Embattled telecommunications group Telkom has gained some traction in its attempt to return the group to sustainability and prepare itself for a “challenging future”.

Years of declining revenue and contractions in growth had been arrested and Telkom’s foundation had been “stabilised for future growth” during the year to March 2014, group CEO Sipho Maseko said on Friday.

Speaking at the JSE-listed group’s financial year-end presentation, in Pretoria, he said early steps were beginning to show positive results as the first phase of the group’s turnaround plan was completed.

“We have stabilised and [are now] fit for the future,” he noted.

The group had made good progress in correcting market distortions, as well as in strengthening its balance sheet.

Telkom had already resolved several long-term issues obstructing the beleaguered group’s path to profitability through the R12-billion impairment of a large portion of the group’s legacy assets in 2013, the conclusion of multiyear labour agreements, the settling of Competition Commission matters, successfully dealing with "unfair and uncompetitive" mobile termination rates and reviewing post-retirement medical aid liability.

This enabled the group to post higher earnings for the financial year, with headline earnings a share, excluding one-off items, rising 35.1% to 388c and basic earnings a share increasing from 268.5c in the prior year to 285.2c.

Telkom’s profit after tax from continuing operations reached R1.5-billion, excluding the R2.2-billion net curtailment gain in respect of a post-retirement medical aid liability and a R246-million related tax benefit.

Revenue remained flat at R32.5-billion, while earnings before interest, tax, depreciation and amortisation reached R8.4-billion during the year under review, a 3.8% rise on the year before.

The group had curtailed its loss making activities, including Mi-Way, and removed some volatility in earnings through the implementation of a hedge account in October.

Further cost efficiencies were achieved, with the group reporting a 2.1% decline in operating expenses to R18.2-billion, after focusing only on critical appointments, reducing bad debt by 46% and improving business processes.

During the 12 months to March, Telkom had cut its employee headcount by 1 000, or 9.6%, through a voluntary retrenchment process, leading to a 2.7% decline in employee expenses.

Selling, general and administrative expenses had also dropped 7.5% to R4.6-billion during the period under review.

To derisk the mobile business, reduce capital intensity and better manage its cost structure, Telkom had entered into an agreement that would see fellow telecommunications group MTN take over the financial and operational responsibility for the roll-out and operation of Telkom’s radio access network.

It also planned to buy information and communications technology (ICT) service provider Business Connexion for R2.67-billion, to expand its core business into ICT to bounce back into profitability and grow its enterprise unit.

“It was a great set of results, [but with] great challenges,” said acting CFO Deon Fredericks.

However, the operating environment would remain tough, he warned, pointing to a challenging economic environment, the impact of regulations, the significant pace of technological evolution, cost pressures, industry consolidation and competition placing further strain on Telkom.

Consumer price inflation increases exceeding 6% and a three-year labour agreement to increase salaries by 6.8% a year would add nearly R1-billion to costs.

But the group was now well positioned to mitigate these challenges, he concluded.