Telkom in talks over future of mobile unit

Pretoria - Fixed-line operator Telkom SA Soc [JSE:TKG] is in talks with some parties over the future of its struggling mobile business, its chief executive said on Monday after the firm posted a jump in first-half earnings.

Telkom, which also said it had loaned its chief financial officer money to buy its shares, which may have been illegal, has struggled to grow its mobile operation, lagging the leader Vodacom and rivals MTN and Cell C.

"We are in conversation with some parties around some possible options," CEO Sipho Maseko told a briefing. He did not give details but said the talks would likely result in less capital expenditure and operational spending on the business.

Telkom's mobile division had nearly 1.6 million active mobile subscribers, a 7% increase from last year.

Maseko, Telkom's sixth CEO since 2005, is pushing for cost reductions, which include asking suppliers for discounts, reducing the company's vehicle fleet and cutting jobs.

The company, controlled by the government and a state-owned pension fund, has already let go 9% of its workers and could do with fewer managerial positions, Maseko said, although he declined to say how many more people would lose jobs.

It reported diluted headline earnings of 649.8 cents a share for the six months to September 30, from a restated 24.9c a year earlier.

The higher earnings were largely because of an accounting gain related to its liability for health insurance for retired employees, it said.

Excluding that gain, headline earnings per share increased to 224.2c, it said. It did not give an equivalent number for diluted headline earnings per share.

Loan to CFO

Telkom said on Monday it had loaned its suspended chief financial officer R6m to buy its shares.

The operator suspended Jacques Schindehütte last month pending its disciplinary process over allegations against him. It has said that the suspension was related to personal misconduct, not insider trading.

Maseko declined to elaborate the cause for Schindehütte's suspension, who was asked to step aside after allegations of "gross misconduct".

Maseko said the interest-free loan and disciplinary process were unrelated, so Telkom could not prejudged Schindehütte against a loan that he was entitled to.

Schindehütte bought Telkom shares worth nearly R6m on September 30, regulatory filings show.

Christina Pretorius, a director at law firm Norton Rose Fulbright in Johannesburg, said the deal would be void if it had been carried out in contravention of the Companies Act.

Telkom shares have climbed more than 61% this year, making the company the best-performing telecom stock on the Johannesburg bourse.




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