Though Telkom’s future hangs in the balance, the telecommunications company clearly doesn’t seem to mind shelling out millions to directors, despite falling profits.

Telkom’s annual report, filed with the US Securities & Exchange Commission this week, shows that even though its profits dropped 7,6% last year, it had no qualms about hiking its directors’ salaries nearly sixfold to R35,8m from R6,6m.

This comes at a heady time for the company: Mvelaphanda has made an offer to buy Telkom outright (provided it gets rid of its 50% stake in Vodacom) while UK operator Vodafone wants to buy part of Telkom’s Vodacom shares.

The annual report doesn’t say much about this development, except that it “does not intend to consider disposing of Telkom or any of its subsidiaries, joint ventures or assets without a compelling strategic rationale”.

But Telkom warns that if it does sell Vodacom, it may end up expending “significant resources and time exploring alternative mobile strategies that ultimately are not successful, which could cause growth rates, operating revenue, net profit and dividends to decline”.

Things are in flux, which could be why Telkom said it had lost a “significant” number of key staff to rivals such as Neotel in recent years.

Reuben September (pictured), who took over as CE in April last year, was paid R19m. This includes a R2,4m salary and R13,2m in “fringe benefits”.

This means September earned five times the R3,9m paid to his predecessor, Papi Molotsane, in 2007, and nearly three times the R6,6m paid to Sizwe Nxasana in 2006.

Molotsane, who was axed in April last year, scored by taking home a severance package of R12m.

Though Molotsane is prohibited from discussing his departure, it is widely understood he was fired for ignoring an instruction from government not to sign a deal to build a submarine telecom cable along Africa’s east coast.

This is believed to have enraged communications department director-general Lyndall Shope-Mafole, who had backed a rival project.

Besides the usual warnings of what could go wrong at Telkom, the annual report provides some unsettling news about the company’s financial position.

For one thing, it has negative working capital of R9,3bn, which means its current liabilities due to be paid within one year are greater than its current assets. Telkom says the danger of this is that if it isn’t able to generate enough cash or borrow money to fund itself, it may have to “defer capital expenditure and may not be able to pay dividends”.

The concern is that the level of negative working capital has climbed threefold in the past two years.

This is especially worrying because it has looming debts, such as US$130m (plus interest) that US firm Telcordia is claiming over a cancelled contract.

Telkom lost the court bid to have Telcordia’s claim quashed and all that is left now is for the amount to be decided.

Though Telkom has a $70m provision for this debt on its books, that amount is less than half of what Telcordia is claiming.
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