BCX is still up for sale with no investors in sight, to the frustration of market players. Telkom continues its search for a global joint-venture partner with the financial and technological muscle to help plug the holes at the IT service unit that has been losing money for a few years now.
Having been bought out by the partially state-owned operator in 2014, BCX has struggled to produce consistent profits. Its pretax earnings have been declining, largely because of falling revenue, as it went through various phases of restructuring its operations.
With BCX — a big earner for the group at about a third of revenue — extending its losses for the full-year to the end-March, Telkom has been looking for a partner to help scale the business and take on bigger competitors.
“What we’re looking is strategic partners who can help us to build scale and capability,” Telkom’s new CEO, Serame Taukobong, told Business Day TV.
“I can make an example of cyber security: BCX has won a few clients in cybersecurity. As we know, it’s a relatively immature market. We’re seeking a partner that can give us that depth and scale to be able to drive those opportunities and new verticals that are being developed, and more importantly to take us beyond the borders of SA.”
The search for an investor for the IT company — headed by Jonas Bogoshi, a former Gijima and Cisco executive — is part of a wider strategic push by the fixed-line operator to release billions of rand trapped in its sprawling structure, which includes properties, masts and towers, BCX and internet fibre operator Openserve.
Telkom hopes outside investment will help to stem losses and stabilise BCX’s business, but progress in finding such a benefactor appears to be much slower than market players had anticipated. A lack of solid plans or announcements for BCX, as well as masts and towers unit Swiftnet and Openserve, as the group reported its full-year earnings appears to have been a concern for the market.
Absa Asset Management analyst Roy Mutooni said “no discussion on corporate action was disappointing”.
During an investor presentation on Tuesday, one analyst asked for clear timelines on the value unlock, saying “the strategic thinking has been going for a number of years, yet we haven’t seen any actions”.
In response, Taukobong said Telkom intends “by the end of this financial year, to make one or two significant announcements in this regard”.
Another analyst asked about how much of BCX the group is willing to give up to an outside investor, to which the company said “we’ve not decided on what level of investment we’re looking at there”.
For now, Taukobong appears to not have departed from plans set by outgoing Telkom boss Sipho Maseko, who initiated the break-up in 2020, saying the bulk of the group’s assets were not reflected in the market capitalisation of R18bn, believing that the sum of its parts could be worth as much as R53bn.
Maseko previously told Business Day that the group was looking to partner with an international firm as opposed to a local tie-up. As with their previous mobile venture, where Telkom and the UK’s Vodafone each owned half of Vodacom, the fixed-line operator is looking for a similar arrangement for BCX.
Having such a backer has proven to be beneficial for the likes of Dimension Data, which is owned by Japan telecom group NTT.
BCX revenue declined 2.6% to R15.3bn, making up 35.7% of group takings for the period. It said performance was mainly affected by the IT segment, which faced supply chain pressure while the converged communications unit stabilisation “is gaining momentum.”
At the half-year, Telkom had reported that BCX’s revenue declined 7.9% to R3.87bn, mainly attributable to delayed projects due to a slower-than-expected economic recovery, backlogs resulting from global supply chain constraints, a global semiconductor chip shortage and the fallout from civil unrest in July 2021.
According to Telkom “the improvements in performance seen in the last quarter across the business signal a more positive outlook for the next financial year”.
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