Telkom Fiscal Year Net -7.8% As Costs Offset Vodacom Growth

JOHANNESBURG -(Dow Jones)- South Africa's Telkom SA, in discussions that could see it sell out of its mobile phone venture with Britain's Vodafone Group, Monday said net profit for the financial year fell 7.8% as higher costs offset improvements at mobile operator Vodacom Group.

"Competition is intensifying, price pressures are a business and regulatory reality, and inflation is rising," said Telkom Chief Executive Reuben September.

Telkom's profit attributable to shareholders declined in the year to March 31 to 7.98 billion rand ($1 billion) from ZAR8.65 billion the year before. Revenue for the year was up 9% at ZAR56.87 billion, which Telkom said reflected growth of just 0.7% in its fixed-line business but 17% in mobile.

Earnings before interest, tax, depreciation and amortization were up 4.2% for the year at ZAR20.6 billion, but the company's Ebitda margin narrowed to 36.6% from 38.3% a year earlier due to flat revenue in fixed-line. Telkom said its fixed-line operating expenses rose on the back of increased employee expenses, payments to other operators and other costs.

September said fixed-line faces increased competition and pricing pressures in its traditional high-margin, mainly retail markets while at the same time the mobile sector is pushing into data provision as growth in mobile voice services slows.

September said the Pretoria-based company, Africa's largest fixed-line phone operator, has been held back from moving into mobile communications in Africa by a shareholders agreement with Britain's Vodafone Group, its equal partner in Vodacom.

Telkom last week said Vodafone has offered to increase its stake in Vodacom, conditional on Telkom spinning off its remaining holding to its shareholders, and September Monday said exiting Vodacom would release the company to move into mobile with an integrated fixed-mobile service.

The company could, if it sells out of Vodacom, build its own mobile network and offer a roaming service using Vodacom or another mobile operator's network.

September wouldn't comment on the mechanics of a disposal of part of its stake in Vodacom to Vodafone, or how that might work in concert with a separate proposal Telkom has received from a consortium led by South African freedom fighter-turned-business tycoon Tokyo Sexwale. He said Telkom's board wasn't in discussions with any other parties.

Sexwale's Mvelaphanda Holdings, New York-listed Och-Ziff Capital Management and other strategic backers have written to Telkom to say they are interested in buying the company, less its 50% stake in Vodacom.

Vodacom is South Africa's largest mobile carrier by subscribers, although it also has operations in the Democratic Republic of Congo, Lesotho, Mozambique and Tanzania.

Telkom said the mobile venture's net profit rose 21% in the financial year to ZAR8 billion, while revenue increased 17% to ZAR48.2 billion. Vodacom's subscriber base increased by 13% to 34 million, although while the number of subscribers in South Africa increased by 7.9% to 24.8 million the overall market share slipped to about 55% from 58% the year before.

Vodacom in a separate statement said its CEO, Alan Knott-Craig, had announced his decision to retire no later than the end of September.

At 0805 GMT, Telkom's shares were trading up 0.3% at ZAR149, in line with a modest rise in the Johannesburg market. The stock has risen almost 8% since the beginning of January.

-By Robb M. Stewart, Dow Jones Newswires; +27 11 783 7848; robb.stewart@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 9th June 2008