Company made Sh10bn but gobbled up nearly twice as much in expenses

By JAINDI KISERO jkisero@ke.nationmedia.com, Sunday, June 2  2013 

According to Telkom Kenya’s latest audited accounts, the company made a loss of Sh7.9 billion last year, compared to Sh16 billion the previous year.

Its current liabilities exceed its current assets by Sh16.5 billion.

Telkom’s most basic problem is a flat top line: revenues remain way behind operational expenses.

Revenues from the voice business have plummeted from Sh5.8 billion in 2011 to Sh5.1 billion in 2012.

But data business has experienced growth from Sh2.2 billion in 2011 to Sh3.4 billion last year.

According to the audited accounts, the business generated Sh9.7 billion but gobbled up Sh14 billion in operational expenses.

It is also clear from the accounts that the company has not been too well with regard to debt management. The audited accounts reveal that a very big proportion of its debts are over 90 days- projecting a bleak picture in terms of credit risk.

Borrowing has also been expensive. According to the accounts, the weighted average effective interest rate on the overdraft in the year 2012 was 21.72 compared to 13.5 in 2011.

The audited accounts also reveal significant transactions with related parties. The company is doing booming business with related parties, most of them subsidiaries of France Telecom.

For instance, the audited accounts reveal that last year, Telkom Kenya owed Sh28.6 billion to an entity by the name Atlas Services Belgium. Formerly known as Atlas Telecommunications and based in Brussels, the company is a wholly owned subsidiary of France Telecom.

Its principal business is to finance France Telecom’s subsidiaries.

In 2012, other subsidiaries of France Telecom which had significant and sizeable transactions with Telkom Kenya include Sofrecom Ltd, Orange East Africa and France Cable et Radio.

The audited accounts also reveal that even with the dire state of finances, management and directors fees are on an upward trend.

The company is run under a management agreement by France Telecom which is based on fees calculated from revenues.

Indeed, Telkom Kenya’s management is firmly in the hands of the French investor.

Out of 11 top executive positions, seven are expatriates occupying critical roles including CEO, deputy CEO, chief finance officer, chief technical information officer, chief marketing and strategy officer, chief carrier officer and chief business market officer.

The strong grip the foreign partner has on the affairs of the company is further assured by the volume of third party transactions it conducts with foreign-based subsidiaries of France Telecom.