Telkom gives investors laugh lines

Shareholders at Telkom must be smiling from ear to ear as Africa’s largest integrated communications firm announced on Monday that it would reinstate a dividend payment.

Telkom declared its first dividend in more than 3 years, announcing it will pay a dividend and a special divided totaling 245 cents per share.

However, it will take the firm a while to pay the kinds of dividends that its rivals do.

During the year to March, Telkom reduced its net debt by 92.8% to R151 million and free cash flow increased to R3.9 billion.

“Our healthy financial position will not only allow us to take advantage of any promising opportunities that could come our way, it has also made it possible for us to pay a dividend this year,” Telkom said on Monday.

The shareholders include the South African Government, Public Investment Corporation, Old Mutual, Allan Gray, Investment Solutions and retail investors.

“The level of dividend payments going forward will be based on a number of factors, including the consideration of the financial performance, capital and operating expenditure requirements, the group’s debt level, interest coverage, internal cash flows,  prospects and available growth opportunities,” said the company.

The Pretoria-based telco worth R35 billion, which has been cutting fat in the business as part of its turnaround plan, said in 2014 it planned to reinstate its dividend at the end of the 2015 financial year. The group last paid a dividend in 2011.

Investors, who believe in the turnaround strategy of Telkom, have so far rewarded the company. The telco’s shares have risen 59% in the past year and marginally dropped 2.97% in the past six months.

Telkom is making a strong effort to improve its operational efficiencies by outsourcing non-core services and cutting staff.

CEO Sipho Maseko has been working on a turnaround for quite some time, but fortunately results are starting to show up in Telkom’s latest earnings.

Telkom’s headline earnings per share – the main profit gauge in South Africa that strips out certain one-off items– rose 60% to 532,5 cents per share in the year to end- March 2015.

Telkom’s fixed-line data revenue increased 1,5% to R10,4 billion and ADSL subscribers increased 7,9% to 1.1 million. This is good news for Telkom shareholders and a possible sign that a turnaround is actually taking place at Telkom.

“We set out to achieve further stability in the business and largely attained it under challenging conditions. We are nearing the completion of the stability phase of our turnaround,” said Sipho Maseko, Telkom’s CEO.

 Plans to establish a infrastructure business unit

“The next phase of Telkom’s turnaround strategy continues as we reposition the business for commercial sustainability, which will allow us to realise our ambition of connecting South Africans. Our actions have thus far delivered results, but we need to become more efficient,” said Maseko.

“We are reviewing deep functional separation between our wholesale and retail businesses. We foresee an infrastructure business unit which will be accountable for network deployment and network efficiency. For this operating model to succeed, we must have an efficient and high-performing network. We will update the market regarding our plans during the third quarter of the calendar year.”

The turnaround is gathering speed, Telkom recorded a normalised profit after tax of R2.7 billion versus R1.2 billion in 2014 and EBITDA of R8.97 billion compared to R7.79 billion in 2014.

But the fixed-line voice usage revenue continued its downward trend, decreasing 13,5% to R6.8 billion.

“This can be attributed to a 9,6% decline in voice minutes, resulting from  fixed-to-mobile substitution and a 4,9 percent decline in the number of lines. The decrease was in business as well as residential lines. Business lines decreased due to the consolidation of business activities and cost-saving initiatives,” said Telkom.




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