Reduced spending hits Telkom

REDUCED spending by corporate and government customers caused the 7.4% drop in headline,Picture: Gallo Images

REDUCED spending by corporate and government customers caused the 7.4% drop in headline earnings per share for the six months ended September, telecommunications giant Telkom said.

Heps was 303.9c. the company said. Group CEO Sipho Maseko said that the first half of the year was characterised by a tough economic environment and increased competition. “We saw corporate businesses defer their spend on information and communication technology (ICT) as a result of an uncertain political, economic and policy environment.

“Even though South Africa exited the technical recession in the second quarter of the year, business confidence remains very low, with a lack of appetite for investment by corporate businesses. Lower spend from the government placed a further damper on ICT spend in the public sector,” he said.

Telkom’s performance was hurt by the challenging economic environment. BCX was mainly impacted as it is exposed to corporate businesses and the public sector, which are both under pressure. “Although our revenue performance has been disappointing, the opportunity to create a leadership position within the BCX segment remains significant.” The mobile business growth trajectory continued in the period with strong growth resulting in an increase of 43.2% in mobile service revenue. The strong mobile growth which boosted the group’s performance was underpinned by an expansion of the network and distribution and the launch of innovative products.

The slide in the share price, which touched its lowest level since November 2014 on Friday, could complicate the national Treasury’s plan to raise money from the sale of a portion of its $1.2bn (R17bn) stake in Telkom to fund a bailout for state-owned airline SAA. The Treasury needs about $700m to inject into the national airline whose reliance on the government purse to keep it solvent has been repeatedly cited by major credit agencies as a threat to South Africa’s sovereign credit rating status.

“There’s still plenty of buyers, there will probably even be more buyers around now but the government will get less money for its portion of the stake,” Wayne McCurrie, a portfolio manager at Ashburton Investments said. Telkom has been trying to reduce its dependence on fixed voice services, where revenue fell 6.1%, by building its own mobile phone business and buying IT infrastructure firm BCX to improve its offering to corporate clients. Looking forward, the group said it would continue to seek a “sustainable growth framework”.

“It is imperative for the group to continue to invest in key growth areas that do not compromise medium-term prospects. This is the primary reason for the increased investment in fibre and mobile”. Telkom Consumer will be discontinuing legacy products.

This product rationalisation process will therefore see their suite of unlimited, Free Me and smart broadband products forming the bedrock of sales and marketing advances in future. The interim dividend decreased 9.9% to 118.1c a share.

–TNA REPORTER|with Reuters