Asha Speckman

Telkom slashed the outlook on its financial performance for the second time in almost nine weeks as earnings for the fixed line services provider took a nosedive during the six months to September.

The disappointing trading update follows the announcement two weeks ago that Telkom chief executive Pinky Moholi planned to step down early next year ahead of the expiry of her contract.

Yesterday proved a busy day for Telkom, which also announced two non-executive director appointees and revealed Attila Vitai, a telecoms veteran from Europe, as the managing executive for Telkom Mobile.

But even as the developments bode well for the company following a period of bad news, the market seemed unfazed as trading of Telkom shares remained relatively flat.

According to Bloomberg data, Telkom shares fell 1.9 percent to R16.19 and were trading 0.36 percent down at R16.44 by the close on the JSE.

Analysts said a further drop in earnings, following trading guidance provided in September, was no surprise.

Farai Mapfinya, an equity analyst at Sanlam Private Investments, said: “We are not surprised… Following the release of MTN, and subsequently Vodacom results, it was clear that neither 8ta nor Cell C had made any material impact in the market… We revised our forecasts downward after the initial trading statement and further [after] the results of MTN and Vodacom.”

Mapfinya said the losses in 8ta had possibly not “bottomed on the j-curve” and continued to widen losses over the period.

“Ratings agencies will certainly be looking at these results with great interest which may lead to further downgrades,” he added.

Telkom expected headline earnings a share from continuing operations to be between 78 percent and 83 percent lower than the comparative period last year. Earnings a share were expected to fall by between 62 percent and 67 percent for the period under review.

Telkom’s interim results will be published on Monday.

In a September trading report, Telkom attributed the earnings slump to increased provision for Competition Commission fines, while in the period up to August 31 revenue was flat and operating costs rose just below inflation.

Aslam Dalvi, an equity analyst at Kagiso Asset Management, said while Telkom’s shares “look cheap on certain fundamental metrics, this is outweighed by continued concerns around leadership, strategic direction and losses at 8ta. Until investors see… more clarity around the way forward, these issues will continue to weigh on the investment case.”

Meanwhile, Telkom appointed new directors Jabulane Mabuza, the president of Business Unity South Africa, and Kholeka Mzondeki, a chartered accountant.

Mabuza, a former taxi driver, serves on various boards including Hydrop Investments and he holds certificates in executive leadership skills from two US universities.

Mzondeki, also appointed to Telkom’s audit committee, is a BCom graduate from the University of Botswana and holds a diploma in investment management from the University of Johannesburg. She also serves on the boards of Reunert, Sentula and Bauba Platinum.

Telkom now has eight directors, the quorum to appoint a new chairman and the minimum required by its memorandum of incorporation. Telkom said its board would meet in due course to appoint people to sub-committees where necessary.

Lynn McGregor, a senior fellow at Stellenbosch University’s corporate governance unit, said of the appointments: “There might be enough technical experience and knowledge already. Telkom needs investment know-how and good accountants for the audit committee.”

Mapfinya would not speculate on the retention of Telkom executive leadership but said Vitai, a former chief executive of Vodafone’s operations in Hungary and Turkey, was a “great appointment” to 8ta, if he was provided the space to turn around the loss-making start-up. But he would have a tough job.

Spiwe Chireka, the manager of the International Data Corporation’s telecoms in Africa programme, said Vitai’s appointment was a “good thing” because expertise in the cellphone industry at the level 8ta required was limited locally.

She said Telkom’s new board appointments were not necessarily the best news because Telkom required “people who’ve got a conceptual view of the business”.