In South Africa, Telkom’s results are down and Vodacom’s are up

Mergers, Acquisitions and Financial Results

Profit from Telkom's core business of voice calls has dived a punishing 19% in the past six months, compounding its woes as it looks for ways to earn income in future.

Although its revenue has risen steadily, net profit plunged 17.1% to R3.7bn for the six months to September, triggering a 2% share price slip yesterday as investors mulled over its prospects.

Acting CEO Reuben September reiterated a three-point strategy of growing into Africa, boosting revenue from data services, and offering a combination of fixed and mobile services.

But with talks to sell its 50% stake in Vodacom under way, he could not say how it would continue to provide mobile services. One possibility is to team up with mobile operators in the different countries that it aims to enter.

Acting chief financial officer Deon Fredericks said it had been a difficult six months, with increased competition and initiatives to cut its fees to increase customer spending. Revenue rose 8.3% to R27.2bn, but basic earnings per share fell from 868c to 724c. Fixed-line business took a bruising, with net profit down from R5,3bn to R4.2bn and its profit margin slumping from 43.9% to 38.2%. September admitted Telkom had been too frugal in investing in infrastructure and customer service, and was paying the price to catch up.

The landscape was changing fast with new rivals and business models emerging. Telkom had to provide bundles of fixed and mobile offerings spanning voice and data services, and to take those into Africa, although acquisitions were becoming costlier.

Telkom lost its bid this month for 51% of Telkom Kenya, with its offer of $281m trumped by a $390m France Telecom bid.

Telkom hopes its acquisition of Africa Online (R150m) and MultiLinks (R2bn) will help it march into Africa. Africa Online offers internet services in nine countries. MultiLinks is a Nigerian fixed and mobile operator. However, Africa Online is making a loss and is not expected to go into profit for several years.

In parallel to the announcement that Vodacom was finally ready to strike its R7.5bn empowerment deal, despite uncertainty about its future ownership, CEO, Knott-Craig presented the company’s interim results . They showed continued phenomenal growth. Revenue rose 17.2% to R22.8bn and net profit rose 17.5% to R3.7bn for the six months to September 30. The profit margin slipped 0.5% to 33.3% but it lifted its dividend by 10% to pay R2.75bn to shareholders.

Customer numbers jumped 22,6% to 31.6-million. Vodacom has easily maintained its dominance over MTN in SA, despite wiping 2.9-million names off its list -- subscribers inactive for 13 months.

The average monthly spending of customers has fallen 4% to R119 each as the less affluent join. Knott-Craig sees the answer to that as converged services of broadband internet access, music, TV and mobile video. At present, 1,2-million people use its mobile internet website, 265000 connect their personal computers and laptops to the internet over its cellular network and 35000 people watch its mobile TV channels.

Business Day