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19 November 2012

Telkom faces significant headwinds that can be overcome

Telkom has reached a pivotal crossroad, said outgoing Group CEO Ms Nombulelo Moholi today.

Ms Moholi has indicated her intention to step down from the role of GCEO in six months.

Announcing the Group's Interim Results for the six months ended 30 September 2012, Ms Moholi said, "We are confident that the headwinds we face can be overcome.

"Telkom is engaged in constructive dialogue with its key stakeholders to chart a successful way forward.

"While we anticipate government providing an understanding of its policy direction, we remain focused on achieving our current business strategy," said Ms Moholi.

Following events at the Company's recent AGM, where four non-executive directors were not re-elected to the board by a majority of shareholders, the Board has been reconstituted with the appointments of Mr Jabulane Albert Mabuza, Ms Kholeka Mzondeki and Mr Leslie Maasdorp.

The Board has also elected Mr Mabuza as the Chairman. The next step in the process will be the appointment of further directors and board committees.

Ms Moholi said the Company's short term priorities were to ensure management stability and to focus on business priorities. It was also essential to ensure that customer service was not impacted by recent events at the corporate level, and that ongoing constructive dialogue with minority and majority shareholders continues.

The Company's key business priorities included achieving leadership in data; growing Telkom Business revenue by diversifying its service portfolio; regaining competitiveness in the consumer market; consolidating Telkom's position as the wholesaler of choice; focusing on profitable market segments and services and enhancing the company's operational efficiency.

Telkom's future performance hinged on the company's ability to address several key issues, including filling an execution capability gap; resolving the future of the fixed-line business; an inappropriate termination rate regime; a rigid cost structure; regulatory obligations, and Government engagement.

The results for the half-year to September 2012 reflect the ongoing challenging environment for fixed-line incumbents.

Salient features of the results included:

• Revenue declined marginally by 1.5% to R16.1 billion
• Operating expenses increased 1.6 % to R15.6 billion
• Basic earnings per share decreased 64.5% to 30.2 cents
• Free cash flow of R1.5 billion
• HEPS from continuing operations decreased by 80.6% to 37.2 cents (largely due to the impact of the provision for the penalty handed down by the Competition Tribunal, higher employee expenses due to annual salary increases and lower fixed-line revenue)

There were also several areas of improvement recorded in the six months under review, including:

• ADSL subscribers increased 5.8% to 841,831
• Calling plan subscribers increased 5.7% to 843,491
• Managed data network sites increased 8.3% to 40,284
• Active mobile subscribers of 1,495,083 with a blended ARPU of R68.62
• Mobile business revenue increased by 198.3%, largely as a result of increased ARPUs and number of revenue generating subscribers.

Significant advances against achieving the company’s strategy has been achieved by its business units.

Telkom Business has improved sales performance and was tapping into a healthy pipeline of deals. It launched FMC commercial bundles offering pre-packaged voice, data and combo deals. Steady progress has been made with the expansion of Global Services capability and PoP's were now available in Ghana, Kenya and Tanzania. Co-location agreements have also been signed with six countries.

The Consumer division's roll out of 40 Telkom Express stores and 30 3rd Party retail channels is on track. The high-speed broadband pilot was launched and several improvements in customer service experience were initiated.

Telkom Mobile's prepaid subscriber increased 52.4% to 1.1 million since September 2011. Traffic volumes of on net voice increased by 65.4% and data increased by 93.6%. There has been substantial progress on innovation and first to market in areas such as unlimited voice, Google Freezone, free Wi-Fi in cabs, and data applications for Android devices.

A significant milestone was achieved by the Wholesale and Networks division with the replacement of the first TDM access switch with an all-IP concentrator at Craighall North exchange. The division experienced strong growth in services provided to its wholesale customers. New multi-year agreements were signed with key Wholesale customers and over 1 500 transmission backhaul links were provided to mobile operators.

Wholesale and Networks also successfully implemented the T-Wiz Connectivity Project in George and Witbank. Broadband connectivity was provided to selected schools and tablets provided to teaching staff.

Ms Moholi concluded that Telkom was determined to strengthen its competitiveness, improve its operating model and manage its financial resources carefully.

"We are taking action to ensure that we execute our strategy to build a stable, healthy company going forward," she said. "In line with this commitment, engagement with government and all other stakeholders is critical to charting a successful way forward."