The majority state-owned operator joins local rivals such as Vodacom in stepping up cost-cutting initiatives as rising costs for fuel, handsets and equipment and for servicing its rapidly growing network puts pressure on core profit.
Group earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 4.9 billion rand ($283.98 million), in the six months ended Sept.30, while group operating revenue slipped by 0.7% to 21.2 billion rand.
Telkom, whose mobile business is the third-largest in the country, faced increases in direct costs, driven by materially higher handset and equipment costs, Group Chief Executive Officer Serame Taukobong said.
"While the rest of the operating costs were well managed, energy costs increased significantly due to the sustained load shedding (rolling power cuts) during the period," Taukobong added.
"If you look at our cost to revenue ratio going up to 78.7%, we do need to look at cost (cut) initiatives," Chief Financial Officer Dirk Reyneke told investors.
"In terms of our cost lines, there is no sacred cows. We will look at every single line and say where are the opportunities."
In the medium-term, Telkom expects revenue and EBITDA to grow at low to mid-single digit percentages, from mid-single digit growth.
"Given the material increases in the cost of sales for Telkom Mobile, the accelerated decline of the legacy business at Openserve, BCX and Consumer, plus the impact of load shedding, we are revising our guidance," Reyneke said.
On the proposal by data network provider rain asking Telkom to buy it out, Taukobong said "we have set ourselves a target by the end of December to be at a go or no go position."
($1 = 17.2549 rand)
(Reporting by Nqobile Dludla; Editing by Tom Hogue, Uttaresh.V and Jane Merriman)
By Nqobile Dludla
