TeleMasters' shift away from least-cost routing (LCR) to hosting clients on its own network is paying off, as net profit leapt about 10 times year-on-year.
In the three quarters to March, revenue declined to R79.8 million from R98.7 million for the nine months to June, while net profit has leapt dramatically, going from R257 080 to R2.6 million.
TeleMasters notes in its results commentary that profit was flat in the three months to March, which it says is "typical of the cyclical nature of business in South Africa, with lower calls made by customers during the January period each year".
The listed company also wrote off bad debt during that quarter, and increased its bad debt provision by R750 000.
TeleMasters says the operating results "reflect a substantial improvement in group profitability and ongoing sustainability of the group when compared to the prior period results".
It attributes the gains to the continued growth in uptake among its customers of new technology. TeleMasters has been migrating its base to its Digital Direct offering, because LCR became unsustainable when the Independent Communications Authority of SA's (ICASA) prescribed lower termination rates started to take effect.
ICASA has since mooted dropping interconnect rates all the way down to 10c in 2016, but this was put on hold after a court ruling sent the regulator back to the drawing board. Lower rates are currently in effect until October, after which revised tariffs must be implemented.
The group notes it has implemented its virtual PBX service and rolled out this service profitably, and its transition to new technologies has aided its margins. It is "positive" about the future and "believes that the profitability will continue to grow to higher levels in the coming periods".
TeleMasters adds it expects to increase cash reserves in the future, and has very low debt, as long-term liabilities are at R1.2 million.
However, it is currently involved in a legal spat with the Huge Group over invoices it says have not been paid. TeleMasters is claiming R4.3 million, which is secured against shares, while Huge has argued the invoices are wrong, and is counterclaiming R2.7 million, TeleMasters says.
Both companies are confident of being successful in the matter.
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