Telkom Sees Revenue Stable as Cost Cuts Help Swing to Profit

Telkom SA SOC Ltd., Africa’s biggest fixed-line operator, predicted stable revenue through 2017 after cost cuts and a boost to the mobile business helped snap a two-year run of losses.

Net income was 3.9 billion rand ($364 million) in the year through March, compared with a loss of 11.6 billion rand a year earlier, the Pretoria-based company said today in a statement. While the profit is the highest since 2011, it’s about a 10th of the 37.4 billion rand reported in 2010.

“If we look at our five-year, medium-term plan, growth is anticipated to come through in year three, four and five,” Chief Executive Officer Sipho Maseko told reporters on a conference call. “At a minimum, we keep the customers we currently have.”

Maseko, who joined Telkom in April 2013, is attempting to revive the company after years of sliding sales partly caused by falling fixed-line usage. Telkom plans to reduce its costs by 5 billion rand through job cuts, which may affect as much as a third of its 19,000-strong workforce. The company will reinstate a dividend payment in this financial year, which would be its first outlay to shareholders since 2011.

Group reported revenue rose to 32.5 billion rand from 32.1 billion rand even as voice and subscription sales declined 4.2 percent. Telkom’s broadband customers increased 6.5 percent to 926,944, while active mobile users rose 18 percent to 1.8 million subscribers.

Profitable Areas

“The focus is really much more in terms of profitable areas, which means revenues that actually don’t contribute or don’t make the margin contribution, we won’t continue with that type of revenue,” Acting Chief Financial Officer Deon Fredericks said on the call.

Fredericks was appointed as interim finance chief in October and will fill the position until suspended CFO Jacques Schindehutte’s disciplinary process is concluded, according to Telkom. Schindehutte anticipates that the hearing will conclude by the year-end.

Telkom’s shares have gained 48 percent this year as the company announced management cuts, an outsourcing deal with MTN Group Ltd. and the potential acquisition of Business Connexion Group Ltd. to boost its cloud-based offerings. That deal has been put temporarily on hold after Business Connexion CEO Benjamin Mophatlane died following a heart attack on June 11.

Telkom shares declined 0.8 percent to 41.80 rand as of 9:04 a.m. in Johannesburg. It’s the third-best performer on the FTSE/JSE Africa Index in 2014.

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