Nicola Mawson
Telkom’s share price surged 5.5% to R30.42 yesterday after it reported market-beating results for the six months ended 30 September, driven by gains in mobile and fibre revenue while containing costs, leading to adjusted headline earnings per share from continuing operations gaining 68% 146.9 cents per share.
Mobile subscribers gained 24.6% to 22.7 million, the bulk of which were pre-paid, Telkom’s results booklet showed. This led to a 10% increase in revenue from this unit to R10 billion, at an earnings before interest, tax, depreciation, and amortisation (EBITDA) margin of 30.4%.
Its fibre business increased revenue 15.5%, with 1.3 million homes now passed, an increase of 11.4%. About 640 730 homes are now connected to fibre, an 18.1% increase, with these households consuming 1 389 Petabytes of data each month – with a Petabyte equal to 1 024 Terabytes.
Group CEO Serame Taukobong yesterday said that “our continued investment in our extensive fibre network and mobile infrastructure is now delivering the competitive advantage we anticipated, propelling our data-led strategy to ensure future-readiness”.
However, BCX saw revenue decline 4.2% to R6.1bn, while its EBITDA margin dropped 24.6%. Telkom said it aimed to grow IT services revenue and improve margins. It also noted it had contained costs and right-sized the business, with 400 people leaving the entity.
The JSE-listed telecommunications company reported revenue from continuing operations up 1.9% to R21.3bn. Adjusted financial measures exclude the impact of the R160 million restructuring cost, and the Telkom Retirement Fund derecognition loss of R618m.
At the half-year, Telkom had strengthened its balance sheet, with free cash flow turning positive at R768m, compared to negative R478m in the previous period. Interest-bearing debt reduced by R885m.
“Our improved cash generation and strengthened balance sheet position us well to continue investing for future growth while maintaining financial discipline,” said Nonkululeko Dlamini, group chief financial officer.
Telkom invested R2.5bn, with a capital intensity ratio of 11.9%, which Dlamini said remains efficient and in line with its forecast of 12-15%.
The company is in the process of selling Swiftnet, a deal that is awaiting approval from the Independent Communications Authority of South Africa to transfer the licence, with antitrust conditions having been fulfilled.
However, Telkom has suspended plans to sell part of its fibre business as the fixed broadband service helped drive the company’s half-year income.
The group said towards the end of March that it had agreed this sell its towers and mast business to global private equity investor Actis and Royal Bafokeng Holdings for R6.75bn.
Telkom also earned R204m from property sales, with another 39 properties worth some R731m going through the transfer process.
Peter Takaendesa, head of equities at Mergence Investment Managers, said “Telkom’s interim results were stronger than market expectations, largely driven by market share gains in the mobile business and cost optimisation across the group”. Costs declined 1.7%.
Takaendesa added that service revenue growth from the mobile business was well ahead of Vodacom and MTN, which most recently grew at low single digits.
“While the structural decline in the fixed line voice business is continuing, this is now a much smaller contributor to Telkom as the mobile and fibre businesses now contribute the majority of group revenues,” he said.
Yet, “there is still a lot of noise in the reported group headline numbers due to restructuring costs in BCX, exiting the legacy Telkom Retirement Fund structure and the finalisation of the disposal of the towers business,” Takaendesa noted.
He also said that Telkom must remain disciplined with its capital allocation and focus on accelerating profitable growth in mobile and fibre.
“The balance sheet should be in a much stronger position post the disposal of the towers business and if this improved operational performance is sustained over the coming years, we expect Telkom to sustainably return more cash to shareholders,” he added.
BUSINESS REPORT