Subscribe

Telkom continues to face challenges

Staff Writer
By Staff Writer, ITWeb
Johannesburg, 29 Apr 2015
Telkom continues to trim costs in a tough economic environment.
Telkom continues to trim costs in a tough economic environment.

Telkom says the operating environment continues to be challenging, as competitive pressures and regulatory interventions have not eased in the year to March.

Despite the tough trading environment, it says in a trading update, it has "managed to further stabilise the business and have performed reasonably well despite these challenges". The operator continues to see pressure on its fixed-line voice use and lease-line revenue streams, which it notes is in line with the trend reported at interim stage.

However, its mobile arm - which had been battling to gain traction - delivered a "commendable" performance driven by subscriber growth and higher average revenue per user.

At half-year, Telkom Mobile, which launched as 8ta four years ago, has just over two million subscribers, a year-on-year gain of 26.7%. In 2011, Telkom pushed out the timeframe for what was then 8ta to break-even on an operating profit basis by a year, to 2014, and expected it to only be cash-generative in 2015. Its break-even target is now the current financial year.

Telkom, which is busy with a turnaround and cost-cutting strategy, notes it has continued to focus on efficiencies and restructuring its cost base. "Although we managed to further improve on cost-efficiencies in certain areas, we experienced delays in the implementation of other initiatives. The delayed initiatives included the workforce reduction initiative and the renegotiation of certain key contracts."

During the year, it was also more "disciplined" with capital spending, which led to a lower capital spend to revenue ration.

Telkom's results for the year to March show its reported headline earnings per share will drop by as much as 40%, but stripping out non-core items, this measure of profitability will rise by as much as 60%.

The company makes the point that the full year results include items that cannot be attributed to its normal operations, so its figures have been normalised to provide better clarity to shareholders.

Basic earnings per share, on a reported basis, will come in between 10% and 30% lower than the 758.1c it stated last year. However, on a normalised basis, this measure will increase by between 100% and 120% compared to last year's 285.2c.

Headline earnings per share - a key measure of profitability - gain 40% to 60% on last year's 388c when normalised, but decline between 20% and 40% on a reported basis when compared to 2014's 861c.

Telkom explains the normalisation of its profit eliminates the effect of items such as the provision for retrenchment and voluntary service packages of R591 million, as well as tax benefits. It adds the increase in normalised basic earnings is mostly due to lower termination payments, which was partially offset by lower foreign exchange gains.

Share