Maseko delivers on Telkom's turnaround plan - TechCentral

Maseko delivers on Telkom’s turnaround plan

Telkom CEO Sipho Maseko

Telkom CEO Sipho Maseko

When Telkom CEO Sipho Maseko took the helm three years ago, the South African company was struggling with record losses and a share price close to all-time lows. Now, the phone operator is back in profit and the stock is booming.

Telkom’s shares have soared 347% since Maseko joined the former state-owned landline monopoly on 1 April 2013. That’s the best performance of 68 South African companies with a market capitalisation above US$1bn, including Africa’s biggest company, Naspers, which is number two on the list.

“Telkom as a company is in a very different position than it was three years ago,” Peter Takaendesa, a money manager at Mergence Investment Managers, which owns Telkom stock, said by phone from Cape Town on Thursday. “The new management has proven that they are able to deliver.”

Following his arrival from Vodacom, Maseko and his team introduced a three-year turnaround plan that would determine the future of Telkom, still 39% owned by the government.

The fruits of that recovery programme were announced to investors on Monday, including a 32% rise in full-year earnings per share and a 10% increase in dividend payments. That’s enabled the Pretoria-based company to bring down the curtain on its turnaround phase and declare itself “ready for growth”.

In 2013, Telkom was struggling to cope with the decline in landline use and rise in smartphones, and had an unprofitable wireless unit. That division’s losses before interest, taxes, depreciation and amortisation narrowed to R43m in the year through March from R2,2bn in 2013, Maseko said this week.

The CEO has also been reducing the financial burden from the company’s older, well-paid workforce. While negotiating with labour unions, Telkom offered voluntary severance packages and signed outsourcing contracts that have led to a drop in the number of employees to 12 500 from 21 000, Maseko said at the company’s full-year earnings presentation on Monday.

Telkom chief financial officer Deon Fredericks

Telkom chief financial officer Deon Fredericks

Telkom’s rising earnings, diminishing workforce and a deal with unions to introduce performance-based pay led to record share-price gains this week. The stock rose more than 16% over Monday and Tuesday, the company’s biggest two-day advance on record.

“We believe our shareholders recognised the need for the turnaround strategy,” Telkom spokeswoman Jacqui O’Sullivan said in e-mailed comments on Friday. “We have laid a solid foundation for growth and we believe this is evidenced by the market’s ongoing support.”

A note of caution is that the share price of R67,63 as of 11.10am in Johannesburg on Friday is above the R65,23 average target of 11 analysts to have changed their forecast within the past three months.

Telkom resumed dividends in 2015 after a four-year break and chief financial officer Deon Fredericks said the company wanted to grow the payment in line or above inflation targets.

“The market did not expect that Telkom’s management would actually be able to reduce its cost base and headcount as much as it did, mostly because of the government and union element in the company,” Takaendesa said. “On top of that, the company also resumed paying out dividends.”  — © 2016 Bloomberg LP

6 Comments

  1. Pity Telkom’s customer service hasn’t improved. Look after your clients and you may do even better Telkom.

  2. Good job Maseko – i like the direction where this company is going – just remove the line rental cost, invest in firbre and make adsl/phone lines available in townships (postpaid). That will unlock a lot of revenue

  3. Greg Mahlknecht on

    The problem with using the share price as an indicator for the turnaround is that investors only care about the next year’s financials. Maseko’s talents lie in making shareholders happy, but I feel he’s hurt Telkom’s long-term prospects to get these short-term gains. They’ve pretty much ceded dominance in the consumer fixed-line market, and from potentially being years ahead when Maseko started, are now far behind and slipping further every day. Their financial report showed just how badly they’re doing here. A few months in, they’re already years behind schedule.

  4. Indeed, how is there call centre working ? They never reply to Emails.
    They closed all but a handful of CSBs, customer services branches. Bad move, IMHO.

  5. Eric Martinsich on

    Oh Please! in 1999, 65,000 staff was working for Telkom. then around 14,000 staff was cut in January 2000. Mainly labourer levels were cut. then it was artisans and management cadres. people opened business in opposition to Telkom. Now its made out that Sipho Maseko made the turnabout. the turnabout started in 1999 in my opinion. it was slaughtering of the workforce purely for shareholders.

  6. The major, controlling shareholder is Gov, 39%, and the PIC, (11.8%) which is a Gov controlled finance company that mostly deals with state employees pensions.
    Telkom should have been fully privatised ages ago. Reorganisations and retrenchments are the painful necessity for any company to stay relevant, sustainable and competitive.
    The country as a whole, consumers are only served with a lean, mean and competitive Telkom, not another SOE holding out the begging bowl to Gov for bailouts.
    I actually hope that the new smaller players in rolling out fibre can challenge the BUTs, the Big Ugly Telcos, Telkom, VC and MTN for a considerable part of this burgeoning market.

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