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Moholi: We have a plan

Jun 10 2012 14:04 Edward-John Bottomley

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Cape Town – “Stay calm, we have a plan,” was the weekend message from Telkom’s management to shareholders when announcing its dismal annual results.

On Friday the company came out with a turnaround plan, shortly after declaring its first full-year loss since its 2003 listing.

Major investment in data-supply services will now have to salvage the group from its predicament. Telkom says it wants to become the leader in this market.

Nombulelo Moholi, Telkom’s chief executive, rightly said that it had been a “challenging year and challenging week” for the company.

Apart from Telkom’s poor results, a week ago government had pulled the plug on the company’s envisaged deal with the South Korean KT Corporation.

This transaction would have given Telkom a R3bn-odd capital injection in exchange for a 20% shareholding. KT, one of the foremost companies of its sort globally, would also have been able to provide Telkom with critical skills.

And no final dividend was declared for shareholders, who were unimpressed with the results. On Friday the Telkom share price fell close to its recent low of R20.

Moholi said Telkom would now focus on providing data services as it can compete seriously through its fixed-line network and 8ta, its cellular network.

“We will lead in data,” she said. “All our investments going forward will be into data. We no longer have the luxury of making mistakes.”

Over the next three years the company will allocate 20% to 25% of its turnover to capital expenditure. It plans to spend R18bn to R21bn on upgrading and expanding its fixed-line network and 8ta.

According to Moholi, Telkom will start offering 4G mobile broadband services next year, and in select regions link households with fibreoptic cables which will considerably increase broadband speeds.

Telkom will also focus on cloud-processing and converged services to merge fixed-line and mobile offerings.

According to Telkom chief financial officer Jacques Schindehütte, the company has 15 months to expand its fixed-line and mobile data significantly, or serious cost interventions will be required.

“The important thing is for us to remain calm and focused. The company has strong cash flows and a low debt ratio. We understand where the future lies and we are committed to it,” said Schindehütte.

He expects Telkom’s data and mobile services to produce 50% of the group’s revenue within two years.

The planned capex will be financed largely from its own sources, but Schindehütte indicated that additional capital could be borrowed on the capital markets.

The capital requirements for the turnaround plan were also the principal reason for the company not declaring a dividend.

Moholi said this was to deal with uncertainty and promote Telkom’s strategy of building value. In short: the company needs the money.

She also said paying out a dividend would in future be considered based on the company’s financial position.

Moholi said things could get worse before they get better. “But we are busy laying the foundation.”

With a smile she expressed the hope that God would be merciful next year.

Earlier in the week Communications Minister Dina Pule had indicated that Telkom might issue shares to raise capital, but on Friday Schindehütte said a rights issue was not needed at this point.

The loss suffered by Telkom is largely a result of the losses it experienced from its investment in Multi-Links in Nigeria. The latest results include a final R869m write-off on the investment.

On the operating front the group’s income for the year to end-March was 0.7% down on the previous year, at R33.1bn.

Headline earnings per share fell 33% to 324.7c.
nombulelo moholi  |  telkom
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