South African phone utility Telkom, which the government plans to list by March, lifted annual earnings 17 per cent to 1.915 billion rand ($187 million) on Monday but said it expects challenging markets through 2003.
The rise was driven by strong cellphone growth, a reduction in the effective tax rate to 28.6 per cent from 30.3 per cent and stable finance costs of three billion rand, Chief Executive Sizwe Nxasana said.
"We will continue to focus on improving capex efficiency. And we continue to reduce the level of long-term debt, which will bode well for finance costs," he told a conference call, adding Telkom's ratio of capital spending to sales fell to 27 per cent in the 2002 financial year from 31 per cent in 2001.
The results for the year to March 31, 2002 are the last before the fixed and mobile phone group's planned listing, which is expected to be the government's biggest privatisation so far.
The figures will form the basis of its initial public offering prospectus and will also be scrutinised by potential investors in a licence to offer rival fixed-line services to Telkom, due later this year.
Telkom said its fixed-line business scored efficiency gains in the year, with the number of lines per employee rising to 125 from 113. This brings it closer to its target of 150 to 200 lines, an international benchmark for developing markets.
The ratio was helped by a 10 per cent cut in fixed-line staff versus a one per cent drop in subscribers to 4.9 million.
Apart from its monopoly on fixed-line services, Telkom owns half of Africa's biggest mobile operator Vodacom. Vodacom and small wireless data transmission firm Swiftnet account for a fifth of Telkom's group revenue.
Analysts said the results were in line with forecasts. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose six per cent to 10.49 billion rand, while Telkom's EBITDA margin was steady at 31 per cent as revenues increased eight per cent to almost 34 billion rand.
Wireless revenues rose 25 per cent, but wireline sales moved up only four per cent. Group operating cash flow grew 16 per cent to 11.3 billion rand.
At nine per cent, group operating expenses expanded faster than revenue. The higher costs were driven by rising bad debts, asset impairment losses and retrenchment costs.
Telkom has chopped more than a third of its staff from a peak of 62,000 in 1998, partly through outsourcing. Nxasana said he saw more room for cuts this year from 38,400 now.
Bad debts incurred by its fixed-line business shot up 44 per cent to 965 million rand as cash-strapped residential customers failed to pay Telkom's new higher tariffs.
The state-run utility said it would not pay a dividend to shareholders, instead focusing on cutting debt. In the year, its net interest-bearing debt was steady at 21.1 billion rand.
Its shareholders include SBC Communications of the United States and Telekom Malaysia, which jointly hold 30 per cent of Telkom.
Nxasana said Telkom would put a "very strong focus" on data business ahead. In 2002, data revenue rose 18 per cent to 3.7 billion rand, pushing up its part of total sales to 11 per cent.
Potential investors are keeping a close eye on data income, as a second network operator, due to be licensed late this year, is expected to focus mainly on the lucrative corporate sector.
"We continue to see a strong migration of our post-paid subscriber base to our prepaid, ISDN and mobile offerings," Telkom said, adding the number of subscribers paying for their services up front had risen 47 per cent to nearly 708,000.
Clients taking the ISDN service, which allows faster Internet connections, grew 25 per cent to nearly 468,000.
Telkom said it expected around 7.5 billion rand in capital spending for the 2003 financial year, down from the nine billion rand it spent during the 2002 year.