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Telkom looks to the future

Telkom's Acting Group CEO Jeffrey Hedberg has defined a plan to stabilise South Africa's leading telecommunications provider following today's release of the Group's interim results.

The interim results cover the six months ended 30 September 2010.

"The period under review has been challenging yet exciting," said Hedberg. "The crowning achievements are Telkom's delivery of the Soccer World Cup 2010 and the launch of 8•ta , our new mobile service."

Hedberg said the results painted a picture of an organisation under pressure. Revenue was down 5.4% to R17.6 billion, EBITDA down 0.6% to R5.1 billion and profit from continuing operations down 9.3% to R1.4 billion.

"It is essential to stabilise the business by allocating our resources more efficiently," said Mr Hedberg. "We are doing this through exiting the CDMA business in Nigeria, closing down non strategic parts of the business and focusing our international activities primarily on corporate customers. This focus allows us to allocate capital more efficiently to those areas of the business that deliver a customer solution and drive revenue growth and margin."

He said the introduction of 8•ta provided Telkom with an essential tool for retaining and growing the Group’s customer base and is expected to assist in differentiation by bundling mobile, fixed line and IT services for both the consumer and corporate segments.

"We are excited by the response that 8•ta has generated and we look forward to mobility complementing our suite of competitive products and services," said Hedberg.

He explained that the South African telecommunications industry was becoming more competitive, and the regulatory environment continued to pose challenges to all operators.

It is therefore imperative for Telkom to change the way it operates to defend its revenue and grow into new revenue streams.

"This is an enormous task given the complexity of Telkom's systems, networks and structures. Nevertheless, we have seen an increase in clarity and speed of execution across the organisation over the past weeks," said Hedberg.

This improvement in speed and momentum is creating a good opportunity for new management to stabilise the business and to improve the operational and financial performance of the Telkom Group.

Strategic plans for the future are based on eight focus areas across the business:

• Enhance the leadership engine
• Invest in human capital
• Resolve the cost conundrum
• A step change on regulatory and legal issues
• Shift the dial on customer focus and commercial capabilities
• Deliver converged services and solutions
• Drive commercially led network transformation
• Consolidate Africa businesses

"These measures are not exhaustive, but they provide clarity for the organisation as it steps into the future" said Hedberg.

Salient features for the six months under review include:

• Normalised operating revenue down 5.4% to R17.6 billion
  • Voice revenue decreased 19.1% to R6.9 billion
  • revenue increased 14.9% to R5.6 billion
    • ADSL subscribers increased 16.0% to 699,368
    • Calling plan subscribers increased 17.0% to 762,070
    • Managed data network sites increased 10.7% to 33,023
• Normalised operating expenses decreased 6.3% to R15.1 billion
• Normalised free cash flow increased 2.0% to R623
• Normalised fixed-line free cash flow increased 136.0%to R1,442 million
• Normalised EBITDA margin increased to 28.9% from 27.5%
• Normalised headline earnings per share from continuing operations decreased by 5.3% to 265.7 cents
• Normalised basic earnings per share decreased 6.8%o 260.2 cents per share.

Broadband revenue remained a growth area and more capital was being allocated to this revenue stream. Telkom will continue to promote broadband packages and focus marketing efforts on particular customer groups and the up-selling of the higher end broadband packages which offer substantial value. Entry-level ADSL packages with extremely competitive pricing will be promoted. ADSL subscribers increased 16.0% to 699,368 when compared to the 30 September 2009 reporting period.

To counter stiff competition on price for traditional data services, Telkom will focus on differentiating its service. Differentiators include the reliability of service level agreements and a move towards providing full communication and converged solutions, including mobility and data centre services.

Telkom remained committed to reducing costs in a manner that ensured sustainable long-term benefits. Operating expenditure decreased by 6.3% during the period under review.

Since the launch of 8•ta in October, the mobile network has signed up 186,033 customers to date. 8•ta is currently working with 51 dealers with 3,000 points of presence around South Africa, and is able to reach into semi-urban and rural areas through the use of independent micro distributors. 8•ta plans to launch fully converged products to corporate and other consumers in the first half of 2011.

After a year of operations, Cybernest has gained considerable traction in the market. Various industries, particularly mining and retail, have displayed a keen interest to focus on their core business. This has afforded Cybernest the opportunity to secure a number of notable deals ranging from hosting, storage, security, disaster recovery and messaging.

In addition, Cybernest has secured two total outsource deals. This is a considerable achievement as total outsourcing was planned to commence towards the end of this financial year. Non-Telkom revenue has increased 94.7% from a low base to R37 million.

The Telkom Group Board has mandated management to review options for the exit of the CDMA business. A number of expressions of interest have been received and these would be evaluated and quantified.