SA’s Telkom profit jumps

JOHANNESBURG – South African fixed-line phone company Telkom unveiled a 47,5 per cent jump in annual headline earnings per share on Monday but said its core margins would stagnate this year as it faced tough competition.

Headline earnings, which strip out one-off, non-trading and capital items, rose to 1,274 cents per share in the year to the end of March, at the top end of a company forecast for a jump of 35-55 per cent, thanks to cost cuts and strong growth at its Vodacom mobile unit. Telkom, Africa’s biggest telecoms company, declared a total dividend of 900 cents per share, including a special dividend of 500 cents, and reiterated it wanted to use its strong cash flow and debt capacity to push into other parts of Africa.”These numbers are very good, both in its core business and at Vodacom, and people will be very happy with the dividend,” said one Johannesburg-based analyst.”I think the share will react very well.”Telkom shares rose as much as 1,71 per cent to 119 rand before slipping to 117,75 rand, a 0,64 per cent gain but still outperforming the JSE Securities Exchange’s blue chip Top-40 index which was 0,17 per cent firmer.But Telkom Chief Executive Sizwe Nxasana said the good times were over in its key home market, where it had completed a wide-ranging revamp to cut costs and now faced tougher competition as the market liberalised.”We do not expect our EBITDA margin to increase, it will be flat or even slightly lower in the current financial year,” he told a conference call.”There will be competition, there will be price reductions.”One analyst said he believed this was a conservative forecast, and that its earnings before interest, tax, depreciation and amortisation (EBITDA) margin would not fall, given that Telkom had already paid hefty one-off costs to sack thousands of workers.South Africa opened the telecommunication market to rivals in February this year, which has started to chip at Telkom’s monopoly.The much-delayed launch of a second national operator, planned for later this year, will also be a blow.Telkom shares have gained 21 percent this year.It was trading at nearly 14 times normalised earnings, according to Reuters data.That makes it cheaper than its closest, rival mobile firm MTN, which is trading at 17 times earnings.Telkom, criticised for charging high prices, has been slashing charges for international calls and high-speed Internet access to fight nimbler newcomers and would continue to do so.The company would move to a predominantly Internet Protocol-based network to offer converged services such as voice, data and video and hoped to become South Africa’s leading provider of Internet and value-added network services.Telkom was also keen to exploit untapped markets in the rest of Africa, where growth in demand for telecoms is booming.Nxasana said the company would not necessarily drop a planned joint bid with Vodacom for a majority stake in Nigeria’s Nitel and its cell phone unit M-Tel if Vodacom won a separate bid for the number two mobile operator there, Vmobile.”It doesn’t necessarily mean we will pull out.We will look at a number of options,” Nxasana said.Vodacom said last week it was considering a joint bid for Vmobile with Britain’s Virgin Group.A source close to Vmobile said the Nigerian firm considered the $8.05 per share bid on Friday.Vodacom Chief Executive Officer Alan Knott-Craig said in a statement that if the group was successful in its bid, the Virgin Group will have a minority stake in a joint venture.”We have always been explicit about our intention to enter the Nigerian market and take control of Vmobile.If we are successful, we will control the investment through a subsidiary in which Virgin will have a minority stake,” he said.- Nampa-ReutersTelkom, Africa’s biggest telecoms company, declared a total dividend of 900 cents per share, including a special dividend of 500 cents, and reiterated it wanted to use its strong cash flow and debt capacity to push into other parts of Africa.”These numbers are very good, both in its core business and at Vodacom, and people will be very happy with the dividend,” said one Johannesburg-based analyst.”I think the share will react very well.”Telkom shares rose as much as 1,71 per cent to 119 rand before slipping to 117,75 rand, a 0,64 per cent gain but still outperforming the JSE Securities Exchange’s blue chip Top-40 index which was 0,17 per cent firmer.But Telkom Chief Executive Sizwe Nxasana said the good times were over in its key home market, where it had completed a wide-ranging revamp to cut costs and now faced tougher competition as the market liberalised.”We do not expect our EBITDA margin to increase, it will be flat or even slightly lower in the current financial year,” he told a conference call.”There will be competition, there will be price reductions.”One analyst said he believed this was a conservative forecast, and that its earnings before interest, tax, depreciation and amortisation (EBITDA) margin would not fall, given that Telkom had already paid hefty one-off costs to sack thousands of workers.South Africa opened the telecommunication market to rivals in February this year, which has started to chip at Telkom’s monopoly.The much-delayed launch of a second national operator, planned for later this year, will also be a blow.Telkom shares have gained 21 percent this year.It was trading at nearly 14 times normalised earnings, according to Reuters data.That makes it cheaper than its closest, rival mobile firm MTN, which is trading at 17 times earnings.Telkom, criticised for charging high prices, has been slashing charges for international calls and high-speed Internet access to fight nimbler newcomers and would continue to do so.The company would move to a predominantly Internet Protocol-based network to offer converged services such as voice, data and video and hoped to become South Africa’s leading provider of Internet and value-added network services.Telkom was also keen to exploit untapped markets in the rest of Africa, where growth in demand for telecoms is booming.Nxasana said the company would not necessarily drop a planned joint bid with Vodacom for a majority stake in Nigeria’s Nitel and its cell phone unit M-Tel if Vodacom won a separate bid for the number two mobile operator there, Vmobile.”It doesn’t necessarily mean we will pull out.We will look at a number of options,” Nxasana said.Vodacom said last week it was considering a joint bid for Vmobile with Britain’s Virgin Group.A source close to Vmobile said the Nigerian firm considered the $8.05 per share bid on Friday.Vodacom Chief Executive Officer Alan Knott-Craig said in a statement that if the group was successful in its bid, the Virgin Group will have a minority stake in a joint venture.”We have always been explicit about our intention to enter the Nigerian market and take control of Vmobile.If we are successful, we will control the investment through a subsidiary in which Virgin will have a minority stake,” he said.- Nampa-Reuters