Telkom slides into loss for first time

Fixed-line operator Telkom has reported its first ever loss since it listed on the JSE in 2003, after writing down iWayAfrica and losing big on its Multi-Links sale. The company has also suspended dividend payouts.

Telkom this morning said it made a profit from continuing operations of R179 million in the year to March, off flat operating revenue of R33 billion. However, this was wiped out by a loss from discontinued operations of R269 million, leading to a loss of R90 million, compared with the R1.3 billion profit in 2011. Headline profit is R1.7 billion.

The company reported that its group earnings before interest, tax, depreciation and amortisation margin decreased from 28.1% to 25.8%, while its fixed-line earnings before interest, tax, depreciation and amortisation margin increased to 38.6%, from 36.8%.

Shares in the group slumped just after the market opened, dropping to R20.11, after losing 2.76% ‑ or 57c - on the opening price.

Group CEO Nombulelo “Pinky” Moholi says: “Telkom faces many challenges at the moment, but we will advance calmly, determined and focused on delivering on the promise of our business and strategy going forward.”

The company has taken “a number of significant steps towards securing a successful future for Telkom, and we began casting the foundation that will allow the group to compete well and build value in the future,” says Moholi.

“It was a year of clean-up and consolidation across the Telkom group. Our strategy going forward is clear and focused.”

Telkom's strategy includes leading in data, broadband and fixed-mobile convergence, growing Telkom Business's income through diversification, regaining competitiveness in the consumer market, consolidating its position as a wholesaler of choice, focusing on profitable market segments and services, and enhancing its operational efficiency.

Moholi says “much has been accomplished in terms of aligning the broader strategy and consolidating our operations, but there is much that still needs to be done”.

Telkom's results were hampered by a R896 million loss on its sale of Multi-Links and an impairment loss of R569 million on iWayAfrica's goodwill and assets.

The fixed-line operator sold Multi-Links last year for about R68 million, after spending around R3 million to gain control of the Nigerian operator. It wrote it down by more than R5 billion before deciding to exit the CDMA market in Nigeria.

Moholi says, while the sale faced more challenges than were anticipated, “management is satisfied that Telkom is now better positioned to focus on delivering better results in its core business without further distraction from non-aligned operations”.

Telkom's traditional market, fixed-line, continued to lose subscribers, falling below the four million mark recorded at half-year, to 3.995 million. About 12 years ago, Telkom had five million landline users.

Moholi says Telkom faced “continued erosion of the traditional fixed-line business with fixed-line traffic revenue decreasing by 8%”. She says Telkom managed to hold the fixed-line revenue decline to 2.8%.

Telkom reports that voice revenue dropped 6.5%, to R12.8 million, because of mobile substitution, which led to less voice minutes being used. Lower tariffs also impacted income.

“All categories of voice revenue, except mobile international and fixed-to-fixed revenue, declined and we expect traditional voice revenue to continue declining,” the operator says.

While ADSL subscribers gained 10% in the year, to reach 827 091, total data revenue dropped 1.7%, to R10.5 million, because of the non-inclusion of last year's benefits from the Fifa Soccer World Cup.

Moholi notes that demand for faster products at lower prices continued to put data revenue under pressure.

8ta - a key part of Telkom's future growth strategy - returned an earnings before interest, tax, depreciation and amortisation loss of R2.4 billion, an increase on the expected R2.2 billion loss. Next year, this loss is expected to come down by 20%.

The mobile operator reported revenue of R1.2 billion, from 1.48 million subscribers, the bulk of which are prepaid. A year ago, 8ta had 473.6 million active subscribers.

In a statement to shareholders, the operator says its commitment to its mobile strategy remains “steadfast”. 8ta currently has 1 782 of its own base stations, of which 1 351 are “on air”.

Telkom has decided not to declare a dividend for the current financial year. “While our current financial position should allow us to fund network transformation and build our data-driven mobile offering, the board has decided that it is prudent to allow for more internally-generated funding for the capital expenditures planned over the next three years.”

The telco says looking at internal funding should better position it to “weather uncertainties as we advance our value-building strategy”. Dividends will be considered on an annual basis, based on the performance of the group.

Capital expenditure is expected to range between 20% and 25% of revenue in the next financial year, which includes spending on 8ta. Over the next three years, Telkom anticipates spending between R18 billion and R21 billion.

During the year, Telkom spent R4.783 billion, a 5.3% increase on last year, which amounts to 14% of group revenue.