Telkom with CEO Moholi – one year on

 ·2 Apr 2012

Nombulelo (Pinky) Moholi took over from Jeffrey Hedberg as Telkom’s CEO on 1 April 2011. Twelve months later, the company is still in trouble with poor financial results and a falling share price.

When Moholi took over from Hedberg, she inherited many problems, including a struggling Multi-Links, sliding fixed-line numbers and losing market share to the mobile operators.

Telkom was further hit by the departure of four senior executives – strategy chief, Naas Fourie; Telkom International MD, Thami Msimango; procurement head, Stafford Augustine; and group executive for network provisioning, Marius Mostert – shortly before Moholi’s appointment.

At the time of Moholi’s appointment, analysts were divided on her suitability for the role. Some analysts felt that it may have been a political appointment, and said at the time that they would have liked to have seen an international candidate, with experience in turning companies around, taking up the role.

Others felt that Moholi was the right person for the job, as she had a lot of experience at Telkom, and knows the industry well.

Despite the differences in opinion about Moholi’s appointment, analysts agreed that they would like to see a clear strategy by Telkom on Multi-Links; how the company would make 8ta profitable; and how Telkom would stop the continuing decline in fixed-line subscribers.

Time to take stock

Over the last twelve months, Telkom has failed to impress investors. The company’s share price declined by 35%, and the its finances are not looking good.

On Friday, 30 March 2011, Telkom announced that its headline earnings per share (HEPS) is likely to fall by around 25% for the year ending March 2011. Basic earnings per share from continuing operations for the year ending 31 March 2012, are expected to be at least 90% lower than the prior year.

Even a potential deal with Korea’s KT Corporation could not stem the decline in the company’s share price.

The following graphs clearly show the decline in Telkom’s share price, and hence, the lack of confidence in the company’s financial performance from investors.

Telkom share price - April 2011 - March 2012

Telkom share price - April 2011 - March 2012

Telkom share price - April 2010 to March 2012

Telkom share price - April 2010 to March 2012

Under Moholi, Telkom rid itself of the money-guzzling Multi-Links, but was unable to stop the continued decline in fixed-line numbers.

At the end of September 2011, Telkom had 4,073,000 fixed line subscribers – down from 4,234,000 a year earlier.

Telkom is also continuing to lose lots of money on 8ta. In the March announcement, Telkom said that the EBITDA loss incurred by the mobile business (8ta) is approximately R2.2 billion.

New strategy

At the end of 2011, Telkom announced that it has set out to review and align its overall strategy, and implement a 5‑year plan that will enable the company to achieve its aspirations.

The strategy, Telkom said, is driven by a number of thrusts across four strategic areas, including:

  • Growing and defending profitable revenues in consumers, by increasing broadband penetration in South Africa, while playing a strong role as a content aggregator;
  • Growing and defending profitable revenues for business customers through entry into high-growth adjacencies, focusing on convergence, value-added services and ICT offerings;
  • Delivering on their mobile investment, by executing on their aspirations to achieve 12% -15% market share of revenues by 2015/16, and providing a unique Telkom-converged offering;
  • Transforming the network through the successful rollout of a next generation network that is commercially led.

However, analysts warned that, while these strategies may be sound, proper execution is what is needed to turn Telkom around.

Irnest Kaplan, MD at Kaplan Equity Analysts, said that “if you don’t have people that are able to execute on all these things, and you can’t sort out the people issues – which I think Telkom’s had a challenge with in the past – then I don’t think it’s going to be so easy to execute on all those things.”

David Shapiro, deputy chairman at Sasfin Securities, agreed with Kaplan. “They’ve got to start delivering. We are waiting for those efficiencies to come through and all those promises,” said Shapiro.

Hlelo Giyose, chief investment officer at First Avenue Investment Management, is not keen on Telkom, and feels that a deal with KT Corp is not good news for shareholders.

Giyose said that KT Corp is known for its low-cost broadband services in Korea, and is therefore likely to import their low margin and low return model to South Africa. This is good news for consumers, but bad news for shareholders.

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