November 10, 2017 / 11:28 AM / 2 years ago

UPDATE 3-Profits fall at S.Africa's Telkom on lower customer spending

* H1 headline EPS down 7.4 percent

* Dividend down 9.9 pct

* Operating revenue forecast cut

* Share price hit

* (Adds cut in revenue forecast, updates share price)

By Nqobile Dludla

JOHANNESBURG, Nov 10 (Reuters) - Telkom SA, South Africa’s biggest landline provider, reported a drop in half-year profits and cut its dividend on Friday, as a result of reduced spending by corporate and government customers, sending its share price sharply lower.

Telkom, in which the government holds a direct stake of nearly 40 percent, is grappling with an economy that is barely growing amidst political uncertainty and sovereign credit rating downgrades.

This has hit spending by corporate clients, said the company, which also cut its revenue forecast for the full year.

Headline earnings per share, the primary measure of profit in South Africa, fell 7.4 percent to 303.9 cents in the six months ended September. The company cut the dividend payout by 9.9 percent to 118.1 cents per share.

The firm also cut its operating revenue forecast for the full year, saying it no longer expected any growth, having previously predicted a mid-single-digit percentage increase.

Operating revenue in the first half declined 0.6 percent to 20.1 billion rand ($1.4 billion). Operating revenue in the year ended March 31, 2017 was 40.97 billion rand.

“Based on the current economic climate and the impact of several price reductions in the wholesale environment, it will be challenging to meet the mid-single-digit revenue growth by year-end,” said Chief Executive Sipho Maseko.

“Management will seek to keep operating revenue flat and continue to exercise discipline on costs.”

Shares in Telkom, which also runs a small wireless business, were down 5.73 percent at 50.86 rand at 1428 GMT, having hit a low of 48.56 rand earlier in the session and putting it on course for the biggest one-day decline since June last year.

The slide in the share price, which touched its lowest level since November 2014, could complicate the National Treasury’s plan to raise money from the sale of a portion of its $1.2 billion stake in Telkom to fund a bailout for state-owned airline SAA Ltd.

The Treasury needs about $700 million to inject into the national airline whose reliance on the government purse to keep it solvent has been repeatedly cited by major credit agencies as a threat to South Africa’s sovereign credit rating status.

“There’s still plenty of buyers, there will probably even be more buyers around now but the government will get less money for its portion of the stake,” said Wayne McCurrie, a portfolio manager at Ashburton Investments.

Telkom has been trying to reduce its dependence on fixed voice services, where revenue fell 6.1 percent, by building its own mobile phone business and buying an IT infrastructure firm BCX to improve its offering to corporate clients.

“The first half of the year was characterised by a tough economic environment and increased competition,” Maseko said.

“We saw corporate businesses defer their spend on information, communication and technology (ICT) as a result of an uncertain political, economic and policy environment,” Maseko said, adding that lower spend from government placed a further dampener on ICT spend in the public sector. ($1 = 14.3984 rand) (Editing by Gopakumar Warrier, Greg Mahlich)

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