As JSE-listed Telkom progresses its extensive and wide-ranging restructuring programme, CEO Sipho Maseko on Monday outlined the headwinds it expected to face over the next six months.

The group, which delivered an improved financial performance over the six months ended September 30, explained that the telecommunications industry remained competitive, leading to strained margins.

Further, household spending remained under pressure from rising interest rates, a weak job market and labour challenges, as well as a poor economic environment and fragile credit environment.

Telkom itself suffered from declining fixed-line revenue, which could not be offset by rising data revenue, owing to ever-reducing data rates.

Fixed-line voice and interconnection revenues decreased 11% to R4.3-billion during the six months to September 30, while mobile revenue increased 55% to R1.4-billion.

“This is our bigger challenge,” Maseko said, stressing the need to better monetise the networks.

However, the company remained stable in a “tough environment”, with its multiyear cost reduction programme gaining traction, despite only being at the “beginning of the journey”.

In the first half of the current financial year, Telkom recorded strong cash flow, improved operating margins and a “healthy performance” from its mobile unit, with management able to curtail losses and improve the business going forward.

Operating costs had declined 8.3% in real terms and, with the consolidation of the fixed-line and mobile consumer units, efficiencies were improved.

The group’s total operating expenses, excluding depreciation and one-off items, decreased 2.4% to R9.2-billion, owing in part to a R199-million reduction in employee expenses, which had decreased to R4.7-billion, during the first half of the year.

Telkom’s employee complement during the first half of the year had been reduced, cutting 520 employees from the prior corresponding period’s staff complement of 19 316.

Telkom continued key initiatives such as staff efficiency programmes, leasing fewer vehicles and travelling fewer kilometres. The group’s marketing spend had also been cut, while security costs were reduced, particularly as Telkom sold noncore properties and consolidated its offices.

FINANCIAL PERFORMANCE
Telkom delivered “a pretty encouraging set of results” on the back of its turnaround, reporting a 14.9% rise in headline earnings a share to 261.7c during the six months under review.

This excluded one-off items such as retrenchment, voluntary early retirement and severance package costs of R325-million and the related tax impact of R91-million for the six months under review, as well as the R2.17-billion net curtailment gain on the post-retirement medical aid liability in the six months ended September 30, 2013.

Group earnings before interest, taxes, depreciation and amortisation (Ebitda), excluding one-off items, increased 12.1% to R4.4-billion, with a consolidated Ebitda margin increasing to 27.7%.

Telkom pointed out that its mobile business produced a solid performance with Ebitda loss improving 50.7% on the prior corresponding period.

The group was confident of an Ebitda break-even in Telkom Mobile, which had breached the two-million mark of active mobile subscribers, “sooner rather than later”.

The company also reported a first-half increase in free cash flow to R1.7-billion.

During the first six months of the year, net revenue remained stable at R13.3-billion – a 1.6% increase on the prior comparable period.

“We will continue to accelerate the positive momentum achieved in the past six months of the financial year. We are focused on improving customer service and are committed to stabilising Telkom to build a better future,” concluded Maseko.