Telkom CEO’s departure: The writing was on the wall

As Telkom CEO Nombulelo Pinky Moholi called one of her toughest media briefings yet on October 24, after the network operator’s main shareholder voted against several resolutions at its annual general meeting (AGM), it was clear that the writing was on the wall for her – and possibly even Director Neo Phakama Dongwana.

The company was facing an exodus of board members, reminiscent of SAA’s.

Chairman Lazarus Zim, Jacky Huntley and Julia Hope had resigned and were due to depart at the AGM.

In the period from Moholi’s appointment on April 1 2011 to the AGM, the share price halved, falling from R37 to R18.60.

In June 2012, government – its largest shareholder – rejected its plan to form a partnership with South Korea’s telecom operator, KT Telecoms. Telkom’s share price performance showed evidence of the shroud of uncertainty around the network operator.

Skills retention had become vital.

In April it was fined R449m by the Competition Tribunal and sold its Multi-Links Telecommunications cellular business in Nigeria to Visafone Communications for a mere R450m, after losing R10bn on that business.

8.ta was costing it far more to start up than the business plan had suggested.

At the AGM, Dongwana was asked, by David Couldridge, an investment analyst at Element Investment Management if, regardless of what government said, she would vote for the good of the company. She said she would.

This may have been a prophetic move.

Pinky Moholi – Telkom CEO

After the AGM, a group executive told Moneyweb that the biggest slap in the face to Telkom’s directors was government’s decision to vote against the operator’s appreciation rights scheme and forfeitable share plan aimed at incentivising staff. “A lot of staff will be very unhappy about this, as it will be very difficult to reward them,” he said.

An hour later Moholi spoke to media. She was visibly afflicted when Moneyweb asked her what the process from then on would be, after government (with 39.8% shareholding and the Public Investment Corporation, which owns 10.9%) had voted against the appointment of four non-executive directors, including Sibusiso Luthuli, who was due to become acting chairman, without consultation. The strain also showed when another member of the media asked if she would resign.

In response, to Moneyweb’s question, she said that the executives of the company are still in place. “We have been running the company and will focus on the challenges. Our seven directors will meet before our November [16] board meeting to reconstitute the board,” she said.

But her job had been made untenable.

In June government rejected Telkom’s plan to turn around the business with KT Telecoms. The transaction had been suggested to Telkom by the Minister of Communications Dina Pule’s predecessor, the late Roy Padayachie, and had occupied the board since late last year.

Outgoing Chairman Zim told shareholders at the AGM that he met with a number of board members about the deal. “The minister [Pule] did not advise us to do it,” he said, adding: “it was the fiduciary responsibly of the company to do it – KT was one of two companies we pursued.”

The deal would have helped with the lack of mobile ‘catch-up’ skills in South Africa and a strategy execution skills gap.

8.ta was the fourth mobile entrant in the SA mobile industry. Telkom could not sustain 8ta being at the back of the queue for long, Zim added

Lazarus Zim

“We needed to work with someone who had done it before, that is why the board met with KT,” said Zim. The deal was presented to government in May and rejected in June.

“We failed to convince the Department of Communications (DoC) of the strategy.

“I take responsibility for the failure of the KT deal,” he added.

“It would have given us broadband skills. We had a good rapport with KT – they were not coming in as consultants, they were putting R3bn in the business,” Zim said.

The board believed it would enhance the company’s credit rating – with the borrowing required going forward, he noted.

He added that long-term there are many issues the board needed to assess,. However, while these [issues] were being accelerated, it was awaiting the outcome of how government wanted to approach its Telkom investment.

An outcome it continued to wait for even as the AGM got underway – and still waits for.

In consultation with the DoC, he said, Telkom had made inputs on:

• a broadband roll-out model;

• a strategic-equity partnership; and

• consolidation opportunities on mobile and IT services.

Source: MoneyWeb

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