Telkom points to a struggling corporate environment in South Africa

 ·9 Nov 2021

Telkom said it delivered strong earnings growth for the six months ended September 2021, despite a challenging trading and economic environment.

“Group profitability continued to grow ahead of revenue, underpinned by our sustainable cost management, which seeks to ensure that cost to serve is optimised and operating expenditure growth is contained below inflation,” said the outgoing chief executive officer, Sipho Maseko.

He said that the effective management transition is in place, with the appointment of the group CEO designate and the new CEO of Telkom Consumer. Maseko noted that as the mobile business continues to grow, Telkom onboarded a second national roaming partner – MTN South Africa – effective 1 November 2021.

Serame Taukobong will take over the role of Group CEO on 1 July 2022. His successor in Telkom Consumer, Lunga Siyo, was appointed CEO: Telkom Consumer.

Group revenue was flat at R21.3 billion, driven by the mobile business and the masts and towers business. Headline earnings per share for the period was up 30.4% to 285.5 cents, while basic earnings per share was up 27.3% to 276.8 cents, mainly due to a significant decline in finance charges and fair value movements compared to the prior period as well as the increase in group EBITDA.

The group declined a dividend declaration.

Mobile data revenue up 6.1% to R6.37 billion, supported by 10.3% growth in mobile broadband customers to 10.6 million, which represents 65.5% of the group’s active customer base. Telkom grew its mobile customer base by 18.8% to 16.3 million over the period.

The masts and towers business continued on its growth trajectory, with external revenue increasing by 4.6% as it commercialises its portfolio. The performance was offset by the IT business, which remains under pressure due to the challenging trading environment, and a decline in the fixed-line business as customers migrate to new technologies such as fibre and LTE.

Maseko noted that the Covid-19 pandemic and subsequent lockdowns continue to impact the local economy. “Customers remain under severe financial pressure due to loss of jobs and reduced income. Small and medium enterprises (SMEs) are also under strain, with some SMEs being liquidated as they were the hardest hit by the pandemic.

“The competitive environment has intensified with increased competitive activities in the first half of the year,” he said.

“We continued to invest in our key growth areas, fibre and mobile, with a capital investment increase of 22.7% to R3.61 billion representing a capex to revenue intensity of 17%. The network rollout in the prior period was impacted by the lockdown in the first quarter of the prior year,” he added.

With the highest fibre-to-the-home (FTTH) connectivity rate of 46.9% in the market, Maseko said that Telkom started accelerating its fibre rollout following a period of focusing on connectivity rate to improve returns. “Going forward, we will focus on expanding our FTTH footprint while simultaneously focusing on connecting premises to ensure that we maintain a high connectivity rate,” he said.

Maseko said that BCX was the hardest hit by the challenging environment, as it serves all the sectors of the economy. Revenue declined by 6.1% to R7.5 billion. “We continue to see sluggish investments by corporates as the country battles with the impact of the pandemic and the effects of restrictions on parts of the economy.

“The Information technology (IT) business remains under pressure due to the lingering impact of the lockdown and the global supply chain constraints and shortages of semiconductor chips.”

Telkom’s fibre business Openserve continued to stabilise with its topline revenue slightly down by 1.8% to R6.72 billion, supported by the fibre ecosystem, including fibre to the base stations and fibre to the business.

“From a fibre to the home (FTTH) perspective, the number of homes passed increased by 54.2% to 707,399,  and the number of homes connected with fibre increased by 34.3% to 331,735. The 331,735 number of homes connected with fibre surpassed the number of homes connected with copper of 230,817.”

Telkom said it is pursuing a separate listing of its masts and towers business (Swiftnet) on the JSE before the end of the financial year.

“Significant progress has been made, including, but not limited to, formal engagements with the JSE. Telkom believes that a separate listing of Swiftnet will affirm the valuation of the masts and towers business and its contribution to the overall valuation of the Telkom business.”

Looking ahead, Telkom said that as the growth in the mobile business normalises and the fixed-line business is starting to stabilise following periods of decline subsequent to execution of a migration strategy, management will focus on its IT business which has been under pressure.

“To this end, the board is investigating a strategic intervention in the business which could include but not limited to introducing a strategic partnership in the business. This is aimed at addressing capacity and capabilities in BCX and ensure sustainable growth going forward.”

Read: MTN in takeover approach for Telkom: report

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