Telkom switching back to biggest strength under Serame Taukobong

Telkom CEO Serame Taukobong has had to steer the company through some of its biggest operational and existential challenges since his appointment in late 2021, but his leadership is pointing the ship back into the familiar waters of fixed infrastructure.

At Taukobong’s appointment in August 2021, Telkom’s share price was trading at over R40.

By early November 2021, it had climbed to roughly R56, its highest value since a mid-2019 rally driven by better-than-expected financial results.

In 2022, Telkom’s collapsed negotiations on a potential takeover by MTN and a failed proposition to merge with Rain sent the share price on a gradual decline.

After Taukobong’s first full year in charge, the operator reported revenue increasing by 0.9% from R42.756 billion to R43.138 billion for the year ended March 2023.

However, following pro forma adjustments, it reported a loss of R9.97 billion.

Contributing to this was the impairment of R13.071 billion and the related tax impact of R3.47 billion, restricting costs of R1.065 billion and the related tax impact of R288 million.

The biggest impact was the invested capital write-up of BCX and Gyro, a R10.479 billion hit.

The share price gradually continued its decline to around R21.00 by October 2023.

However, positive interim results sent the price upward again towards R30. By the close of trade on Wednesday, 24 April 2024, a Telkom share cost R24.36.

The table below summarises Telkom’s key financial results in the three years before Taukobong took over as CEO and his first two and a half years at the helm.

It would be easy to judge Taukobong harshly based on Telkom’s financial performance. 

However, many of the financial issues the company has endured in the past two and a half years can be blamed on some of the operator’s historical challenges.

Taukobong took the helm at a time when Telkom’s fixed-line copper customers were already plummeting. This segment was once its biggest revenue driver due to Telkom’s monopoly in the market.

Under the leadership of Taukobong’s predecessor — Sipho Maseko — Telkom constantly switched its capex focus between fixed-line and mobile.

Many financial and telecoms experts argued that trying to compete with Vodacom and MTN was a futile exercise and would cost Telkom substantially more than capitalising on its fixed infrastructure advantage to compete in the fibre environment.

While Telkom initially saw good mobile segment growth due to its substantial investment, the customer and revenue gains have slowed significantly in the past few years.

Sipho Maseko, former Telkom Group CEO

Taukobong told MyBroadband that the past year has brought about a major switch — with Telkom’s fixed infrastructure now being the main focus.

“We have been more explicit in identifying ourselves as an InfraCo due to our substantial infrastructure assets anchored by over 170,000km of fibre as part of our long-distance, metro and access networks,” Taukobong said.

Evidence of Telkom’s move away from further significant mobile investment is the sale of its wholly-owned subsidiary Swiftnet for R6.75 billion. This division operates Telkom’s masts and tower business.

“This move underscores our commitment to strengthening our financial position, reducing debt, and enhancing liquidity,” Taukobong said.

“The transaction is still subject to shareholder and regulatory approvals; however, we are optimistic that it will create long-term value for Telkom and its shareholders, solidifying our position as a leader in South Africa’s evolving digital landscape.

Taukobong said although the company could not comment on its financial performance at the moment because it was in a closed period, Telkom intended to carry the good momentum it reported in the last quarter of 2023 through to its new financial year.

Serame Taukobong, Telkom Group CEO

Taukobong said his short-term focus was “very much” on driving profitable growth at Telkom.

That includes revamping the company’s performance culture in alignment with the OneTelkom programme, an initiative spearheaded by Taukobong with the support of the group’s executive committee.

“OneTelkom aims to sweat the various Telkom assets by collaborating across the various business units — while still respecting wholesale/retail separation boundaries — to win more business, promote operational synergies and drive capital efficiency,” Taukobong said.

Regarding the big challenges the Telkom CEO has faced in the past year, headwinds in the local economy proved to be the toughest part.

“Load-shedding has forced us to spend hundreds of millions of rand on diesel and on upgrading our battery backup systems,” he explained.

“We have also had to manage higher input costs in the form of higher interest rates and an unfavourable exchange rate for imported network equipment and handsets.”

“The resultant low GDP growth rate is leaving our consumers with less disposable income and limiting investment in ICT solutions by small and large corporates.”

“This has put pressure on our cost base, as well as revenues, and we will need to continue to work collectively in the new financial year to succeed despite these headwinds.”

Taukobong said Telkom had done well to weather the current environment, but owed it to itself, its investors, and other stakeholders to generate sustainable returns.

“We are putting the building blocks in place to do this. We need to be committed and focused in our execution,” he said.