South Africa's Telkom in talks over future of mobile unit

By Helen Nyambura-Mwaura

PRETORIA (Reuters) - South African fixed-line operator Telkom SA is in talks with some parties over the future of its struggling mobile business, its chief executive said on Monday after posting a jump in first-half earnings.

The company, which also said it had loaned its chief financial officer money to buy its shares, which may have been illegal, has struggled to grow its mobile operation, lagging the leader Vodacom, and rivals MTN and Cell C.

"We are in conversation with some parties around some possible options," Chief Executive Sipho Maseko told a briefing. He did not give details but said the talks would likely result in less capital expenditure and operational spending on the business.

Telkom's mobile division had nearly 1.6 million active mobile subscribers, a 7 percent increase from last year.

Maseko, Telkom's sixth CEO since 2005, is pushing for cost reductions, which include asking suppliers for discounts, reducing the company's vehicle fleet and cutting jobs.

The company, controlled by the government and a state-owned pension fund, has already let go 9 percent of its workers and could do with less managerial positions, Maseko said, although he declined to say how many more people would lose jobs.

It reported diluted headline earnings of 649.8 cents a share for the six months to September 30, from a restated 24.9 cents a year earlier. Headline EPS, the main measure of profit in South Africa, excludes certain one-off items.

The higher earnings were largely because of an accounting gain related to its liability for health insurance for retired employees, it said.

Excluding that gain, headline earnings per share increased to 224.2 cents, it said. It did not give an equivalent number for diluted headline earnings per share.

LOAN TO CFO

Telkom said on Monday it had loaned its suspended chief financial officer 6 million rand ($590,000) to buy its shares.

The operator suspended Jacques Schindehutte last month pending its disciplinary process over allegations against him. It has said that the suspension was related to personal misconduct, not insider trading.

Maseko declined to elaborate the cause for Schindehutte's suspension, who was asked to step aside after allegations of "gross misconduct".

Maseko said the interest-free loan and disciplinary process were unrelated, so Telkom could not prejudged Schindehutte against a loan that he was entitled to.

Schindehutte bought Telkom shares worth nearly 6 million rand on September 30, regulatory filings show.

Christina Pretorius, a director at law firm Norton Rose Fulbright in Johannesburg said the deal would be void if it had been carried out in contravention of the Companies Act.

Telkom shares have climbed more than 61 percent this year, making the company the best-performing telecom stock on the Johannesburg bourse. ($1 = 10.1690 South African rand)

(Editing by Louise Heavens)

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