Telkom lets its fingers do the walking
TELKOM may be about to jettison its stake in Trudon, the company that owns the iconic Yellow Pages phonebook, in a bid to get back to doing what it does best: fixed-line telephones.
At one stage, it seemed that every house and office in South Africa had a copy of Yellow Pages under the phone, but the internet has changed all that. While the Yellow Pages has increased its internet revenue 125%, it is now just one competitor in a business in which it once had a monopoly.
And yet Trudon is still making big cash from that clunky big phone book, which may cause Telkom to think twice about getting rid of it. Last year, Trudon’s 531-strong team produced revenue of R1.14-billion — 3.5% up on the previous year — and net profit of R350-million.
In an interview this week, Telkom chief operating officer Brian Armstrong said that Trudon was “not core business”, and was being reviewed. “We are looking at strate-
It’s important where there is value to protect it and extract as much as possible
gic options around it,” he said.
Telkom owns 64.9% of Trudon. The remaining 35.1% is held by the TruManco consortium.
“The point is that there is value in the business. It’s important where there is value to protect it and extract as much as possible,” said Armstrong.
Trudon, he said, was still making a profit. “It’s important that we protect that, even if it’s not a huge profit, and evolve it into new revenue-generation streams,” he said.
While Armstrong admitted that the Yellow Pages business was dead, he pointed out that “it doesn’t mean the company is dead”. If Trudon “can successfully evolve into a web-based model, which they are working hard to do, then there is still a lot of value in that business”.
While the Yellow Pages will perhaps be one of the most well-known casualties of Telkom’s bid to shed assets, it is a strategy that has paid off for Telkom CEO Sipho Maseko, who recently celebrated his first year at the telecoms company.
Since Maseko took over at the end of last March, Telkom’s share price has vaulted by a mammoth 140%, climbing from a lacklustre R15 to R33 today.
This trajectory was underscored this week when Telkom’s executives told the market they expected to report a rise in annual earnings of at least 20% when results are unveiled in June, another sign that Maseko is on the right path. The stock jumped 3.9% that day alone.
Along the way, Telkom has already sold unprofitable internet service providers iWayAfrica and Africa Online Mauritius, and identified other assets, such as Swiftnet, to be sold. It has also written down R12-billion of legacy assets.
The strategy has clearly struck a chord with investors, who are finally seeing a new sense of purpose at a company that appeared stuck between doing what was best for shareholders and what was best for government, its 38% shareholder.
Besides simply flogging noncore assets, Telkom is also in a process of nailing down a network-sharing deal with MTN — the country’s secondbiggest cellular operator. If this happens, Telkom will be able to expand its cellular coverage and reduce its operating costs for the cash-guzzling Telkom Mobile.
But closer scrutiny of Telkom’s numbers indicates that it is too early to pop the champagne just yet.
If you strip out a R2-billion gain, thanks to the unwinding of a postretirement medical aid liability as well as a R246-million tax benefit, it is clear that Telkom’s main business is still struggling.
At the results presentation in June, Maseko will be expected to outline his long-awaited turnaround strategy to address thornier issues Telkom has grappled with for years, including poor customer service and regulator issues such as local loop unbundling.
While going on diet and shedding the extra weight of things like the Yellow Pages will help, Maseko will need to convince investors that its core business is also in healthy enough shape.