Telkom takes points as it writes new chapters of its turnaround

Telkom has finally shed its image as South Africa’s “poster child for bad customer service” – thanks to chief executive Sipho Maseko and his management team ably supported by the board led by Jabu Mabuza. By Gugu Lourie

Investors, who were patient with the once struggling telco, also played their part in turning around the giant telecoms company.

The shareholders include the South African Government, Public Investment Corporation, Old Mutual, Allan Gray, Investment Solutions and retail investors.

Telkom earnings published on Monday indicate that the turnaround is yielding positive results under the stewardship of Maseko and Mabuza. This positive development bucks the trend after years of faltering under previous executives.

In the past, Telkom invested heavily and lost billions of rand in a number of projects such as the costly Telkom Media, cash-guzzling Telkom Mobile and its failed strategy to expand into the rest of Africa.

But on Monday, Telkom posted results that show it is slowly putting its bad past behind it.

The company’s net revenue rose 3.1% to R26 billion and net debt slashed 92,8% to R151 million in the year to end-March 2015, paving the way for it to reward its shareholders with a dividend and a special divided totaling 245 cents per share.

Headline earnings per share – South Africa’s main profit gauge – climbed 60% to 532.5 cents.

Maseko has removed the monkey on Telkom’s back. He jokingly said: “Every sinner has a future.”

The figures indicate that Telkom is regaining lost ground and attracting new customers.

Maseko has even moved away from the analogy that said Telkom was a “big ship stuck on the rocks” – clearly the firm has dislodged from the rocks.

The new analogy being used by Telkom’s boss was that the company was boxing smartly to collect points in every round without losing any – a winning formula used effectively by unbeaten world boxing champion Floyd Mayweather Jr.

During Telkom’s earnings presentation in Rosebank on Monday, Maseko said the first phase of turnaround was successful and the firm was hitting the point of profitability, which provides stability and opportunities for growth.

He added that there is more still to be achieved from the turnaround strategy, such as reviewing operational business model, strengthening customer value proposition, instilling high performance culture and sustainable financial performance.

Asked how Telkom will achieve all this Maseko said: “We will play this match round by round and the most important thing we need to be on our feet to get to the next round and the next round. We are not going to try to box six rounds in one round. We will take one round at a time. At least, at a minimum make sure we get maximum points per round”.

Maseko added: “I think the rounds we have set our self so far we have been able to win every round. It will be nice to have a knockout, but you not going to have a knockout. Just make sure you accumulate the points. I think we have done that.”

That said, there is still more to be done to relieve long-suffering customers despite Telkom taking enough points to win every every round.

The jury is still out on whether the turnaround is really sustainable and if Telkom is delivering relevant products to existing and new customers, and if it really cares about them.

I was surprised and elated last week to receive an SMS message from Telkom as a DSL customer.

The SMS reads: “Dear customer, please note that Telkom has identified a network outage that might be affecting your area. There is no need to report this fault as Telkom is attending to it. Your ref no is xxxxx and you will be informed once the fault is cleared.”

Indeed they did send another SMS when the fault was sorted.

I thought this was is an indication Telkom was changing and becoming more caring towards its customers.

Furthermore, Maseko’s assertions rekindle hope that Telkom could possibly defy the odds to once again be an efficient conglomerate that everyone can rely on for telecoms services.

“We are working hard to regain customer trust,” Maseko said.

“We do get a lot of criticism, most of it is fair. We have put customer experience essentially at the top of everything we do. We have outsourced our call centre,” he said, adding that the company was making big investments into Customer Experience Centre.

Now that Telkom is on the mend, the decision to rid itself of the bad customer service tag is a good move. Apart from focusing on trimming its fat, Telkom is now taking its customers into its confidence.

This change of attitude seems to be working in Telkom’s favour. The company increased its broadband subscriber line customers by 73 428 to more than 1 million users, reflecting a 7.9% rise in the year to end-March 2015.

Taken together with Telkom Mobile’s 21.2% rise in subscribers to more than 2.2 million the increases indicate the company is on track to deliver better results in the future.

Furthermore, the company has managed to increase free cash flow generated by 240.4% to R3.9-billion, providing the business with more cash pile to fix its problems and challenges.

Telkom is still fragile

But Maseko isn’t about to spend the company’s cash willy-nilly to avoid the mistakes of the past.

“The financial flexibility of the firm is something we will keep tight. We are still fragile and not yet going to take on the bigger heavyweights. The key thing for us is not to be reckless with the company’s resources. It’s about setting the right platforms to grow,” said Maseko.

Telkom has also confronted its financial woes head on. It has turbo charged its turnaround through a R12-billion rand impairment and is settling outstanding fines with competition watchdogs.

This has seen the company report a healthy balance sheet and cash flows, providing it with greater flexibility and options to further turnaround of the business.

Understandibly, Maseko remains cautious.

There are hurdles along the way as the firm deals with its cost cutting exercise, which involves staff retrenchments and outsourcing, plus intense competition in the market.

But Maseko believes the company is probably towards the end of the first chapter its turnaround strategy.

“So, (Telkom turnaround) is a book with multiple chapters. We are hardly through chapter one. So what we have been able to achieve is to stabilise the revenues decline. We have stabilised the ship. We have reinstated the dividend. We have de-risked our mobile business,” said Maseko.

For now, Telkom management continues to send the right signals to the market. Like a smart boxer Telkom is earning loyalty and respect points from customers and shareholders, regulators and competition watchdogs.

Hopefully, Telkom will deliver a knockout punch at some point and finally complete the chapters of its turnaround book.

• Email TechFinancials.co.za at [email protected]