South Africa: Telkom seeks savings after fall in first-half profits

The majority state-owned operator joins local rivals such as Vodacom in stepping up cost-cutting initiatives as rising costs for fuel, handsets and equipment and for servicing its rapidly growing network puts pressure on core profit.

Group earnings before interest, tax, depreciation and amortisation (EBITDA) fell to R4.9bn ($283.98m), in the six months ended 30 September, while group operating revenue slipped by 0.7% to R21.2bn.

Telkom, whose mobile business is the third-largest in the country, faced increases in direct costs, driven by materially higher handset and equipment costs, Group Chief Executive Officer Serame Taukobong said.

Energy costs

“While the rest of the operating costs were well managed, energy costs increased significantly due to the sustained load shedding (rolling power cuts) during the period,” Taukobong added.

“If you look at our cost-to-revenue ratio going up to 78.7%, we do need to look at cost (cut) initiatives,” Chief Financial Officer Dirk Reyneke told investors.

“In terms of our cost lines, there are no sacred cows. We will look at every single line and see the opportunities.”

In the medium term, Telkom expects revenue and EBITDA to grow at low to mid-single-digit percentages, from mid-single-digit growth.

“Given the material increases in the cost of sales for Telkom Mobile, the accelerated decline of the legacy business at Openserve, BCX and Consumer, plus the impact of load shedding, we are revising our guidance,” Reyneke said.

On the proposal by the data network provider asking Telkom to buy it out, Taukobong said “we have set ourselves a target by the end of December to be at a go- or no-go position.”