Telkom’s earnings fall despite strong mobile customer growth

Telkom said it delivered a solid revenue performance in the six months ended September 2019, with revenue increasing 4.7% to R21.5 billion despite the challenging operating environment.

The telco said that its mobile business was behind the solid interim revenue growth.

Key salient features:

  • Group operating revenue up 4.7% to R21.5 billion
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) up 12.4% to R5.6 billion
  • Headline earnings per share (HEPS) down 34.6% to 187.7 cent
  • Capital expenditure up 29.1% to R4.2 billion
  • Interim ordinary share dividend of 73.17 cents
  • Net debt to EBITDA ratio increased to 1.4 times

“Profitability was affected by deep investments in future growth, particularly in the mobile business – which is building critical mass and continues to gain market share as consumers search for value,” said Telkom Group chief executive Sipho Maseko.

“With consumers under immense pressure as the economy struggles to gain traction, this was an important period for the group. We have made progress on our strategy and laid the foundation for growth, particularly as the economy starts to turn, and if government licences spectrum in a way that stimulates competition,” Maseko said.

Mobile service revenue was the main driver of revenue growth, increasing 56.6% to R5.6 billion as subscriber numbers surged 75.5% to 11.5 million.

“Our mobile business remains the fastest growing business in the country, with market-share gains underpinned by the company’s affordable broadband-led propositions,” the chief executive said.

Group profitability was affected by capital investments, higher hedging costs, higher finance charges and fair value movements linked to foreign exchange adjustments.

Capital investments totalled R4.3 billion in the period – representing 19.7% of revenue.

More than half of the capital invested was in the mobile business, where capital expenditure rose 66% to R2.2 billion to support that division’s growth. The group also invested in accelerating the migration of customers to LTE and fibre, it said.

“Ongoing investments in new revenue streams continue to drive the overall growth of the group, although our deliberate strategy to accelerate the migration to new technologies has affected profitability in the short term,” Maseko said.

The strategy to migrate customers to next-generation technologies contributed to a 19.1% decline in fixed voice and interconnection revenues across the group.

Despite this, Openserve’s and BCX’s overall revenue declines in these businesses were contained at 8.5% and 3.3% percent respectively, thanks to growth in new revenue streams, Telkom said.

In the period, Telkom said its mobile business increased coverage by growing its portfolio of mobile base stations by 24.9% to 5,476, and by implementing the new roaming agreement to supplement the business’ own network.

At the same time, over 300,000 customers have been migrated from copper-based services to fibre and LTE over the past 18 months.

“Meanwhile, the group’s strategy to separate the real estate property portfolio to increase management focus is yielding good results. The Gyro business contributed positively to the group through an 11.8% increase in masts and towers revenue,” Telkom said.

“The operating environment remains challenging, but the imminent licensing of new spectrum, coupled with macroeconomic reforms and the investments we continue to make in our own business, means we are optimistic about the years ahead,” said Maseko.

“We have shown our commitment to South Africa by investing into the economy at a time when the country needs it most. We are confident that these investments will pay off.”

Read: Telkom shares slump on earnings warning

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Telkom’s earnings fall despite strong mobile customer growth