South Africa: Neotel Says On Right Track

Mergers, Acquisitions and Financial Results

South African telecommunication company Neotel from which Namibia's Telecom is disinvesting, says it has already sorted out its finances. It says it is now on course to attain earnings before interest and tax by the end of the current financial year.

"Neotel is in a growth phase and in line with its stage of development, the company's capital expenditure results in significant cash outflows. Revenue growth is positive and the company is managing its costs," said Neotel in response to New Era's earlier report last week.

Only last week, Neotel's main shareholder, the Tata Group that has nearly 50 percent ownership through Tata Communications, announced losses of about US$13 million on its shareholding in Neotel for 2010/2011.

Telecom Namibia is in the process of offloading its shareholding in Neotel, giving the economic downturn as the reason.

Telecom Namibia joined hands with South African liberation war veterans, the MKhonto We Sizwe Military Veterans Associations, to form the CommuniTel consortium. The consortium holds 12.5 percent in the company. Neotel spokesperson Chuma Siswana says the sale of shares is a matter concerning CommuniTel consortium and does not concern Neotel.

Siswana says shareholders have never tried raising money on international markets, and the financial issues that have been dogging the company for the last four years have been sorted out.

It has been reported that for the 2009/2010 financial year, Neotel was in breach of various agreements with lenders on financial targets for quarterly earnings before interest, depreciation and amortisation on all four quarters of the last financial year.

The 2009/2010 financial losses shot up to N$1,15 billion in the previous financial year. Siswana says much of the reports on Neotel's finances were based on Tata Communications' regular financial result report to the USA Security and Exchange Commission over 18 months ago.

"Neotel's debt has since been restructured and is manageable," said Siswana, adding that shareholders such as Tata Communications support the company's capital restructuring and organisational evolution, to the next stage of its business.

"The restructuring has helped optimise the business. With the restructuring complete as of April 2011, Neotel is now fully focused on further developing a viable commercial model and customer-centric business," states the company.

The aim is to achieve earnings before interest and taxes and a positive cash position for the current financial year, with 30 percent year-on-year growth in business-to-business space and 50 percent year on year growth in consumer space.

"Neotel's medium term priority remains building an efficient, commercial and customer-centric platform, driven by a cost-conscious culture that ensures efficient customer acquisition," said Siswana.

Telecom Managing Director Frans Ndoroma, who also sits on the Neotel board, said although there was "a good business case at the time with early returns in the form of dividends, the economic downturn resulted in long-term returns - hence the decision to exit." According to Ndoroma, Telecom last paid N$429 million instalment for the shareholding at the end of April.