Telkom South Africa’s Results Stress Need to Reposition

Mergers, Acquisitions and Financial Results

Telkom's operating profit fell 9.3% in the first half to September, showing the financial imperative for the company to restructure and reposition itself. Profits came in at R6.6bn, down from R7.3bn, while its profit margin slid from 37.7% to 33,4%. The dip came despite a 9.8% growth in revenue to R29.8bn, showing the cash coming in is failing to reach the bottom line.

Much of Telkom's revenue and profit comes from its half-share in mobile operator Vodacom, which saw a 13.1% rise in customers to 35.7-million, revenue up 14% to R26bn, and net profit up 3.2% to R3.8bn. That let Vodacom declare an interim dividend of R3bn for the six months to September.

Telkom CEO Reuben September said he was pleased with revenue growth. The focus was now on the opportunities from data and higher-value services. Data streams were growing well, with a 96% rise in subscribers to its Do Broadband Internet service.

Telkom's data revenue rose 12.2% to R4.4bn, despite cutting the cost of some of its data services to face new rivals. Those are expected to enter the market after a landmark court ruling that gave numerous companies including Internet service providers the right to build their own networks.

Telkom revenue will diminish once those companies are no longer forced to lease their lines from Telkom. Its profit could be further eroded once consumers have a wider choice.

As competition hots up, with Neotel finally beginning to have an effect, Telkom is also focusing on improving its customer service and streamlining its contact centre network to be more accessible to the public.

It is also eyeing foreign expansion, largely based on its 75% stake in Nigeria's Multi-Links. So far Multi-Links is losing money but that should turn around as its subscribers grow, with nearly 1-million users added in the six-month period. Its other major acquisition Africa Online is also still loss-making. Telkom's renewed efforts to offer voice and data services in several African countries is seeing it pay $63m to buy into M-Web Africa and M-Web Namibia.

Business Day