Competition, operating costs and service discounts reduced profit in the six months to end-September 2007, Telkom's acting CEO Reuben September said today.

Despite the decline in profit, Telkom still reported a operating profit of R7.3 billion and operating revenue that grew 8.3 percent.

Operating profit declined 4.8 percent from R7.69 billion in the previous period to R7.3 billion in the six months to end-September.

Reuben September attributed the drop in the group's headline earnings to increased competition, price reductions as well as increased operational expenses incurred as Telkom races to establish Telkom Media as a competitor in the broadcast space.

Highlights of the Group financial key performance areas include:

- Group operating revenue up 8.3%.

- 4.8 percent decline in group operating profit.

- Group EBITDA margin decreased to 37.5%.

- 50.9% net debt increase and a net debt to equity ratio of 60.0%.

- Headline earnings decreased by 15.1%.

- Basic earnings decreased by 16.6%.

- Cash flows from operating activities decreased by 11.5%, cash flow utilised in investing activities increased by 71.3% and cash flows financing activities increased by 653.2% during the six months ended September 30, 2007.

The drop in profit for Telkom is the first decline since the company listed on the Johannesburg Stock Exchange in 2003.

Fortunately for Telkom, Vodacom, in which Telkom holds a substantial stake, turned in sterling results of the six months to end-September 2007 with a 17.2 percent increase in revenue.

ADSL

One area in which Telkom did see substantial growth was in the ADSL
provision market where subscribers grew by 76.2 percent to 335 112 since September 2006. ADSL Subscribers from March 31 to September 30 2007 grew by 31.1 percent.

"Telkom is currently on track to reach the target of 420,000 subscribers for the year ending March 31, 2008 and Telkom aims to achieve ADSL penetration of 15% - 20% of fixed access lines by 2010/2011," September said.