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Telkom earnings decline as competition bites

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Telkom SA has posted a 15.1% decline in headline earnings per share compared to the same period past year, mostly as a result of having to beef up its competitiveness. The company implemented a series of price reductions and value propositions through bundled services, increased operational expenditure to improve fixed line customer services, and invested in building a first-class next generation network (NGN) capable of delivering converged ICT services. 

The group's operating revenue was up 8,3% to R27,227-million, with a 4,8% decline in group operating profit to R7,313-million. Telkom posted a 37,5% group EBITDA margin; a 50,9% net debt increase to R17,732-million, and a net debt to equity ratio of  60%. Headline earnings decreased by 15,1% to 742,3 cents per share, while basic earnings decreased by 16,6% to 724,3 cents per share.
Reuben September, acting CEO, comments: "The Telkom Group has delivered continued revenue growth largely as a result of the 17.2% revenue growth delivered by the Vodacom Group. The fixed-line segment`s revenue increased by 0,5% to R16,108-million. This performance is primarily reflective of the increased competition in the telecommunications landscape together with Telkom`s commitment to reducing the cost of  telecommunications services through price reductions and significant valueto our customers.
"Telkom has embarked on its mobile review strategy in order to drive the value of a converged services offering through the NGN for the benefit of the South African and other African countries` consumer and for the benefit of our shareholders.
"In addition, Telkom is undergoing a structural transformation in order to leverage efficiencies and capability management within the fixed-line business. The fixed-line segment faces significant operational challenges as a result of increasing competition, fixed to mobile substitution, deregulation and rapidly changing business models within the ICT sector.
"It is therefore imperative that the fixed-line business strives towards an integrated offering to defend and grow its revenue streams. These strategic initiatives are essential to the future strength of Telkom`s offering.
"Telkom`s infrastructure building process is progressing well. We are proceeding according to our timelines and are significantly increasing the network bandwidth, capacity and availability of advanced solutions. It is vital that we deliver the capacity to all our customers especially as applications grow more and more bandwidth hungry.
"Telkom is also a key partner in delivering the 2010 World Cup Soccer to the global community and our ability to do so seamlessly is dependent on the investment in our network. We believe that the acquisitions of  Africa Online and Multi-Links provide a good platform for execution of our Pan-African Service Provider Strategy which intends to expand the international connectivity and availability of internet and data solutions to major African cities as well as expand the global footprint for South African multi-national companies.
"The creation of Telkom Media will provide Telkom with another converged service offering and the deployment of NGN transport and access technologies, products and services will enhance Telkom`s ability to diversify and grow its revenue streams.
"We acknowledge that Telkom faces many challenges but are also excited about the new opportunities presenting themselves through the opportunity to provide converged products and services."