkom is aiming to be an integrated provider of fixed and mobile solutions for consumers and business, while monetising opportunities in data. Mobile data revenue improved more than 50 percent during the period year on year and fixed-line data revenue improved by 3 percent.
Data revenue grew 3.4 percent year on year to R5.4bn as sales of smartphones and tablets increased significantly, but it was still insufficient to offset voice revenue decline, Fredericks maintained.
Telkom’s mobile business reported growth of 55.4 percent in revenue to R926m, as active mobile subscribers increased 6.9 percent 1.6 million. The mobile Ebitda loss increased 8 percent to R773m.
Operating revenue gained 0.3 percent to R16.2bn. Headline earnings a share rose 121.8 percent to R2.242, largely influenced by non-recurring items. Free cash flow declined to R33m from R1.5bn. Capital expenditure grew 49.5 percent to R3.2bn.
Telkom has invested in a next generation network that passes more than 158 000 homes and it launched an all internet-protocol core network this year.
Gareth Mellon, a senior industry analyst for information and communications technology at Frost & Sullivan Africa, noted that despite the substantial growth in headline earnings a share, the results were “largely driven by external forces rather than notable improvements in company performance”.
He said the results provided continued evidence of Telkom’s improved direction and the major investment in several technologies and services that include fibre-optic, Wi-Fi and ADSL products. This investment was “key to driving longer-term transformation”, Mellon said.
Greg Cort, a telecoms analyst for Old Mutual Investment Group’s Electus boutique, said potential options for the mobile business included an enhancement of its roaming agreement with MTN or a partnership with international players. Telkom could also reduce its cost of handset and device subsidies, focusing on a “bring your own device” strategy with cheaper service-only rates.
The share price yesterday rose 1.31 percent to R27.05. - Business Report