Telkom Group CEO Serame Taukobong on Tuesday said that the struggling group does not need a “knight in shining armour” to save it.

“In the past few days there has been a lot of communication in the press of potential corporate activity. The board has equally supported us that we do not need a knight in shining armour. Be it either by my former employee or my former employer,” he said during the company’s financial results presentation.

The group has been approached with a nonbinding offer for the acquisition of a controlling stake by a consortium led by former CEO Sipho Maseko, through Afrifund Investments, and comprises Axian Telecom and the Government Employees Pension Fund, managed by the Public Investment Corporation.

While the company requested further clarity on several matters, including the proposed offer price and certainty of funding, from the consortium, it maintained that the discussions remain of an exploratory and non-consensual nature and that there is no certainty that the outcome will result in a transaction.

“Let me be cultural and philosophic. It is like a process of Lobola, and when you go to a Lobola, you send people upfront with a letter to show intent. You also leave something with the family to show that you can take care of their daughter. So until somebody comes to our chair with a strong letter, and also proof that they can deliver on their proposition, then all approaches will not be considered.”

He assured that the business has the right levels of liquidity and that the journey Telkom has been undertaking will deliver the true results, despite having had to make some “tough calls”, such as the R13-billion noncash impairment and the review of the structure of the business.

This emerges as Telkom reports a double-digit decline in earnings for the year ended March 31, 2023.

Group earnings before interest, taxes, depreciation and amortisation (Ebitda) decreased 19.8% to R9.55-billion, with the Ebitda margin contracting 5.8 percentage points to 22.1%.

This was attributed to the replacement of higher margin legacy revenues with lower margin new generation network revenues, a 25.5% increase in the cost of handsets and equipment and a 7.3% increase in operating expense increases of 7.3%. The reported Ebitda excluded a R1.07-billion provision for restructuring costs.

South Africa’s ongoing loadshedding also significantly impacted the telecommunication group’s financial results for the year under review, as Telkom reported a 96% increase in diesel use, with R655-million spent on diesel and backup batteries to ensure 89.1% uptime of the company’s base stations.

According to Telkom’s financial results for the 2023 financial year, diesel consumption increased to 23.09-million litres, compared with 11.77-million litres in 2022, as loadshedding increased more than five times to 5 585 hours in the financial year under review.

Operating expenditure increased by 7.3%, mostly owing to accelerated loadshedding and an average group-wide salary increase of 6%, which was effective from April 1, 2022. Tough economic conditions further contributed to the 56.3% increase in impairment of receivables.

Telkom’s headline earnings a share and basic earnings a share decreased 76.6% and 86.8% to 134.6c and 71c a share respectively.

During the year to March 31, 2023, Telkom’s free cash flow weakened to a negative R2.72-billion, owing to a 45% decrease in cash generated from operations before dividend paid and impacted by the R3.21-billion decline in profit before tax compared with the prior year. This was partially offset by a 17.6% decrease in cash paid for capital expenditure.

The company reported a non-cash impairment of R13-billion.

Meanwhile, group revenue increased marginally by 0.9% to R43.14-billion, driven by a decrease in fixed and information technology service revenue owing to the challenging operating environment and the decline in the legacy fixed business as customers migrated to modern technologies such as fibre and long-term evolution.

Further, while the 2023 financial year marked the final year of the three-year dividend suspension period, owing to the group's cash position and the current economic environment, the resumption of a dividend will be postponed for at least another year.

“While we are committed to returning cash to shareholders in the medium term, we consider it prudent to first strengthen our cash position as we navigate the Telkom cost transformation journey along with market and economic conditions,” he said, noting that the year was characterised by unprecedented levels of loadshedding, constrained consumer spending and dynamic competition against the backdrop of a sluggish economy with persistent inflationary pressures.

However, Taukobong is confident that the company can turn its fortunes around.

“We will continue to look at opportunities to create value for this organisation. While we did not meet certain of our financial framework criteria, the resulting revenue growth at 0.9% for the year was masked by pronounced declines in legacy revenue in 2023. As the impact of these declines decrease in 2024, 2025 and beyond, the returns on our historical and ongoing investments in new technologies will become more apparent,” he assured.

Further, along with the cost transformation journey, Telkom aims to improve its Ebitda margin to historical levels of around 25% in the medium term.

“While we rebase our cost base in 2024, all business units have also been tasked with driving top-line growth while simultaneously evolving their business models to drive the future sustainability of Telkom.”

“We expect Telkom Mobile to continue growing its customer base in line with the industry. Openserve will continue driving growth of next-generation products and services with a focus on monetising its network and exploring diversification opportunities. BCX's recent strategic acquisitions and partnerships to bolster its skill capabilities will enhance its overall proposition, providing more value to clients,” he continued.

He concluded that Swiftnet will continue increasing tenancies on its existing portfolio, acquiring sites and constructing new towers in line with mobile network operator demand, actively enabling fifth-generation rollout in South Africa and bolstering its offering with power solutions to help customers maintain network availability.