Hefty earnings rise for Telkom

By Phillip de Wet for Telkom
Johannesburg, 16 Jan 2003

Telephone network operator Telkom has reported a 76.5% increase in headline earnings per share to 123.9c for the six months to end-September.

"Our interim results show the continued delivery of our strategy to grow earnings through achieving greater operational efficiencies by improving productivity levels and cutting costs," says CEO Sizwe Nxasana.

"We have also been effective in reducing capital expenditure and repaying debt."

The group, which plans to list on the Johannesburg and New York stock exchanges by the end of next month, achieved 10.9% growth in revenue from R16.52 billion to R18.32 billion, which Nxasana says is largely due to customer growth in the mobile segment.

Telkom has a 50% stake in mobile phone operator Vodacom.

Nxasana says the mobile segment, which accounted for 21.6% of group revenue and 32.6% of operating profit, is Telkom`s fastest-growing segment.

Vodacom`s customer base increased from 5.8 million in September 2001 to 7.7 million last September.

The fixed-line businesses, which accounted for 78.4% of revenue and 67.4% of operating profit, achieved a 6.6% increase in revenue during the period.

Nxasana says this is mainly the result of average tariff increases and 12.3% growth in data services revenue.

Fixed access lines experienced a reduction of 1.8% to 4.9 million. Nxasana says there was continued migration of postpaid customers to prepaid and ISDN offerings. Prepaid and ISDN line equivalents grew 26.8% and 24% to about 780 000 and 522 000 lines respectively.

Total fixed-line traffic fell 2.6% to 16.15 billion minutes, mainly due to a decrease in the number of fixed access lines in service as a result of disconnections and customer migration to mobile services.

However, fixed-line revenue per access line rose 6.1% to R4 911 a year as the group increased its penetration of value-added services and higher revenue-generating access services.

Listing unknowns

Despite the healthy results, there are still some important areas of uncertainty surrounding Telkom`s listing. Although the government`s intention is to list the company before the end of February, a prospectus is not expected to be issued before the end of January.

It is not yet known what percentage of the company will be listed, how many shares will be offered and at what price. Neither has the size of the discounts that will apply to a special offer to South African citizens been made public.

These factors have left analysts unable to put a firm value on the company and left potential investors unable to calculate what they would consider the fair value of the shares.

A number of issues about Telkom`s future as a commercial entity are also still unclear. Most worrying to potential investors is the uncertainty about the environment in which Telkom will operate. The licence conditions for its major competitor, the second national operator, have not yet been determined and are unlikely to be available by the time of the listing. Nor is it known how aggressive the new competitor will be in entering the market, making Telkom`s future growth potential difficult to calculate.

Another unknown is the impact fellow state-owned company Sentech will have on profits. The broadcast signal distributor has only recently started to operate an international gateway, traditionally one of the most profitable areas of business for an operator like Telkom. There is also continuing uncertainty around a "multimedia licence" granted to Sentech, which could see it compete with Telkom in the equally profitable data segment of the market.

Only marginally less troublesome are the underserviced area licences due to be granted to a number of small players, probably co-operatives, in areas where fixed-line telephones have little penetration. Telkom has complained that flaws in the regulations around such licences could see extra competition in cities such as East London.